Income Tax Appellate Tribunal - Mumbai
Crompton Greaves Ltd, Mumbai vs Department Of Income Tax on 28 March, 2012
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S.No. I.T.A.No. A.Y Appellant Respondent
1 2652-M-07 2002-03 Crompton Greaves Ltd., DY. CIT,
C.G.House, Dr.Annie Cir. 6(2)
besant Rd., 6th Floor, Mumbai.
Mumbai 400 030.
PAN: AAACC 3840 K
2 5472-M-07 2004-05 Crompton Greaves Ltd., ITO 6(2)(2),
Mumbai. Mumbai.
3 3353-M-08 2005-06 Crompton Greaves Ltd., ITO 6(2)(2),
Mumbai. Mumbai
4 6557-M-10 2006-07 Crompton Greaves Ltd., Addl. CIT 6(2)
Mumbai. Mumbai.
5 6466-M-11 2007-08 Crompton Greaves Ltd., DY. CIT,
Mumbai. Cir. 6(2)
Mumbai
6 5873-M-11 2007-08 Crompton Greaves Ltd., DY. CIT,
Mumbai. Cir. 6(2)
Mumbai
N
A
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S.No. I.T.A.No. A.Y Appellant Respondent
1 2742-M-07 2002-03 Addl. CIT 6(2) Crompton Greaves Ltd.,
Mumbai. Mumbai.
2 5754-M-07 2004-05 Asst. CIT 6(2), Crompton Greaves Ltd.,
Mumbai. Mumbai.
3 4093-M-08 2005-06 Dy.CIT 6(2), Crompton Greaves Ltd.,
Mumbai. Mumbai.
4 6690-M-10 2006-07 ACIT 6(2), Crompton Greaves Ltd.,
Mumbai. Mumbai.
Assessee by : Shri Pradip Kapasi.
Revenue by : Smt. Kusum Ingale, CIT DR
Date of Hearing: 28-03-2012.
Date of Pronouncement:
ORDER
P e rB n h c :
These are cross appeals by the assessee as well as Revenue and some of the issues raised are common. Therefore, the same are being disposed of by this common order.
2 CROMPTON GREAVES lTD.
2. I.T.A.No.2652/M/07: The first issue raised in A.Y 2002-03 is regarding confirmation of disallowance u/s.14A involving two aspects, viz., [1] addition u/s.115JB of the amount disallowed u/s.14A and [2] not allowing deduction u/s.80HHC while computing profits u/s.115JB. The Ld. Counsel of the assessee pointed out that since the disallowance u/s.14A itself has been set aside by the Tribunal in assessee's own case in I.T.A.No.4672/Mum/2003 & Ors. in the earlier years, therefore, the issue regarding disallowance of the same u/s.115JB needs also to go back to the file of the AO. On the other hand, Ld. DR had no serious objection if the issue is restored back.
3. After considering the rival submissions, we find that the issue regarding disallowance u/s.14A was restored by the Tribunal in earlier years in I.T.A.No.4672/Mum/2003 & Ors. vide para-3. Since disallowance u/s.14A itself is gone back to the AO which we have done while adjudicating the revenue's and assessee's appeal, therefore, the issue regarding adjustment of amounts under book profits would depend upon final determination of the disallowance. Accordingly, we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO to consider the issue regarding the disallowance of the amount u/s.14A while computing the book profits u/s.155JB afresh.
4. The second aspect of the issue is that the AO had not allowed deduction u/s.80HHC while computing the book profits u/s.155JB because the deduction itself was not allowed as there were brought forward losses. The Ld. Counsel of the assessee submitted that the Hon'ble Supreme Court in the case of Ajanta Pharma Ltd. vs. CIT [327 3 CROMPTON GREAVES lTD.
ITR 305] has clearly held that since sec.115JB itself is self contained code, therefore, deduction has to be computed as per MAT provision.
5. On the other hand, Ld. DR submitted that no deduction is possible once there were brought forward losses u/s.80HHC in view of the decision of the Hon'ble Supreme Court in the case of Ipca Laboratories Ltd. vs. CIT [266 ITR 521] and Synco Inds. Ltd. vs. Assessing Officer & Anr. [299 ITR 444]. Therefore, accordingly no deduction is possible while computing the book profits u/s.115JB. She further submitted that in the case of Ajanta Pharma Ltd. vs. CIT [supra] the apex court was concerned with the conditions contained in sec.80HHC(1B) which is a sunset clause. By this clause the parliament has phased out the deduction u/s.80HHC. However, the issue before us is regarding the allowability of deduction.
6. We have considered the rival submissions carefully and find that AO has not allowed deduction u/s.80HHC while computing the book profits u/s.115JB without any discussion. Therefore, in our opinion, this matter has to be examined afresh and accordingly we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO for reconsideration of the issue with a speaking order after providing adequate opportunity to the assessee in the light of the decisions relied on by both the parties.
7. Through ground No.2 assessee has raised the issue regarding confirmation of disallowance of capital loss under the head capital gains amounting to Rs.34,52,77,992/-. After hearing both the parties we find that during the assessment proceedings AO noticed that 4 CROMPTON GREAVES lTD.
assessee has written off advances given to Bharat Star Industries Ltd. (for short BSI Ltd.) and JCT Ltd. amounting to Rs.34,52,77,992/- as per the following details:
Name of No. Sale Actual Book Year Index Index IT Capital company Of Value cost Profit/ Of Factor Cost Gain/ Shares Loss Purchase loss sold Advance 6000000 178731508 [172731508] 1997-98 172731508 w/off of BSI Ltd.
Advance w/off of 172546484 [172546484] 1996-97 172546484 JCT Ltd.
6000000 351277992 345277992 351277992 A note in this respect was also filed which reads as under:
The claim for long term capital loss is on account of transfer of capital asset being the deposit with BSIL of Rs. 178731508 and JCT Ltd. of Rs.172546484 in accordance with the scheme of arrangement sanctioned by the High Court of Gujarat & Punjab & Haryana respectively as per the Companies Act, 1956. The said loss under the head Capital Gains being separately treated and not absorbed against against-the income under any other head for the year as per the provisions of section 71 of the Income Tax act 1961, the same may be permitted to be carry forward to the next year for set off."
The AO considered the submissions of the assessee and observed that for allowing a capital loss there has to be a capital asset and the same must be transferred. After reproducing the definition of the capital asset and transfer as given in sec.2[14] and sec.2[47] of the Act respectively, AO observed that advances given to BSI Ltd. and JCT Ltd.
were not capital assets and further there was no transfer of the asset because there was no sale, exchange, relinquishment or extinguishment or compulsory acquisition. Accordingly, the claim of the assessee for capital loss was rejected.
5 CROMPTON GREAVES lTD.
8. On appeal, the submissions made before the AO were reiterated. It was further submitted that there was no possibility of recovery of the loans and hence same were written off. It was further pointed out that the sum of Rs.34,52,77,992/- further consisted of interest amounting to Rs.7,25,46,484/- from JCT Ltd. and Rs.5,87,31,507/- from BSI Ltd. Since interest has already been offered for tax on accrual basis, therefore, atleast these amounts should be allowed. The ld. CIT(A) after examining the submissions observed that the loans amounting to Rs.17,27,31,508/- and Rs.17,25,46,484/- were given to BSI Ltd. and JCT Ltd. respectively, which are sister concerns of the assessee as per the records. No business need of advancing these amounts to the sister concerns was substantiated. Further, no details in respect of reasons which prompted the company to give such advances were produced before him so as to evidence that the same were given in the course of business. He observed that the loss has been rightly denied because such loans cannot be construed as capital asset u/s.2[14] and in any case the write off of such loans does not amount to transfer u/s.2[47]. However, he further observed that as far as interest portion of these loans was concerned, same had already been offered for taxation in earlier year and now the same has not been received. Therefore, loss on account of interest was allowable and accordingly he directed the AO to allow only the interest portion of these loans.
9. Before us, Ld. Counsel of the assessee submitted that Inter Corporate Deposit [for short ICD] of Rs.10 crores was given to JCT Ltd.
6 CROMPTON GREAVES lTD.
in the year 1996-97 and further amount of interest of Rs.7.25 crores was due on account of interest. M/s. JCT Ltd. failed to pay the said amount of ICD and JCT Ltd. went under reconstruction and the Hon'ble Punjab & Haryana High Court allowed the transfer of business of the company to Apollo Fibers Ltd. The court further extinguished the rights of the assessee to receive and realise this amount of Rs.17.25 crores. Similarly, in case of BSI Ltd. an ICD of Rs.12 crores was given in 1997- 98 on which interest accrued was Rs.5.08 crores. That company also failed to pay the amount and went under reconstruction and the business was transferred to M/s English Clay India Ltd. through order of Hon'ble Gujarat High Court dated 8-2-2002. In this case also right to recover the amount was extinguished by the court. Further M/s English Clay India Ltd. had given in exchange 1,20,000 shares of Rs.10/- each at a premium of Rs.40 aggregating to Rs.60,00,000/-. Therefore, in both the cases ICDs were a capital asset in the hands of the assessee. he contended that the definition of the term 'capital asset' u/s.2[14] was of wide import and would include such ICDs also in the ambit of the capital asset. He relied on the following decisions for this proposition:
a) Hindustan Welfare Trust [111 CTR 284] (Kolk.) where fixed deposits in the bank were held to be capital asset.
b) Indian Aluminium Cables Ltd. vs. DCIT [73 ITD 109] where security deposit was held to be capital asset.
c) CIT vs. Minor Bababhai alias Lavkumar Kantilal [128 ITR 199] where promisory note was held to be capital asset.
d) Mrs. Perviz Wang Chuk Basi vs. JCIT [102 ITD 123] where redemption of bonds were held to be capital asset.
7 CROMPTON GREAVES lTD.
e) In DCIT vs. Thirumbadi Rubber Co. Ltd. [83 ITD 420] where even loan to a debtor was held to be a capital asset.
f) Even through Board's Circular No.883 dated 24-9-1975 and Circular No.02 dated 15-5-2002 Deep Discount Bonds and Deposits were directed to be treated as capital asset.
10. The Ld. Counsel of the assessee further contended that in case of BSI Ltd. transfer took place by way of exchange of ICD for the shares of M/s English Clay India Ltd., therefore they were directly covered by cl.[i] of sec.2[47] and that too under the order of the court. An exchange has been held to be transfer in the case of Rasiklal Maneklal HUF [177 ITR 198] since ICD of the company was exchanged for the shares therefore it is covered under the term "exchange" and needs to be construed as transfer. In case of JCT Ltd. rights of assessee in respect of ICD were abandoned under the court's order. Therefore, same has to be treated as transfer. He submitted that extinguishment of an asset would amount to transfer and in this regard he relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Grace Collis & Ors. [248 ITR 323]. He also relied on the decision in the case of CIT vs. G. Narsimhan (Decd) And Ors. [236 ITR 325] and Hon'ble Bombay High Court in the case of CIT vs. Vijay Flexible Containers [186 ITR 693], where giving up the right to obtain conveyance of an immovable property was held to be transfer. On a query by the Bench he admitted that the amounts were not advanced in the ordinary course of business and assessee is not claiming this write off as bad debts. However, he contended that alternatively the loss may be allowed as business loss u/s.28. He concluded his 8 CROMPTON GREAVES lTD.
arguments by submitting that extinguishment of ICD would amount to transfer of capital asset and accordingly capital loss was allowable.
11. On the other hand, Ld. DR while strongly supporting the orders of the AO and CIT(A) submitted that no evidence has been filed to show that it was an ICD and it seems to be a simple case of loan which was given to sister concerns and has been written off. Therefore, same cannot be treated as capital asset u/s.2[14]. In any case no transfer is involved because a debt is not an immovable property. The said loan is not covered by the provisions of Sale of Goods Act or Negotiable Instrument Act. In fact, the argument that it was an actionable claim and the same has been transferred is not correct because a mere "right to sue" cannot be transferred as per cl.[e] of sec.6 of Transfer of Property Act. As far as the argument that shares were exchanged in case of BSI Ltd. the same is only to the extent of Rs.60 lacs and rest of the loan has been simply waived. She referred to various case laws relied on by the Ld. Counsel of the assessee and submitted that the same are distinguishable on their own facts and as far as the decision in DCIT vs. Thirumbadi Rubber Co. Ltd. [supra] is concerned, in that case the writing off of loan was held to be not a case of transfer and not allowable.
12. We have considered the rival submissions carefully in the light of the material on record and the decisions cited by both the parties. Admittedly, loans were not given in the ordinary course of business and in fact no claim under the head 'bad debts' has been made. The claim of the assessee is that the loan was in the form of an ICD which 9 CROMPTON GREAVES lTD.
is a case of capital asset which has been transferred. First of all, there is no evidence to show that it is a case of an ICD because before the AO it was claimed that the loss was on account of writing off of advances given to BSI Ltd. and JCT Ltd. The details submitted are as under:
Name of No. Sale Actual Book Year Index Index IT Capital company Of Value cost Profit/ Of Factor Cost Gain/ Shares Loss Purchase loss sold Advance 6000000 178731508 [172731508] 1997-98 172731508 w/off of BSI Ltd.
Advance w/off of 172546484 [172546484] 1996-97 172546484 JCT Ltd.
6000000 351277992 345277992 351277992 From the above it is seen that it is clearly mentioned that the advances are written off. Therefore, there is no material to show that it was a case of ICD and in turn the loans could be construed as capital assets.
In the case of CIT vs. Minor Bababhai alias Lavkumar Kantilal [supra], the asset in question was a promissory note, which is totally different from a loan. In the case of Indian Aluminium Cables Ltd. vs. DCIT [supra], the issue was regarding forfeiture of security deposit which was given against the allotment of a plot by the Gujarat Development Industrial Corporation Ltd. The security got forfeited because assessee did not found any use for the plot. Such security was held to be capital asset on the reasoning that right to purchase property is also a capital asset on the basis of the decision of the Hon'ble Bombay High Court in the case of CIT vs. Tata Services Ltd. [122 ITR 594]. Therefore, this case is of no help to the assessee. In the case of Mrs. Perviz Wang
10 CROMPTON GREAVES lTD.
Chuk Basi vs. JCIT [supra] the issue was regarding redemption of capital investment bonds after maturity. Clearly such bonds will be totally different from loan given by the assessee. as far as the decision in DCIT vs. Thirumbadi Rubber Co. Ltd. [supra] is concerned, though Ld. Counsel of the assessee had relied on the same, but this decision is totally against the assessee on principle because ultimately it was held that simply because a debt is written off in the books of the assessee, it does not follow that assessee has no right to recover it and the concerned debtor had no liability to pay it. Mere write off of a debt in the books of accounts does not amount to transfer.
13. For arguments sake let us assume for a moment that the loans given by the assessee to BSI Ltd. and JCT Ltd. were in the form of ICDs and same were capital assets. Even then the second ingredient for invoking provisions of sec.45 is that there should be a transfer. The Ld. Counsel of the assessee has relied on the decision in the case of Rasiklal Maneklal HUF [supra] by arguing that in case of BSI Ltd. even shares have been issued against ICD amounting to Rs.60 lacs. In case of Rasiklal Maneklal HUF [supra] assessee was a shareholder of 90 shares in one S company of the face value of Rs.100. Pursuant to a scheme of amalgamation sanctioned by the High Court holders of shares of S company were to be allotted shares in NS company. One share of Rs.125 was to be issued against two shares of that company and S company was to be dissolved. The assessee was allotted 45 shares of S company which were later on sold. The ITO wanted to tax the same, but assessee objected to the same that cost of acquisition 11 CROMPTON GREAVES lTD.
cannot be determined. The issue was answered by the Hon'ble High Court in favour of the assessee. However, Hon'ble Supreme Court reversed the said decision and explained the meaning of 'exchange'. The apex court held that exchange involved transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be mutual transfer of ownership of one thing for the ownership of another and both the parties should continue to be in existence. However, in case before us writing off of the loan except for the sum of Rs.60 lacs has ceased to exist and it cannot be called a case of exchange. This factual aspect will be discussed little later. But on legal principle it is clear that this is not a case of exchange in case of ICD of JCT Ltd. The next case relied on is that of CIT vs. Grace Collis & Ors. [supra]. In that case it was held that extinguishment of any right in property would amount to transfer. There cannot be any quarrel with this proposition. But there is no extinguishment in case before us as ordered by the court. Here also the factual aspect will be deal with little later. The next case is CIT vs. G. Narsimhan (Decd) And Ors. [supra]. In that case the share capital of the company was reduced in terms of the reduction approved by the court. The assessee was a shareholder in the said company and received certain properties. His debit balances were also written off in exchange for reduction of share capital this case is distinguishable on facts itself that the value of the shares was reduced in exchange of property given to the assessee. In the case before us nothing has been given to the assessee in exchange of writing off of the loans. The case 12 CROMPTON GREAVES lTD.
of CIT vs. Vijay Flexible Containers [supra], is also distinguishable because in that case assessee entered into an agreement for purchase of an immovable property and earnest money was paid. Later on assessee filed a suit for specific performance. Ultimately a compromise was reached and the suit was decreed in terms of sanctioned terms and assessee accepted a sum of Rs.1,17,500/-. A question arose whether the receipt of Rs.1,17,500/- is taxable. The AO held the same to be taxable on account of transfer of right to receive the property through specific performance. Tribunal however took the view that this amount was not taxable as capital gains. The Hon'ble High Court reversed the decision and held that right to receive the property under Specific Performance Act is a capital asset which has been surrendered by receiving a consideration. Thus, right to receive the property got extinguishment against consideration and the same was held to be a transfer. The facts in the case before us are totally different.
14. Coming back to the facts it was mainly argued by the Ld. Counsel of the assessee that ICD which is a capital asset got extinguishment on the basis of the court's order. However, no reference was made to any particular document which showed that the court had made an order that assessee is required to forego the money deposited by it. A passing reference was made to page Nos.301 & 302. We have carefully perused the documents filed in the paper book and find that in both cases, i.e. BSI Ltd. as well as JCT Ltd., these companies had gone in for rearrangement/amalgamation on the basis of the scheme furnished by them before the Hon'ble High Courts. It is 13 CROMPTON GREAVES lTD.
pertinent to note that the court would pass an order u/s.391 to 394 of the Companies Act, 1956 on the basis of the scheme furnished by the petitioner after considering the objections from various parties including the creditor. In case of BSI Ltd. we note that only one party i.e. Paharapur Cooling Towers Ltd., had filed objection which is clear from the order of the Hon'ble Gujarat High Court, copy of which is placed at pages 276 to 280 of the paper book. Paras 5 & 6 of the said order read as under:
"5. Pursuant there to only one objection has been filed before this Court by Paharpur Cooling Towers Ltd. The said Paharpur Cooling Towers Ltd. stated that it is a creditor of the petitioner--Company for an amount of Rs.14,37,760/. It is further stated that the said creditor does not feel that the transfer of the respective undertaking as a going concern is going to benefit the unsecured creditors like them any better manner.
6. I have considered the objection raised by the said creditor and also heard Mr Hashit Dave, learned advocate appearing for the said creditor. It appears that the said creditor has executed and commissioned the cooling tower plant and certain amounts are alleged to have been due and payable by the petitioner o the said creditor. On a perusal a of the Scheme, it transpires that from the first and second appointed date, respective undertakings would be transferred to the first and second transferee companies of going concern and the liabilities to the extent specified in the Scheme shall be paid by the respective transferee companies Since the assets along with the liabilities are being transferred to the respective Transferee companies, as a going concern, 1 do not find that any prejudice would be caused to the objecting creditor. Further, in view of the fact that secured/unsecured creditors consisting of 98.03% of the secured/unsecured creditors extent in person or by proxy or any ballot and 99.27% of the amounts owing by these secured/unsecured creditors have voted in favour of the Scheme, I do not see any reason to entertain the objection raised by the creditor."
The above clearly shows that assessee never raised any objection and in any case through para-6 above all assets and liabilities were 14 CROMPTON GREAVES lTD.
transferred to the amalgamated company. Further, the respective shareholders of the BSI Ltd. which got amalgamated with M/s English Clay India Ltd. in their meeting had finalised the scheme, copy of which is available at pages 298 to 304 of the paper book. The issues regarding the liabilities and issue of shares by BSI Ltd. has been dealt with at paras 8, 9 & 10 which read as under:
8. With effect from the 2nd Appointed Date, all debts, duties, liabilities (Including contingent liabilities) and obligations of the Transferor Company pertaining to and/or arising out of the said Residuary Undertakings on the -2nd Appointed Date whether disclosed or undisclosed shall also become the debts, liabilities and obligations of the 2nd Transferee Company and except as stated In paragraph 9 below, the 2nd Transferee Company undertakes to meet, discharge and satisfy the same.
9. As on the 2nd Appointed Date, the Transferor company's liabilities include a sum of Rs 60.00,000 ( Rupees Sixty Lacs) due to a group company of Promoters-of the Transferor Company - -M/s Crormpton Greaves Limited (CGL), a Company incorporated under the Act having its Registered office at 6th Floor. C G House, Dr. Annie Besant Road, Prabhadevi, Mumbai 400 025, a deposit received from them, Pursuant to settlement reached with the transferor company has already written back a sum of Rs.1L40 Cr. in the previous year and upon the Scheme becoming effective, The 2nd Transferee Company wilt issue 1,20,000 equity shares- of Rs 10/- each fully paid up at a premium of Rs40/:-per share to CGL in full and final settlement of their liability taken-over by it.
10. All loans raised after the 2nd Appointed Date but before the Effective Date, and used and liabilities incurred by the Transferor Company after the 2nd Appointed Date but-before-the- Effective-Date for-operations -of the Residuary. Undertakings shall be discharged by the 2nd Transferee Company.
The above clearly sows that the whole liability was not adjusted against the issue of shares because it talks of only a sum of Rs.60 lacs which was due to Crompton Greaves Ltd., i.e. the assessee company which has been adjusted by issue of 1,20,000 shares of face value of Rs.10/- fully paid at a premium of Rs.40/-. It is clearly mentioned that 15 CROMPTON GREAVES lTD.
"pursuant to settlement reached with CGL the transferor company has already written back a sum of Rs.11.40 crores in the previous year."
Thus, it is clear that it was an internal arrangement between the sister concerns and not because of the order of the courts. At pages 304 to 305 of the paper book is a copy of the scheme where through paras 8, 9 & 10 the above position has been repeated. Same is the position in regard to the scheme of JCT Ltd. in the court's order, copy of which is available at pages 350 onwards, it is clearly stated vide paras 2 & 3 as under:
2. That the liabilities and duties of the JCT Limited pertaining to the business undertaking of Fiber Unit and specified in the Scheme of Arrangement be transferred to without further act or deed to the APPOLL0 FIBRES LIMITED and accordingly the .the same shall, pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and become the liabilities and duties of the APPOLL0 FIBRES LIMITED ; and
3. That the JCT LIMITED and APPOLL0 FIBRES LIMITED do within 30 days after the date of this order-cause_a certified copy of this order to be delivered to the Registrar or Companies for registration and on' such certified copy being so delivered the Registrar of Companies shall place all documents on record of the two Companies.
Thus, it is clear that liabilities of JCT Ltd. were transferred to Appollo Fibers Ltd. i.e. the amalgamated company and there is no order by the court to extinguish these liabilities. Therefore, at best it can be said that assessee company has simply waived its right to recover the money from its sister concerns which was given by it as loans or in the form of ICDs and waiver of such right cannot be treated as extinguishment. This means no transfer has taken place. In any case as pointed out by the Ld. DR, the issue is squarely covered against the assessee by the decision of Cochin Bench of the Tribunal in the case of 16 CROMPTON GREAVES lTD.
DCIT vs. Thirumbadi Rubber Co. Ltd. [supra] wherein the head-note reads as under:
Section 2(47) of the Income-tax Act, 1961 - Capital Gains - Transfer - Assessment year 1990-91 - allowable only when there is transfer of capital asset - Held, yes - Whether a mere write off of a debt in book assessee does not amount to a transfer - Held, yes Whether simply because a debt is written off in books, it does not follow that assessee has no right to recover it or that concerned debtor has no liability to pay it - Held, yes - Whether a mere write off of a debt in book assessee does not amount to a transfer - Held, yes"
In almost similar circumstances the Hon'ble Madras High Court in the case of CIT vs. R. Chidambarnatha Mudliar [240 ITR 552] was concerned with the case where assessee had made a deposit of Rs.20,000/- in a company which was wound up and assessee was unable to claim the amount. The same was claimed as capital loss and it was held as under:
Held, (i) that there was no transfer of capital assets as contemplated in section 2(47) of the Income-tax Act, 1961, and when there was no transfer, the loss could not be said to have arisen by the transfer of a capital asset within the meaning of section 45 of the Income-tax Act.
Same is the view taken by the Hon'ble Delhi High Court in the case of CIT vs. R.G.Scientific Enterprises Pvt. Ltd. [311 ITR 401]. In view of the above discussion, we are of the opinion, that the claim of the assessee regarding capital loss has been rightly rejected by the lower authorities because at best it is a case of loss of capital. Accordingly, we decide this ground against the assessee.
15. The third issue is regarding disallowance made by the AO in respect of interest expenditure and other expenses @ 2% u/s.14A because assessee has some exempt income in the form of dividends.
The ld. CIT(A) had given partial relief in respect of disallowance on
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account of interest expenditure u/s.14A and he has confirmed the disallowance on account of expenditure. The assessee has disputed the disallowance whereas the revenue has disputed the relief given by the first appellate authority.
16. Both the parties were heard.
17. After considering the rival submissions and following the earlier years order in I.T.A.No.4762/Mum/2003 & Ors. we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO for fresh examination particularly in the light of guidelines given by the Hon'ble Bombay High Court of in the case of Godrej & Boyce Mfg. Co.Ltd. vs. DCIT [328 ITR 81]
18. The next issue is regarding non inclusion of modvat credit in the closing stock. The Ld. Counsel of the assessee submitted that this issue is squarely covered by the decision of the Hon'ble Delhi High Court in the case of CIT vs. Mahavir Aluminium Ltd. [297 ITR 77]. This decision was later on followed by even the Hon'ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works Pvt. Ltd. [318 ITR 116]. In both these decisions it was clearly held that if the closing stock value was to be enhanced because of the modvat credit then opening stock value has also to be adjusted.
19. On the other hand, Ld. DR simply relied on the order of the AO and the CIT(A).
20. After considering the rival submissions, we find that the Hon'ble Delhi High Court in the case of CIT vs. Mahavir Aluminium Ltd. [supra] has clearly held that sec.145A starts with non obstante clause, 18 CROMPTON GREAVES lTD.
therefore, adjustment has to be made under the closing stock. But once there was adjustment in the closing stock then opening stock has also to be adjusted in the same manner to ascertain the correct profit and loss of the business. This position was admitted by the department before the Hon'ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works Pvt. Ltd. [supra]. Therefore, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with a direction that in the year where only closing stock has been enhanced the corresponding enhancement shall be made in the opening stock also. However, wherever the opening stock has already been adopted on the adjusted value of the closing stock of the previous year, then there is no need to enhance the opening stock. Needless to say that assessee should be provided adequate opportunity.
21. The next issue regarding confirmation of disallowance on account of loss on foreign exchange was not pressed before us and, therefore, same is dismissed as not pressed.
22. The next issue is regarding confirmation of the action of the AO in denying the deductions u/s.80G, u/s.80HHC, 80IA, 80IG and 80-O. These deductions have been denied by the AO because there were brought forward losses and unabsorbed depreciation and after setting off the same there would be no profit.
23. The Ld. Counsel of the assessee fairly conceded that this issue is squarely covered against the assessee by the decision of the Hon'ble Supreme Court in the case of Synco Indus. Ltd. vs. Assessing Officer & 19 CROMPTON GREAVES lTD.
Anr. [299 ITR 444]. On the other hand, Ld. DR simply supported the order of the AO.
24. After considering the rival submissions carefully, we find that the Hon'ble apex court has clearly held in various decisions that unabsored loss and depreciation have to be set off in view of the definition of total income in cl.(v) of sec.80B. All these decisions have culminated in Synco Indus. Ltd. vs. Assessing Officer & Anr. [supra]. Therefore, in view of this decision as well as the concession of Ld. Counsel we hold that various deductions claimed under various provisions of Chapter-VIA are not allowable in view of this decision. In some years assessee has raised a separate ground against confirmation of disallowance of deduction but that would also be covered by the aforesaid decision of Hon'ble Supreme Court in the case of Synco Indus. Ltd. vs. Assessing Officer & Anr. [supra] and also by another decision of Hon'ble Supreme Court in the case of Ipca Laboratories vs. DCIT [266 ITR 521]. Accordingly, we confirm the order of the ld. CIT(A).
25. The next issue is regarding levy of interest u/s.234B and 234D which is of consequential nature and accordingly AO is directed to charge interest as per law.
26. In the result, assessee's appeal in I.T.A.No.2652/M/97 for A.Y 2002-03 is partly allowed for statistical purposes.
27. I.T.A.No.2742/M/07 - A.Y 2002-03 [revenue's appeal]: The first issue raised by the Revenue is regarding relief given by the ld. CIT(A) on account of disallowances made by the AO u/s.14A. These issues 20 CROMPTON GREAVES lTD.
have been set aside by us while adjudicating the assessee's appeal in the above noted paras and accordingly, the issues raised by the revenue are also set aside to the file of the AO for statistical purposes.
28. The second issue raised by the Revenue is regarding disallowance on account of club expenses and it was pointed out that this issue is covered against the revenue by the decision of the Tribunal in I.T.A.No.4762/Mum/2003 & Ors. vide paras 15 & 58. Following that order, we uphold the impugned order and dismiss this ground of appeal.
29. The third ground is regarding deletion on account of bad debts. After hearing both the parties, we find that during the assessment proceedings AO noticed that assessee has written off debit balances of various parties and assessee was asked to give documentary evidence showing the nature of debts and efforts made for its recovery. It was mainly stated that after the amendment in law w.e.f. 1-04-1989 in sec.36[1][vii] it is no more necessary to prove that a debt has really become bad and it was sufficient if the debt was written off. However, AO did not agree with the submissions and discussed various case laws. He also noted that some of the debts written off belonged to the current year also. Accordingly, he rejected the claim of bad debts.
30. On appeal, ld. CIT(A) allowed the claim of the assessee on the basis of the decision of the Tribunal in the case of DCIT vs. Oman International Bank by holding that it was sufficient if the debt was written off.
21 CROMPTON GREAVES lTD.
31. Before us, Ld. DR submitted that though it may not be necessary that assessee should furnish the evidence that a debt has really become bad, but atleast some details should be available to show that assessee has exercised honest judgment in writing off such bad debts and in this regard she relied on the decision of the Hon'ble Bombay High Court in the case of DIT vs. Oman International Bank [313 ITR 128].
32. On the other hand, Ld. Counsel of the assessee submitted that the issue is squarely covered by the decision of the Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT [323 ITR 397].
33. We have considered the rival submissions carefully and agree that once a debt is written off same is allowable in view of the amendment in the Act and this position stands confirmed by the decision of the Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT [supra]. However, at the same time assessee can write off only a bad debt and every debt outstanding cannot be termed as bad. In this regard Hon'ble Bombay High Court has made the following observations in the case of DIT vs. Oman International Bank [supra]:
Let us refer to some dictionary meanings of the words "bad debt" . Chambers 20th Century Dictionary refers to bad debt as "A debt that cannot be recovered" . Mitra`s Legal and Commercial Dictionary refers to bad debt as " A debt becomes bad debt when the creditor has no reasonable chance of recovering it from the debtor as held in Deoniti Prasad v. CIT AIR 1953 Pat 360. The Law Lexicon refers to bad debt as " Debt which can- not reasonably be collected. A debt about which there is no reasonable expectation of recovery ; A debt believed to be unrecoverable." Reference may also be made to page 878 of the Law and Practice of Income Tax Law by Kanga, Palkhiwala and Vyas, 9th Edition, where the learned jurist opined as under :
" Under the amended clause, the requirement of ` establishing` that the debt has become bad in the relevant accounting year is dispensed 22 CROMPTON GREAVES lTD.
with ; all that the assessee has to show is that the bad debt has been written off as irrecoverable. But the subject-matter of the clause is still ` any bad debt` and ` not any debt` . The consequences of the amendment are mainly three :
(i) The assessee cannot arbitrarily, irrationally or mala fide treat a good debt as bad and write it off in his accounts.
(ii) Where the assessee has acted bona fide and reasonably, the Assessing Officer cannot substitute his own subjective judgment, but must accept the assessee` s decision, as to the quality of the debt.
(iii) The assessee is not obliged to write off and claim the debt in the very year in which it becomes bad. He can write it off and claim it in a subsequent year in which the debt continues to remain bad."
All this would indicate that when the assessee treats the debt as a bad debt in his books the decision which has to be a business or commercial decision and not whimsical or fanciful. The decision must be based on material that the debt is not recoverable. The decision must be bona fide. The difference between the position, pre- amendment and post-amend- ment would be that the burden is no longer on the assessee and can be claimed in the year it is written off in the books of account as irrecoverable. The Assessing Officer if he is to disallow the debt as a bad debt must arrive at a conclusion that the decision was not bona fide. The Assessing Officer only in those circumstances and to that extent may interfere. All that the assessee must do is to be prima facie satisfied based on the information available that the debt is bad and that would be sufficient requirement of the amended provisions.
(i) The assessee cannot arbitrarily, irrationally or mala fide treat a good debt as bad and write it off in his accounts.
(ii) Where the assessee has acted bona fide and reasonably, the Assessing Officer cannot substitute his own subjective judgment, but must accept the assessee` s decision, as to the quality of the debt.
(iii) The assessee is not obliged to write off and claim the debt in the very year in which it becomes bad. He can write it off and claim it in a subsequent year in which the debt continues to remain bad." All this would indicate that when the assessee treats the debt as a bad debt in his books the decision which has to be a business or commercial decision and not whimsical or fanciful. The decision must be based on material that the debt is not recoverable. The decision must be bona fide. The difference between the position, pre- amendment and post-amendment would be that the burden is no longer on the assessee and can be claimed in the year it is written off in the books of account as irrecoverable. The Assessing Officer if he is to disallow the debt as a bad debt must arrive at a conclusion that the decision was not bona fide. The Assessing Officer only in those circumstances and to that extent may interfere. All that the assessee must do is to be prima facie satisfied based on the information available that the debt is bad and that would be sufficient requirement of the amended provisions.
23 CROMPTON GREAVES lTD.
Thus, it is clear that AO has right to examine the details to determine whether an honest decision has been made for writing off such bad debt. Following this decision, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with a direction to re- examine the issue after providing adequate opportunity to the assessee. We may caution the AO that he should not insist on production of evidence to prove that the debt has really become bad. In the result, revenue's appeal in I.T.A.No.2742/M/07 for A.Y 2002-03 is partly allowed.
34. I.T.A.No.5472/M/07 - A.Y 04-05 - assessee's appeal: The first ground of appeal regarding deduction of Rs.71,31,94,953/- being the lower of unabsorbed depreciation or books loss from profits u/s.115JB was not pressed before us and, therefore, same is dismissed as not pressed.
35. The second ground of appeal is regarding assessment of income from business service center amounting to Rs.4,49,26,224/- as income from house property at Rs.5,12,49,102/-.
36. After hearing both the parties we find that during the assessment proceedings AO noticed that assessee has declared income amounting to Rs.6.85 crores being income from business service center under the head "profits and gains of business and profession". In response to a query it was explained that assessee was running a business service center from its C.G.House, Worli, Mumbai. The business consisted of providing exclusive facilities to customers to enable them to carry on their business by rendering certain essential 24 CROMPTON GREAVES lTD.
business services like, communication including telex, telephone, fax, supplies like generating sets, electricity, water, air conditioning, maintenance of service center and equipments, repairs and plumbing, and forwarding and dispatching and clearing services. The AO after examining these submissions, did not agree with the same by observing that assessee has let out its office premises which was lying with them and could not be used for its own business purposes. The services which assessee was claiming to have provided were nothing but regular maintenance and up keep of the premises. Even perusal of the main objects did not show that assessee was engaged in the business or running a business center. Accordingly, he held income to be assessable under the head 'income from house property'.
37. On appeal, the submissions made before the AO were reiterated and reliance was placed on various case laws. The ld. CIT(A) did not find force in these submissions and decided the issue against the assessee vide para 4.3 of his order which is as under:
"4.3. I have carefully considered the submissions of the appellant. I do not agree with the views of the AR that income from running of the service center is business income. The assessee has provided only those services which are required to facilitate the House Property worth living i.e. repairs and maintenance, electricity and water supply and other related services. In the facts and circumstances of the case, it cannot be said that the assessee is running a business of service center. These services are essential for letting the house property on rent. Hence, the income is to be assessed as Income from House Property only. The fact that in the past this income was assessed as business income would not help the assessee as resjudicate do not apply to the income tax proceedings. The case laws cited by the appellant are distinguishable on facts and hence not applicable to the facts of this case. Hence, this ground of appeal is dismissed. that in the past this income was assessed as business income would not 25 CROMPTON GREAVES lTD.
help the assessee as resjudicate do not apply to the income tax proceedings. The case laws cited by the appellant are distinguishable on facts and hence not applicable to the facts of this case. Hence, this ground of appeal is dismissed."
38. Before us Ld. Counsel of the assessee submitted that the premises in Worli were initially purchased by the assessee for its own use but because of certain reasons same could not be used and it was decided to run a business center. The premises are given to various parties who are not related to the assessee at all. Various services like, communication, couriers, provision of electricity, air conditioning and even DC sets were provided. It was pointed out that separate charges were agreed to be paid as per the agreement, copy of which is placed at pages 256 to 258 of the paper book. Accordingly separate bills were raised for recovery of such charges and, therefore it was a cae of running of a business center and the income was rightly returned under the head 'business income'. In any case the expenses incurred by the assessee company on provision of services should have been allowed. In the written submissions made on behalf of the assessee the following details have been filed in respect of receipts and expenditures on services:
A.Y.2004-05 Receipts Proportionate
Expenses
Electricity 37,61,304 37,61,304
Upkeep, security, 42,78,241 42,78,231
housekeeping
Total amount 80,39,545 80,39,545
A.Y.2005-06 Receipts Proportionate Expenses
26 CROMPTON GREAVES lTD.
Electricity 36,10,614 36,10,614
Upkeep, security,
housekeeping 37,22,334 37,22,334
Total amount 73,32,948 73,32,948
A.Y.2006-07 Receipts Proportionate Expenses
Electricity 54,05,073 54,05,073
Upkeep, security,
housekeeping 52,37,475 52,37,475
Total amount 1,06,42,548 1,06,42,548
39. On the other hand, Ld. DR strongly supported the order of the AO and the CIT(A) and pointed out that the so called provision of services was basically normal maintenance and upkeep of the business premises. She strongly relied on the decision of the Hon'ble Supreme Court in the case of Shambhu Investments Pvt. Ltd. vs. 263 ITR 143 wherein the Hon'ble apex court has confirmed the decision of the Calcutta High Court reported at 249 ITR 47. In that case the assessee had provided table space along with furniture and fixtures and lights and air conditions. The assessee has further provided services like watch and ward staff, electricity and water and other common amenities, even then the income was held to be assessable under the head 'income from house property.
40. We have considered the rival submissions carefully and in our opinion, it seems to be a simple case of letting out of the property. This fact becomes clear from the following chart wherein details of receipts on account of services and details of expenditures have been furnished:
A.Y.2004-05 Receipts Proportionate
Expenses
27 CROMPTON GREAVES lTD.
Electricity 37,61,304 37,61,304
Upkeep, security, 42,78,241 42,78,231
housekeeping
Total amount 80,39,545 80,39,545
A.Y.2005-06 Receipts Proportionate Expenses
Electricity 36,10,614 36,10,614
Upkeep, security,
housekeeping 37,22,334 37,22,334
Total amount 73,32,948 73,32,948
A.Y.2006-07 Receipts Proportionate Expenses
Electricity 54,05,073 54,05,073
Upkeep, security,
housekeeping 52,37,475 52,37,475
Total amount 1,06,42,548 1,06,42,548
The above clearly shows that expenditure on the so called services matches to the last paisa with the receipts. If assessee company was providing services specifically then there would have been either some profit or some loss on such services. It seems that assessee has collected the amount of electricity expenditure separately and paid the bills because under this head the receipts and expenditure totally matches. The other item is upkeep, security and housekeeping. Here also in all the three years the receipts and expenditures match exactly to the last paisa. It was argued that assessee is providing, for example, telecommunication services say if assessee was charging one rupee for one fax copy and if the whole receipt for the year was Rs.1,00,000/-, it is not possible that assessee would got the bill of Rs.1 lakhs on its fax machine. Therefore, in view of this fact we are of the opinion that assessee has simply let out the property and the income has rightly 28 CROMPTON GREAVES lTD.
been assessed as income from house property. However, at the same time there is a distinctive feature in the case of the assessee in comparison to the decision of the Hon'ble Supreme Court in the case of CIT vs. Shambhunath Investment Pvt. Ltd. [supra] had entered into an agreement to receive the payment on account of certain service charges separately, whereas in the case of CIT vs. Shambhunath Investment Pvt. Ltd. [supra], there was no separate agreement. Therefore, we are of the opinion that it is a case where income from lease of the premises has to be segregated from the income from services and only income from lease should be assessed as income from house property against which only standard allowance of 30% should be allowed. The other receipts should be assessed as income from other sources and expenditure incurred on provision of such services should be allowed as per sec.57 after verification. This proposal was accepted even by the Ld. Counsel of the assessee. Accordingly, we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO to re-examine the issue in the light of the observations made by us i.e. these incomes should be assessed separate as income from house property and service charges collected to be assessed separately as income from business and profession after allowing expenditure incurred against provision of such services after verification of the same. Accordingly this ground is partly allowed.
41. Ground No.3 relates to confirmation of disallowance of long term capital loss on sale of units of UTI Units-64 Scheme. After hearing both the parties we find that during the assessment proceedings AO 29 CROMPTON GREAVES lTD.
noticed that assessee had computed the capital loss of Rs.45,76,160/- being loss in respect of conversion of UTI Units-64 into tax free bonds. The said loss was set off against capital gains. AO made the enquiries and issued a show cause notice that why the loss from conversion of UTI Units-64 into tax free bonds should not be ignored as per the provisions of sec.10[33]. In response it was stated on behalf of the assessee that the assessee company had purchased 17,19,836/- units of UTI Units-64 Scheme 1964 for a sum of Rs.1,71,98,360/- at various points of time. During the year the units were transferred by the UTI and the assessee was allotted tax free bonds which resulted in loss of Rs.45,76,160/- since as per sec.45 any profit or loss arising on transfer of capital assets and accordingly same was to be computed u/s.48. It was further stated that sec.10[33] would not be applicable because of the following reasons:
"1) Significantly, no profit ever was likely to be made on such exchange in as much as the cost of units under both the schemes was Rs. 10 only. Accordingly, the exemption was illusory and did not in effect grant any benefit to the taxpayers holding such units.
2) There is no doubting the fact that the transactions involved the case of transfer and therefore the loss arising on such transfer was real and was eligible for set-off.
3) There is no express or implicit prohibition to prevent a person suffering from losses from claiming a set-off.
4) The language of S. 10(33) is very clear in as much as it confers an exemption on "income" along and does not take within its sweep any losses and therefore S. 10(33) shall not be resorted to prohibit the claim of the company.
5) Since there was a loss on the conversion of the units of US 1964 scheme, we have not claimed any exemption u/s. 10(33) in respect of the same."
After examining the submissions AO observed that assessee has accepted the conversion of UTI Units-64 into tax free bonds as a 30 CROMPTON GREAVES lTD.
transfer and since gains from such transfer of units were exempt u/s.10[33], therefore, loss arising is also to be treated as exempt. In this connection AO also relied on the decision of the Hon'ble Supreme Court in the case of CIT vs. Harprasad and Co. P. Ltd. [99 ITR 118]. Accordingly the loss on conversion of units into tax free bonds was ignored.
42. On appeal, the submissions made before the AO were reiterated. However, ld. CIT(A) after examining the submissions did not agree with them and in view of sec.10[33] confirmed the disallowance of capital loss.
43. Before us Ld. Counsel of the assessee reiterated the submissions made before the lower authorities and emphasised that once the conversion of UTI Units-64 into tax free bonds was done, which was done by UTI itself, then such loss has to be allowed in terms of sec.45. The Ld. Counsel further submitted that the Hon'ble Calcutta High Court in the case of Royal Calcutta Turf Club [144 ITR 709] had considered the issue wherein the loss in respect of an item of income, which was exempt, was allowed to be set off against other income. In view of this judgment the assessee has a write to carry forward the loss even if the same is generated on account of an item, income from which is exempt.
44. On the other hand, Ld. DR strongly supported the order of the ld. CIT(A).
45. We have considered the rival submissions carefully and find that AO has treated the conversion of UTI Units-64 into tax free bonds as 31 CROMPTON GREAVES lTD.
"transfer" with which we do not agree and shall discuss it little later.
But once it is treated as transfer then Assessing Officer has rightly declined to allow the loss because if a particular income is exempt from tax u/s.10 then the corresponding loss is also to be treated as exempt i.e. to be ignored. Since sec.10[33] specifically provides that profit from transfer of units of UTI Units-64 is exempt u/s.10[33] therefore the loss has to be ignored. We have also very carefully perused the decision of the Hon'ble Calcutta High Court in the case of Royal Calcutta Turn Club Ltd. vs. CIT [supra]. in that case the Hon'ble court made the following observations:
Under the I.T. Act, 1961, there are certain incomes which do not enter into the computation of the total income at all. In computing the total income of a resident assessee, certain incomes are not included under s. 10 of the Act. It depends on the particular case; where the Act is made inapplicable to income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will not enter into the computation at all. But there are other sources which, for certain economic reasons, are not included or excluded by the will of the Legislature. In such a case, one must look to the specific exclusion that has been made.
The assessee, the Royal Calcutta Turf Club, claimed that the losses incurred by it in the broodmares account and in pig account should be set off against its income from other sources under the head "business".
The ITO disallowed the claim of the assessee on the ground that the income derived from these two heads were exempt under s. 10(27) of the Act. The AAC and, on further appeal, the Tribunal, affirmed the order of the ITO.
After the above observations, it was held as under:
"Held, that cl. (27) of s. 10 excludes in express terms only "any income derived from a business of live stock breeding or poultry or dairy farming". It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income."
A careful reading of this judgment shows that because of the unique circumstances of the case the loss was held to be allowable and court 32 CROMPTON GREAVES lTD.
has very clearly observed that "it depends upon a particular case". It was found by the Hon'ble court that cl.[27] of sec.10 excluded the income from ""any income derived from a business of live stock breeding or poultry or dairy farming". This income was exempt only in respect of these sources. It was held that this does not mean that loss on account of broodmares and pig account was not allowable because these items were not covered by these items. Therefore, what has been ultimately held was that exempted income did not include an item against which assessee has made the claim for loss and that is why the claim for loss was held to be allowable. In our opinion, therefore, this case is not applicable to the facts of the assessee where income from units is specifically exempt u/s.10[33] and, therefore, loss, if any, against such units has to be ignored.
46. However, we would like to observe that the correct position of law is that the conversion of units of UTI Units-64 Scheme into tax free bonds cannot be treated as transfer at all. The Unit Trust Of India was issuing UTI Units-64 units which were readily tradable in the market. The proceeds of such units were being invested by UTI in shares and debentures and other securities of various listed companies. In the year 2002-03, Unit Trust of India faced severe financial crunch and Net Asset Value [NAV] of the US-64 units perhaps went below the face value i.e. Rs.10/- per unit. The Government of India to help various unit holders of US-64 decided to close the various schemes formulated by Unit Trust of India and it was decided to give two options to the various investors i.e. [i] either to surrender the units and take cash or 33 CROMPTON GREAVES lTD.
[ii] get the units converted into 6.75% tax free bonds guaranteed by the Government of India. The price for exchange was fixed at Rs.12 for the first 5000 units and Rs.10/- for units beyond the limit of 5000. The higher price was given to the small investors. This clearly shows that it was a clear case of conversion where any person who chooses to surrender its UTI Units-64 units and get the new tax free bonds was replacing one type of security with another type of security. Now for application of sec.45, it is necessary that there has to be a transfer of the capital asset. sec.2[47] defines transfer as under:
Sec.2(47) :
"transfer", in relation to a capital asset, includes,--
(i) the sale , exchange or relinquishment of the asset ; or
(ii) the extinguishment of any rights therein ; or
(iii) .. .. ..
(iv) .. .. ..
From the above it is clear that assessee can cover its case only under the term "exchange" and assessee had admittedly argued before the AO as well as the CIT(A) that it was a case of "exchange". According to the assessee, it has surrendered UTI Units-64 units and in exchange has got tax free bonds. In our opinion, this only amounts to substitution of one type of an asset with another type of asset. In case of exchange the property transferred by one party remains in existence with the other party, but in the case before us the units surrendered by the assessee would ceased to exist and fresh tax free bonds were issued. The Hon'ble Supreme Court in the case of CIT vs. Rasiklal Maneklal [HUF] 177 ITR 198, has explained this position. In that case assessee was holding 90 shares in one S. company of face value of
34 CROMPTON GREAVES lTD.
Rs.100/- each. Pursuant to the scheme of amalgamation sanctioned by the High Court, the holders of the shares in S. company were to be allotted one share of Rs.125/- each of NS Company for two shares in S. company. The S. Company was then dissolved. The assessee in that case was allotted 45 shares in N.S company. A question arose, whether this would amount to transfer and the Hon'ble Supreme Court held that there was neither an 'exchange' nor a 'relinquishment' in this transaction. The Hon'ble Supreme Court observed as under:
"An "exchange" involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of one thing for the ownership of another.
A "relinquishment" takes place when the owner withdraws himself from the property and abandons his rights thereto. It presumes that the property continues to exist after the relinquishment. Where, upon amalgamation, the company in which the assessee holds shares stand dissolved, there is no "relinquishment" by the assessee."
The apex court had clearly observed that in case of exchange that one person transfers a property to another person in exchange of another property of such another person and the property continues to be in existence. In that case, shares of S. company had ceased to be in existence and therefore the transaction did not involve any transfer. Similarly, in the case before us, the units of US-64 of Unit Trust of India ceased to be in existence after the assessee opted for conversion of the units into tax free bonds and therefore no exchange has taken place. Consequently no transfer can be said to have taken place and it is only substitution of one type of security with other. Therefore, because of no transfer having taken place, no loss can be determined 35 CROMPTON GREAVES lTD.
u/s.45. Accordingly, we confirm the disallowance of capital loss confirmed by the ld. CIT(A) on a different footing.
47. Ground No.4 is regarding disallowance of interest on borrowed capital amounting to Rs.27,12,928/-. After considering the rival submissions we find that this issue is squarely covered by para-44 of Tribunal's decision in assessee's own case in I.T.A.No.4762/Mum/2003 & Ors. Following that order, we decide this issue in favour of the assessee.
48. Ground No.5 is regarding disallowance u/s.14A. This disallowance comprises of interest and administrative expenses.
49. After considering the rival submissions, as decided by us in para 17, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with similar directions as contained in para-17.
50. Ground No.6 is regarding disallowance on account software expenses which have been treated as capital expenditure. The Ld. Counsel of the assessee submitted that most of the expenses are relating to maintenance of software and, therefore, same cannot be treated as capital expenditure.
51. On the other hand, Ld. DR submitted that after the amendment in Income Tax Rules, assessee is entitled to only 60% depreciation.
52. We have considered the rival submissions carefully. In our opinion, first of all software expenses have to be segregated. If they are of capital nature then assessee is entitled to 60% depreciation, but if the expenditure relates only to the maintenance then same is to be treated as revenue expenditure. In this regard the Special Bench of the 36 CROMPTON GREAVES lTD.
Tribunal in the case of Amway India Enterprises vs. DCIT [111 ITD 112] has laid down certain guidelines. Therefore, in the interests of justice we set aside the order of the ld. CIT(A) and remit the issue to the file of the AO with a direction to re-examine the same in the light of the decision of the Special Bench cited supra. Whatever expenditure is treated as revenue has to be allowed fully and on the portion of software which has to be treated as capital expenditure depreciation may be allowed as per the rules.
53. In ground No.7 the dispute is in respect of unutilised modvat credit addition has been raised. This issue has been adjudicated by us vide para-20 and following the same we set aside the order of the ld. CIT(A) and remit the issue back to the file of the AO to be decided on the basis of the directions given by us in para-20.
54. Through ground No.8 assessee has challenged confirmation of addition on account of write off of sales tax deferred payment.
55. After hearing both the parties, we find that during the assessee had generated surplus of Rs.19.12 crores arising out of prepayment of sales tax deferred liability. The same was treated as capital reserve. On enquiry it was mainly submitted that prepayment of sales tax deferred liability was made in accordance with the scheme notified by the government of Maharashtra and the same cannot be treated as benefit u/s.41[1]. However, AO did not agree with the same and treated it as benefit u/s.41[1]. This was also added to the book profits of the assessee.
37 CROMPTON GREAVES lTD.
56. On appeal, ld. CIT(A) confirmed the addition by observing that prepayment of deferred sales tax liability at net present value would be covered u/s.41[1]. However, the addition to book profit was deleted by the ld. CIT(A) by holding that in view of the decision of the Hon'ble Supreme Court in the case of Apollo Tyres vs. CIT [255 ITR 273] AO has no power to tinker with the accounts of the assessee and accordingly addition to book profit was deleted.
57. Before us, Ld. Counsel of the assessee submitted that the issue is squarely covered by the decision of the Special Bench of the Tribunal in the case of JCIT vs. Sulzer India Ltd. 6 ITR (Trib) 604.
58. On the other hand, Ld. DR supported the order of the AO.
59. After considering the rival submissions, we find that the Special Bench of the Tribunal in the case of JCIT vs. Sulzer India Ltd. [supra] has held that payment of net present value of deferred sales tax benefit would not amount to benefit u/s.41[1]. The head-note reads as under:
"BUSINESS INCOME--DEEMED INCOME--REMISSION OR CESSATION OF TRADING LIABILITY--CONDITIONS PRECEDENT FOR BRINGING SUM TO TAX AS DEEMED INCOME--DEFERRED SALES TAX LIABILITY TREATED AS LOAN BY STATE GOVERNMENT AND DEDUCTION ALLOWED IN TERMS OF CIRCULAR UNDER SECTION 43B ON DEEMED BASIS--LIABILITY SETTLED ON PAYMENT OF NET PRESENT VALUE COMPUTED IN ACCORDANCE WITH FORMULA PRESCRIBED IN STATE SALES TAX LAW--NOT A CASE OF WAIVER OR ACCEPTANCE OF LESSER SUM BY GOVERNMENT--NO REMISSION OR CESSATION OF LIABILITY--DIFFERENCE BETWEEN NET PRESENT VALUE AND FUTURE LIABILITY CANNOT BE TAXED AS DEEMED INCOME-- INCOME-TAX ACT, 1961, SS. 41(1), 43B--CIRCULAR No. 496 DATED SEPTEMBER 25, 19871_CIRCULAR No. 674 DATED DECEMBER 29, 1993."
Therefore, following the above order, we hold that prepayment of deferred sales tax liability will not amount to benefit u/s.41[1] and 38 CROMPTON GREAVES lTD.
accordingly addition made to the normal income is deleted. Once it is held that it is not a part of the normal income u/s.41[1], then there is no question of making addition even in the book profits while computing the income under MAT provision and accordingly the order of the ld. CIT(A) in this respect is upheld.
60. Ground No.9 was not pressed before us, therefore, same is dismissed as not pressed.
61. Through ground No.10 assessee has raised the issue regarding disallowance of the deductions u/s.80G,80HHC, 80IB and 80-O. The deduction was denied because there was no positive income. After considering the rival submissions, we find that this issue has been adjudicated by us vide para-24 and following that order we decide this issue against the assessee.
62. In the result, assessee's appeal in I.T.A.No.5672/M/07 for A.Y 2004-05 is partly allowed.
63. I.T.A.No.5754/M/07 - A.Y 2004-05 [revenue's appeal] : Through ground No.1 revenue has raised the issue regarding deletion of addition on account of benefit u/s.41[1] in the book profit computed u/s.115JB. This issue has been adjudicated by us vide para-59 and following that order we decide this issue against the revenue.
64. Through ground No.2 revenue has raised the issue regarding the deletion of addition on account of bad debts written off. This issue has been adjudicated by us vide para-33 and following that order we remit the issue back to the file of the AO with similar directions.
39 CROMPTON GREAVES lTD.
65. Through ground No.3 revenue has raised the issue regarding deletion of addition on account of guest house expenses and depreciation. This issue is covered against the revenue by the order of the Tribunal in assessee's own case in I.T.A.No.4762/Mum/2003 & Ors. vide paras 50 & 51 and following that order we decide this issue against the revenue.
66. Through ground No.4 revenue has raised the issue regarding disallowance u/s.14A. This issue has been decided by us vide para-17 and following that order, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with similar directions.
67. Through ground No.5 the issue regarding levy of interest u/s.234D is of consequential nature and AO is directed to levy the interest in accordance with the law.
68. In the result, revenue's appeal in I.T.A.No.5754/M/07 for A.Y 2004-05 is partly allowed for statistical purposes.
69. I.T.A.No.3353/M/08 A.Y 2005-06 [assessee's appeal]: In this appeal assessee through ground No.1 has raised the issue regarding assessment of income from business center under the head 'income from house property' instead of as declared by the assessee under the head 'business income'. This issue has been adjudicated by us vide para-40 and following that order we set aside the order of the ld. CIT(A) and remit the issue back to the file of the with similar directions. Accordingly this ground is allowed for statistical purposes.
70. Through ground No.2 assessee has challenged disallowance of interest expenses. After considering the rival submissions we find that 40 CROMPTON GREAVES lTD.
this issue is covered in favour of the assessee by the order of the Tribunal in I.T.A.No.4672/M/03 & Ors. vide para-44 and following that order we set aside the order of the ld. CIT(A) and delete the addition.
71. Through ground No.3 assessee has raised the issue regarding disallowance of expenses u/s.14A. This issue has been decided by us vide para-17 and following that order, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with similar directions
72. Through ground No.4 assessee has raised the issue regarding disallowance of software expenditure by treating the same as capital expenditure. This issue has been adjudicated by us vide para-52 and following that order we set aside the order of the ld. CIT(A) and remit the issue to the file of the AO with identical directions.
73. Through ground No.5 assessee has raised the issue regarding unutilised modvat credit. This issue has been adjudicated by us vide para-20 and following the same we set aside the order of the ld. CIT(A) and remit the issue back to the file of the AO with similar directions.
74. Through ground No.6 assessee has challenged the issue regarding allowability of deductions u/s.80G and 80-IB. The same has been denied because there was no positive income. This issue has been adjudicated by us vide para-24 and following that order we decide this issue against the assessee.
75. In the result, assessee's appeal in I.T.A.No.3353/M/08 for A.Y 2005-06 is partly allowed.
41 CROMPTON GREAVES lTD.
76. I.T.A.No.4093/M/08 A.Y 2005-06 [revenue's appeal]: In this appeal through ground No.1 revenue has raised the issue regarding disallowance u/s.14A. This issue has been decided by us vide para-17 and following that order, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with similar directions .
77. Through ground No.2 revenue has raised the issue regarding the deletion of addition on account of bad debts written off. This issue has been adjudicated by us vide para-33 and following that order we remit the issue back to the file of the AO with similar directions.
78. Through ground No.3 revenue has raised the issue regarding deletion of addition on account of guest house expenses. This issue has been decided by us vide para-65 against the revenue and following that order we decide this issue against the revenue.
79. In the result, revenue's appeal in I.T.A.No.4093/M/08 is partly allowed.
80. I.T.A.No.6557/M/10 A.Y 2006-07 [assessee's appeal]: In this appeal assessee through ground No.1 has raised the issue regarding assessment of income from business center under the head 'income from house property' instead of as declared by the assessee under the head 'business income'. This issue has been adjudicated by us vide para-40 and following that order we set aside the order of the ld. CIT(A) and remit the issue back to the file of the with similar directions. Accordingly this ground is partly allowed.
81. Through ground No.2 assessee has raised the issue regarding disallowance on account of death benevolent fund. This disallowance 42 CROMPTON GREAVES lTD.
was made by the AO because same is covered u/s.40A[9] of the Act. On appeal the disallowance has been confirmed by the ld. CIT(A).
82. The Ld. Counsel of the assessee pointed out that this issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case in I.T.A.No.4762/Mum/2003 & Ors. On the other hand, Ld. DR supported the order of the CIT(A).
83. After considering the rival submissions, we find that the Tribunal while adjudicating this issue for A.Y 1999-2000 in I.T.A.No.4672/Mum/2003 & Ors. has restored the matter to the file of the AO with a direction to allow the deduction on actual payment basis and not on provision made basis. Following that order we also set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with a direction to allow the deduction only on the basis of actual payment and not on the basis of provision made.
84. Through ground No.3 assessee has raised the issue regarding disallowance of software expenditure by treating the same as capital expenditure. This issue has been adjudicated by us vide para-52 and following that order we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO as per our directions given in para-----.
85. Through ground No.4 the dispute in respect of unutilised modvat credit addition has been raised. This issue has been adjudicated by us vide para-20 and following the same we set aside the order of the ld. CIT(A) and remit the issue back to the file of the AO with similar directions.
43 CROMPTON GREAVES lTD.
86. Through ground No.5 revenue has raised the issue regarding disallowance u/s.14A. This issue has been decided by us vide para-17 and following that order, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with similar directions.
87. Ground No.6 is regarding leave encashment. After hearing both the parties, we find that during the assessment proceedings AO noticed that assessee had claimed deduction on account of leave encashment in respect of earlier years amounting to Rs.2,31,58,274/-. In annexures to tax audit report the provision against the leave encashment has been shown at Rs.3,21,42,575/- and against this provision deduction of Rs.1,20,52,003/- was claimed as deduction. It was further noticed from the last assessment order that an amount of Rs.2,82,78,290/- was allowed on account of excess deduction u/s.43B. AO further observed para paras 11.2 to 11.3 as under:
"11.2. It an be seen from the working of the lat assessment order that out of total payment of full amounts adjusted against the opening liability leave encashment of Rs 3,01,73,202, as on 01 04 2004 and the balance liability provision of Ra 18,94,912 was earned forward to the FY 2005-06 Further during the FY 2004-OS a provision of Ra 4,66,34,007 was made Thus the total outstanding balance as 31.03.2005 was Rs.4,85,28,919. 11.3 The Total payment made by the assessee during the FY 2005-06 amounted to Rs.3,52,10,275/- The same as adjusted against the opening balance outstanding as on 01.04.2005 of Rs.4,85,28,919. Thus, the assessee company's claim for deduction u/s.43B of Rs 3,52,10,275/- is hereby disallowed and the same is added to total income."
88. On appeal, the ld. CIT(A) adjudicated this issue vide para 10.3 which is as under:
"10.3 I ha1ve considered the submissions The CIT(A) has allowed the claim of the appellant in his order for A Y 2004-05, 05-06 The CIT(A) has held that leave; encashment expenses to 44 CROMPTON GREAVES lTD.
the extent actually paid should be allowed as a deduct4n u/s 43B The deduction has been denied on the ground that the total payment made by the appellant during the F V 2005-06 had been adjusted against the provision outstanding as on 1/4/2005 of Rs 485,28,91Ø/- In principle the amount paid by way of leave encashment is allowed as a deduction u/s 43B In the case of the appellant however, there was a provision created, the .balance of which exceeded the actual expenditure during the year If the assessee had been allowed the provision as deduction in earlier years when it was created, the amount actually paid during the year cannot be again allowed deduction u/s 43B The A 0 is therefore, directed to ascertain whether provision for leave encashment made in earlier years had been allowed as a deduction in full or in part in any of tie earlier years If not, deduction u/s 43B should be allowed on actual payment towards leave encashment liability to the extent deduction for provision was decided."
89. Before us, Ld. Counsel of the assessee submitted that AO has not allowed the deduction even on payment basis, therefore, directions may be issued that deduction should be allowed atleast on payment basis.
90. On the other hand, Ld. DR submitted that CIT(A) has already issued the direction to allow the deduction on payment basis. She invited our attention to para 10. of the order of the ld. CIT(A) and pointed out he has clearly held that in principle deduction is to be allowed u/s.43B.
91. After considering the rival submissions, we agree with the submissions of the Ld. DR that the ld. CIT(A) has already given directions to allow the deduction of payment on payment basis. Therefore, we reiterate that deduction is to be allowed at least on payment basis u/s.43B and AO should examine the issue with reference to earlier years order and allow the deduction which has 45 CROMPTON GREAVES lTD.
been denied on provision basis, at least on payment basis. This ground is allowed for statistical purposes.
92. Through ground No.7 assessee has raised the issue regarding set off of brought forward losses and depreciation. The ld. CIT(A) has adjudicated this issue vide para 14.1.
93. Both the parties were heard. Since the issue has not been discussed by the AO, therefore, in the interests of justice, we are of the opinion that the matter should be restored back to the file of the AO with a direction to re-examine this issue after providing adequate opportunity to the assessee.
94. Ground No.8 was not pressed before us therefore same is dismissed as not pressed.
95. Ground No.9 regarding levy of interest under sections 234B, 234C and 234D is of consequential nature and AO is directed to give levy interest in accordance with the law.
96. In the result, assessee's appeal in I.T.A.No.6657/M/10 for A.Y 2006-07 is partly allowed for statistical purposes.
97. I.T.A.No.6690/M/10 - A.Y 2006-07 [revenue's appeal]: In this appeal through first ground revenue has raised the issue regarding deletion of pooja expenses.
98. After hearing both the parties, we find that during the assessment proceedings AO noticed that assessee has made a claim of pooja expenses amounting to Rs.10,63,876/-. The AO disallowed the same following the decision of the Hon'ble Bombay High Court in the 46 CROMPTON GREAVES lTD.
case of Kolhapur Sugar Mills Ltd. vs. CIT [119 ITR 387]. On appeal, ld. CIT(A) deleted the addition by following the order of the Tribunal.
99. Before us, Ld. DR submitted that the Hon'ble Bombay High Court in the case of Kolhapur Sugar Mills Ltd. vs. CIT [supra] has clearly decided the issue against the assessee and, therefore, different view should not be taken.
100. On the other hand, Ld. Counsel of the assessee submitted that pooja expenses were required to be incurred in view of the agreement with the workers union and therefore the decision of the Hon'ble Bombay High Court has rightly been distinguished by the Tribunal by considering the facts and accordingly this issue is covered vide para-3 of the Tribunal's order in assessee's own case in I.T.A.No.4762/Mum/2003 & Ors..
101. After considering the rival submissions, we find that the Tribunal in assessee's own case in I.T.A.No.4762/Mum/2003 & Ors. vide para-3 has already deleted the addition on account of pooja expenses. Therefore, following that order we decide this issue against the revenue.
102. Through ground No.2 revenue has raised the issue regarding deletion of addition on account of guest house expenses and depreciation. This issue is covered against the revenue by the order of the Tribunal in assessee's own case in I.T.A.No.4762/Mum/2003 & Ors. vide paras 50 & 51 and following that order we decide this issue against the revenue.
47 CROMPTON GREAVES lTD.
103. In the result, revenue's appeal in I.T.A.No.6690/M/10 for A.Y 2006-07 is dismissed.
104. I.T.A.No.5873/M/11 A.Y 2007-08 [assessee's appeal]: In this appeal assessee through ground No.1 has raised the issue regarding assessment of income from business center under the head 'income from house property' instead of as declared by the assessee under the head 'business income'. This issue has been adjudicated by us vide para-40 and following that order we set aside the order of the ld. CIT(A) and remit the issue back to the file of the with similar directions. Accordingly this ground is partly allowed.
105. Through ground No.2 assessee has raised the issue regarding disallowance u/s.14A. This issue has been decided by us vide para-17 and following that order, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the AO with similar directions.
106. Through ground No.3 assessee has raised the issue regarding disallowance of software expenditure by treating the same as capital expenditure. This issue has been adjudicated by us vide para-52 and following that order we set aside the order of the ld. CIT(A) and restore the matter to be file of the AO to decide the issue as per our directions given in para-52 above.
107. In ground No.4 the dispute is in respect of unutilised modvat credit addition has been raised. This issue has been adjudicated by us vide para-20 and following the same we set aside the order of the ld. CIT(A) and remit the issue back to the file of the AO with similar directions.
48 CROMPTON GREAVES lTD.
108. Through ground No.5 assessee has raised the issue regarding disallowance of commission. During the assessment proceedings AO noticed that the DDIT (Inv.) Unit 8(1) had found that assessee has taken hawala entry for Rs.14,00,755/- from Nova Corpn. Services Pvt. Ltd. In response to a query assessee filed a copy of the bill and other details. The AO observed that assessee has merely filed the copy of the bill and the payment advise and has not proved the nature of services. Therefore, same was not allowed. On appeal, the addition was confirmed by the ld. CIT(A).
109. Before us, Ld. Counsel of the assessee submitted that assessee was a very large business company listed in stock exchange and there was no question of taking hawala entry. Various documents were filed during the assessment proceedings but the same have not been properly examined and, therefore, one more opportunity should be given to explain the nature of services provided by Nova Corpn. Pvt. Ltd. On the other hand, Ld. DR had no serious objection if the matter was restored to the file of the AO.
110. After considering the rival submissions, we find that this issue has not been properly examined by the AO. Therefore, in the interests of justice we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO for re-examination of the issue. Needless to say that assessee should be given proper opportunity and assessee is also directed to prove to the satisfaction of the AO the nature of services obtained from Nova Corpn. Pvt. Ltd.
49 CROMPTON GREAVES lTD.
111. Through ground No.6 assessee has raised the issue regarding disallowance on account of leave encashment. This issue has been adjudicated by us vide para-91 and following that order we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO for re-examination with similar directions.
112. Through ground No.7 assessee has raised the issue regarding set off of brought forward losses. This issue has been adjudicated by us vide para-93 and following that order we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO for re-examination with similar directions.
113. Through ground No.8 assessee has raised the issue regarding denial of credit on account of TDS certificates. After hearing both the parties we find that AO has not discussed this issue at all. On appeal, ld. CIT(A) adjudicated the issue vide following paragraph:
"On consideration of the issue, I find that the AC's order is silent regarding this issue. Therefore it is not possible to adjudicate on an issue wherein it is not clear as to why the TDS amount claimed by the appellant as per his statement made above has not been allowed. At best this is matter that can be rectified under section 154 of the income tax act by the assessing officer. The appellant may move an application for rectification to the AC if so desired and the AC thereafter may look into the issue and if there is a mistake apparent from record in respect of credit to be given regarding the claim of TDS the same may be rectified by way of speaking order. This ground of appeal is therefore disposed off accordingly."
114. Before us, Ld. Counsel of the assessee submitted that assessee should be given an opportunity to file whatever TDS certificates are available with it. On the other hand, Ld. DR supported the order of the AO.
50 CROMPTON GREAVES lTD.
115. After considering the rival submissions, we agree with the Ld. Counsel of the assessee that if assessee company is able to obtain further TDS certificates, assessee should be allowed to furnish the same and then credit should be given against such TDS certificates after verification. Therefore, this ground is allowed for statistical purposes.
116. Ground No.9 regarding levy of interest u/s.234D is of consequential nature and AO is directed to give relief in accordance with the law.
117. Through ground No.10 assessee has raised the issue regarding withdrawal of MAT credit. After hearing both the parties, we find that AO has not discussed this issue. Before the ld. CIT(A) it was submitted as under:
"The company paid tax under Minimum Alternate Tax for the Assessment year 2006-07 of Rs. 16, 14,06,703/-. The company claimed the credit of Rs.16,14,06,703/- in respect of the same in computation of Tax Liability under the normal provisions of the Income Tax Act, as per the provisions of section 115JAA of the Income Tax Act, 1961. As per the assessment order of the company for AY2006-07, the tax was payable under the Normal provisions of the Income Tax Act., 1961. In this case it is submitted that, the company has preferred appeal before Honourable Income Tax Appellate Tribunal in respect of various disallowances made during the assessments and on the disposal of the appeals by the Honourable ITAT, the company reserves its right to reinstate its entitlement to get MAT Credit u/s 115JAA of the Income Tax Act, 1961 in A.Y.2006-07. In the eventuality of your Appellant being liable tax for: AY 2006-07 as per MAT provision, credit for the same in terms of S.115JAA of Income Tax Act, 1961 be allowed in AY 2007-08."
The ld. CIT(A) decided the issue vide para-19 which is as under:
"19.1. After considering the issue raise, I find that the grounds of appeal is premature and does not require any adjudication or discussion at this stage. The ground of appeal is therefore being 51 CROMPTON GREAVES lTD.
dismissed as being infructuous and premature at this stage."
118. Before us Ld. Counsel of the assessee submitted that this issue is of consequential nature therefore suitable directions may be given. On the other hand, Ld. DR supported the order of the CIT(A).
119. After considering the rival submissions, we find that the issue regarding allowance of credit of MAT tax paid in earlier year would depend on determination of the income after giving effect to our order. Therefore, in the interests of justice we set aside the order of the ld. CIT(A) and remit the matter to the file of the AO with a direction to allow credit of net after determining the income for earlier year in accordance with the provisions of the law.
120. Ground No.11 was not pressed before us. Therefore same is dismissed as not pressed.
121. In the result, assessee's appeal in I.T.A.No.5873/M/11 for A.Y 2007-08 is partly allowed.
122. I.T.A.No.6466/M/11 - A.Y 2007-08 [assessee's appeal]: In this appeal various grounds have been raised but at the time of hearing Ld. Counsel of the assessee submitted that the only dispute is regarding levy of surcharge and education cess by passing a rectification order.
123. After hearing both the parties we find that a rectification order dated 12-11-2008 was passed through which income was computed at Rs.208,75,20,970/-. Later on it was noted that MAT credit of Rs.16,14,06,703/- was set off against gross income tax liability without considering the surcharge and education cess resulting in excess refund to the assessee. Accordingly, notice u/s.154 was issued. The 52 CROMPTON GREAVES lTD.
assessee's representative Shri Jagdish Ambedkar, Manager Taxation, appeared and agreed for the proposed rectification. In the mean time credit was not given for TDS certificates amounting to Rs.4,14,14,328/- as original certificates were not filed on record. During the same proceedings assessee also requested for setting off of MAT credit from basic tax before charging surcharge and educational cess. The request of the assessee was declined in view of provisions of sec.115JAA.
124. On appeal, it was mainly submitted that MAT credit is to be allowed before charging surcharge and educational cess. In this regard reliance was placed on return form No.6. The ld. CIT(A) after examining the submissions decided the issue against the assessee vide paras 4 and 5 which are as under:
"4. I have carefully considered the order of the assessing officer and the submission of the appellant and I find that the contention of the appellant cannot be accepted. MAT credit cannot be claimed before surcharge and education cess because MAT credit is allowable only from the tax liability. Tax includes surcharge as per Supreme Court decision reported in 83 ITR
346. Accordingly, surcharge and education cess are to be charged first and then MAT credit will follow. It has to be kept in mind that MAT is not a rebate and it is like any other tax such as advance tax and self assessment tax. The appellant is bound to pay income tax & surcharge first and thereafter, he is entitled to the credit of MAT. Reliance is placed on the observation of the Hon'ble ITAT 'C'-Bench, Mumbai in their order dated 23rd July, 2010 in the case of M/s. Classic Shares & Stock Broking Services Ltd. vs. ACIT wherein, on a similar issue the Hon'ble Tribunal had held as under:
"The words used are tax credit in respect of tax paid on deemed income relating to certain companies. The tax and the surcharge there fore, has to be calculated first and thereafter tax paid such as advance tax self-assessment tax and tax paid under MAT have to be deducted."
5. Placing reliance on the above mentioned judgment and respectfully following it, it is, therefore, held that there is no infirmity in the order of the assessing officer wherein, he has rejected the request of the appellant filed under Section 154 of 53 CROMPTON GREAVES lTD.
the Income-tax Act, 1961. The order passed u/s. 154 by the assessing officer is, therefore, confirmed and the appeal of the appellant dismissed."
125. Before us Ld. Counsel of the assessee again referred to the return form and submitted that it clearly shows that MAT credit has to be reduced from the basic tax and surcharge can be levied only after such deduction. In any case, it was a debatable issue and could not have been decided by way of rectification order u/s.154. On the other hand, Ld. DR supported the order of the CIT(A). She also relied on the provisions of sec.115JAA(2). She further argued that the word "tax" used in sec.115JAA(2) has to be interpreted as per the definition given in the Act in sec.2(43).
126. We have considered the rival submissions carefully. First of all it has to be noted that AO has passed the rectification order on the basis of concession made on behalf of the assessee. The relevant para of the rectification order dated 5-2-2009 reads as under:
"In this reference, the assessee's representative Shri Jagdjsh Ambedekar, Manager Taxation was given an opportunity of being heard vide order sheet entry dated 3/2/2009. He has agreed to the proposed rectification."
The above clearly shows that assessee had agreed to the rectification. It is settled position of law that once assessee has agreed for a particular addition or given a concession, then assessee cannot be the aggrieved party and the issue conceded cannot be agitated in appeal proceedings. Reference may be made to the decision of Hon'ble Bombay High Court in the case of Rameshchandra And Co. vs. CIT [168 ITR 375]. We further find that the ld. CIT(A) has decided the 54 CROMPTON GREAVES lTD.
issue on the basis of the decision of the Tribunal in the case of M/s.Classic Shares & Stock Broking Services Ltd. Vs. ACIT which has been referred by him in para-4 of his order reproduced above. Therefore, the issue is squarely covered against the assessee by the decision of the Tribunal and accordingly we decline to interfere with the order of the ld. CIT(A).
127. In the result, assessee's appeal in I.T.A.No.6466/M/11 for A.Y 2007-08 is dismissed.
Order pronounced in the open Court on this day of 13/4/2012.
Sd/- Sd/-
(VIJAY PAL RAO) (T.R.SOOD)
Judicial Member Accountant Member
Mumbai: 13/4/2012.
P/-*