Indian Kanoon - Search engine for Indian Law

3. We have heard the representatives of both the sides on the facts for A. Y.2004-05.

4. First we take up assesee's appeal. Ground No.1 is of general in nature and needs no separate adjudication.

5. Ground No.2 relates to the addition of Rs.4149824/- being write back of provision and sundry balances of Rs.3786505/-.

6. During the course of the scrutiny assessment proceedings the Assessing officer noticed that the assessee has written back excess provision of Rs.4149824/- and sundry credit balances of Rs.3786505/-. The Assessing Officer noticed that the assessee has not added the same u/s.41(1) for the purpose of computation of its total income. The assessee was asked to show cause as to why the same should not be added u/s. 41(1) of the Act. In its reply the assessee stated that these balances were transferred by NDDB as part of transfer agreement between the assessee and NDDB. It was brought to the notice of the Assessing Officer that the income of NDDB was not taxable under the income tax Act, therefore, the question of allowing deduction to them does not arise and therefore, provisions of section 41 (1) of the Act do not apply to the facts of the case. The contention of the assessee was dismissed by the Assessing Officer who was of the opinion that even if the income of NDDB was not taxable still the sundry creditors and provisions are claimed as deduction. The Assessing Officer added the amount of Rs.7936329/-. Assessee carried the matter before the CIT(A) but without any success.

7. Before us the counsel for the assessee referred to the National Delhi Development Board Act 1987 and pointed out that as per section 44 of the Act NDDB was not liable to pay income tax. It is the say of the counsel that since there was no liability to pay income tax there was no question of any allowances of deduction in the hands of NDDB. The Counsel further stated that since no allowance or deduction has been made in the assessment of NDDB write back of the same cannot be treated as income tax u/s. 41 (1) of the Act.

11. A perusal of the aforementioned section shows that the amount is added to the income of the assessee only when an allowance or deduction has been made in the assessment for any year. As mentioned elsewhere the income of NDDB was not liable to tax as income tax Act was not applicable to NDDB. In our considered opinion when no allowance or deduction has been allowed to the predecessor there is no question of adding the same when the amounts are written back by the assessee. Ground No. 2 is allowed

20. Before us the counsel for the assessee stated that the investments are coming from NDDB with a specific direction that these funds shall only be utilised on research and development. It is the say of the counsel that the assessee has only paid directors meeting fees and no other expenditure have been incurred by the assessee for earning the exempt income.

21. Per contra the DR strongly supported the findings of the Assessing Officer.

22. We have carefully considered the orders of the authorities below. There is no dispute that during the year the assessee has earned an exempt income on account of interest on tax free bonds. It is also not in dispute that all the investments are coming from NDDB. The only expenditure which has been incurred by the assessee is towards the board meeting fees. In our considered opinion 100% of such board meeting fee expense need to be disallowed. We accordingly direct the Assessing Officer to disallow the entire expenditure incurred on board meeting fees towards earning of exempt income. In addition further disallowances of Rs.1,00,000/- towards the administrative expenses should meet the ends of justice. We direct accordingly. Ground No.4 is partly allowed.