Income Tax Appellate Tribunal - Mumbai
John Fowler (I) P. Ltd., Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH 'G'
BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND
SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER.
ITA No.4691/Mum/05
(Assessment Year : 2001-02)
John Fowler (India) Pvt. Ltd. Vs. Income Tax Officer 1(2)(1),
(Formerly known as John Fowler Aayakar Bhavan, M.K. Marg,
(India) Ltd.), Mumbai-400 020
nd
19, 2 Floor, Khetan Bhavan
No.198, J. Tata Road, Mumbai-400
020
PAN No.AABCJ4396C
Appellant. Respondent.
Appellant By : Shri R. Muralidhar.
Respondent By : Shri Manvendra Goyal.
O R D E R
PER D.K. AGARWAL :
This appeal preferred by the assessee is directed against the order dt.27.1.2005 passed by the learned Commissioner of Income Tax (Appeals) for the Assessment Year 2001-02.
2. Briefly stated the facts of the case are that the assessee company is engaged in the business of manufacturing, designing, erection and commissioning of plant and equipment for tobacco processing and processing of seeds, grains etc. It filed return declaring total loss of Rs.8,86,220. However, the assessment was completed at an income of Rs.15,84,680 vide order dt.28.11.2003 passed under section 143(3) of the Income Tax Act, 1961 (the Act). On appeal, the learned CIT(A) partly allowed the appeal.
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3. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
4. Ground Nos.I(a), (b) and (c) are against the sustenance of disallowance of expenses incurred for buy back of shares of Rs.11,56,868.
5. The brief facts of the above issue are that during the course of assessment proceedings, it was inter alia observed by the Assessing Officer that the assessee has incurred expenses of Rs.11,56,818 on buy back shares and the same has been charged to P & L Account under various heads. On being asked, it was explained by the assessee that the decision to buy back of shares was taken at the Board Meeting held on 17.7.2000 and the said shares were not reissued and these stand distinguished after the buy back. Reliance was placed on the decision in the case of Bombay Burmah Trading Co. Ltd. Vs. CIT 145 ITR 793 (Bom). However, the Assessing Officer observed that in the initial issue and paid up share capital was Rs.36,26,060 of Rs.10 each. During the year, the assessee has bought back these shares thereby reduced the paid up capital. After buy back of 466981 shares, the issue and paid up share capital stood at 31,59,079 of Rs.10 each. Thus the expenses incurred on this is in the nature of capital because the transaction directly effected the capital structure of the assessee company. It has nothing to do with the business. This transaction is therefore not wholly and exclusively for the purpose of business but only for the restructuring the capital structure of the company so that the management is able to get more holding and control over the company. This reduction in capital has helped the holding company to enhance its holding from 62% to 82%. According to the Assessing Officer, these expenditure par take the character of capital expenditure. The Assessing Officer after relying on the decisions of
-3- ITA No.4691/Mum//05 Hon'ble Supreme Court in the case of Broke Bond India Ltd. (1997) 140 CTR 598 and Punjab State Development Corporation Vs. CIT (1997) 140 CTR 594 was of the view that the above buy back of shares are directly connected to the restructuring of the capital base of the assessee company and therefore it is in the nature of capital expenditure and accordingly he disallowed the same. On appeal, the learned CIT(A) for the same reasons given by the Assessing Officer, confirmed the disallowance made by the Assessing Officer.
6. At the time of hearing, the learned counsel for the assessee while reiterating the same as submitted before the Assessing Officer and the learned CIT(A), refers to page No.24 of the assessee's paper book to show the details of buy back expenses amounting to Rs.11,56,818 further submits that the expenditure on buy back of shares did not result in any enduring nature and for this proposition the reliance was also placed on the following decisions :
i) CIT Vs. Selan Exploration Technology Limited 188 Taxman 1 (Del)
ii) Echjay Industries Limited Vs. DCIT 257 ITR 1 (Mum) (AT)
iii) Protos Engineering Co. Pvt. Ltd. Vs. DCIT (A.Y. 1995-96) (ITA No.5510/Mum/02 Dt.30.5.2008)
iv) CIT Vs. General Insurance Corporation (2006) 286 ITR 232 (SC) He, therefore, further submits that in the light of the ratio of above decisions, the disallowance made by the Assessing Officer and sustained by the learned CIT(A) be deleted.
7. On the other hand, the learned D.R. while relying on the order of the Assessing Officer and the learned CIT(A) further submits that the decision of the Hon'ble Supreme Court in CIT Vs. General Insurance Corporation 286 ITR 232 is on the issue of bonus shares, therefore, the same is not applicable to the
-4- ITA No.4691/Mum//05 facts of the assessee's case. He further submits that the decision of the Hon'ble Delhi High Court in the case of Selan Exploration Technology Ltd. (supra) is also not applicable as their Lordships have decided the issue relying on the decision of General Insurance Corporation (supra). He therefore submits that the buy back of shares are directly connected to the restructuring of the capital base of the assessee company, hence it is in the nature of capital expenditure and, therefore, the learned CIT(A) was fully justified in upholding the disallowance made by the Assessing Officer treating the same as capital expenditure.
8. We have carefully considered the rival submissions of the parties and perused the material available on record. We find that the facts are not in dispute inasmuch as the assessee has incurred the expenses of Rs.11,56,818 on fees and other services, DD charges, advertisement and publicity, printing and stationary, traveling, telephone, sub-contract labour expenses, postage and filing fees to buy back its own shares and thereby increase in paid up capital. It is not the case of the revenue that the said expenses incurred by the assessee are not in relation with the such share capital or there is any flow of funds or increase in the capital employed. It is also not the case of the revenue that there is any increase in the assessee's assets or the company has acquired any right of revenue yielding nature.
9. In Selan Exploration Technology Ltd. (supra), their Lordships after considering the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT (1980) 124 ITR 1, General Insurance Corpn. (supra), Brooke
-5- ITA No.4691/Mum//05 Bond India Ltd. (225 ITR 798) and Punjab State Industrial Development Corpn. Ltd. (225 ITR 792) observed and held as under :
" 11. In the present case, consultancy fee for advisory services was paid by the assessee-company for buyback of shares. Instead of increase in the share capital, it was going to result in the decrease in funds with the buyback of the shares. In these circumstances, the Tribunal rightly held that the assessee had not acquired the benefit or addition of enduring nature because after the buyback, benefit or addition of enduring nature would not arise as capital employed had, in fact, gone down. The expenditure incurred had not resulted into bringing into existence any asset. Therefore, it was rightly held to be an expense of revenue nature."
10. In Echjay Industries Limited (supra), it has been held by the Tribunal at page 3, headnote as under:
" (ii) That the payments were made to the shareholders to secure smooth running of the company and avoiding its possible winding up under the provisions of sections 397 and section 398 read with section 402 of the Companies Act, 1956. While accepting the compromise or settlement between the two warring groups, for a proceeding under sections 397 and 398 of the Companies Act, 1956, the court will keep in mind the prime interest of the company as well as public interest. By getting rid of the minority shareholders, the company could not be said to have acquired any enduring benefit. Secondly, even if it were assumed that an enduring benefit was obtained, it was not relatable to the fixed capital structure of the company because it had neither increased the assessee's assets nor could the company be said to have acquired any right of income yielding nature. The reduction of the share capital was merely a consequence of the agreement which had to be given effect to, that too by an order of the court. It was clear from the annual report of the company that the profits of the company, which were going down, improved considerably. The expenditure was incurred out of business expediency and, therefore, wholly and exclusively incurred in the course of carrying on of the business. It was deductible."
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11. In Proto Engineering Co. Pvt. Ltd. (supra), the Tribunal following the decision in Echjay Industries Ltd. (supra) allowed the similar claim of the assessee.
12. Applying the ratio of above decisions to the facts of the present case and keeping in view the rule of consistency, we hold that the expenditure incurred by the assessee on buy back of shares does not result in any advantage of enduring nature and accordingly the disallowance of expenses of Rs.11,56,868 made by the Assessing Officer treating the same as capital expenditure and confirmed by the learned CIT(A) is deleted. The grounds taken by the assessee are, therefore, allowed.
13. Ground No.II (a), (b) and (c) are against the sustenance of disallowance of expenses incurred for giving gifts to employees of Rs.91,500.
14. The facts of the above issue are that it has been observed by the Assessing Officer that the assessee has debited Rs.91,500 on account of expenses for gifts to employees. The Assessing Officer after considering the assessee's explanation that the expenses were incurred on purchase of gifts to employees on completing their certain years of service, was of the view that from the details of salary it is seen that the assessee company has been offering various types of incentives to the staff and workers, therefore, further expenses on gifts to employees is unwarranted and accordingly he disallowed the same. On appeal, it was explained by the assessee that it was a provision in last year and actually expenditure was not incurred in the year under consideration. It was allowed as a provision in A.Y. 2000-01 therefore no
-7- ITA No.4691/Mum//05 such disallowance is called for. However, the ld. CIT(A) observed that it is not the liability of the assessee for the A.Y. under reference and hence the Assessing Officer has rightly disallowed the same.
15. At the time of hearing the learned counsel for the assessee submits that the said amount represent expenditure of the immediately preceding year, and has not been charged/claimed as expenses for the year under appeal, therefore no such disallowance is called for and in support of his contention he refers to paper book page Nos.25 & 26 to show that the said amount is payable as per balance sheet as on 31.3.2001, therefore, the disallowance made by the Assessing Officer and sustained by the learned CIT(A) be deleted.
16. On the other hand, the learned D.R. supports the order of the Assessing Officer and learned CIT(A).
17. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find that the facts are not correctly recorded by the Assessing Officer. According to the assessee, the assessee has not debited the amount of Rs.91,500 in the year under consideration whereas according to the Assessing Officer, the assessee has debited the said amount of Rs.91,500. On perusal of the balance sheet for the year ended on 31.3.2000 and 31.3.2001, we find that the assessee has made a provision for gift to the employees amounting to Rs.91,500. According to the assessee, it was allowed in A.Y. 2000-01 and the same has been offered as income for A.Y. 2002-03. Since the complete facts are not on record inasmuch as there are contradiction on the facts, therefore, we are of the view that in the interest of
-8- ITA No.4691/Mum//05 justice the matter should go back to the file of Assessing Officer and accordingly we set aside the orders passed by the revenue authorities on this account and send back the matter to the file of Assessing Officer who shall decide the same afresh in the light of our observations herein above and according to law after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee are therefore partly allowed for statistical purposes.
18. Ground No.III (a), (b) and (c) are against sustenance of disallowance of bad debts of Rs.10,21,641.
19. The brief facts of the above issue are that it has been observed by the Assessing Officer that the assessee has debited an amount of Rs.11,84,973 towards bad debts written off. From the list of bad debts, the Assessing Officer observed that an amount of Rs.79,200 represents the earnest money deposits for tenders placed with the PSUs. An amount of Rs.84,132 represent the small balances running from the years 1998-99 to 2000-01, the balance of Rs.10,21,641 represents other debts written off during the year. The Assessing Officer further observed that the earnest money deposit of Rs.79,200, is not a trade debt as it has never been taken into the computation of the income of the assessee in any year. With regard to the other debts, the Assessing Officer observed that the said debts are mostly due from either government bodies or reputed companies, the recovery from these parties are not a difficult task and hence the Assessing Officer after relying on certain decisions disallowed Rs.10,21,641. On appeal, the learned CIT(A) for the same reasons confirmed the disallowances made by the Assessing Officer.
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20. At the time of hearing, the learned counsel for the assessee submits that it is now settled law that the assessee does not have to establish that the debt has become bad. It is sufficient if the debt is written off as irrecoverable. The learned counsel for the assessee while referring to page No.27 of Board Resolution and details of party-wise debt at page No.28 of the paper book placed reliance on the recent decision of Hon'ble Supreme Court in TRF Limited Vs. CIT (323 ITR 397) and submits that the disallowance of bad debt made by the Assessing Officer and sustained by the CIT(A) be deleted.
21. On the other hand, the learned DR supports the order passed by the Assessing Officer and learned CIT(A).
22. We have carefully heard the rival submissions of the parties and perused the material available on record. We find that it is not in dispute that the assessee has passed relevant entries in the books of accounts. In TRF Limited (supra) it has been observed (placitum 4) :-
" This position in law is well settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee......"
Respectfully following the above decision of the Hon'ble Apex Court, we are of the view that the disallowance of bad debt of Rs.10,21,641 made by the Assessing Officer and sustained by the learned CIT(A) is not sustainable in law and accordingly the same is deleted. The grounds taken by the assessee are, therefore, allowed.
23. Ground No.IV (a), (b) & (c) are against sustaining disallowance in respect of prior period expenses of Rs.5,33,782.
24. The brief facts of the above issue are that it was observed by the Assessing Officer that the assessee has debited an amount of Rs.5,33,782
- 10 - ITA No.4691/Mum//05 being prior period expenses in the P & L Account. According to the Assessing Officer since the assessee is following mercantile system of accounting, the expenses relating to prior year are not allowable and hence he added the same to the income of the assessee. On appeal, the learned CIT(A) for the same reasons upheld the addition made by the Assessing Officer.
25. At the time of hearing, learned counsel for the assessee after referring to the schedule of prior period expenses along with copy of bills and vouchers appearing at page 30 to 48 of the assessee's paper book submits that all these expenses are dt.31.3.2001 and as the liability was determined and crystallized in the year under reference, therefore, it is allowable as a deduction. Reliance was also placed on the decision of the Tribunal in Escorts Limited Vs. Inspecting Asstt. Commissioner (2004) 89 TTJ 221 (Del) wherein on the similar facts and circumstances of the case, the Tribunal has allowed the deduction of prior period expenses vide para 121 of the order. He further submits that the said order has also been followed in Rashtriya Chemicals and Fertilisers Ltd. Vs. JCIT in ITA 1013/Mum/2001 Dt.19.4.2007 for the Asst. Year 1997-98. He, therefore, submits that the disallowance made by the Assessing Officer and sustained by the learned CIT(A) be deleted.
26. On the other hand, learned D.R. submits that since the assessee is following mercantile system of accounting, therefore, the learned CIT(A) was fully justified in confirming the order of the Assessing Officer in sustaining the disallowance of prior period expenses in the year under consideration and hence his order be upheld.
27. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find that the prior period expenses claimed by the assessee are in the nature of payment of overtime,
- 11 - ITA No.4691/Mum//05 stipend, service charges, railway claim, commission, sales returns, club expenses, equipment maintenance, postage, courier charges, water charges, AMC charges, erection and commissioning, printing and license fees etc. The claim of the assessee is that it has incurred the said expenses at the fag end of the preceding financial year but the liability has been determined and crystallized in the year under consideration and in support the assessee has also filed vouchers.
28. In Escorts Limited (supra), the Tribunal on the similar issue has held that where the turnover of the assessee is substantial, some bona fide adjustments in the books of accounts where the accounts for the relevant year may have been closed or the assessee's avenues with claiming these deductions in the relevant year have been exhausted, the assessee would be entitled to claim such deductions in the subsequent year and accordingly, the Tribunal while allowing the claim of the assessee rejected the ground taken by the revenue.
29. In the absence of any contrary material or distinguishing features brought on record by the revenue and keeping in view that it is not the claim of the revenue that the said expenses have not been incurred by the assessee for the purpose of business, we respectfully following the consistent view of the Tribunal (supra) hold that merely because the liability relates to the transaction of the earlier years does not mean that the same is not allowable in the absence of any material to show that the liability was not determined and crystallized in the year under consideration and accordingly the disallowance of Rs.5,33,782 made by the Assessing Officer and sustained by the learned CIT(A) is deleted. The grounds taken by the assessee are therefore allowed.
30. Ground No.V (a), (b) and (c) are against sustenance of unclaimed credit balances of Rs.43,414.
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31. The brief facts of the above issue are that from the details of the current liabilities filed, the Assessing Officer observed that amount of Rs.43,414 has been shown as "unclaimed credit balance". According to the Assessing Officer this shows that there are no claimants for this amount and the assessee should have written back in the computation which has not been done and accordingly he added the same to the income of the assessee. On appeal, the learned CIT(A) held that the appellant could not establish that it is still under obligation to make these payments and why these payments are still outstanding for their payment, upheld the addition made by the Assessing Officer.
32. At the time of hearing, the learned counsel for the assessee while referring to the details of unclaimed credit balances appearing at page No.49 of the assessee's paper books submits that the amount is outstanding from the year 1997 and 1998. However, the same has been written back in the Asst. Year 2002-03. He therefore submits that in view of the decision of the Hon'ble supreme Court in CIT Vs. Sugauli Sugar Works Pvt. Ltd. (236 ITR 518) and CIT Vs. Kajaria Tea Co. Pvt. Ltd. 254 ITR 434, the addition made by the Assessing Officer and sustained by the learned CIT(A) be deleted.
33. On the other hand, the learned D.R. while relying on the order of the Assessing Officer and the learned CIT(A) submits that since the assessee has unclaimed credit balances outstanding as on 31.3.2001, the learned CIT(A) was fully justified in sustaining the disallowances made by the Assessing Officer. He submits that the addition made by the Assessing Officer and sustained by the learned CIT(A) be upheld.
34. We have carefully considered the rival submissions and perused the material available on record. We find that the facts are not in dispute
- 13 - ITA No.4691/Mum//05 inasmuch as the said amount of Rs.43,414 has been shown in the account as "unclaimed credit balance as on 31.3.2001." We further find that it is also not in dispute the assessee has written back the above amount in the Asst. Year 2002-03.
35. In CIT Vs. T.V. Sundaram Iyengar & Sons Ltd. (1996) 222 ITR 344 (SC), it has been observed that the sums were stated to be credit balances standing in favour of the customers of the company. Since these balances were not claimed by the customers, the amounts were transferred to the profit and loss account. There is no dispute that the amount was received by the assessee in the course of trade transaction. The Assessing Officer was of the view that because the surplus had arisen as a result of trade transaction, the amount had a character of income and had to be added as income of the assessee for the purpose of income tax assessment. It has been held by the Hon'ble Apex Court that the assessee because of trading operation, had become richer by the amount which is transferred to its profit and loss account. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amounts remained with the assessee for a long period unclaimed by the trade parties. By lapse of time, the claim of the deposit became time barred and the amount attained a totally different quality. It became a definite trade surplus. The assessee itself had treated the money as its own money and taken the amount to its profit and loss account. The amounts were assessable in the hands of the assessee.
36. In CIT Vs. Sugauli Sugar Works Pvt. Ltd. (1999) 236 ITR 518 it has been held as under (headnote) :
- 14 - ITA No.4691/Mum//05 "The following words in section 41(1) of the Income Tax Act, 1961, are important : "the assessee had obtained, whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him". The section contemplates the obtaining by the assessee of an amount either in cash or in any other manner whatsoever or a benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, the obtaining by the assessee of a benefit by virtue of remission or cessation is sine qua non for the application of this section. The mere fact that the assessee has made an entry of transfer in his accounts unilaterally will not enable the Department to say that section 41(1) would apply and the amount should be included in the total income of the assessee.
The principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well settled. If that principle is applied, it is clear that mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section."
37. In CCIT Vs. Kesaria Tea Co. Ltd. (2002) 254 ITR 434 (SC), it has been observed and held (headnote) :
" During 1978-1981, the assessee, engaged in the business of tea, spices, etc., had made provision for purchase tax liability. The liability to purchase tax was in dispute and the Sales Tax Department persisted in its claim for purchase tax. During the previous year relevant to the assessment year 1985-86, the assessee-apparently for the reason that the decision of the Supreme Court had dismissed the State's special leave petition to appeal from the decision of the High Court in Neroth Oil Mills (1982) 49 STC 249 (Ker) - wrote back in its accounts the sum of `.14,65,997 out of the provision for purchase tax liability, which sum the Assessing Officer brought to tax under section 41(1) of
- 15 - ITA No.4691/Mum//05 the Income Tax Act, 1961, as deemed profit. On appeal, the Commissioner (Appeals) held that out of the sum of `.14,65,997, two amounts, viz., of `.6,61,413 and `.5,10,826, had already been brought to tax in the assessment years 1980-81 and 1981-82 and only the balance of `.3,02,758 could be brought to tax. On appeal, the Appellate Tribunal held that the sum of `.3,02,758 could not be brought to tax, since the sales tax department was pursuing the matter in respect of the purchase tax liability of the assessee as late as 1993 and the cases were still pending decision before the sales tax authorities and the judgment of the Kerala High Court was concerned with only one of two aspects relating to exemption from purchase tax, and the other aspect was still involved in the assessee's case, there was no cessation of liability and the unilateral action on the part of the assessee in writing back the amounts could not have the effect of extinguishing the statutory liability. On a reference, the High Court affirmed the decision of the Appellate Tribunal. On appeal to the Supreme Court :
Held, affirming the decision of the High Court, that the Appellate Tribunal as well as the High Court were justified in coming to the conclusion that the purchase tax liability of the assessee had not ceased finally during the year in question: despite the finality attained by the judgment in Neroth Oil Mills case (1982) 49 STC 249 (Ker), the other issues having bearing on the exigibility of purchase tax still remained and the dispute between the assessee and the Sales Tax Department continued. The unilateral act on the part of the assessee by way of writing off the liability in its accounts did not necessarily mean that the liability had ceased in the eye of law."
38. Since the assessee has shown the above amount as unclaimed credit balance in the books of account and has also shown as income for the Asst. Year 2002-03, we respectfully following the ratio of the decision in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra), hold that the amount of unclaimed credit balance of `.43,414 is assessable as income in the year under consideration. There is no quarrel on the principle of law laid down in the two
- 16 - ITA No.4691/Mum//05 judgements (supra) of Hon'ble Apex Court relied on by the learned counsel for the assessee. However, for the reasons and ratio as laid down in the case of T.V. Sundaram Iyengar & Sons Ltd. (supra), both the decisions relied on by the learned counsel for the assessee are distinguishable and not applicable to the facts of the present case. In this view of the matter, we are inclined to uphold the finding of the learned CIT(A) in upholding the addition of unclaimed credit balance of `.43,414 made by the Assessing Officer. The grounds taken by the assessee are, therefore, rejected.
39. Ground No.VI(a), (b) and (c) are against the sustenance of addition of provision for leave encashment of Rs.8,71,541.
40. At the time of hearing, the learned counsel for the assessee submits that he does not want to press the above amount which was not objected to by the learned D.R.
41. That being so and in the absence of any supporting material placed on record by the learned counsel for the assessee, the grounds taken by the assessee are therefore rejected being not pressed.
42. Ground No.VII (a), (b), (c) and (d) are against the sustenance of disallowance of expenses of Rs.6,41,128 under section 14A of the Act.
43. The brief facts of the above issue are that during the course of assessment proceedings, it was observed by the Assessing Officer that the assessee has shown dividend income of Rs.64,11,281 on its non-trade investment. The net non-trade investment stands of Rs.6,54,88,164 as on 31.3.2001. The assessee was asked to explain as to why expenses relating to the earning of dividend income should not be disallowed as provided under the provisions of
- 17 - ITA No.4691/Mum//05 section 14A of the Act. It was explained by the assessee that no expenditure was incurred for earning the dividend income. The assessee was further required to furnish the details of dividend income from whom it was received. From the details furnished by the assessee, the Assessing Officer observed that major part of dividend income was from Unit Trust of India. The portfolio management of investment requires management decisions, consolidation and many more allied services. The officers and managers at the top and the middle level have to devote the time for this purpose. The Assessing Officer while relying on the decision of the Hon'ble Apex Court in the case of Consolidated Coffee Limited Vs. State of Karnataka reported in 248 ITR 432 wherein it has been held that apportionment of income on the pro rata was held to be possible as a rationale way of bifurcating expenses, was of the view that an amount of approximately Rs.8 lakhs could be attributed to the earning of the dividend income considering all the administrative and overhead expenses. On appeal, the learned CIT(A) after considering the break up of dividend while upholding the action of the Assessing Officer for invoking the provisions of section 14A directed the Assessing Officer to make the disallowance to the extent of 10% of dividend income and thereby deleted the disallowance of excess 10% of dividend income.
44. At the time of hearing both parties have agreed that this issue is squarely covered by the judgement of Hon'ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, therefore, the issue may be decided accordingly.
45. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find merit in plea of the parties that the issue stands covered by the recent judgment of the Hon'ble
- 18 - ITA No.4691/Mum//05 Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT in Income Tax Appeal No. 626 of 2010 and Writ Petition No. 758 of 2010 dated 12-8- 2010 recently reported in (2010) 328 ITR 81 (Bom) wherein Their Lordships after considering the decision of the Tribunal in Daga Capital Management Pvt. Ltd. (117 ITD 169) (Mum) (SB), while holding that the provisions of sub sections (2) and (3) of sec. 14A of the Act are constitutionally valid have held vide placitum 88 (iv) appearing at page 138 of the ITR as under :
" 88(iv). Even prior to assessment year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record."
Respectfully following the above judgment we set aside the Orders passed by the revenue authorities on this account and send back the matter to the file of the Assessing Officer who shall decide the same afresh in the light of the directions of the Hon'ble Jurisdictional High Court in the above cited case and according to law after providing reasonable opportunity of being heard to the assessee and accordingly the ground taken by the assessee is partly allowed for statistical purposes.
46. Ground No.VIII (a), (b) and (c) are against the sustenance of disallowance of provident fund and ESIC of Rs.30,098 under section 43B of the Act.
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47. The brief facts of the above issue are that the Assessing Officer observed that the assessee has not included in the computation of income the disallowance of EPF Rs.10,133 and ESIC Rs.19,965 which was worked out as disallowance shown in Annexure 5.1 and 5.2 of tax audit report, and hence he made disallowance of Rs.30,098 under section 43B of the Act. On appeal, the learned CIT(A) while relying on the decision of Hon'ble High Courts and Mumbai Tribunal cited at pages 19 to 21 of his order upheld the disallowance made by the Assessing Officer.
48. After hearing the rival parties and perusing the material available on record we are of the opinion that the issue involved in the present case is no more res integra and is covered by the decision of the Hon'ble Supreme Court in CIT Vs. Alom Extrusions Ltd. (2009) 319 ITR 306, wherein their Lordships have considered the applicability of section 36(1)(va) read with section 2(24)(x) as well as 43B of the Act and it has been held that the amendment was curative in nature and applicable retrospectively with effect from April 1, 1988.
49. In CIT Vs. AIMIL Ltd. (2010) 321 ITR 508 (Del), their Lordships while observing that the assessee has deposited employer's contribution as well as employees' contribution towards PF and ESIC after the due date, as prescribed under the relevant Act/Rule but before the due date for filing the return under the Income Tax Act have held that no disallowance could be made in view of the provisions of section 43B as amended by the Finance Act, 2003.
50. Respectfully following the above decisions, we find that there is no dispute that the assessee has made the above payments before the due date of filing of the return, therefore, we are of the view that no such disallowance is called for. The Assessing Officer is directed to allow the same after due verification and after giving reasonable opportunity of being heard to the
- 20 - ITA No.4691/Mum//05 assessee. The grounds taken by the assessee are therefore partly allowed for statistical purpose.
51. In the result the appeal is partly allowed for statistical purposes.
Order pronounced in the open Court on 8-12-2010.
Sd/- Sd/-
(PRAMOD KUMAR) (D.K. AGARWAL)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai,
Dt.8-12-2010.
*Gpr
Copy to :
1. The Assessee.
2. The Assessing Officer.
3. CIT(Appeals)
4. CIT
5. Departmental Representative, ITAT, Mumbai.
By order
Dy./Asst.Registrar,
ITAT, Mumbai
- 21 - ITA No.4691/Mum//05
Initial
Date
1. Draft dictated on 2.11.2010 Sr.PS
2. Draft placed before author Sr.PS
3. Draft proposed & placed before the JM/AM
second member
4. Draft discussed/approved by Second JM/AM
Member
5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS
6. Date of pronouncement 8-12-2010 Sr.PS
7. File sent to the Bench Clerk 9-12-2010 Sr.PS
8. Date on which file goes to the Head Clerk
9. Date of dispatch of Order