M/s. JOHN FOWLER (I) P. LTD., MUMBAI v. ITO 1(2)(1), MUMBAI

ITA 4691/MUM/2005 | 2001-2002
Pronouncement Date: 08-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 469119914 RSA 2005
Assessee PAN AABCJ4396C
Bench Mumbai
Appeal Number ITA 4691/MUM/2005
Duration Of Justice 5 year(s) 5 month(s) 11 day(s)
Appellant M/s. JOHN FOWLER (I) P. LTD., MUMBAI
Respondent ITO 1(2)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 08-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 08-12-2010
Date Of Final Hearing 02-11-2010
Next Hearing Date 02-11-2010
Assessment Year 2001-2002
Appeal Filed On 27-06-2005
Judgment Text
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. (FORMERLY KNOWN AS JOHN FOWLER (INDIA) LTD.) 19 2 ND FLOOR KHETAN BHAVAN NO.198 J. TATA ROAD MUMBAI-400 020 PAN NO.AABCJ4396C VS. INCOME TAX OFFICER 1(2)(1) AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020 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 TH E ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING DESIGNING E RECTION AND COMMISSIONING OF PLANT AND EQUIPMENT FOR TOBACCO PROCESSING AND PRO CESSING OF SEEDS GRAINS ETC. IT FILED RETURN DECLARING TOTAL LOSS OF RS.8 8 6 220. HOWEVER THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS.15 84 6 80 VIDE ORDER DT.28.11.2003 PASSED UNDER SECTION 143(3) OF THE INC OME TAX ACT 1961 (THE ACT). ON APPEAL THE LEARNED CIT(A) PARTLY ALLOWED THE APPEAL. ITA NO.4691/MUM//05 - 2 - 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 SUSTE NANCE OF DISALLOWANCE OF EXPENSES INCURRED FOR BUY BACK OF SHARES OF RS.11 5 6 868. 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 VARI OUS HEADS. ON BEING ASKED IT WAS EXPLAINED BY THE ASSESSEE THAT THE DE CISION TO BUY BACK OF SHARES WAS TAKEN AT THE BOARD MEETING HELD ON 17.7.2000 AN D 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 TH E CAPITAL STRUCTURE OF THE ASSESSEE COMPANY. IT HAS NOTHING TO DO WITH THE BUS INESS. 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 CO MPANY. THIS REDUCTION IN CAPITAL HAS HELPED THE HOLDING COMPANY TO ENHANCE I TS HOLDING FROM 62% TO 82%. ACCORDING TO THE ASSESSING OFFICER THESE EXPENDITUR E PAR TAKE THE CHARACTER OF CAPITAL EXPENDITURE. THE ASSESSING OFFICER AFTER RELYING ON THE DECISIONS OF ITA NO.4691/MUM//05 - 3 - HONBLE SUPREME COURT IN THE CASE OF BROKE BOND INDIA LTD. (1997) 140 CTR 598 AND PUNJAB STATE DEVELOPMENT CORPORATION VS. CI T (1997) 140 CTR 594 WAS OF THE VIEW THAT THE ABOVE BUY BACK OF SHARES A RE DIRECTLY CONNECTED TO THE RESTRUCTURING OF THE CAPITAL BASE OF THE ASSESSE E COMPANY AND THEREFORE IT IS IN THE NATURE OF CAPITAL EXPENDITURE AND ACCORDING LY 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 ASS ESSING OFFICER. 6. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR T HE ASSESSEE WHILE REITERATING THE SAME AS SUBMITTED BEFORE THE ASSESSI NG OFFICER AND THE LEARNED CIT(A) REFERS TO PAGE NO.24 OF THE ASSESSE ES PAPER BOOK TO SHOW THE DETAILS OF BUY BACK EXPENSES AMOUNTING TO RS.11 56 8 18 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 O N THE FOLLOWING DECISIONS : I) CIT VS. SELAN EXPLORATION TECHNOLOGY LIMITED 188 TA XMAN 1 (DEL) II) ECHJAY INDUSTRIES LIMITED VS. DCIT 257 ITR 1 (MUM) (A T) III) PROTOS ENGINEERING CO. PVT. LTD. VS. DCIT (A.Y. 199 5-96) (ITA NO.5510/MUM/02 DT.30.5.2008) IV) CIT VS. GENERAL INSURANCE CORPORATION (2006) 286 IT R 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 RELYIN G ON THE ORDER OF THE ASSESSING OFFICER AND THE LEARNED CIT(A) FURTHER SUBM ITS THAT THE DECISION OF THE HONBLE SUPREME COURT IN CIT VS. GENERAL INSURANCE CORPORATION 286 ITR 232 IS ON THE ISSUE OF BONUS SHARES THEREFORE THE S AME IS NOT APPLICABLE TO THE ITA NO.4691/MUM//05 - 4 - FACTS OF THE ASSESSEES CASE. HE FURTHER SUBMITS TH AT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SELAN EXPLOR ATION TECHNOLOGY LTD. (SUPRA) IS ALSO NOT APPLICABLE AS THEIR LORDSHIPS HA VE DECIDED THE ISSUE RELYING ON THE DECISION OF GENERAL INSURANCE CORPORATION (S UPRA). HE THEREFORE SUBMITS THAT THE BUY BACK OF SHARES ARE DIRECTLY CON NECTED TO THE RESTRUCTURING OF THE CAPITAL BASE OF THE ASSESSEE CO MPANY HENCE IT IS IN THE NATURE OF CAPITAL EXPENDITURE AND THEREFORE THE LEA RNED CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE BY THE A SSESSING 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 T HAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS THE ASSESSEE HAS INCURRED THE EXPE NSES 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 EXPE NSES INCURRED BY THE ASSESSEE ARE NOT IN RELATION WITH THE SUCH SHARE CAP ITAL OR THERE IS ANY FLOW OF FUNDS OR INCREASE IN THE CAPITAL EMPLOYED. IT IS AL SO NOT THE CASE OF THE REVENUE THAT THERE IS ANY INCREASE IN THE ASSESSEES ASSETS OR THE COMPANY HAS ACQUIRED ANY RIGHT OF REVENUE YIELDING NATURE. 9. IN SELAN EXPLORATION TECHNOLOGY LTD. (SUPRA) THE IR LORDSHIPS AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 1 GENERAL INSURANC E CORPN. (SUPRA) BROOKE ITA NO.4691/MUM//05 - 5 - BOND INDIA LTD. (225 ITR 798) AND PUNJAB STATE INDUST RIAL DEVELOPMENT CORPN. LTD. (225 ITR 792) OBSERVED AND HELD AS UNDER : 11. IN THE PRESENT CASE CONSULTANCY FEE FOR ADV ISORY SERVICES WAS PAID BY THE ASSESSEE-COMPANY FOR BUYBA CK OF SHARES. INSTEAD OF INCREASE IN THE SHARE CAPITAL IT WAS G OING TO RESULT IN THE DECREASE IN FUNDS WITH THE BUYBACK OF THE SHARES . IN THESE CIRCUMSTANCES THE TRIBUNAL RIGHTLY HELD THAT THE ASS ESSEE HAD NOT ACQUIRED THE BENEFIT OR ADDITION OF ENDURING NATURE BE CAUSE AFTER THE BUYBACK BENEFIT OR ADDITION OF ENDURING NATURE WOULD NOT ARISE AS CAPITAL EMPLOYED HAD IN FACT GONE DOWN. THE E XPENDITURE INCURRED HAD NOT RESULTED INTO BRINGING INTO EXISTENC E 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 SHAREHOLD ERS TO SECURE SMOOTH RUNNING OF THE COMPANY AND AVOIDING ITS POSSIBLE WINDING UP UNDER THE PROVISIONS OF SECTIONS 397 AND S ECTION 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 A ND 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 I T WAS NOT RELATABLE TO THE FIXED CAPITAL STRUCTURE OF THE COMPA NY BECAUSE IT HAD NEITHER INCREASED THE ASSESSEES ASSETS NOR COULD THE COMPANY BE SAID TO HAVE ACQUIRED ANY RIGHT OF INCOME YIELDING NATURE. THE REDUCTION OF THE SHARE CAPITAL WAS MEREL Y A CONSEQUENCE OF THE AGREEMENT WHICH HAD TO BE GIVEN EF FECT TO THAT TOO BY AN ORDER OF THE COURT. IT WAS CLEAR FR OM THE ANNUAL REPORT OF THE COMPANY THAT THE PROFITS OF THE COMPA NY WHICH WERE GOING DOWN IMPROVED CONSIDERABLY. THE EXPEND ITURE WAS INCURRED OUT OF BUSINESS EXPEDIENCY AND THEREFORE WH OLLY AND EXCLUSIVELY INCURRED IN THE COURSE OF CARRYING ON OF THE BUSINESS. IT WAS DEDUCTIBLE. ITA NO.4691/MUM//05 - 6 - 11. IN PROTO ENGINEERING CO. PVT. LTD. (SUPRA) THE TRIBUNAL FOLLOWING THE DECISION IN ECHJAY INDUSTRIES LTD. (SUPRA) ALLOWED TH E SIMILAR CLAIM OF THE ASSESSEE. 12. APPLYING THE RATIO OF ABOVE DECISIONS TO THE FA CTS 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 N OT 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 GR OUNDS TAKEN BY THE ASSESSEE ARE THEREFORE ALLOWED. 13. GROUND NO.II (A) (B) AND (C) ARE AGAINST THE SUS TENANCE OF DISALLOWANCE OF EXPENSES INCURRED FOR GIVING GIFTS TO EMPLOYEES O F RS.91 500. 14. THE FACTS OF THE ABOVE ISSUE ARE THAT IT HAS BE EN OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED RS. 91 500 ON ACCOUNT OF EXPENSES FOR GIFTS TO EMPLOYEES. THE ASSESSING OFF ICER AFTER CONSIDERING THE ASSESSEES EXPLANATION THAT THE EXPENSES WERE INCURR ED ON PURCHASE OF GIFTS TO EMPLOYEES ON COMPLETING THEIR CERTAIN YEARS OF SERV ICE WAS OF THE VIEW THAT FROM THE DETAILS OF SALARY IT IS SEEN THAT THE ASSE SSEE COMPANY HAS BEEN OFFERING VARIOUS TYPES OF INCENTIVES TO THE STAFF A ND WORKERS THEREFORE FURTHER EXPENSES ON GIFTS TO EMPLOYEES IS UNWARRANTED AND ACCORDINGLY HE DISALLOWED THE SAME. ON APPEAL IT WAS EXPLAINED B Y THE ASSESSEE THAT IT WAS A PROVISION IN LAST YEAR AND ACTUALLY EXPENDITURE WAS N OT INCURRED IN THE YEAR UNDER CONSIDERATION. IT WAS ALLOWED AS A PROVISION IN A.Y. 2000-01 THEREFORE NO ITA NO.4691/MUM//05 - 7 - SUCH DISALLOWANCE IS CALLED FOR. HOWEVER THE LD. C IT(A) OBSERVED THAT IT IS NOT THE LIABILITY OF THE ASSESSEE FOR THE A.Y. UNDER REF ERENCE AND HENCE THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAME. 15. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR T HE ASSESSEE SUBMITS THAT THE SAID AMOUNT REPRESENT EXPENDITURE OF THE IMMEDIAT ELY PRECEDING YEAR AND HAS NOT BEEN CHARGED/CLAIMED AS EXPENSES FOR THE YE AR 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 A MOUNT IS PAYABLE AS PER BALANCE SHEET AS ON 31.3.2001 THEREFORE THE DISAL LOWANCE 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 RIV AL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE FACTS ARE NOT CORRECTLY RECORDED BY THE ASSESSING OFFICER. ACCORDING TO TH E ASSESSEE THE ASSESSEE HAS NOT DEBITED THE AMOUNT OF RS.91 500 IN THE YEAR UNDER CONSIDERATION WHEREAS ACCORDING TO THE ASSESSING OFFICER THE ASS ESSEE 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. ACCOR DING 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 RECOR D INASMUCH AS THERE ARE CONTRADICTION ON THE FACTS THEREFORE WE ARE OF TH E VIEW THAT IN THE INTEREST OF ITA NO.4691/MUM//05 - 8 - JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF ASSE SSING OFFICER AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE R EVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF ASSE SSING OFFICER WHO SHALL DECIDE THE SAME AFRESH IN THE LIGHT OF OUR OBSERVAT IONS HEREIN ABOVE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE ASSESSEE ARE THE REFORE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 18. GROUND NO.III (A) (B) AND (C) ARE AGAINST SUSTEN ANCE OF DISALLOWANCE OF BAD DEBTS OF RS.10 21 641. 19. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT H AS 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 BA D DEBTS THE ASSESSING OFFICER OBSERVED THAT AN AMOUNT OF RS.79 200 REPRESE NTS THE EARNEST MONEY DEPOSITS FOR TENDERS PLACED WITH THE PSUS. AN AMO UNT 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 DUR ING 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 RE GARD 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 ASS ESSING OFFICER. ITA NO.4691/MUM//05 - 9 - 20. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITS THAT IT IS NOW SETTLED LAW THAT THE ASSESSEE DOES N OT HAVE TO ESTABLISH THAT THE DEBT HAS BECOME BAD. IT IS SUFFICIENT IF THE DEBT I S 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 O F HONBLE SUPREME COURT IN TRF LIMITED VS. CIT (323 ITR 397) AND SUBMITS THAT T HE 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 SUBMISS IONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PASSED RELEVANT ENTRIES IN THE BOO KS OF ACCOUNTS. IN TRF LIMITED (SUPRA) IT HAS BEEN OBSERVED (PLACITUM 4) :- THIS POSITION IN LAW IS WELL SETTLED. AFTER 1 ST APRIL 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E 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 TA KEN BY THE ASSESSEE ARE THEREFORE ALLOWED. 23. GROUND NO.IV (A) (B) & (C) ARE AGAINST SUST AINING DISALLOWANCE IN RESPECT OF PRIOR PERIOD EXPENSES OF RS.5 33 782. 24. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT W AS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.5 33 782 ITA NO.4691/MUM//05 - 10 - BEING PRIOR PERIOD EXPENSES IN THE P & L ACCOUNT. A CCORDING TO THE ASSESSING OFFICER SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THE EXPENSES RELATING TO PRIOR YEAR ARE NOT ALLOWABLE A ND HENCE HE ADDED THE SAME TO THE INCOME OF THE ASSESSEE. ON APPEAL THE LEAR NED CIT(A) FOR THE SAME REASONS UPHELD THE ADDITION MADE BY THE ASSESSING OF FICER. 25. AT THE TIME OF HEARING LEARNED COUNSEL FOR THE ASSESSEE AFTER REFERRING TO THE SCHEDULE OF PRIOR PERIOD EXPENSES A LONG 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 LIAB ILITY 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) 8 9 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 I N 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 DISAL LOWANCE 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 ASSESS ING OFFICER IN SUSTAINING THE DISALLOWANCE OF PRIOR PERIOD EXPENSES IN THE YE AR 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 T HAT THE PRIOR PERIOD EXPENSES CLAIMED BY THE ASSESSEE ARE IN THE NATURE OF PAYMENT OF OVERTIME ITA NO.4691/MUM//05 - 11 - STIPEND SERVICE CHARGES RAILWAY CLAIM COMMISSION SALES RETURNS CLUB EXPENSES EQUIPMENT MAINTENANCE POSTAGE COURIER CHA RGES WATER CHARGES AMC CHARGES ERECTION AND COMMISSIONING PRINTING A ND LICENSE FEES ETC. THE CLAIM OF THE ASSESSEE IS THAT IT HAS INCURRED THE SA ID EXPENSES AT THE FAG END OF THE PRECEDING FINANCIAL YEAR BUT THE LIABILITY HAS B EEN 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 SUBSTANTI AL SOME BONA FIDE ADJUSTMENTS IN THE BOOKS OF ACCOUNTS WHERE THE ACCOUNT S FOR THE RELEVANT YEAR MAY HAVE BEEN CLOSED OR THE ASSESSEES AVENUES WITH CLAIMING THESE DEDUCTIONS IN THE RELEVANT YEAR HAVE BEEN EXHAUSTED THE ASSESS EE WOULD BE ENTITLED TO CLAIM SUCH DEDUCTIONS IN THE SUBSEQUENT YEAR AND ACCORDI NGLY THE TRIBUNAL WHILE ALLOWING THE CLAIM OF THE ASSESSEE REJECTED THE GRO UND 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 INC URRED BY THE ASSESSEE FOR THE PURPOSE OF BUSINESS WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL (SUPRA) HOLD THAT MERELY BECAUSE THE LIABILIT Y 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 LIABIL ITY WAS NOT DETERMINED AND CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AND ACC ORDINGLY THE DISALLOWANCE OF RS.5 33 782 MADE BY THE ASSESSING OFFICER AND SUSTAI NED BY THE LEARNED CIT(A) IS DELETED. THE GROUNDS TAKEN BY THE ASSESSE E ARE THEREFORE ALLOWED. 30. GROUND NO.V (A) (B) AND (C) ARE AGAINST S USTENANCE OF UNCLAIMED CREDIT BALANCES OF RS.43 414. ITA NO.4691/MUM//05 - 12 - 31. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THA T FROM THE DETAILS OF THE CURRENT LIABILITIES FILED THE ASSESSING OFFICER OBS ERVED THAT AMOUNT OF RS.43 414 HAS BEEN SHOWN AS UNCLAIMED CREDIT BALANC E. ACCORDING TO THE ASSESSING OFFICER THIS SHOWS THAT THERE ARE NO CLAI MANTS FOR THIS AMOUNT AND THE ASSESSEE SHOULD HAVE WRITTEN BACK IN THE COMPUTAT ION WHICH HAS NOT BEEN DONE AND ACCORDINGLY HE ADDED THE SAME TO THE INCOM E 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 WH Y THESE PAYMENTS ARE STILL OUTSTANDING FOR THEIR PAYMENT UPHELD THE ADDITION MA DE BY THE ASSESSING OFFICER. 32. AT THE TIME OF HEARING THE LEARNED COUNSE L FOR THE ASSESSEE WHILE REFERRING TO THE DETAILS OF UNCLAIMED CREDIT BALANCE S APPEARING AT PAGE NO.49 OF THE ASSESSEES PAPER BOOKS SUBMITS THAT THE AMOUNT IS OUTSTANDING FROM THE YEAR 1997 AND 1998. HOWEVER THE SAME HAS BEEN WRI TTEN BACK IN THE ASST. YEAR 2002-03. HE THEREFORE SUBMITS THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN CIT VS. SUGAULI SUGAR WORKS PV T. 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. WHI LE 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 MA DE BY THE ASSESSING OFFICER. HE SUBMITS THAT THE ADDITION MADE BY THE A SSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT(A) BE UPHELD. 34. WE HAVE CAREFULLY CONSIDERED THE RIVAL S UBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FAC TS ARE NOT IN DISPUTE ITA NO.4691/MUM//05 - 13 - INASMUCH AS THE SAID AMOUNT OF RS.43 414 HAS BEEN SHO WN IN THE ACCOUNT AS UNCLAIMED CREDIT BALANCE AS ON 31.3.2001. WE FURTH ER FIND THAT IT IS ALSO NOT IN DISPUTE THE ASSESSEE HAS WRITTEN BACK THE ABOVE AMOUN T IN THE ASST. YEAR 2002-03. 35. IN CIT VS. T.V. SUNDARAM IYENGAR & SON S 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 TRANS FERRED 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 O FFICER WAS OF THE VIEW THAT BECAUSE THE SURPLUS HAD ARISEN AS A RESULT OF TRADE TR ANSACTION 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 HONBLE APEX COURT THAT THE ASSESSEE BECAUSE OF TRADING OPERATION HAD BECOME RICHER BY THE AMOUNT WHICH IS TRANSFERRED TO ITS PROFIT AND LOSS A CCOUNT. THE MONEYS HAD ARISEN OUT OF ORDINARY TRADING TRANSACTIONS. ALTHOUGH THE AMOUNTS RECEIVED ORIGINALLY WERE NOT OF INCOME NATURE THE AMOUNTS REM AINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY THE TRADE PARTIES. B Y LAPSE OF TIME THE CLAIM OF THE DEPOSIT BECAME TIME BARRED AND THE AMOUNT ATTAIN ED A TOTALLY DIFFERENT QUALITY. IT BECAME A DEFINITE TRADE SURPLUS. THE ASSE SSEE ITSELF HAD TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO I TS PROFIT AND LOSS ACCOUNT. THE AMOUNTS WERE ASSESSABLE IN THE HANDS OF THE ASSE SSEE. 36. IN CIT VS. SUGAULI SUGAR WORKS PVT. LT D. (1999) 236 ITR 518 IT HAS BEEN HELD AS UNDER (HEADNOTE) : ITA NO.4691/MUM//05 - 14 - 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 TRADIN G LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF THE AMOUNT OB TAINED BY HIM. THE SECTION CONTEMPLATES THE OBTAINING BY TH E ASSESSEE OF AN AMOUNT EITHER IN CASH OR IN ANY OTHER MANNER WHAT SOEVER OR A BENEFIT BY WAY OF REMISSION OR CESSATION AND IT SHO ULD BE OF A PARTICULAR AMOUNT OBTAINED BY HIM. THUS THE OBTAINING BY THE ASSESSEE OF A BENEFIT BY VIRTUE OF REMISSION OR CESS ATION IS SINE QUA NON FOR THE APPLICATION OF THIS SECTION. THE MERE FACT THAT THE ASSESSEE HAS MADE AN ENTRY OF TRANSFER IN HIS ACCOUN TS UNILATERALLY WILL NOT ENABLE THE DEPARTMENT TO SAY THAT SECTION 41(1) WOULD APPLY AND THE AMOUNT SHOULD BE INCLUDED IN THE TOTAL I NCOME OF THE ASSESSEE. THE PRINCIPLE THAT EXPIRY OF THE PERIOD OF LIMITATION PRESCRIBED UNDER THE LIMITATION ACT COULD NOT EXTINGUI SH THE DEBT BUT IT WOULD ONLY PREVENT THE CREDITOR FROM ENFORCIN G THE DEBT HAS BEEN WELL SETTLED. IF THAT PRINCIPLE IS APPLIE D IT IS CLEAR THAT MERE ENTRY IN THE BOOKS OF ACCOUNT OF THE DEBTOR MAD E 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 BUSI NESS OF TEA SPICES ETC. HAD MADE PROVISION FOR PURCHASE TAX LI ABILITY. THE LIABILITY TO PURCHASE TAX WAS IN DISPUTE AND THE SALE S 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 DECISIO N OF THE SUPREME COURT HAD DISMISSED THE STATES SPECIAL LEAVE PETITION TO APPEAL FROM THE DECISION OF THE HIGH COURT IN NEROT H 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 LIAB ILITY WHICH SUM THE ASSESSING OFFICER BROUGHT TO TAX UNDER SECTION 41(1) OF ITA NO.4691/MUM//05 - 15 - THE INCOME TAX ACT 1961 AS DEEMED PROFIT. ON APP EAL 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 1 981-82 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 DEPA RTMENT WAS PURSUING THE MATTER IN RESPECT OF THE PURCHASE TAX LI ABILITY OF THE ASSESSEE AS LATE AS 1993 AND THE CASES WERE STI LL PENDING DECISION BEFORE THE SALES TAX AUTHORITIES AND THE JUD GMENT OF THE KERALA HIGH COURT WAS CONCERNED WITH ONLY ONE O F TWO ASPECTS RELATING TO EXEMPTION FROM PURCHASE TAX AND THE OTH ER ASPECT WAS STILL INVOLVED IN THE ASSESSEES CASE THERE WA S 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 C OURT THAT THE APPELLATE TRIBUNAL AS WELL AS THE HIGH COURT WERE JUST IFIED IN COMING TO THE CONCLUSION THAT THE PURCHASE TAX LIABI LITY OF THE ASSESSEE HAD NOT CEASED FINALLY DURING THE YEAR IN QUESTION: DESPITE THE FINALITY ATTAINED BY THE JUDGMENT IN NER OTH OIL MILLS CASE (1982) 49 STC 249 (KER) THE OTHER ISSUES HAVIN G BEARING ON THE EXIGIBILITY OF PURCHASE TAX STILL REMAINED AND T HE DISPUTE BETWEEN THE ASSESSEE AND THE SALES TAX DEPARTMENT C ONTINUED. THE UNILATERAL ACT ON THE PART OF THE ASSESSEE BY WA Y OF WRITING OFF THE LIABILITY IN ITS ACCOUNTS DID NOT NECESSARI LY MEAN THAT THE LIABILITY HAD CEASED IN THE EYE OF LAW. 38. SINCE THE ASSESSEE HAS SHOWN THE A BOVE AMOUNT AS UNCLAIMED CREDIT BALANCE IN THE BOOKS OF ACCOUNT AND HAS ALSO SHOWN A S 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 A MOUNT 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 ITA NO.4691/MUM//05 - 16 - JUDGEMENTS (SUPRA) OF HONBLE APEX COURT RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE. HOWEVER FOR THE REASONS AND RATIO A S LAID DOWN IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD. (SUPRA) BOTH THE D ECISIONS 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 MAT TER WE ARE INCLINED TO UPHOLD THE FINDING OF THE LEARNED CIT(A) IN UPHOLDING THE A DDITION 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 CO UNSEL FOR THE ASSESSEE SUBMITS THAT HE DOES NOT WANT TO PRESS THE ABOVE AMO UNT WHICH WAS NOT OBJECTED TO BY THE LEARNED D.R. 41. THAT BEING SO AND IN THE ABSENCE OF AN Y SUPPORTING MATERIAL PLACED ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE T HE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE REJECTED BEING NOT PRESSED. 42. GROUND NO.VII (A) (B) (C) AND (D) AR E AGAINST THE SUSTENANCE OF DISALLOWANCE OF EXPENSES OF RS.6 41 128 UNDER SECTIO N 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 ASSE SSING 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 1 64 AS ON 31.3.2001. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY EXPENSES RE LATING TO THE EARNING OF DIVIDEND INCOME SHOULD NOT BE DISALLOWED AS PROVIDE D UNDER THE PROVISIONS OF ITA NO.4691/MUM//05 - 17 - SECTION 14A OF THE ACT. IT WAS EXPLAINED BY THE AS SESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEND INCOME. THE AS SESSEE WAS FURTHER REQUIRED TO FURNISH THE DETAILS OF DIVIDEND INCOME FR OM WHOM IT WAS RECEIVED. FROM THE DETAILS FURNISHED BY THE ASSESSEE THE ASSE SSING OFFICER OBSERVED THAT MAJOR PART OF DIVIDEND INCOME WAS FROM UNIT TR UST OF INDIA. THE PORTFOLIO MANAGEMENT OF INVESTMENT REQUIRES MANAGEMENT DECISION S CONSOLIDATION AND MANY MORE ALLIED SERVICES. THE OFFICERS AND MANAGE RS AT THE TOP AND THE MIDDLE LEVEL HAVE TO DEVOTE THE TIME FOR THIS PURPOSE. TH E ASSESSING OFFICER WHILE RELYING ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CONSOLIDATED COFFEE LIMITED VS. STATE OF KARNATAKA REPORTED IN 2 48 ITR 432 WHEREIN IT HAS BEEN HELD THAT APPORTIONMENT OF INCOME ON THE PRO R ATA WAS HELD TO BE POSSIBLE AS A RATIONALE WAY OF BIFURCATING EXPENSES WAS OF T HE VIEW THAT AN AMOUNT OF APPROXIMATELY RS.8 LAKHS COULD BE ATTRIBUTED TO THE E ARNING OF THE DIVIDEND INCOME CONSIDERING ALL THE ADMINISTRATIVE AND OVERH EAD EXPENSES. ON APPEAL THE LEARNED CIT(A) AFTER CONSIDERING THE BREAK UP OF DIVIDEND WHILE UPHOLDING THE ACTION OF THE ASSESSING OFFICER FOR INVOKING T HE PROVISIONS OF SECTION 14A DIRECTED THE ASSESSING OFFICER TO MAKE THE DISALLOW ANCE TO THE EXTENT OF 10% OF DIVIDEND INCOME AND THEREBY DELETED THE DISALLOW ANCE OF EXCESS 10% OF DIVIDEND INCOME. 44. AT THE TIME OF HEARING BOTH PART IES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGEMENT OF HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT THE REFORE THE ISSUE MAY BE DECIDED ACCORDINGLY. 45. HAVING CAREFULLY HEARD THE SUBMISSI ONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND M ERIT IN PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED BY THE RECENT JUDGMENT OF THE HONBLE ITA NO.4691/MUM//05 - 18 - JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. VS. DCIT IN INCOME TAX APPEAL NO. 626 OF 2010 AND WRIT PETITION NO. 75 8 OF 2010 DATED 12-8- 2010 RECENTLY REPORTED IN (2010) 328 ITR 81 (BOM) W HEREIN THEIR LORDSHIPS AFTER CONSIDERING THE DECISION OF THE TRIBUNAL IN DA GA CAPITAL MANAGEMENT PVT. LTD. (117 ITD 169) (MUM) (SB) WHILE HOLDING THAT TH E PROVISIONS OF SUB SECTIONS (2) AND (3) OF SEC. 14A OF THE ACT ARE CONSTITUTIONA LLY 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 W HEN RULE 8D WAS NOT APPLICABLE THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. F OR THAT PURPOSE THE ASSESSING OFFICER IS DUTY BOUND TO DETERM INE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER T HE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNIT Y TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE R ECORD. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE SET ASID E 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 AFR ESH IN THE LIGHT OF THE DIRECTIONS OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE ABOVE CITED CASE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE AND ACCORDINGLY THE GROUND TAKEN BY THE ASS ESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 46. GROUND NO.VIII (A) (B) AND (C) ARE AGAI NST THE SUSTENANCE OF DISALLOWANCE OF PROVIDENT FUND AND ESIC OF RS.30 09 8 UNDER SECTION 43B OF THE ACT. ITA NO.4691/MUM//05 - 19 - 47. THE BRIEF FACTS OF THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT INCLUDED IN THE C OMPUTATION OF INCOME THE DISALLOWANCE OF EPF RS.10 133 AND ESIC RS.19 965 WH ICH WAS WORKED OUT AS DISALLOWANCE SHOWN IN ANNEXURE 5.1 AND 5.2 OF TAX A UDIT 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 HONBLE SUPREME COURT IN CIT VS. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 WHE REIN THEIR LORDSHIPS HAVE CONSIDERED THE APPLICABILITY OF SECTION 36(1)(VA) R EAD WITH SECTION 2(24)(X) AS WELL AS 43B OF THE ACT AND IT HAS BEEN HELD THAT TH E AMENDMENT WAS CURATIVE IN NATURE AND APPLICABLE RETROSPECTIVELY WITH EFFECT FR OM APRIL 1 1988. 49. IN CIT VS. AIMIL LTD. (2010) 321 ITR 5 08 (DEL) THEIR LORDSHIPS WHILE OBSERVING THAT THE ASSESSEE HAS DEPOSITED EMP LOYERS 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 DI SALLOWANCE 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 F IND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS MADE THE ABOVE PAYMENT S 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 A LLOW THE SAME AFTER DUE VERIFICATION AND AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ITA NO.4691/MUM//05 - 20 - ASSESSEE. THE GROUNDS TAKEN BY THE ASSESSEE ARE THER EFORE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 51. IN THE RESULT THE APPEAL IS PARTLY ALLOWE D 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 ITA NO.4691/MUM//05 - 21 - DATE INITIAL 1. DRAFT DICTATED ON 2.11.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 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