CIT v Epsilon Advisers (P.) Ltd. [IT APPEAL NO. 23 OF 2006 dtd. 13.06.2012] Karnataka High Court Background: The assessee is a private limited company providing consultancy services in electronic and telecommunications. In the return filed for AY 2001-02, the assessee had claimed deduction for write-off of Rs 75.00 lakh as inter-corporate deposit (deposited with M/s BPL Wireless Telecommunication Services Ltd (BWTL) and the Rs 5.34 crore as interest free advance. As M/s BWTL has closed down its business, the assessee-company had claimed bad-debts u/s 36(1)(vii) for the aforesaid amounts. The assessee held substantial interest by way of investment in sharesin BTWL. The AO allowed the amount of inter-corporate deposit of Rs 75 lakhs as an amount irrecoverable and but did not agree for allowing the balance of Rs 5.34 crore also as bad debt for the reason that amount cannot be considered as part of an advance made in the course of money lending activity. The AO also reasoned that there was no semblance of a lending activity for this advance is concerned. The advance was not evidenced by way of any supporting documents and no security or surety had been obtained. Even the shares held by the assessee-company in M/s BWTL were not treated as part of stock-in-trade, but as long term investment in that company and therefore lending of a sum of Rs 5.34 crore by the assessee company cannot be considered as part of any business activity.
Business expenditure/income
DCIT v Spark Hotels (P.) Ltd. IT Appeal NO. 4631 (DELHI) OF 2011] (Delhi ITAT) Facts of the case The assessee company was engaged in the business of running hotel. Assessee derived income only from interest and dividend in the year under consideration while the assessee paid salary of Rs. 36 lacs to its director Shri Patanjali Keswani, Director @ Rs. 3 lacs per month. The AO disallowed an amount of Rs. 30 lacs, invoking the provisions of sec. 40A(2)(a) of the Act, considering the salary of Rs. 50,000/-pm paid to shri Keshwani, reasonable.
Onus is on the AO to prove unreasonableness of payment to related party u/s 40A(2) ...
CIT v Sauer Danfoss (P.) Ltd. [IT Appeal No. 1367 of 2010 dated 26.03.2012] (Delhi High Court) Facts of the case The assessee company was incorporated on 5.2.2001 under the Companies Act, 1956. Following is the sequence of events considered: Application for FIPB approval – 24.01.2001 First director appointed – 05.02.2001 Additional directors appointed – 10.02.2001 Physical possession of the leased premises – 15.02.2001 Opening of Bank account – 01.03.2001 Agreement for entering into lease of premises – 01.04.2001 Agreement for take over of running business of DHL – 21.05.2001 (to be effective from 01.06.2001)
Business is ready to commence upon set up of requisite infrastructure – Delhi HC
CIT v High Energy Batteries (India) Ltd. T.C. [(APPEAL) NOS. 579 TO 581 OF 2005] (Mad HC) Facts of the case The assessee had purchased the machinery on 10.03.1995 from its sister concern M/s. Ponni Sugars and Chemicals Limited, a sister concern of the assessee herein at a cost of Rs.250 lakhs. The minutes of the Board meeting of M/s. Ponni Sugars and Chemicals states that the sale of boilers is to meet the cash loss and other financial commitments. The total consideration of the purchase of the material was Rs.250 lakhs, for which the assessee had paid a sum of Rs.50 lakhs and the balance of Rs. 200 lakhs was financed through a hire purchase agreement by M/s. Wipro Finance Limited.
Sale & Leaseback is a Tax Planning arrangement – Madras HC – Vodafone ruling followed
DCIT v WEIZMANN FOREX LTD ITA No.3571/Mum/2011 (Mum ITAT) Assessee Company is engaged in the business of dealing in foreign exchange, money transfer and wind power generation. During the year under consideration, the assessee company had acquired franchise from AFL Pvt Ltd (ALF) – filed its ROI claiming depreciation on franchise rights. During the course of assessment proceedings the AO took a view that depreciation was not available on such things – Aggrieved with the order of the AO assessee contended the issue before the CIT(A) who after analyzing the agreement of franchise allowed the appeal of the assessee. Held that:
Wear & tear is not an essential condition for depreciation on intangible assets
Sheetal Drape (India) Ltd. v. Additional Commissioner of Income-tax-4(3)IT Appeal NO.1323 (MUM.) of 2012 (Mum ITAT) Proviso to section 36(1)(iii) provides that no interest paid shall be allowed as deduction in respect of capital borrowed for acquisition of an asset for extension of existing business for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was first put to use.In this provision the reference is first to the existing business and then to its extension. It does not refer to setting up an altogether different or new business. In the absence of any specific statutory meaning to the expression ‘extension of existing business’, one has to go by its meaning as understood in common parlance. Assessee shifting its business from rented office to its own Office premises acquired with borrowed funds is extension of existing business within the meaning of proviso to section 36(1)(iii) The instant case is of ‘extension of existing business’ and not that of setting up of a new business, inasmuch as by having its own premises and doing the same business, the assessee will now be in position to carry on its operation at a much wider scale in a hassle free manner. This would obviously result in extension of its existing business.
Shifting from rented to own premises is extension of business – Therefore, interest not allowable ...
M/s. Alpha Projects Society P. Ltd vs. DCIT (ITAT Ahmedabad) In AY 2005-06, the assessee made payments to contractors & for professionals & technical services. Though TDS was deducted, it was paid after the end of the FY but before filing the ROI. The assessee pleaded that s. 40(a)(ia), as amended by the FA 2010 w.e.f. 1.4.2010 to provide that no disallowance should be made if the TDS was paid before the due date of filing the ROI should be held to be retrospective. However, the AO & CIT (A), rejected the claim by relying on Bharati Shipyard Ltd 132 ITD 53 (Mum) (SB). On appeal to the Tribunal, HELD allowing the appeal:
S. 40(a)(ia): Another judgement in favour of retrospective amendmend!
Piyush Mehta v ACIT (ITAT Mumbai) For AY 2005-06, the AO made a disallowance of expenditure incurred by the assessee on the ground that the assessee had made the TDS payments u/s 194C after the end of the year. Before the Tribunal, the assessee claimed that as the TDS had been paid before the due date of filing the ROI, no disallowance could be made as per s. 40(a)(ia) amended by the FA 2010 w.e.f. 1.4.2010. The assessee relied on Virgin Creations and claimed that it had to be followed in preference to the contrary ruling of the Special Bench in Bharati Shipyard Ltd 132 ITD 53 (Mum). HELD by the Tribunal:
S. 40(a)(ia): Amendment by FA 2010 w.e.f 1.4.2010 is retrospective
Rajamahendri Shipping & Oil Field Services Ltd vs. ACIT (ITAT Vizag) For AY 2005-06, the AO disallowed Rs. 47.26 lakhs u/s 40(a)(ia) on the ground that the TDS had not been paid in time. The assessee claimed that the amendment to s. 40(a)(ia) by the Finance Act 2010 w.e.f. 1.4.2010 to provide that no disallowance could be made if the TDS was paid on or before the due date specified in s. 139(1) was retrospective in nature as held in CIT vs. Virgin Creations and that the contrary ruling of the Special Bench in Bharti Shipyard Ltd vs. DCIT 132 ITD 53 (Mum) could not be followed. HELD by the Tribunal: