2014 (8) TMI 1156 - AT - Income Tax

Tribunal's Rulings on Assessee and Revenue Appeals

The Assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal directed various adjustments including disallowance of ... Disallowance of interest being estimated interest @ 15 percent on the advances made to various companies/other concerns - Held that:- Tribunal, for the A.Y. 1997-98, on a similar issue, by following the Tribunal’s order for the A.Y. 1992- 93, remitted the matter back to the file of the AO for fresh adjudication in the light of earlier decisions of the Tribunal as well as the judgments of the Hon’ble Apex Court in the case of S.A. Builders Vs. CIT [2006 (12) TMI 82 - SUPREME COURT]. In view of the fact that the orders of the then CIT(A) relied on by the Ld.CIT(A) for the impugned decision has been set aside by the Tribunal, we are of the considered view that it is just and proper that this issue is also set aside to the file of the AO for fresh adjudication. Disallowance of deduction of expenses on account of deferred revenue expenditure - Held that:- It is pertinent to mention that before the introduction of section 35DDA, the legal dictum is very clear that the assessee can claim the expenditure incurred on account payment made for the VRS which are in the nature of business expenditure and are deductible u/s.37. Therefore, till the introduction of new provisions under section 35 DDA, the assessee can claim such expenditure as revenue expenditure. This proposition is supported by various decisions of the Tribunal and High Courts. We direct the AO to allow the expenditure as revenue expenditure, eligible for deduction u/s 37(1) of the Act, after verification of the details of expenditure claimed by the assessee. Addition of estimated amount on account of valuation of closing stock of finished goods - Held that:- Tribunal in the assessee’s own case for the A.Y. 1994-95, 1995- 96, 1997-98 & 2003-04 has decided an identical and similar ground against the assessee. However, alternate claim for addition to the opening stock has been allowed by the Tribunal. Following the said orders of the Tribunal, we direct the AO to re-compute the value of closing stock in line with the principles laid down by the Tribunal in the said orders. Thus, we set aside this matter to the file of the AO for the limited purpose of following the guidelines given in the earlier years. Bringing to tax a sum as interest on Government Securities - Held that:- It is observed that similar additions have been confirmed by the Tribunal in the assessee’s own case for the A.Ys. 1991-92, 1993-94, 1994-95, 1995-96 & 1997-98. In the absence of any distinguishing facts brought by the parties, following the said orders of the Tribunal, the impugned addition confirmed by the Ld.CIT(A) is upheld. Inclusion in the income of the estimated import duty benefit - Held that:- For the A.Y. 1997-98 has decided a similar issue in favour of the assessee by following the decision of the Tribunal in the case of Jamshri Ranjitsinghji Spinning and Weaving Mills v. Inspecting Assistant Commissioner [ [1991 (12) TMI 83 - ITAT BOMBAY-A] wherein it has been held that the import entitlement receivable by the assessee do not constitute the income of the assessee in the year under appeal as neither the income accrued nor arisen during the year of accounting. Following the said order of the Tribunal dated 16.04.2008 for the A.Y. 1997-98 in the assessee’s own case, we direct the AO to exclude the import duty entitlement from the total income of the assessee for the year under appeal. Disallowance of a sum in computing the income from capital gains being professional fees paid in connection with the sale of shares - Held that:- It is pertinent to mention that the perusal of the records suggests that J.M. Financial and Investment Consultancy Services Ltd. helped the assessee company to identify British Gas Asia Pacific Holding Pvt. Ltd and the assessee has been in a position to bargain for the best price for the sale of the shares. It is further relevant to state that the payment has been legitimate and also the same has been incurred in connection with the sale of the shares which are not disputed. When the facts are being so, the authorities below are not justified in disallowing the claim of deduction. Therefore, we direct the AO to allow a sum as deduction in computing the income under the head ‘Capital Gains’ as claimed by the assessee. Deduction on account of repairs and maintenance in computing the income under the head ‘house property’ - Held that:- as per the provisions of sections 23 & 24 of the Act, income chargeable under the head ‘income from house property’ shall be computed after making the deductions of municipal taxes paid by the owner, a sum equal to thirty per cent of annual value and the amount of interest payable on borrowed capital where the property has been constructed, repaired, renewed or reconstructed with borrowed capital. Accordingly, an assessee is entitled only to the deductions in respect of the said expenditure in the computation of the income under the head of income. Therefore, it is not legally permissible to allow the deduction on account of maintenance charges incurred on lifts, liftman, sweeper, security etc under the head ‘income from house property’. Deduction as foreign exchange loss on the basis of foreign exchange rate at the end of the accounting year - Held that:- The assessee in all other earlier years kept on claiming the foreign exchange loss on goods traded as expenditure and the same has also been allowed in those years and thereby upheld the action of the AO in including the foreign exchange gain as taxable income. In view of the fact that the loss claimed in the earlier years has been allowed in those years, subsequently in the A.Y. 1999-2000 the gain also has been added to the total taxable income of the assessee as held by the CIT(A). Therefore, it is appropriate that the trading loss is to be allowed as a deduction while computing the income. Issues Involved:1. Disallowance of interest on advances made.2. Disallowance of deferred revenue expenditure.3. Addition on account of valuation of closing stock.4. Taxation of interest on Government Securities.5. Inclusion of estimated import duty benefit in income.6. Disallowance of pooja expenses.7. Disallowance of payments to relatives of deceased employees.8. Disallowance of professional fees in computing capital gains.9. Restriction of deduction on repairs and maintenance under 'house property'.10. Deduction of foreign exchange loss.Issue-wise Detailed Analysis:1. Disallowance of Interest on Advances Made:The Assessee's appeal contested the disallowance of Rs. 1,53,12,764/- as estimated interest on advances made to various companies. The Tribunal, referencing its previous decisions for the A.Y. 1993-94 and 1997-98, remitted the issue back to the AO for fresh adjudication. The directions were to follow the Tribunal's earlier decisions and the Supreme Court's judgment in S.A. Builders Vs. CIT (2007) 288 ITR 1 (SC). Grounds 1 to 6 were allowed for statistical purposes.2. Disallowance of Deferred Revenue Expenditure:The AO disallowed expenses of Rs. 7,83,29,790/- treating them as capital in nature, but the Ld.CIT(A) allowed 1/5th of the expenditure as a deduction. The Tribunal, referring to the pre-Section 35DDA legal position and various judicial precedents, directed the AO to allow the expenditure as revenue expenditure under Section 37(1) after verification. Grounds 7 to 9 were allowed.3. Addition on Account of Valuation of Closing Stock:The AO added Rs. 25,00,000/- to the closing stock valuation, which was confirmed by the Ld.CIT(A). The Tribunal, following its decisions for A.Y. 1994-95, 1995-96, 1997-98, and 2003-04, directed the AO to re-compute the value of closing stock per the principles laid down in earlier orders. Ground 10 was allowed for statistical purposes.4. Taxation of Interest on Government Securities:The addition of Rs. 15,584/- as interest on Government Securities was upheld by the Tribunal, following its decisions for A.Ys. 1991-92, 1993-94, 1994-95, 1995-96, and 1997-98. Ground 17 was dismissed.5. Inclusion of Estimated Import Duty Benefit in Income:The Tribunal, referencing its decision for A.Y. 1997-98 and the case of Jamshri Ranjitsinghji Spinning and Weaving Mills, directed the AO to exclude the import duty entitlement from the total income as it neither accrued nor arose during the year. Ground 18 was allowed.6. Disallowance of Pooja Expenses:The Tribunal, following its decisions for A.Y. 1997-98 and 2003-04, directed the AO to allow the claim of Rs. 2,82,289/- for pooja expenses. Grounds 19 and 20 were allowed.7. Disallowance of Payments to Relatives of Deceased Employees:The Tribunal, following its decisions for A.Ys. 1994-95, 1995-96, 1997-98, and 2003-04, directed the AO to allow the claim of Rs. 1,63,888/- for payments made to relatives of deceased employees. Grounds 21 to 23 were allowed.8. Disallowance of Professional Fees in Computing Capital Gains:The AO disallowed Rs. 19,98,000/- paid to J.M. Financial for identifying a buyer for shares. The Tribunal found the payment legitimate and incurred in connection with the sale of shares, directing the AO to allow it as a deduction in computing capital gains. Ground 24 was allowed.9. Restriction of Deduction on Repairs and Maintenance Under 'House Property':The AO restricted the deduction to Rs. 20,50,301/- against Rs. 31,12,063/- claimed. The Tribunal, referencing various judicial precedents, upheld the restriction, stating that only specific deductions under Sections 23 and 24 are permissible. Ground 25 was dismissed.10. Deduction of Foreign Exchange Loss:The Revenue's appeal against the Ld.CIT(A)'s decision to allow Rs. 3,05,54,000/- as foreign exchange loss was dismissed. The Tribunal found no infirmity in the decision, noting that foreign exchange losses were consistently allowed in earlier years.Conclusion:The Assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The order was pronounced on August 22, 2014.