2016 (4) TMI 960 - AT - Income Tax

Assessee's Appeal Partially Allowed on Disallowance Issues

The assessee's appeal on disallowance under Section 14A was partly allowed, with the Tribunal deleting the interest disallowance but partially upholding ... Disallowance u/s 14A - Held that:- assessee had sufficient funds available with it to finance its investments and therefore it can be presumed that it had invested its own funds and not borrowed funds which we have seen that were taken for specific purposes and used accordingly. Thus the additions of ₹ 5,50,586/- made rule 8D(2)(ii) as confirmed by CIT(A) is ordered to be deleted by following the ratio laid down in the case of CIT V/s Reliance Utilities and Power Ltd (2009 (1) TMI 4 - BOMBAY HIGH COURT ). n respect of ₹ 14,61,622/-, the disallowance under rule 8D(2)(iii) we find that the investments were made in the mutual funds by the portfolio management companies. Further in the schedule M pertaining to Administrative and Selling Expenses the total of ₹ 14,91,12,604/- were charged whereas personnel cost in schedule no L ₹ 12,47,94,407/-were debited. In the schedule no M we find that Rent, rates and taxes ₹ 4,54,46,772/-, Legal and professional charges ₹ 1,94,25,756/- and Amount written off ₹ 1,76,70,049/- totaling to ₹ 8,25,42,577/- were charged and were not having indirect nexus with dividend income. We therefore find merit in the submissions of the ld counsel that disallowance as made by the AO and upheld by CIT(A) is excessive and unreasonable on the ground that there hardly any expenses incurred for the propose of investments. We are in agreement with the CIT(A) that rule 8D is applicable from AY 2008-09 but not blindly when the assessee had hardly incurred any expenses in relation to the dividend earned and the substantial investments were made temporarily in order to park the idle funds ideally. We therefore allow relief to the assessee to the extent of ₹ 8,00,000/- out of ₹ 14,61,622/-. Thus the assessee gets relief of ₹ 13,50,586 in all out of Rs, 20,12,208/- thereby sustaining the addition of ₹ 6,61,622/-. - Decided partly in favour of assessee. Addition in respect of late payment of PF - Held that:- We find from the records and arguments of the counsels that the assessee had paid the PF beyond the grace period after the due date under the relevant Act but well before the due date for filing the return of income u/s 139(1) of the Act. We find merit in the submission of the ld AR that the issue is covered in its favor by the decision of the jurisdictional High Court in the case of CIT Vs Ghatge Patil Transport Ltd (2014 (10) TMI 402 - BOMBAY HIGH COURT) in which it has been held that the employers as well as the employees contribution were subject to the provisions of section 43B and the assessee was entitled to the deduction in respect thereof. We therefore respectfully following the ratio laid down in the said decision, delete the addition - Decided in favour of assessee. Addition on account of balance written off during the year following selling of general cargo division - Held that:- The assessee had terminated the lease and license in respect of two warehouses taken from M/S Paras Commercial Centre Pvt Ltd who deducted as compensation for pre-mature termination a sum of ₹ 45,16,000/- whereas the remaining five wharehouses were transferred as part of sump sale. We find merit in the arguments of the assessee that the amount deducted by the licensor on pre-mature termination is admissible u/s 37(1) of the Act as wholly and exclusively for the purpose of business. We also find that the project cargo division of the assessee continued and thus the business of the assessee was carrying on with one division. Even on the ground to commercial expediency the assessee is entitled to deduction of ₹ 45,16,000/- as the continuance of the lease and license would entail additional expenses. We therefore direct the AO to allow deduction of ₹ 45,16,000/- out of total claim of ₹ 56,94,748 thus sustaining the addition to the extent of ₹ 11,78,748/- . - Decided partly in favour of assessee. Addition being loss on account of write off of receivables upon re-assignment in the slump sale of the general cargo division - Held that:- From the records before us we find that the purchaser M/S Excel re-assigned some debts which were part of the net current assets in the slump sale and reduced the purchase price accordingly by ₹ 2,44,22,159.91. The assessee wrote off ₹ 1,76,70,049/- out of this amount claiming the same to be admissible under section 36(1)(vi) of the Act however the same was added to the income of the assessee on the ground that the debts were transferred to the purchaser as part of the net current assets under slump sale and the assessee could not be allowed double benefit. Even the CIT(A) upheld the additions on the same analogy. We find that the both AO and CIT(A) had completely ignored the fact that under 'Adjustment to Purchase Price' the purchaser reassigned some debts amounting to ₹ 2,44,221,60/- to the assessee and assessee reduced the same from the purchase price which is clearly mentioned in para 7.1 of the assessment order. In our view the finding of AO and the CIT(A) that the debts were transferred as part of net current assets in the slump sale and the assessee would get double benefit if allowed deduction in respect of write off of the book debts were wrong and against the facts of the case. The assessee had rightly written off the debts and the same were admissible under section 36(1)(vi) of the Act - Decided in favour of assessee. Issues Involved:1. Disallowance under Section 14A of the Income-tax Act.2. Disallowance under Section 36(1)(va) for late payment of Provident Fund (PF).3. Addition of sundry balances written off.4. Disallowance of loss on account of write-off of receivables.5. Revenue's appeal regarding disallowance under Section 40(a)(ia).Issue-wise Detailed Analysis:1. Disallowance under Section 14A:The assessee challenged the confirmation of an addition of Rs. 20,12,208/- under Section 14A of the Income-tax Act, which included Rs. 5,50,586/- for interest charges and Rs. 14,61,622/- for indirect expenses. The assessee argued that the investments yielding exempt dividend were made from its own funds and managed by portfolio management companies, hence no expenses were incurred. The Tribunal found merit in the assessee's claim that it had sufficient own funds to make the investments and ordered the deletion of the interest disallowance of Rs. 5,50,586/-. However, it partially upheld the disallowance of Rs. 14,61,622/- by allowing a relief of Rs. 8,00,000/-, thereby sustaining an addition of Rs. 6,61,622/-.2. Disallowance under Section 36(1)(va) for Late Payment of PF:The assessee contested the disallowance of Rs. 3,64,975/- for late payment of PF. The Tribunal found that the PF was paid before the due date for filing the return of income under Section 139(1) and referenced the jurisdictional High Court decision in CIT Vs Ghatge Patil Transport Ltd, which held that both employer's and employee's contributions are subject to Section 43B. Consequently, the Tribunal deleted the addition.3. Addition of Sundry Balances Written Off:The assessee appealed against the addition of Rs. 56,94,748/- for sundry balances written off. The Tribunal noted that the assessee had prematurely terminated leases for two warehouses and incurred a compensation of Rs. 45,16,000/-, which was written off. The Tribunal found merit in the assessee's claim that the termination was for commercial expediency and allowed the deduction of Rs. 45,16,000/-, sustaining an addition of Rs. 11,78,748/-.4. Disallowance of Loss on Account of Write-off of Receivables:The assessee challenged the addition of Rs. 1,76,70,049/- for write-off of receivables reassigned in the slump sale of its general cargo division. The Tribunal found that the reassigned debts were reduced from the purchase price and written off lawfully under Section 36(1)(vi). It concluded that the lower authorities' view of double benefit was unfounded and directed the AO to allow the write-off.5. Revenue's Appeal Regarding Disallowance under Section 40(a)(ia):The Revenue's appeal contested the deletion of an addition under Section 40(a)(ia) for leased line charges to VSNL. The Tribunal noted that the tax effect was below Rs. 10 lakhs and referenced the CBDT Circular No.21/2015, which precludes the Revenue from pursuing such appeals. Consequently, the appeal was dismissed.Summary of Outcomes:- The assessee's appeal on disallowance under Section 14A was partly allowed.- The disallowance under Section 36(1)(va) for late payment of PF was deleted.- The addition for sundry balances written off was partly allowed.- The disallowance of loss on account of write-off of receivables was allowed.- The Revenue's appeal was dismissed due to the low tax effect.Final Order:The appeals of the assessee were partly allowed, and the appeal of the Revenue was dismissed. The order was pronounced in the open court on 29.2.2016.