2016 (7) TMI 613 - AT - Income Tax

Appeal partially allowed, disallowances deleted. Investments for business expediency justified.

Assistant Commissioner of Income-tax, Circle-36, Kolkata Versus Shri Rikhab Chand Jain and Vica-Versa

Assistant Commissioner of Income-tax, Circle-36, Kolkata Versus Shri Rikhab Chand Jain and Vica-Versa - TMI Issues Involved:1. Deletion of disallowance made under Section 14A of the Income Tax Act.2. Deletion of disallowance on account of depreciation.3. Deletion of disallowance on account of advertisement expenses.4. Deletion of disallowance under Section 40(a)(ia) for violation of Section 194C.5. Sustaining addition of notional interest on trade advance.6. Upholding disallowance towards staff welfare expenses.Issue-wise Detailed Analysis:1. Deletion of Disallowance under Section 14A:The primary issue was whether the CIT(A) was justified in deleting the disallowance of Rs. 1,19,10,124/- made under Section 14A of the Income Tax Act. The assessee, an individual and Managing Director of M/s. TT Ltd., claimed that no expenditure was incurred for earning exempt income (dividend). The AO made the disallowance by invoking Rule 8D(2)(ii) and Rule 8D(2)(iii). The CIT(A) deleted the disallowance, noting that the investments in TT Ltd. were strategic and made out of own funds, not borrowed funds. The Tribunal upheld the CIT(A)'s decision, citing that the investments were for business expediency and not with the intention to earn dividend income. The Tribunal relied on the decisions of the Hon'ble Calcutta High Court in CIT vs Rajeeva Lochan Kanoria and the Hon'ble Karnataka High Court in CCI Ltd vs JCIT.2. Deletion of Disallowance on Account of Depreciation:The AO disallowed Rs. 4,54,080/- of depreciation claimed on the land portion included in the cost of a windmill, arguing that no depreciation is allowable on land. The CIT(A) deleted the disallowance, accepting that the expenses were integral to the windmill plant. The Tribunal upheld this deletion, referencing the Chennai Tribunal's decision in Asian Handlooms vs DCIT and the Ahmedabad Tribunal's decision in ACIT vs Parry Engineering & Electronics Pvt. Ltd., which considered land and foundation as part of the windmill plant eligible for depreciation.3. Deletion of Disallowance on Account of Advertisement Expenses:The AO disallowed Rs. 7,93,379/- paid to M/s Adsun Advertising Agency due to lack of bill verification. The CIT(A) deleted the disallowance, noting that payments were made by account payee cheques and the bill was later produced. The Tribunal set aside this issue to the AO for verification of the evidence submitted by the assessee.4. Deletion of Disallowance under Section 40(a)(ia) for Violation of Section 194C:The AO disallowed Rs. 11,18,698/- for failure to deduct TDS on payments for advertisement materials, treating them as payments for a contract of printing. The CIT(A) held that the transactions were outright purchases and not contracts, thus Section 194C was not applicable. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had not supplied materials to the job worker, and the transactions were pure purchases.5. Sustaining Addition of Notional Interest on Trade Advance:The AO added Rs. 39,375/- as notional interest on a trade advance of Rs. 7,00,000/- given to the assessee's wife. The CIT(A) upheld this addition. The Tribunal deleted the addition, stating that the advance was made out of own funds, and no notional interest should be charged.6. Upholding Disallowance towards Staff Welfare Expenses:The AO disallowed Rs. 10,200/- towards staff welfare expenses, which were gifts given to employees on marriage occasions. The Tribunal deleted this disallowance, considering the expenses as incurred in the ordinary course of business and allowable as staff welfare expenses.Conclusion:The Tribunal allowed the appeal of the revenue partly for statistical purposes and allowed the cross objection of the assessee, providing a detailed analysis and justification for each issue involved in the judgment.