2017 (12) TMI 1471 - AT - Income Tax

Appeal outcome: Assessee partially wins, Revenue loses. Tribunal issues re-computation directions.

The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The Tribunal provided detailed directions for re-computation ... Disallowance u/s.14A r.w.Rule 8D - Held that:- As assessee's own interest free fund of the assessee are much more than the investments made. Hence, no disallowance under Rule 8D(2)(ii) is warranted.We direct the Assessing Officer to re-compute disallowance under Rule 8D 2(iii) in same terms by excluding strategic investments. Accordingly, Ground No. 1 raised in appeal by assessee is partly allowed in the terms, aforesaid. Disallowance of employees contribution to ESIC and PF - delayed payment on ESIC and PF - contention of assessee is that amount has been deposited before due date of filing return of income - Held that:- Hon’ble Jurisdictional High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. (2014 (10) TMI 402 - BOMBAY HIGH COURT) has held that where contributions to ESIC and PF are made before due date of filing return of income, the assessee is eligible to claim benefit of the same. It has not been disputed by Revenue that the assessee has deposited the amounts towards ESIC and PF before due date of filing return of income. - Decided in favour of assessee. Disallowance of donations made for celebration of Ambedkar Jayanti, Construction of dome to Darshak Tarun Mandal and for distribution of school accessories - allowable business expenses - Held that:- In assessment year immediately proceeding the assessment year under appeal, the assessee had made donations to various such organizations. The Coordinate Bench of the Tribunal held that such donations are allowable expenditure under section 37(1) of the Act. - Decided in favour of assessee Disallowance u/s.43B on account of leave encashment - Held that:- The nature of disallowance in the assessment year under appeal is similar to the one adjudicated by Tribunal in assessee’s own case in immediately preceding assessment year. In line with the earlier order of Co-ordinate Bench in assessee’s own case for assessment year 2008-09, we direct the Assessing Officer to allow the claim of assessee to the extent of permissible under the provisions of section 43B(f) of the Act. Disallowance of various payments covered u/s.43B - Held that:- A perusal of impugned order shows that assessee had failed to furnish details of input tax credit adjustment before the Assessing Officer. The assessee filed a chart containing the working of CENVAT credit along with service tax return before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) citing provisions of Rule 46A of the Income Tax Rules refused to accept the additional evidences filed by assessee. In our considered view, this issue needs a re-visit to the file of Assessing officer. The assessee is directed to furnish the details of input tax credit and adjustment claimed against it before the Assessing Officer. The Assessing Officer after examining the same shall decide this issue afresh, after affording opportunity of hearing to the assessee, in accordance with law. Disallowance of gifts to various organizations on festivals - Held that:- Expenditure towards such gifts and donations and held the same to be allowable under the provision of section 37 of the Act. The Assessing Officer has partly accepted the gifts/donations made by assessee and Commissioner of Income Tax (Appeals) upheld the same. Following the order of Co-ordinate Bench, we hold that contributions and donations made by assessee to various organizations on festivals as allowable expenditure under the provision of section 37 of the Act. - Decided in favour of assessee Disallowance of provision for unapproved sales - Held that:- The fact that the provision is created on last day of the year and is reversed in the subsequent assessment year has not been rebutted by the department. In effect the provision created in earlier year is offered to tax in the next assessment year would not result in any revenue loss. The assessee is creating this reserve in accordance with AS-7. Further, the provision is only to the extent of 1% of unapproved sales, which appears to be quiet reasonable in the facts of the case. The entire transaction is revenue neutral. Since, the Revenue at no point of time has raised doubt that the provision created by assessee in the preceding year has not been reversed in the immediately subsequent assessment year, coupled with the fact that assessee is following this method of accounting regularly and the Department has accepted the same in preceding and subsequent assessment years, we find no reason to sustain such disallowance. Disallowance of interest u/s. 36(1) (iii) - S=sufficeincy of own funds - Held that:- A perusal of the balance sheet and break up of the interest free funds/own funds available with the assessee show that the assessee is having interest free funds to the tune of ₹ 665.35 Crores. The extent of loans advanced to sister concerns and other associate concerns is not emanating from the orders of the authorities below. The ld. AR of the assessee has also not furnished the amount advanced as loan to sister concerns/ associate concerns. Thus, we are of considered view that this issue needs a re-visit to the file of Assessing Officer. The Assessing Officer shall examine the extent of loans under question vis-a-vis availability of interest free own funds of the assessee - Decided in favour of assessee for statistical purpose. Disallowance on account of non-collection of share premium from employees under ESOP scheme - Held that:- This issue is identical to the one adjudicated by the Co-ordinate Bench in assessment year 2008-09 as held that issue of allowability of ESOP expenses on the date of exercising of option by the assessee was held to be an ascertained liability and not contingent liability by the Special Bench of Bangalore Tribunal in Biocon Ltd. Vs. DCIT (2013 (8) TMI 629 - ITAT BANGALORE). The Special Bench held the said discount on ESOP was to be allowed as deduction under section 37(1) of the Act, during the years of vesting on the basis of percentage of vesting during such period, subject to upward or downward adjustment at the time of exercise of option - Decided against revenue Addition on account of rental income - Held that:- Commissioner of Income Tax (Appeals) accepted the contentions of assessee and deleted the addition made on account of rental income to the extent it is pertains to next year i.e assessment year 2010-11. The ld. DR has not been able to controvert the well reasoned findings of First Appellate Authority. We do not find any infirmity in the order of Commissioner of Income Tax (Appeals) Addition on account of difference in share of profit received from M/s. Phoenix Venture - Held that:- The appellant being one of the members of the AOP M/s. Phoenix Ventures, had received the share of profit as well as professional fees. Portion of the receipts were capitalized and added to the cost of the asset and the balance was debited to the P & L account by M/s. Phoenix Ventures, whereas the appellant has credited the entire amount in the P & L account and this is the reason for the difference which was not appreciated by the AO. In view of this, the AO is directed to delete the addition made. Revenue has not been able to controvert the findings of Commissioner of Income Tax (Appeals) above. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Disallowance of late payment of ESIC and PF.3. Disallowance of donations.4. Disallowance of provisions for leave encashment under Section 43B.5. Disallowance of various payments covered under Section 43B.6. Disallowance of gifts.7. Disallowance of provisions for unapproved sales.8. Disallowance of interest under Section 36(1)(iii).9. Deletion of disallowance on account of non-collection of share premium from employees under ESOP scheme.10. Deletion of addition on account of rental income.11. Deletion of addition on account of difference in share of profit received from AOP.Detailed Analysis:1. Disallowance under Section 14A:The Tribunal found that the assessee had sufficient own funds to cover investments, thus no disallowance under Rule 8D(2)(ii) was warranted. The Tribunal directed the Assessing Officer to re-compute the disallowance under Rule 8D(2)(iii) by excluding strategic investments, following the precedent set in the assessee’s own case for the previous year.2. Disallowance of late payment of ESIC and PF:The Tribunal allowed the assessee’s claim, noting that contributions were made before the due date of filing the return of income, in line with the jurisdictional High Court's decision in CIT Vs. Ghatge Patil Transports Ltd.3. Disallowance of donations:The Tribunal allowed the donations as business expenditure under Section 37(1), following the precedent set in the assessee’s own case for the previous year, where such donations were held to be allowable.4. Disallowance of provisions for leave encashment under Section 43B:The Tribunal directed the Assessing Officer to allow the claim to the extent of payment of leave encashment in terms of Section 43B(f), following the precedent set in the assessee’s own case for the previous year.5. Disallowance of various payments covered under Section 43B:The Tribunal remanded the issue back to the Assessing Officer for verification of details regarding input tax credit adjustments, directing the assessee to furnish the necessary details.6. Disallowance of gifts:The Tribunal allowed the gifts as business expenditure under Section 37, following the precedent set in the assessee’s own case for the previous year, where such gifts were held to be allowable.7. Disallowance of provisions for unapproved sales:The Tribunal allowed the provision, noting that it was created in accordance with AS-7 and reversed in the subsequent year, making the entire exercise revenue neutral. The provision was deemed reasonable and consistently followed by the assessee.8. Disallowance of interest under Section 36(1)(iii):The Tribunal remanded the issue back to the Assessing Officer to examine the extent of loans vis-a-vis the availability of interest-free own funds, following the principles laid down in CIT Vs. Reliance Utilities and Power Ltd.9. Deletion of disallowance on account of non-collection of share premium from employees under ESOP scheme:The Tribunal upheld the deletion of disallowance, following the precedent set in the assessee’s own case for the previous year, where such expenses were allowed under Section 37(1).10. Deletion of addition on account of rental income:The Tribunal upheld the deletion, noting that the Commissioner of Income Tax (Appeals) had correctly deleted the addition representing rental income for the subsequent year.11. Deletion of addition on account of difference in share of profit received from AOP:The Tribunal upheld the deletion, noting that the difference arose due to the capitalization of a portion of the receipts and the balance being debited to the P&L account, which was correctly accounted for by the assessee.Conclusion:The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The Tribunal provided detailed directions for re-computation and verification where necessary, ensuring adherence to legal precedents and accounting standards.