2019 (5) TMI 181 - AT - Income Tax

Tribunal Decision: Revenue Appeal Partly Allowed, Assessee Cross-objection Confirmed

The Tribunal partly allowed the Revenue's appeal and the assessee's cross-objection, confirming directions for verification and upholding consistent ... Allowability of bad debts written off - offer as income in earlier year - HELD THAT:- We uphold the remittance of the issue of bad debts to the file of the CIT(A). AO shall decide the issue in both angles. He first decide whether sum has suffered tax in earlier years, and can be allowed as bad debts as claimed by the assessee. If not, he shall verify whether it can be allowed as business loss u/s 37. Addition u/s 145A - exclusive method of accounting - calculation of closing stock on account of CENVAT - HELD THAT:- It is not disputed by the Revenue that the assessee has been following consistently the method of valuation of closing stock i.e. exclusive method of accounting for valuation of purchase and sale of goods and inventory. Assessee is maintaining separate books for CENVAT. We find that the position of law on this issue is clear. CENVAT will form part of closing stock only when the same is debited to the profit and loss account i.e. at the time of actual payment. Addition and/or deduction of CENVAT to the value of closing stock has no impact on financial position of the assessee, as the same is revenue neutral. The ld.CIT(A) has accepted the method adopted by the assessee in the light of various judgments. - ground of Revenue is dismissed. Addition on account of interest paid on capital work-in-progress - no interest bearing funds were utilized in connection with the capital WIP - HELD THAT:- We are of the view that the ld.CIT(A) has rightly set aside the issue to the file of the AO for verification of this claim, with direction to allow the same if he finds the same to be correct. This direction of the ld.CIT(A) cannot said to be incorrect or unjust. - ground in both the appeal of the Revenue and the CO of the assessee is rejected. Addition u/s 2(22)(e) - deemed dividend - HELD THAT:- We find that the CIT(A) has recorded a finding that the assessee is not a shareholder of the lender company within the meaning of section 2(22)(e) and therefore, there is no question of treating the loan to be deemed dividend in this case. The CIT(A) has based his finding on the ground that similar addition was deleted in the assessee’s own case for the assessment year 2009-10, which was upheld by the Tribunal also [2013 (11) TMI 323 - ITAT AHMEDABAD] . Since there is no disparity on facts in the present assessment year also, applicability of section 2(22)(e) does not arise. In the result, appeal of the Revenue is dismissed. Disallowance of late payment of employees contribution to PF - HELD THAT:- This issue is to decided against the assessee in view of Hon’ble jurisdictional High Court decision in the case of CIT Vs. Gujarat State Road Transport corporation Ltd. [2014 (1) TMI 502 - GUJARAT HIGH COURT] . In view of this submission of the assessee, we reject this ground of CO. Issues Involved:1. Deletion of disallowance of bad debts.2. Deletion of addition under section 145A of the Income Tax Act.3. Addition of interest paid on capital work-in-progress.4. Deletion of addition under section 2(22)(e) of the Income Tax Act.5. Disallowance of late payment of employees' contribution to PF.Issue-wise Detailed Analysis:1. Deletion of disallowance of bad debts:The Revenue contested the deletion of disallowance of bad debts amounting to Rs. 10,14,810/-. The Assessing Officer (AO) disallowed this amount on the grounds that it was not part of the assessee's income in previous years. The Commissioner of Income Tax (Appeals) [CIT(A)] directed the AO to verify if the amount was part of the assessee's income in earlier years and allow it if confirmed. The Tribunal upheld the remittance to the AO for verification, stating that if the amount had suffered tax in earlier years, it should be allowed as bad debts, otherwise, it should be considered as business loss under section 37 of the Income Tax Act.2. Deletion of addition under section 145A of the Income Tax Act:The AO added Rs. 13,61,057/- to the closing stock under section 145A, arguing that the assessee did not include VAT/excise duty in the valuation. The assessee contended that it consistently followed the exclusive method of accounting, which is revenue-neutral. The CIT(A) accepted the assessee's method, supported by various judicial pronouncements, and deleted the addition. The Tribunal confirmed this decision, noting that the method adopted by the assessee was consistent and legally supported, making the addition unwarranted.3. Addition of interest paid on capital work-in-progress:The AO disallowed Rs. 14,56,331/- as interest paid on borrowed funds used for capital work-in-progress. The CIT(A) directed the AO to verify if interest-bearing funds were used and allow the claim if not. The Tribunal upheld this direction, noting that the assessee had sufficient interest-free funds and internal accruals to finance the capital work-in-progress. The Tribunal found the CIT(A)'s direction for further verification just and confirmed it, rejecting both the Revenue's appeal and the assessee's cross-objection.4. Deletion of addition under section 2(22)(e) of the Income Tax Act:The AO added Rs. 6,46,30,742/- as deemed dividend under section 2(22)(e), arguing that the assessee received advances from two companies and was a subsidiary of the lending company. The CIT(A) deleted the addition, citing a similar decision in the assessee's favor for the assessment year 2009-10, upheld by the Tribunal. The Tribunal confirmed this deletion, noting that the assessee was not a shareholder of the lender companies, making section 2(22)(e) inapplicable.5. Disallowance of late payment of employees' contribution to PF:The AO disallowed Rs. 1,65,297/- for late payment of employees' PF contributions. The assessee conceded this issue, referencing the jurisdictional High Court decision in CIT Vs. Gujarat State Road Transport Corporation Ltd., which ruled against the assessee. Consequently, the Tribunal rejected this ground of the cross-objection.Conclusion:The Tribunal partly allowed the appeal of the Revenue and the cross-objection of the assessee for statistical purposes, confirming the directions for verification and upholding the consistent application of accounting methods and legal precedents. The Tribunal dismissed the Revenue's appeal regarding deemed dividend and upheld the disallowance for late PF payments.