2019 (9) TMI 992 - AT - Income Tax

Tribunal affirms CIT(A) decisions on issues: (1)(iii) . Emphasizes evidence consistency.

A.C.I.T, CC-3 (2), Kolkata Versus M/s. Snowtex Investment Ltd.

The Tribunal upheld the decisions of the CIT(A) in dismissing the Revenue's appeal on various issues including disallowance under section 14A, delayed ... Disallowance u/s 14A read with rule 8D - expenditure incurred ‘in relation to' the exempt income - HELD THAT:- We note that assessee company has its own funds which is more than investments made by it, therefore disallowance under Rule 8D (2) (ii) can not be made. Disallowance under rule 8D (2) (iii) can be made only in respect to dividend bearing securities. We find that the ratio decided by in the case of REI Agro [2013 (9) TMI 156 - ITAT KOLKATA] is very clear. The assessee had submitted a calculation sheet during the appellate proceedings, in which disallowance in accordance with the ratio decided in the case of REI Agro (supra) had been made at ₹ 4,832/-. CIT(A) has rightly restricted the disallowance to the tune of ₹ 4,832/-. That being so, we decline to interfere in the order passed by the ld. CIT(A). His order on this issue is hereby upheld and grounds nos. 1, 2 and 3 raised by the Revenue are dismissed. Delayed payment of employees’ contribution to provident fund (PF) - HELD THAT:- We find that though deposits were made slightly late but all the PF and ESI amounts were deposited before the due date of the filing of the return of income under section 139 of the Act. The Hon'ble Calcutta High Court in the case of M/s Vijay Shree Ltd [2011 (9) TMI 30 - CALCUTTA HIGH COURT] has held that any sum deposited in the government account for PF and ESI before the due date of the filing of the return is to be allowed as expenditure u/s 36(1)(va) read with section 2(24)(x) - we are of the view that there is no infirmity in the order passed by the ld CIT(A). The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A). Addition u/s. 36(1)(iii) on account of interest expenses as the borrowed fund was utilized for share application money - HELD THAT:- Investments were made from interest free funds and no part of the loan funds were diverted for making investments and as such disallowance of interest expense is unjustified in law. We also note that the company being a NBFC company is engaged in the business of taking and granting loans and advances, trading and investment in shares and securities. Further, merely because no revenue was generated from deploying funds for investment in shares and advancing of interest free funds does not imply that borrowed funds were not utilized for the purpose of business. Section 36(1)(iii) uses the expression '’for the purpose of business' which is wider in its meaning than the expression 'for the purpose of earning profits'. A businessman may deploy funds for the purpose of business which may not generate any revenue. This fact alone will not make the interest incurred for the purpose of business to be disallowed u/s 36(1) (iii) of the Act as held by the Apex Court in the case of Madhav Prasad Jatta vs CIT [1979 (4) TMI 2 - SUPREME COURT] - We note that section 10(2)(iii) of the old Income Tax Act, 1922 is similar to section 36(1)(iii) of the Income Tax Act, 1961. In view of the above we confirm the order of ld CIT(A) in deleting the addition Addition on account of sale promotion expenses - HELD THAT:- AO has nowhere denied that expenditure under the head sales promotion is not to be accepted. AO's only objection is that expenditure under this head could not be verified u/s 133(6) of the Act. We note that Assessing Officer has not pointed out any specific defects in the books of accounts of the assessee. Moreover, the books of accounts have been duly audited, the details were submitted before the Assessing Officer. The Assessing Officer has not invoked section 145(3) of the Act and he has not rejected the books of account of the assessee. Under the circumstances, adhoc disallowance is without any basis. We note that the AO has brought on record anything to disprove the claim of the assessee. The only reason that the claim expenditure could not be verified by issuing notice U/s 133(6) should not be the only basis for rejecting the entire claim of the assessee - Order of Id. C.I T.(A) in deleting the aforesaid additions confirmed. Addition on account of salary expenses - HELD THAT:- We note that the income of the assessee from the insurance business has also gone up and increased during the assessment year and this fact has been accepted by the AO - AO has also accepted increased income of the assessee. But when the expenditure increases the AO has his doubts. We note that assessing officer has not pointed out any specific defects in the books of accounts of the assessee. Moreover, the books of accounts have been duly audited, the details were submitted before the AO. The Assessing Officer has not invoked section 145(3) and he has not rejected the books of account. The Assessing Officer has made a guess work and disallowed 50% salary which we do not accept. We note that assessing officer can not make an assessment based of pure guess, surmise and conjecture, for that we rely on the judgment of the Hon`ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs. Commissioner of Income Tax [1954 (10) TMI 12 - SUPREME COURT] - adhoc disallowance is without any basis. - Decided against revenue Issues Involved:1. Disallowance under section 14A read with Rule 8D.2. Disallowance on account of delayed payment of employees' contribution towards PF.3. Disallowance of interest expenses under section 36(1)(iii).4. Disallowance of sales promotion expenses.5. Disallowance of salary expenses.Issue-wise Detailed Analysis:1. Disallowance under section 14A read with Rule 8D:- Facts: The assessee earned dividend income of Rs. 5,229, claimed as exempt under section 10(34). The Assessing Officer (AO) made a disallowance of Rs. 22,76,575 under Rule 8D, which was reduced by the Commissioner of Income-tax (Appeals) [CIT(A)] to Rs. 4,831.- Arguments: The Revenue argued that the AO correctly computed the disallowance. The assessee contended that no borrowed funds were used for investments and the disallowance should be limited to Rs. 4,831.- Judgment: The Tribunal upheld the CIT(A)'s decision, noting that only expenditure related to exempt income can be disallowed under section 14A. It was found that the assessee had sufficient own funds, and the disallowance was rightly restricted to Rs. 4,831.2. Disallowance on account of delayed payment of employees' contribution towards PF:- Facts: The AO disallowed Rs. 4,60,032 for late deposit of PF and ESI contributions. The CIT(A) deleted the disallowance.- Arguments: The Revenue argued that the CIT(A) wrongly invoked section 43B, which applies to employer's contributions, while employee contributions are governed by section 36(1)(va). The assessee claimed deductions as payments were made before the due date for filing the return.- Judgment: The Tribunal upheld the CIT(A)'s decision, citing the Calcutta High Court's ruling in the case of Vijay Shree Ltd, which allows deductions if payments are made before the due date for filing the return.3. Disallowance of interest expenses under section 36(1)(iii):- Facts: The AO disallowed Rs. 3,59,52,944, claiming the borrowed funds were used for non-business purposes (share application money). The CIT(A) deleted the disallowance.- Arguments: The Revenue argued that borrowed funds were used for non-business purposes. The assessee contended that the funds were used for business purposes and had sufficient interest-free funds to cover the investments.- Judgment: The Tribunal upheld the CIT(A)'s decision, noting that the assessee had sufficient interest-free funds and the borrowed funds were used for business purposes. The principle of consistency was applied, as similar expenses were allowed in previous years.4. Disallowance of sales promotion expenses:- Facts: The AO disallowed Rs. 30,68,635, as notices sent to verify the expenses were returned unserved. The CIT(A) deleted the disallowance.- Arguments: The Revenue argued that the expenses were unverifiable. The assessee provided evidence of payments through banking channels and TDS deductions.- Judgment: The Tribunal upheld the CIT(A)'s decision, noting that the AO's suspicion was unfounded and the assessee had provided sufficient evidence to support the expenses.5. Disallowance of salary expenses:- Facts: The AO disallowed 50% of salary expenses (Rs. 3,86,08,000) due to discrepancies in PF and ESI contributions and the high amount of expenses. The CIT(A) deleted the disallowance.- Arguments: The Revenue argued that the salary expenses were excessive. The assessee explained the nature of its business required high human resources, and discrepancies were due to statutory limits on PF and ESI contributions.- Judgment: The Tribunal upheld the CIT(A)'s decision, noting that the AO's disallowance was based on guesswork without rejecting the books of accounts. The assessee provided a reasonable explanation for the high salary expenses.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The judgments emphasized the importance of evidence, consistency, and the correct application of legal provisions in tax assessments.