2020 (4) TMI 253 - AT - Income Tax

Assessee's appeal partially allowed, issues remitted for further consideration. Order pronounced on 8th Jan 2020.

The Tribunal partially allowed the assessee's appeal, remitting various issues back to the CIT (Appeals) for further consideration and adjudication based ... Additional depreciation on plant and machinery (computers) - disallowance of interest expenditure under Section 14A read with Rule 8D - disallowance under Section 40(a)(ia) for failure to deduct tax at source - disallowance of interest on advances to related/sister concerns and presumption as to interest free funds - remand for adjudication on merits and production of evidenceRemand for adjudication on merits and production of evidence - Additional ground of appeal relating to delayed payment of employees' provident fund contributions - HELD THAT: - The Tribunal found that although the assessee deposited the provident fund contributions within the financial year and before the due date for filing the return, this ground was not raised before the CIT(A). In the interest of adjudicating the dispute on merits the Tribunal restored this ground to the file of the CIT(A) for fresh consideration and directed that it be adjudicated on merits. [Paras 7]Ground remitted to the CIT(Appeals) for adjudication on merits.Additional depreciation on plant and machinery (computers) - remand for adjudication on merits and production of evidence - Claim for additional depreciation on computers treated as plant and machinery - HELD THAT: - The assessee asserted that the computers constituted part of plant and machinery and produced no evidence before the Tribunal. The Tribunal observed absence of evidentiary material in the appellate proceedings and considered it proper to remit the disputed claim to the CIT(A) for adjudication after considering the evidence which the assessee may file. [Paras 7]Issue remitted to the CIT(Appeals) for fresh adjudication on the basis of evidence to be produced by the assessee.Disallowance of interest expenditure under Section 14A read with Rule 8D - presumption that investments/advances are made out of interest-free funds when surplus funds exceed investments - Extent of disallowance under Section 14A read with Rule 8D for expenditure in relation to exempt dividend income - HELD THAT: - The Tribunal examined the assessee's financial position and accepted that the assessee had substantial surplus/interest free funds which exceeded investments in dividend bearing securities. Applying the principle in Reliance Utilities and related decisions, the Tribunal held that where non interest bearing funds far exceed the investments in tax free securities a presumption arises that such investments were made out of interest free funds and therefore interest expenditure need not be disallowed. Accordingly the Tribunal restricted the disallowance to the limited extent found appropriate by it. [Paras 7]Disallowance under Section 14A/Rule 8D restricted to the limited extent identified by the Tribunal; remainder deleted.Disallowance under Section 40(a)(ia) for failure to deduct tax at source - remand for adjudication on merits and production of evidence - Addition under Section 40(a)(ia) in respect of interest paid to Tata Capital Ltd. - HELD THAT: - The assessee contended that the recipient had offered the interest in its return. The Tribunal observed that the assessee sought an opportunity to produce supporting evidence, including Form 26A/certificate from auditor, to demonstrate that the recipient had offered the income to tax. To enable adjudication on merits it restored the issue to the file of the CIT(A) to consider the assessee's submissions supported by evidence. [Paras 8]Issue restored to the CIT(Appeals) for fresh consideration on production of evidence that the recipient declared the income.Disallowance of interest on advances to related/sister concerns and presumption as to interest free funds - Disallowance of interest on advances to sister concerns - HELD THAT: - On review of the financial statements the Tribunal found that the assessee's surplus/interest free funds substantially exceeded the advances and investments made. Relying on the principle that where interest free funds are sufficient to meet investments/advances a presumption arises that such advances were out of interest free funds, the Tribunal concluded that the disallowance of interest was not sustainable and followed the ratio of the cited decisions. [Paras 9]Disallowance of interest on advances to sister concerns deleted.Final Conclusion: The appeal is partly allowed: certain disallowances were deleted or restricted by the Tribunal, while the claims relating to delayed PF payment, additional depreciation on computers and the 40(a)(ia) addition in respect of interest to Tata Capital were remitted to the CIT(A) for fresh adjudication on merits and production of evidence. Issues Involved:1. Disallowance of delayed payment of employees' contribution to Provident Fund.2. Disallowance of additional depreciation on computers.3. Disallowance under Section 14A read with Rule 8D.4. Disallowance of interest paid to Tata Capital Ltd under Section 40(a)(ia).5. Disallowance of interest on advances to sister concerns under Section 40A(2)(a).Detailed Analysis:1. Disallowance of Delayed Payment of Employees' Contribution to Provident Fund:The assessee argued that the authorities were not justified in disallowing Rs. 33,232 for delayed payment of employees' contribution to the Provident Fund, as these payments were made before the due date for filing the return of income. The Tribunal found that this ground was not raised before the CIT (Appeals) and restored the issue to the file of CIT (Appeals) for adjudication on merits, allowing the additional ground of appeal for statistical purposes.2. Disallowance of Additional Depreciation on Computers:The assessee claimed additional depreciation on computers, asserting they fall under the category of plant and machinery. The Tribunal noted the lack of evidence produced during appellate proceedings and remitted the issue to the file of CIT (Appeals) for adjudication, considering the evidences filed by the assessee.3. Disallowance under Section 14A read with Rule 8D:The assessee contended that the investments were made from own funds, not borrowed funds, and thus no disallowance of expenditure was warranted. The Tribunal, referencing the decision of the jurisdictional High Court in CIT Vs. Microlabs Limited, found that the assessee had sufficient surplus funds and restricted the addition to Rs. 38,857.4. Disallowance of Interest Paid to Tata Capital Ltd under Section 40(a)(ia):The assessee argued that the interest payments to Tata Capital Ltd were offered in their tax assessments, and thus no addition should be made. The Tribunal restored the issue to the file of CIT (Appeals) to consider submissions supported with evidence of Form 26A and adjudicate on merits.5. Disallowance of Interest on Advances to Sister Concerns under Section 40A(2)(a):The assessee claimed that advances to sister concerns were made from surplus funds and were for business purposes. The Tribunal, referencing the decision of the Hon'ble Bombay High Court in CIT Vs. Reliance Utilities and Power Ltd., found that the advances and investments were made from interest-free funds and directed the Assessing Officer to delete the interest disallowance of Rs. 5,19,058.Conclusion:The Tribunal allowed the assessee's appeal partly for statistical purposes, remitting several issues back to the CIT (Appeals) for further consideration and adjudication based on the provided evidences. The order was pronounced in the open court on 8th Jan., 2020.