2020 (4) TMI 843 - AT - Income Tax

Tribunal decisions upheld on various issues, some remanded for further review, emphasizing non-speculative nature.

The DCIT, Circle-1 (1) (1), Ahmedabad Versus M/s. Acalmar Oils & Fats Ltd. (Now merged with Adani Wilmar Ltd.), And (Vice-Versa)

The DCIT, Circle-1 (1) (1), Ahmedabad Versus M/s. Acalmar Oils & Fats Ltd. (Now merged with Adani Wilmar Ltd.), And (Vice-Versa) - TMI Issues Involved:1. Disallowance of contingent liability claimed as loss on account of market-to-market transactions.2. Addition under Section 50C of the Income Tax Act, 1961.3. Disallowance of software expenditure treated as capital expenditure.4. Disallowance under Section 40A(2) of the Income Tax Act, 1961.5. Disallowance under Section 14A of the Income Tax Act, 1961.6. Disallowance of bad debts written off.Issue-wise Detailed Analysis:1. Disallowance of Contingent Liability Claimed as Loss on Account of Market-to-Market Transactions:The assessee, engaged in manufacturing Vanaspati and refining edible oil, claimed a loss of Rs. 6,55,33,334/- on market-to-market transactions with ICICI Bank. The Assessing Officer (AO) disallowed this, treating it as a contingent liability not yet crystallized. The CIT(A) allowed the appeal, stating the loss was incurred due to a hedging contract and not speculative. CIT(A) noted that the transaction was in the normal course of business to hedge against foreign exchange fluctuation, referencing the Supreme Court decision in CIT vs. Woodward Governor India P. Ltd. and other ITAT decisions. The Tribunal upheld CIT(A)’s decision, emphasizing that the loss was not speculative or contingent but a business loss.2. Addition under Section 50C of the Income Tax Act, 1961:The AO added Rs. 15 lacs to the assessee's income, invoking Section 50C, as the sale consideration of land was less than the fair market value determined by the Stamp Valuation Authority. The CIT(A) upheld this addition, noting the assessee did not contest the stamp valuation. The Tribunal restored the issue to the AO to refer it to the Departmental Valuation Officer for determining the fair market value.3. Disallowance of Software Expenditure Treated as Capital Expenditure:The AO treated software expenditure of Rs. 19,04,502/- as capital expenditure, allowing depreciation at 60% and disallowing Rs. 7,61,800/-. CIT(A) upheld this, stating software expenditure should be capitalized. The Tribunal, referencing Gujarat High Court decisions in NJ India Invest Ltd. and Oriental Bank of Commerce, allowed the expenditure as revenue, noting it did not confer an enduring benefit.4. Disallowance under Section 40A(2) of the Income Tax Act, 1961:The AO disallowed Rs. 2,14,40,000/- paid as Sauda settlement charges to a related party, suspecting tax evasion. CIT(A) allowed the appeal, noting the transactions were genuine and the related party paid taxes at the maximum marginal rate. The Tribunal upheld CIT(A)’s decision, referencing the Supreme Court’s decision in CIT vs. Glaxo Smithkline (Asia) and Gujarat High Court’s decision in Pr. CIT vs. Gujarat Gas Financer Services Ltd.5. Disallowance under Section 14A of the Income Tax Act, 1961:The AO disallowed Rs. 5,18,246/- under Section 14A. The Tribunal dismissed the Revenue’s appeal, noting the assessee did not earn any exempt income, referencing the Gujarat High Court decision in Corrtech Energy Pvt. Ltd.6. Disallowance of Bad Debts Written Off:The AO disallowed Rs. 93,26,443/- claimed as bad debts, stating the amounts were not offered as income in earlier years. CIT(A) partly allowed the appeal, disallowing Rs. 13 lacs related to the sale of property, treating it as a capital loss. The Tribunal restored the issue to the AO for examining the alternative claim of allowing it as a capital loss, referencing the ITAT decision in Sagar Drugs & Pharmaceutical Pvt. Ltd. vs. Joint CIT.Conclusion:The Tribunal upheld CIT(A)’s decisions on issues 1, 3, 4, and 5, providing detailed reasoning and referencing relevant judicial precedents. On issues 2 and 6, the Tribunal restored the matters to the AO for further examination, ensuring a thorough and fair assessment.