TaxTMI 
TaxTMI 
2017 (2) TMI 742
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.... law. 2.0 That the learned CIT(A) has grossly erred in law and on the facts and in the circumstances of the appellant's case in confirming the disallowance made by the AO u/s. 14A of the Income-tax Act. 2.1 That fne learned CIT(A) has failed to take into consideration various propositions with regard to disallowance u/s.l4A read with rule 8D, which were advanced before him. 2.2 That the learned CIT(A) has failed to appreciate that no part of interest was liable to be disallowed u/s.14A read with rule 8D, as no borrowed funds had been used by the assessee for the purpose of making investment. 2.3 That the learned CIT(A) has failed to appreciate that the loans sanctioned by the various banks, specifically prohibits the investment in shares; and such loans were monitored by the sanctioning banks and therefore, the confirmation of disallowance u/s.14A read with rule 8D in respect of interest is bad in law. 3.0 That the learned CIT(A) has grossly erred in interpreting the provisions of section 115JB while confirming the action of enhancing the book profits by the (i) provisions for leave encashment and (ii) provisions for gratuity, which was made on the basis of actuarial....
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....(in short "the union") was very strong and the assessee was forced to take the services of the truckers registered under the 'union', which did not allow any outside truck to bring in material and to take the material out of the state of Himachal Pradesh. It was stated that since most of the truckers did not have any bank account and the assessee had no choice to engage the services of the truckers and the payments for freight charges was made in cash after deducting tax at source (TDS) as per provisions of the Act. It was submitted by the assessee that the cash payments were made by the assessee company because of the circumstances beyond the control and had been incurred by the assessee for its business activity, and hence same should be allowed. The Assessing Officer, however did not accept the submission of the assessee. According to him there was no such provision for excluding those payments from the purview of the disallowability under section 40A(3) of the Act, thus he disallowed the sum of Rs. 4,45,076/-. Before the learned Commissioner of Income-tax (Appeals), the assessee submitted that during the year under consideration, the assessee had made a total freight payment of....
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....regate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. (3A) Where an allowance has been made in the assessment for any year in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year (hereinafter referred to as subsequent year) the assessee makes payment in respect thereof, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the payment so made shall be deemed to be the profits and gains of business or profession and accordingly chargeable to income-tax as income of the subsequent year if the payment or aggregate of payments made to a person in a day, exceeds twenty thousand rupees: Provided that no disallowance shall be made and no payment shall be deemed to be the profits and gains of business or profession under sub-section (3) and this sub-section where a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty th....
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.... (iv) a bill of exchange made payable only to a bank; (v) the use of electronic clearing system through a bank account; (vi) a credit card; (vii) a debit card. Explanation.-For the purposes of this clause and clause (g), the term "bank" means any bank, banking company or society referred to in sub-clauses (i) to (iv) of clause (a) and includes any bank [not being a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)], whether incorporated or not, which is established outside India; (d) where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee; (e) where the payment is made for the purchase of- (i) agricultural or forest produce; or (ii) the produce of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming; or (iii) fish or fish products; or (iv) the products of horticulture or apiculture, to the cultivator, grower or producer of such articles, produce or products; (f) where the payment is made for the purchase of the products manufactured or pr....
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.... therefore, the assessee cannot be allowed benefit of the exception carved out in rule 6DD(k)of the Rules. Since in the instant case, the person to whom cash payment is made, is not the agent of the assessee, the Rule 6DD(k) is not attracted in the case of the assessee. The learned Authorized Representative has also relied on the decision of the Hon'ble Delhi High Court in the case of RC Goel versus CIT(supra), wherein the Hon'ble High Court interpreted the expression "who is required to make payment in cash " under Rule 6DD(k) of the Rules, as under : "9. In the present case, the previously noted discussion would reveal that the assessee engages itself in executing catering contracts for Railways in respect of two trains. In those trains, its personnel are deployed for sale of small articles of daily necessity and use to the passengers. Per force, the payments received by them are necessarily in cash. These amounts are ITA-636/2012 Page 5 collected and in turn handed over to the assessee. The assessee in terms of its contract is bound to maintain constant supplies in the trains and ensure that at no point in time can the passengers be deprived of these articles (which are food ....
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.... we uphold the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute and dismiss the grounds No. 1.0 to 1.2 of the appeal. 5. In grounds No. 2.0 to 2.3, the assessee has challenged disallowance of Rs. 33,01,445/- under section 14A of the Act read with rule 8D of Rules. 5.1 Facts in brief in respect of issue in dispute are that the Assessing Officer observed investment in shares etc. in the balance sheet, but no disallowance made by the assessee for expenses towards earning exempt income from investments. It was explained by the assessee that the substantial part of investment was made in earlier years and during the year only a sum of Rs. 2000/- was received as exempt income and no disallowance under section 14A should be made. This claim of the assessee that no expenditure was incurred on earning exempt income was not accepted by the Assessing Officer in view of the observations that the company was using its administrative, managerial and infrastructural setup for earning income, which does not form part of the total income under the Act i.e exempt income. The contention of the assessee that substantial part of investments have been made out of....
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....empt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 5.5 Respectfully following the above judgment of the Hon'ble Delhi High Court, we direct the Assessing Officer to restrict the disallowance under section 14A of the Act to the extent of exempt income earned by the assessee. Accordingly, the grounds No. 2.0 to 2.3 of the appeal are allowed partly. 6. In ground No. 3, the assessee has challenged the action of the learned Commissioner of Income-tax (Appeals) in confirming the enhancement to book profit by way of adding provision for leave encashment and provision for gratuity. 6.1 The facts in respect of issue in dispute are that the Assessing Officer observed that the provisions for leave encashment of Rs. 19,52,281/- and gratuity of Rs. 58,62,294/- were added back by the assessee in the revised computation of income under normal provisions of the Act, however, both these provisions had not been added....
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....uch adjustments are required to be made as specifically governed by the provisions of the Act. He prayed that in view of above the finding of the learner Commissioner of Income-tax( Appeals) might be set-aside. 6.3 The learned Senior Departmental Representative, relying on the findings of the lower authorities submitted that provisions for leave encashment and gratuity are not ascertained liability and, therefore, the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute might be sustained. 6.4 We have heard the rival submissions and perused the material on record. The issue in dispute before us is whether the provisions for leave encashment and gratuity can be added for the purpose of computation of book profit under section 115JB of the Act. For the purpose of section 115JB of the Act, "book profit " has been defined in Explanation - 1. According to the definition to arrive at book profit, certain items of income or expenditure are to be added to the net profit shown in the profit and loss account. The one of the items is the amount of provision for meeting liabilities other than ascertained liabilities. The relevant part of the Explanation -1 ....
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....loyees putting in every additional year of service. The gratuity was payable on the termination of an employee's service either due to retirement, death or termination of service-the exact time of occurrence of the latter two events being not determinable with exactitude beforehand. A few principles were laid down by this Court, the relevant of which for our purpose are extracted and reproduced as under: (i) For an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid; (ii) Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business; (iii) A condition subsequent, the fulfilment of which may result in the reduction or even extinction of the liability, would not have the effe....