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2025 (8) TMI 911
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....w, the L'D CIT(A) was justified in deleting the disallowance of Rs. 2,13,785/ on account of the provision for gratuity, without considering the fact that the assessee failed to make a provision in compliance with under section 40A(7) of the I. T. Act?" 2. "Whether, on the facts and in the circumstances of the case and in law, the L'D CIT(A) was justified in deleting the disallowance of Rs. 47,22,474/- on account of written off debts, without considering the fact that the assessee failed to provide sufficient evidence to support thee entitlement to the deduction for bad debts under section 36(1)(vii) of the I.T. Act for the current year?" 3. "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 1,14,45,642/- on account of ICDS, without considering the fact that the tax auditor neither submitted a revised tax audit report nor produced any documents clearly proving the mistake?" 4. "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the interest expenses of Rs. 17,56,179/- for the investment in the subsidiary, wi....
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....l amount disallowed was Rs. 8,94,70,497/-. The aggrieved assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) partly allowed the appeal of the assessee. Being aggrieved, the revenue filed appeal before us and the assessee filed cross objection. ITA No.4945/Mum/2024, Revenue's appeal Ground 1: Disallowance of provision of gratuity Rs. 2,13,785/- u/s 40A(7) of the Act 4. It is argued that the Ld.AO disallowed on the ground that the gratuity provisions was created and the same was disallowed amount to Rs. 2,13,785/-. But the assessee provided evidence stating that there was no provision made and it is an actual gratuity liability and same was paid to the retiring employees in just six days, after the end of the relevant year. The alleged ground of assessee was duly allowed by the Ld.CIT(A). In the argument, it is stated that the assessee, in provision of gratuity amount to Rs. 1,13,36,715/- has provided as per actuarial valuation is already disallowed under section 40A(7) of the Act. The gratuity provision of Rw.2,13,785/- includes the pending settlement of retiring employees, who retired during the year and which was determined on actual basis and paid on 06/04/2019.....
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....e ledger account and details are submitted before the Ld.AO during the assessment proceedings vide letters dated 13/11/2019 and 26/11/2019. The only mistake assessee made in JV is that it has wrongly mentioned the year 2019, instead of 2017. Considering the factual matrix and relying on the judgement of Hon'ble Supreme Court cited supra, we find that there is no infirmity in the order of Ld. CIT(A). Accordingly, the observation taken by the Ld.CIT(A) is upheld. Ground 2 of the revenue is dismissed. Ground 3: Addition on account of ICDS adjustment of Rs. 14,45,642/- of the Act 9. The Ld. DR submitted that, as per the Tax Audit Report (TAR), there was an increase in profit of Rs. 57,22,821/- on account of the restatement of a loan. He relied upon the impugned order of the Ld. AO and contended that, since the tax auditor had reported such an increase in profit, the said amount was rightly added to the income on the basis of the statement filed before the Ld. AO. Ultimately, the Ld. AO held that there was an increase in business income to the extent of Rs. 1,14,45,642/-, which was added to the total income of the assessee. 10. The Ld.AR argued that the Ld. CIT(A) considered....
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..... 1,14,45,642/- to the total income computed by the assessee, as submitted with Return of Income. I have perused the issue and found that there was a clear mistake on part of the tax auditor to report the loss or decrease in profit by Rs. 57,22,821/-, as an increase in profit. It is seen that the same tax auditor, in the note below such adjustment, clearly stated that the total value of balance of loan given to the subsidiary as actually reduced and not increased. Therefore, there was no Foreign Exchange Fluctuation Gain, but actually, there was Foreign Exchange Fluctuation Loss. Therefore, I direct the AO to delete the addition of Rs. 1,14,45,642/-, as determined in the assessment order." We find that there is no reason for interfering in the order of the Ld. CIT(A). Accordingly, ground 3 of the revenue is dismissed. Ground 4: Disallowance of interest expenses of Rs. 17,56,179/- for the investment in subsidiary 12. The Ld. DR, in argument, stated that the assessee took loan from Exim Bank and invested the same in shares of Taraderiv International Pte. Ltd., Singapore. The interest on loan was claimed as business expenses under section 36(1)(iii) of the Act. The L....
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....ised over 3 years. 16. We have heard the rival submissions and perused the material available on record. It is noted that the assessee utilised the catalysts in its manufacturing business, and it is statutorily required to maintain its accounts on the accrual basis. The concept of "accrual basis" entails two essential aspects: (i) recognition of income when it is earned; and (ii) recognition of expenditure when it is incurred. These two aspects are inseparable and represent two sides of the same coin. The assessee's accounting must necessarily move in tandem. it is not possible to recognise expenditure without recognising the corresponding income, or vice versa. The fundamental distinction between the cash basis and the mercantile (accrual) basis of accounting lies in the timing of recognition of income and expenses. Accountants describe the determination of periodical net income as the proper matching of revenue with the expenses of the period. This is achieved by associating expenses directly with the revenue earned during the relevant period, regardless of whether the payment has actually been made, and charging them to the income of that period. Therefor....
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....curring in section 14A would take in its sweep not only direct expenditure but also all forms of expenditure regardless of whether they are fixed, variable, direct, indirect, administrative, managerial or financial. Subsection (1) of section 14A provides in unequivocal terms for not allowing deduction in respect of expenditure incurred by the assessee in relation to exempt income and sub-section (2) lays down the mechanism for determining such amount of expenditure incurred in relation to exempt income in accordance with method as prescribed under rule 8D and the disallowance as submitted by the assessee is not in order. The disallowance u/s. 14A shall be worked out as per Rule 8D wherein the method of working out the disallowance has been provided. Reliance in this regard is placed on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT & Anr. reported in 234 CTR (Bom) 1 (2010)." 19. The Ld.AR challenged the satisfaction recorded by the Ld.AO as not acceptable. So, the addition should be quashed. In argument, he stated that the Ld. AO incorrectly dealt with the account of the assessee. There is no mention about which the expenses ha....
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....o called 'passive' investments and simply recorded that the AO was bound to Rule 8D and, therefore, was justified in determining administrative costs at 0.5%. Here again, the CIT (A) failed to note that without the mandatory requirement, under Section 14A of the Act and Rule 8D of the Rules, of satisfaction being recorded being met, the question of applying Rule 8D (1) did not arise. 39. Turning now to the order of the ITAT, in para 33, it recorded the submission of the AR that the A did not record any satisfaction about the Assessee not properly offering expenditure incurred in relation to the exempt income at Rs. 3 lakhs. The ITAT reproduced the contents of para 3.3.1 of the assessment order, which has been extracted by this Court hereinbefore, which contains general observations regarding earning of exempt income. This cannot be accepted as a recording by the AO of satisfaction regarding the claim of the Assessee after examining its accounts. Again, in para 34 of its order, the ITAT simply reproduced para 3.3.6 of the assessment order where, again, no reasons have been provided but only a conclusion has been reached that the AO was "satisfied that the Assessee h....
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.... Ltd. (supra) and other judicial precedents, we hold that in the absence of valid satisfaction under section 14A(2), the consequential computation under Rule 8D(2)(iii) is not sustainable in law. Accordingly, the disallowance made under section 14A is directed to be deleted. In the result, the ground raised by the assessee is allowed. 22. In the result, the ground 1 of the assessee's CO is allowed. Ground 2 : 23. In this ground, the issue is related to disallowance under section 43B of the Act amounting to Rs. 3.15 crores. The Ld.AR stated that the assessee paid the incentive based on the performance of the employees. The amount was duly added back under section 43B of the Act. In argument, the Ld.AR stated that there is no provision but actual liability in respect of variables paid. No such disallowance has been made in any of the preceding or succeeding assessment year. So, on the basis of principle of consistency, no disallowance should be made. The Ld.AO disallowed the performance incentive holding that it cannot be the expenses under section 36(1)(iii) of the Act and the said incentive is considered as liable for disallowable under section 43B of the Act, but all t....