2018 (5) TMI 1967 - ITAT CHANDIGARH

Expenses pertaining to foreign travel by the Directors and employees of the company - A.O has disallowed 10% of the expenses as the personal site seeing expenses cannot be ruled out - HELD THAT:- the said disallowance is held to be unjustified and is hereby ordered to be deleted. Since the order of the Ld. CIT(A) is based on the order of the Coordinate Bench of ITAT in the case of DCIT Vs. Rico Auto Industries Ltd [2013 (10) TMI 926 - ITAT CHANDIGARH] involving similar grounds, we decline to interfere in the order of the Ld. CIT(A).

Disallowance of bad debts claimed by the assessee on account of transactions with the distributors who in turn supply products of the assessee to the retailers - HELD THAT:- For the A.Y. 2013-14, the bad debts claimed by the assessee are on account of publicity charges not recovered from customers. The Assessing Officer disallowed the claim only on the basis that no efforts were made by the assessee to recover the amounts.

As per the judgment of Hon’ble Supreme Court in the case of TRF Ltd. Vs. CIT [2010 (2) TMI 211 - SUPREME COURT] bad debts need not be proven to be irrecoverable. It is sufficient if the same are written off. Since the issue is squarely covered by the provisions under section 36(1)(vii) and section 36(2) of the Income Tax Act,1961, and since it is written off as irrecoverable, we decline to interfere in the order of the Ld. CIT(A). - Decided against revenue

Disallowance under section 36(1)(iii) on purchase of Land - HELD THAT:- Assessee has got sufficient funds as per the balance sheet as on year ending 2010. The share capital is of ₹ 2.57 Crores and the reserves and surplus are to the tune of ₹ 115.35 Crores. Hence, placing reliance on the decision of the Hon’ble jurisdictional High Court in the case of Bright Enterprises Private Ltd. [2015 (11) TMI 342 - PUNJAB & HARYANA HIGH COURT] and judgment in the case of a CIT Vs. Omax bikes limited [2015 (8) TMI 1290 - ITAT CHANDIGARH] , Hero Cycles Vs. CIT [2016 (2) TMI 1081 - ITAT CHANDIGARH] wherein it has been held that if sufficient interest free funds are available the presumption is that the advances have been made out of such funds and no disallowance of interest under section 36(1)(iii) is called for, we hereby decline to interfere in the order of the Ld. CIT(A).

Deduction u/s 80IC - HELD THAT:- Reduction of profits to the extent of 10% has been done by the Assessing Officer on estimate basis without demonstrating by way of evidence whether any expenses on account of knowhow, goodwill, trade name, etc. had been incurred by the Phillaur unit with respect to Tahliwal unit . The same has not been demonstrated even before us. Further as rightly held by the Ld.CIT(A) , the provisions of sect ion 80IA (8) and 80IA (10) cannot be invoked in the present case in the absence of any transact ion between the two units. The Ld. DR has not pointed out any infirmity in the order of the Ld.CIT(Appeals) . We, therefore, uphold the order of the Ld.CIT(Appeals) in deleting the reduction of profits of the Tahliwal unit by 10% of the profits - Decided against revenue

Disallowance of Section 80IC on Job Work - HELD THAT:- As decided in the case of the assessee for the A.Y. 2006-07 the basic process is carried out by the appellant is the same whether the production is done for itself or job work. The Hon'ble Punjab and Haryana High Court in the case of CIT vs Impel Forge and Allied industries Ltd [2008 (12) TMI 370 - PUNJAB & HARYANA HIGH COURT] has held that the assessee is at liberty to manufacture for itself or others which makes no difference for the purpose of deduction under section 80IB of the act. In view of the same, the reduction in the claim made by the appellant under section 80IC on this account deserves to be deleted. These grounds of appeal are allowed

Deduction u/s 80IB - breads and buns - HELD THAT:- Assessee is an SSI unit as defined u/s 80IB(14(g) of the Act and is not manufacturing a prohibited item specified in the 11th Schedule of the Act and thus qualifies for deduction of its profits u/s 80IB of the Act as rightly held by the Ld.CIT(Appeals) .

Disallowance u/s 14A - HELD THAT:- We agree with the decision of the Ld. CIT(A) that Rule 8D cannot be applied for the year 2007-08. However it cannot be said that the assessee has not incurred any expenditure in respect of any exempt income. The total investment made by the company or to the tune of ₹ 76.12 crores and the dividend earned is ₹ 53.11 Crores. The assessee has got own funds for these investments which have been received in the form of share capital from M/s Goldman Sachs (Mauritius) to whom 360000 shares have been allotted. Keeping in view the peculiar facts and circumstances of the case a reasonable estimate of the expenses needs to be determined as Rule 8D cannot be invoked. We find that Ld. CIT(A) has reasonably estimated the disallowance keeping in view the entire facts and circumstances of the case.

Addition u/s 8D(2)(i)&(ii) - In the decision in the case of Dhampur Sugar Mills Vs. CIT (Alld) [2014 (9) TMI 791 - ALLAHABAD HIGH COURT] wherein it was held that half percent of average investment is justified on account of disallowance under Rule 8D(2)(iii) on account of other expenses. Since the decision of the Ld. CIT(A) is based on the orders of the ITAT and the Hon’ble High Court, we decline to interfere in the order of the Ld. CIT(A).

Disallowance u/s14A cannot be considered in determination of tax under section 115JB - HELD THAT:- Disallowance under section 14A read with Rule 8D cannot be added while computing book profits as per section 115JB as Explanation to that section does not specifically mentions section 14A of the Income Tax Act, 1961. See ACIT VS. Vireet Investments Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI]

Treatment of the sale tax subsidy as revenue receipt or capital receipt - HELD THAT:- As major guidelines have been framed by the Hon’ble Courts and since the nature of the capital subsidy and revenue subsidy is to be determined by going through the entire scheme of the Government, for determination of purpose test and to examine the whether the issue would be covered under the scheme to assist creation of capital asset or an operational subsidy post installation, the matter is being remanded back to the file of the Ld. CIT(A) to adjudicate afresh keeping in view the judgments and the nature of the scheme and adjudicate the issue by a speaking order in accordance with law.