2020 (5) TMI 82 - ITAT KOLKATA

Addition of Leave encashment claim(s) - Deduction on payment basis or accrual basis - HELD THAT:- CIT-DR fails to dispute the CIT(A)’s identical lower appellate discussion in these three assessment year(s) has gone by actual payments only u/s 43B(f) of the Act. The CIT(A) has also taken note of the hon'ble jurisdictional high court’s decision in Exide Industries Ltd. vs. Union of India [2007 (6) TMI 175 - CALCUTTA HIGH COURT] quashing foregoing statutory provision itself as ultra vires and its operation stayed in hon'ble apex court’s to conclude that assessee’s mere provision of leave encashment does not deserve to be accepted. We find neither any legality nor irregularity in the CIT(A)’s action under challenge. The Revenue’s identical first substantive grievance in these three assessment year(s) fails therefore.

Addition u/s 14A r.w.r. 8D - HELD THAT:- There is hardly any dispute that the Rule 8D of the Income Tax Rules comes into play for the purpose of quantification of disallowance of expenditure pertaining to an assessee’s exempt income. The same applies from assessment year(s) 2008-09 onwards as held in Godrej & Boyee Manufacturing Co. Ltd. vs. DCIT [2017 (5) TMI 403 - SUPREME COURT] upholding hon'ble Bombay high court’s decision to this effect. Coming to assessee’s dividend income, case file(s) suggests that it had declared suo motu expenses. AO's corresponding regular assessment disallowed proportionate interest as well as administrative expenses under Rule 8D(2)(ii)(iii). We proceed in this backdrop and observe that since the assessee could neither explain correctness of its suo motu expense; whether falling under any or all three head(s) nor there was any indication that the corresponding administrative expenditure indirect in nature stated included qua the exempt income yielding investments or not. We make it clear that this tribunal’s co-ordinate bench’s decision in REI Agro Ltd. vs. DCIT [2013 (9) TMI 156 - ITAT KOLKATA] holds that the impugned administrative disallowance has to be computed going by the exempt income yielding investments only. We therefore decline the assessee’s arguments that the Assessing Officer’s action invoking sec. 14A / 8D disallowance was without recording any satisfaction.

Computation of the impugned disallowance going by the three head(s) of direct , proportionate interests and administrative expenditures under Rule 8D(2)(ii)(iii) of the Income Tax Rules w.e.f. assessment year 2008-09 onwards, we are of the opinion that the Income Tax Settlement Commission’s adjudication in the said preceding three assessment year(s) restricting the impugned disallowance pertaining to three AYs of exempt income does not form a binding precedent being per incarium as per CIT vs. B.R. Constructions [1992 (6) TMI 13 - ANDHRA PRADESH HIGH COURT]. We thus reverse the CIT(A)’s above lower appellate findings to this effect.

Indirect head of administrative expenditure @ 0.5% of average value of investment under Rule 8D(2)(iii) - HELD THAT:- Only exempt income yielding investments deserve to be included for the purpose of determining the corresponding figures. We therefore restore the Revenue’s instant second substantive grievance to the extent of Rule 8D administrative disallowance computation back to the Assessing Officer. See REI AGRO LTD, KOLKATA VERSUS DCIT CENTRAL CIRCLE-XXVII, KOL [2013 (9) TMI 156 - ITAT KOLKATA]

No sec. 115JB MAT computation qua the impugned sec. 14A read with Rule 8D disallowance

Additional depreciation claim @ 10% u/s 32(1)(iia) since it had put its corresponding fixed assets to use in earlier assessment year(s) than installation thereof in the relevant previous year.

TP Adjustment - corporate guarantee amount to an international transaction - HELD THAT:- As relying on M/S EMAMI LIMITED [2019 (5) TMI 1371 - ITAT KOLKATA] a corporate guarantee as not amounting to an international transactions u/s. 92B of the Act. All these corresponding grounds fail therefore.

Provision for foreseeable loss in contract revenue for the purpose of normal as well as MAT computation - AO disallowed the same as a contingent liability since not crystallized in the relevant previous year - HELD THAT: - Hon'ble apex court’s landmark judgment in Commissioner of Income Tax vs. Chainrup Sampatram [1953 (10) TMI 2 - SUPREME COURT] held long back that although the principles of conservatism and prudence in accounting require that no anticipated profits are to be recorded as income until realised, the converse is not true regarding anticipated losses which could be booked at the first sign of reasonable probability. We conclude in view of all these foregoing facts that the assessee was very well justified in claiming the impugned foreseeable liability provision in these two assessment year(s) regarding its project works by in compliance of AS-7 of the Act. The Revenue’s instant substantive grievance fails therefore.

Disallowing assessee’s employees contribution to PF & ESI respectively by invoking sec. 36(1)(via) of the Act since the same had not been paid within the due date as prescribed in the specific Acts - HELD THAT:- Hon'ble jurisdictional high court in Commissioner of Income Tax vs. M/s Vijay Shree Ltd. [2011 (9) TMI 30 - CALCUTTA HIGH COURT] holds that such a disallowance deserves to be deleted in case the assessee has deposited the ESI / PF contribution in question before the due date of filing of its return of income which is not in dispute before us. We thus affirm the CIT(A)’s action deleting the impugned disallowance on this count alone.

Market-to-market loss derived from the derivative transactions - HELD THAT:- CIT(A) has admittedly taken note of various judicial precedents i.e. Woodward Governor India P. Ltd. [2009 (4) TMI 4 - SUPREME COURT] that the impugned mark-to-market loss is allowable to be recognized in respect of the outstanding derivative contracts pertaining to regular course of business.

Hon'ble apex court’s decision in CIT vs. Indra Industries [2000 (1) TMI 44 - SUPREME COURT] also holds that Board’s circular are binding only on the departmental authorities.

Coming to sec. 115JB computation relevant to the impugned MAT loss - As decided in Himadri Chemicals [2018 (9) TMI 528 - ITAT KOLKATA] such a provision is not a contingent liability and not liable to be included therefore. The CIT(A)’s findings are affirmed therefore.

Bogus management consultancy services - AO invoked the impugned disallowance mainly on the ground that the payee herein alleged to have provided consultancy services to the assessee’s turned out to a shell entry in mere accommodation entry business - HELD THAT:- CIT-DR fails to dispute that the assessee had placed on record all the relevant evidence of the said recipient. Hon'ble jurisdictional high court’s decision in Inbuilt Merchant Pvt. Ltd.[2014 (3) TMI 1107 - CALCUTTA HIGH COURT] has already set identical issue to treat that such a compliance by way of all detailed evidence forms sufficient reason to prove rendering of the services as well as genuineness of payments. We thus affirm the CIT(A)’s findings deleting the impugned management consultancy services disallowance as well.

Notional interest income addition received / receivable from M/s SPL for loans provided - HELD THAT:- No fault in the CIT(A)’s action going only by real income principle in view of the various judicial precedents that such a notional income in case of defaulting entity a NPA does not lead to assessment of taxable income.

Department could not add any notional income in an assessee’s hands just because a payer had deposited TDS qua the same. We wish to re-emphasis here that there is material whatsoever which could suggest payment credit of any interest income in assessee’s books. See TOYO ENGG. INDIA LIMITED [2005 (9) TMI 237 - ITAT BOMBAY-J] .We thus uphold the CIT(A)’s findings under challenge.

Adding educational cess u/s 40(a)(ii) - HELD THAT:- This issue of educational cess disallowance u/s 40(a)(ia) is no more res integra as in Chembal Fertilizers & Chemicals Ltd. [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] holds that the relevant statutory provision to this effect as well as the CBDT’s circular issued way back on 18.05.1967 do not include “Cess”.