TMI Blog2015 (3) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution to the Provident Fund paid beyond the due date prescribed in the Provident Fund Act - CIT(A) deleted the addition - Held that:- Issue stands decided in favour of the assessee by the recent decision of CIT Vs. Ghatge Patil Transports [2014 (10) TMI 402 - BOMBAY HIGH COURT] where it has been held that Employees' contribution paid after the due date prescribed under the relevant Act but deposited on or before the due date of filing of the return prescribed u/s.139(1) is to be allowed as expenditure. We therefore do not find any infirmity in the order of the CIT(A) on this issue. - Decided in favour of assessee. Disallowance of write-off u/s 36(1)(vii) - CIT(A) allowed the claim of the assessee - Held that:- In the instant case we find the Ld.CIT(A) allowed the claim of deduction as business loss considering the smallness of the items. It is an admitted fact that these are very old EMDs lying with various departments such as National Safety Council, Indravai Hydro Power, SBI Satpura, Bhusawal Thermal etc. Although these are not bad debts but considering the smallness of the amounts lying with various departments under the head EMD the assessee has written off these item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual funds. The assessee has paid total interest of ₹ 4,73,73,798/- during the year. It has also claimed exempt dividend income of ₹ 12,600/-. However, no expenses have been apportioned towards expenses incurred for earning the exempted income attributable to holding of such investments. The AO, therefore, asked the assessee to explain as to why disallowance u/s.14A should not be made. Rejecting the various arguments advanced by the assessee and relying on various decisions the AO disallowed an amount of ₹ 66,565/- u/s.14A r.w. Rule 8D. The above amount consists of disallowance of interest of ₹ 57,929/- under Rule 8D(2)(ii) and administrative expenses of ₹ 8,636/- under Rule 8D(2)(iii). 3. Before CIT(A) it was submitted that as on 31-03-2009 the assessee had sufficient interest free funds aggregating to ₹ 4391.19 lakhs which is more than sufficient to finance the investment of ₹ 17,27,510/- the income on which is exempt. Relying on the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. where it has been held that if there be interest free funds available to an assessee sufficient to meet its inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 20-09-2013 for A.Y. 2008-09 he submitted that the Tribunal in the said decision has held that where there is no categorical finding of the AO that the assessee utilized the interest bearing funds for making the investment in the mutual funds, the dividend income of which is exempt, there is no justification for making disallowance u/s.14A r.w. Rule 8D. While doing so, the Tribunal has followed the decision of Hon'ble Punjab Haryana High Court in the case of CIT Vs. Hero Cycles Ltd. reported in 323 ITR 518 where it has been held that disallowance u/s.14A requires finding of incurring of expenditure for earning exempt income and without such finding no expenditure can be disallowed u/s.14A of the I.T. Act. Referring to the decision of the Pune Bench of the Tribunal in the case of Addl. CIT Vs. M.D. Industries vide ITA No.2454/PN/2012 order dated 31-01-2014 for A.Y. 2008-09 he submitted that the Tribunal in the said decision has held that when the AO failed to establish any nexus between the borrowed funds and the investments in the tax free funds, therefore, the apportionment of expenses on pro-rata basis to make disallowance u/s.14A was not justified. It was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther find that AO has applied section 14A(2) but section 14A(2) only vests powers in the AO for quantification of the expenditure for making the disallowance but at the same time section 14A(2) does not override section 14A(1) of the Income Tax Act. 6.4 In the case of Hero Cycles Ltd. (Supra) the Hon'ble High Court of Punjab and Haryana has observed that disallowance u/s.14A required finding of incurring of expenditure for earning exempted income, and without said finding no expenditure can be disallowed u/s.14A of the Act. The Hon'ble High Court considered section 14A(2) and Rule 8D(1) also. In the case of CCI Ltd. (Supra) the assessee earned the dividend income on the assets which was claimed exempt but the profit on the sale was offered as business income. In this case, there cannot be profit on the transfer of the mutual funds but as we have held that there is no specific finding by the AO nor by the CIT(A) that infact the assessee has used the interest bearing funds for investment, on this factual aspect, we hold that there is no justification to make the disallowance. We accordingly delete the addition made by the AO u/s.14A r.w. Rule 8D as the mandate of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. 12. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 13. After hearing both the sides, we find the issue stands decided in favour of the assessee by the recent decision of the Hon'ble Bombay High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. vide ITA No.1002/2012 and ITA No.1034/2012 order dated 14-10-2014 where it has been held that Employees' contribution paid after the due date prescribed under the relevant Act but deposited on or before the due date of filing of the return prescribed u/s.139(1) is to be allowed as expenditure. The Pune Benches of the Tribunal are also taking the consistent view that Employees' contribution towards Provident Fund, if deposited before the due date of filing of the return prescribed u/s.139(1) is to be allowed. We therefore do not find any infirmity in the order of the CIT(A) on this issue. Accordingly, the ground raised by the Revenue is dismissed. 14. Ground of appeal No.3 by the Revenue reads as under : 3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-I, Nashik was justified in deleting the disallowance of ₹ 48,228/- made on account of disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the assessee. It is not in dispute that, payment of EMDs is normal incident of business and its business purpose cannot be disputed. Irreconcilable and irrecoverable small amounts of such deposits are written off by the assessee and charged against the profits for the year. Admittedly this is not a write off of any debt arising on account of any income in the past. However, business necessity of making such deposits is undisputed. Hence, the loss arising on account of write off of such deposits is clearly a business loss allowable u/s 37(1) of the I.T. Act. The only issue that remains is the year of allowability. Considering the rationale behind the provisions of deduction allowable u/s.36(1)(vii) and the smallness of amounts involved, it would be fair to allow deduction for such losses in the year of write off. Therefore, the impugned disallowance of ₹ 48,228/- is deleted. The ground of appeal is allowed . 17. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 18. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee vide submission dated 08-12-2011 submitted as under: Details of major related party transactions, alongwith suitable explanation are enclosed. As to the interest free non business advances, kindly note that, the amount of interest free non business advances is very small, as compared to the availability of interest free funds with the assessee. Following are the details of interest free funds available with the assessee Equity share capital ₹ 8,89,58,380/- Reserves Surpluses Rs.10,64,97,678/- Depreciation Reserve Rs.16,12,23,167/- Unsecured Loans - WMDC/DIC S. T. Loans ₹ 8,05,39,916/- Unsecured loans from Star Lite Components Ltd. ₹ 9,00,000/- TOTAL Rs.43,91,19,141/- It may kindly be noted that, in the case of CIT vs. Reliance Utilities Power Ltd., (copy of decision enclosed) the Hon'ble Bombay High Court has held that, where an assessee has his own funds as well as borrowed funds, a presumption can be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest free funds available to fund the interest free advances, it should be assumed that the above referred advances have been made by assessee from its internal accruals. As to the various decisions referred to by the A.O., it was pointed out that the Supreme court and the Jurisdictional Bombay High Court in the above referred cases have taken a contrary view and following the principles of Jurisprudence decision of the Apex court and the Jurisdictional High court has a binding effect. It was accordingly submitted to delete the disallowance of interest of ₹ 9,33,867/-. 21. Based on arguments advanced by the assessee the Ld.CIT(A) deleted the disallowance by observing as under : 7.2 I have carefully gone through the facts of the case and the relevant portions of the impugned assessment order and the submissions of the assessee. It is not disputed that, the funds used for making interest free non business purpose advances were by use of cash credit limits. However, it is equally true that it is the very same cash credit account, in which sale proceeds are also deposited. Thus, the issue in dispute is clearly covered by the decisions cited by the learned A.R. of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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