TMI Blog2017 (2) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... to work out/compute the disallowance under section 14A applying Rule 8D of the Rules is erroneous and we therefore delete the same and in the fitness of things, we direct the AO to recompute the disallowance under section 14A of the Act afresh, in accordance with the law prevalent for the year under consideration. Disallowance of non compete fee paid to ex directors - HELD THAT:- In the latest order in assessee s own case [ 2016 (10) TMI 1271 - ITAT MUMBAI] for the assessment year 2004 05, the Tribunal while deciding the issue followed its decision in the earlier assessment year and upheld the disallowance. Disallowance of deduction claimed on account of payment made towards employee s contribution to PF/ESIC - sum not paid either within the due date or the grace period provided under the relevant statute - HELD THAT:- Undisputedly, the assessee has paid the aforesaid amount within the due date of filing of return of income as provided under section 139(1) of the Act. Therefore, keeping in view the provision under section 43B, the deduction claimed is allowable. In this context, it is necessary to observe, the second proviso to section 43B which was omitted by Finance A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income rules computer including software is subject to depreciation. This aspect has also not been examined by the Departmental Authorities. In view of the aforesaid, we consider it appropriate to restore the issue to the file of the Assessing Officer for deciding afresh Change of accounting method - assessee has changed the method of valuation of stores and spares from first in first out (FIFO) to weighted average method - HELD THAT:- As could be seen from the observations of the learned Commissioner (Appeals) in Para 13.2 of his order, he has not given any reasoning why assessee s claim is not acceptable. He has disposed off the ground raised by the assessee without passing a speaking order. Therefore, we restore this issue back to the file of the Assessing Officer for considering afresh after providing reasonable opportunity of being heard to the assessee. The Assessing Officer while deciding the issue must keep in view the decisions which the assessee may rely upon. Ground allowed for statistical purposes. Addition on account of unutilised MODVAT credit to closing stock - HELD THAT:- As decided in own case issue has been rightly decided by the learned CIT(A) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA no.3603/Mum./2009 Assessee s Appeal 2. The issue in grounds no.(i) and (ii), pertains to disallowance made under section 14A of the Income Tax Act, 1961 (for short the Act ) r/w rule 8D of Income Tax Rules, 1962. 3. The Assessing Officer noticing that the assessee has earned exempt income by way of dividend amounting to ₹ 23,52,29,765, called upon the assessee to explain why expenditure attributable to earning of exempt income should not be disallowed. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer proceeded to disallow the amount of ₹ 3,84,19,506, being expenditure incurred for earning the exempt income. The assessee challenged the disallowance before the learned Commissioner (Appeals). 4. The learned Commissioner (Appeals) following the Special Bench decision of the Tribunal, Mumbai Bench, in ITO v/s Daga Capital Management P. Ltd. [2008] 119 TTJ (Mum.) 289 (SB), directed the Assessing Officer to work out the disallowance under section 14A by applying rule 8D. 5. The learned Authorised Representative submitted, rule 8D brought into the statute by Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the assessee adequate opportunity of being heard and to file details/submissions required in this regard. We hold and direct accordingly. Consequently, grounds I and II of the assessee‟s appeal are treated as allowed for statistical purposes. 8. Respectfully following the decision of the Co ordinate Bench cited supra, we restore the issue back to the Assessing Officer for deciding afresh keeping in view the directions of the Tribunal after providing reasonable opportunity of being heard to the assessee. Grounds no.(i) and (ii) are allowed for statistical purposes. 9. Ground no.(iii) is in relation to disallowance of non compete fee paid to ex directors. 10. The Assessing Officer, in the course of assessment proceedings, noticing that the assessee had paid non compete fee of ₹ 4,00,327, to its ex directors and also noticing that similar payment was disallowed in the earlier assessment years, called upon the assessee to explain why the expenditure claimed should not be disallowed. Though, the assessee justified its claim by stating that such expenditure is revenue in nature, however, the Assessing Officer rejecting such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of non compete fees paid to EX director amounting to ₹ 6,41,600. Before us, AR fairly conceded that the issue had been decided against the assessee by the Tribunal vide its order dated 25 09 2006, while deciding the appeal for A.Y. 2000 01. Respectfully following the said order of the Mumbai Bench of the Tribunal, we decide Ground no.2 against the assessee. While at the time of hearing of the present appeal of the assessee for assessment year 2003 04, both the sides conceded to the aforementioned fact, we respectfully following the above mentioned order of the Co ordinate Bench and with a view of maintenance of judicial consistency, uphold the orders of the authorities below. As a result, this ground of assessee‟s appeal stands dismissed. Following the decision of the Coordinate Bench of the Tribunal in the assessee‟s own case for assessment years 2002-03 (supra) and 2003-04 (supra), we uphold the orders of the authorities below and against the assessee. Consequently, ground III of assessee‟s appeal is disallowed. 15. Therefore, respectfully following the consistent view of the Tribunal in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on account of employee s contribution to PF/ESIC the learned Commissioner (Appeals) sustained the disallowance for an amount of ₹ 93,082, since it was not paid either within the due date or the grace period provided under the relevant statute. Undisputedly, the assessee has paid the aforesaid amount within the due date of filing of return of income as provided under section 139(1) of the Act. Therefore, keeping in view the provision under section 43B, the deduction claimed is allowable. In this context, it is necessary to observe, the second proviso to section 43B which was omitted by Finance Act, 2003 w.e.f. 1st January 2004, provided that unless the deduction claimed towards payment to PF/ESIC is actually paid on/or before the due date prescribed under Explanation below section 36(1)(va), no deduction shall be allowed. However, after omission of the said proviso the situation is different. The Hon'ble Jurisdictional High Court in CIT v/s Hindustan Organic Chemicals Ltd., Income Tax Appeal no.399 of 2012, judgment dated 11th July 2014, taking note of the aforesaid amendment made to section 43B, has held that if the employees contribution to PF is paid within the due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. However, the second proviso once again created further difficulties for the Assessees employers. Therefore, Industry once again made representations to the Ministry of Finance who, after taking cognizance of the difficulties, inserted an amendment vide Finance Act, 2003 which came into force with effect from 1st April 2004. In other words, with effect from 1st April 2004, two changes were made in section 43B viz. deletion of the second proviso to section 43B and further amendment in the first proviso which reads as under: Provided that nothing contained in this sec tion shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub section (I) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return. Therefore, the amendments introduced by the Finance Act, 2003, put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employee‟s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 10,00,300/- incurred towards bond registration charges and in view thereof, the ITAT came to the finding that the said expenditure was a revenue expenditure and hence allowable under section 37(i) of the Act. We are of the view that the aforesaid finding of the ITAT cannot be in any way said to be vitiated on the ground of perversity or any error apparent on the face of the record and therefore does not give rise to any substantial question of law which needs to be answered by this Court. 11. In view thereof, we find no merit in this Appeal and the same is dismissed. No order as to costs. 22. In view of the aforesaid binding ratio of the Hon'ble Jurisdictional High Court, we allow assessee s claim of deduction by deleting the additions sustained by the learned Commissioner (Appeals). Ground no.(iv) is allowed. 23. Ground no.(v) relates to disallowance of interest on advances to subsidiary companies. 24. The Assessing Officer, during the assessment proceedings, noticed that during the relevant previous year, assessee had given loans to the subsidiary companies amounting ₹ 25,67,46,923, as compared to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the facts. Undisputedly, in the earlier assessment years, the first appellate authority had given a categorical finding that the loans and advances given to the subsidiaries were for commercial expediency. However, in the impugned assessment year, the learned Commissioner (Appeals) has observed that the assessee has failed to establish the commercial expediency in advancing interest free funds to the subsidiary. Though, assessee had submitted before the learned Commissioner (Appeals) that the advances were made out of common pool having borrowed funds and self generated funds, however, the learned Commissioner (Appeals) has observed that in the absence of any verification that the advances to the subsidiary companies was only out of self generated income, assessee s claim cannot be accepted. In this context, it is necessary to observe, the Assessing Officer in Para 3.5 of the assessment order has mentioned that the total funds available with the assessee amounted to ₹ 370,18,68,522, out of which, ₹ 167,20,18,599, was borrowed funds. Thus, from the aforesaid figures, it is very much evident that the assessee was having sufficient self generated / interest free funds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em but also for replacement of monitors, printers, etc. Whereas, the learned Commissioner (Appeals) has given his finding purely on the basis as if entire expenditure was for purchase of software. Moreover, what is the nature of software for which the payments were made have not at all been examined by either of the Departmental Authorities. At least the nature of software purchased is not discernable from the discussion made either in the assessment order or in order of the learned Commissioner (Appeals). Before us also, neither of the parties have produced material to show the exact nature of software. Moreover, out of the total expenditure claimed what is the amount spent towards purchase of software and what is the amount incurred for monitors, printers, etc., have not been placed. It is further worth mentioning, as per depreciation schedule provided under the income rules computer including software is subject to depreciation. This aspect has also not been examined by the Departmental Authorities. In view of the aforesaid, we consider it appropriate to restore the issue to the file of the Assessing Officer for deciding afresh after providing reasonable opportunity of being hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilised MODVAT credit should not be added to the closing stock. Though, the assessee objected to the proposed disallowance, however, the Assessing Officer added back an amount of ₹ 1,81,33,906 being part of the total MODVAT credit of ₹ 2,81,59,006 considering the fact that an amount of ₹ 1,00,25,100 was already added back in assessment year 2004 05. The assessee challenged the addition before the learned Commissioner (Appeals). 45. The learned Commissioner (Appeals) following the order of the Tribunal in assessee s own case for the assessment year 2001 02, deleted the addition made by the Assessing Officer. 46. We have considered the submissions of the parties and perused the material available on record. As agreed by both the parties, this issue stands covered in favour of the assessee by the decision of the Tribunal in assessee s own case for the assessment year 2001 02 and 2004 05. On a perusal of the order passed by the Tribunal in assessee s own case for the assessment year 2004 05, in ITA no. 1382/Mum./2009, we have noticed that the Tribunal following its own decision for assessment year 2001 02, has upheld the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue, it was held that the appellant had added back ₹ 53,38,796 as per provisions of section 145A of the Act and this amount as added by the assessing officer is not of unutilised Modvat but it was the amount of deposit made by the appellant with the excise authorities. Therefore, there was no reason for making this disallowance by the assessing officer hence this addition is deleted. 38. In our view, the issue has been rightly decided by the learned CIT(A) and the valuation of closing stock is already in consonance with section 145A. His order is, therefore, confirmed on this issue. Following the aforesaid decision of Coordinate Bench of this Tribunal in the assessee‟s own case for A.Y. 2001-02, we uphold the decision of the learned CIT(A) in directing the AO to delete the addition made in the closing stock towards unutilized Modvat credit. Consequently, ground No.1 of Revenue‟s appeal is dismissed. 47. There being no change in material fact, respectfully following the decision of the Tribunal in earlier assessment year, we uphold the order of the learned Commissioner (Appeals) on this issue by dismissing ground no.1, raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, it is perused from the order of the learned Commissioner (Appeals) that the amount of 75,007, was paid within the grace period provided under the relevant statute. That besides, the amount was actually paid within the relevant financial year. That being the case, the deduction claimed is allowed. We uphold the order of the learned Commissioner (Appeals) on this issue by dismissing ground no.3, raised by the Revenue. 53. In ground no.4, the Department has challenged the decision of the learned Commissioner (Appeals) in allowing adjustment for provisions made while computing book profit under section 115JB. 54. Brief facts are, at the time of assessment, the Assessing Officer noticing that the assessee had not added back certain provisions relating to doubtful debt / advance and provisions for gratuity held that such provisions being not certain liability is required to be added back to the total income as per section 115JB and accordingly completed the assessment. 55. The learned Commissioner (Appeals) while deciding assessee s appeal allowed assessee s claim by deleting the addition made. 56. We have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o reason to sustain the findings of the learned CIT(A). Hence, we uphold the order of AO and while setting aside the order of CIT this ground of appeal of the Revenue is allowed. Following the decision of the Coordinate Bench of this Tribunal in the assessee‟s own case for A.Y. 2003-04 in ITA No. 6580/Mum/ 2007 dated 10.08.2016 (supra), in view of the amendments to the provisions of section 155JB of the Act being operational retrospectively, we are unable to sustain the impugned order of the learned CIT(A) on this issue and therefore set aside/reverse his finding in the matter and restore that of the AO. Consequently, Revenue‟s ground No. 4 is allowed. 57. Respectfully following the aforesaid decision of the Tribunal, we set aside the order of the learned Commissioner (Appeals) on this issue and restore the addition made by the Assessing Officer. Ground no.4, raised by the Revenue is dismissed. 58. In the result, Revenue s appeal is partly allowed. Cross Objection no.6/Mum./2010 Assessee s C.O. 59. Grounds no.1, 2 and 3 are on the issue of disallowance under section 14A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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