2015 (1) TMI 1286 - AT - Income Tax

Disallowance of bank charges and interest by invoking the provisions of 14A - Held that - As far as interest and bank charges of 12, 20, 049/- the assessee contested that the entire secured loan has been utilized for acquisition of capital assets relating to business of mining and sale of coal where the assessee s turnover is more than 45.73 cr. We find from the accounts of assessee that it has been demonstrated by Ld. Counsel for the assessee that the major secured loans were utilized for the purpose of acquisition of assets relating to mining business and interest paid to the bank is for the purpose of business and not for the purposes of acquiring assets giving exempted income. Accordingly we are of the view that the CIT(A) has rightly made disallowance of interest and bank charges to the tune of 12, 20, 049/- and we confirm the same Disallowance made on account of provisions for bonus u/s. 43B - Held that - As per the provisions of section 43B of the Act the provision for bonus is to be allowed as a deduction in the year of actual payment and not otherwise. Once the provision is not allowed as deduction the right back of the provision for bonus cannot be treated as income. In term of the above we confirm the order of CIT(A) and this issue of revenue s appeal is dismissed. Disallowance for provision of leave encashment - Held that - Deduction on account of provision of leave encashment was made on the basis of the judgment of Hon ble jurisdictional High Court in the case of Exide Industries Ltd. Vs. Union of India (2007 (6) TMI 175 - CALCUTTA High Court ) wherein it was held that insertion of clause (f) in section 43B is unconstitutional. Subsequently the Hon ble Apex Court 2008 (9) TMI 921 - SUPREME COURT has stayed the operation of this judgment of the Hon ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra) and therefore the order of the ld. CIT (Appeals) by following this judgment of the Hon ble Calcutta High Court cannot be approved. Thus we set aside this issue to the file of the AO to await the decision of Hon ble Supreme Court and decide the issue accordingly. This issue of assessee s cross objection appeal is remitted back to the file of AO and allowed for statistical purposes.

Summary

Issues involved:
1. Disallowance of bank charges and interest under section 14A of the Income-tax Act, 1961.
2. Disallowance of provision for bonus under section 43B of the Act.
3. Disallowance for provision of leave encashment.

Issue 1: Disallowance of bank charges and interest under section 14A:
The appeal by revenue and Cross Objection by assessee arose from the order of CIT(A) regarding the disallowance of bank charges and interest. The AO invoked section 14A of the Act read with Rule 8D(2)(ii) & (iii) of the IT rules, resulting in a disallowance of &8377; 18,37,293. CIT(A) partially allowed the claim, reducing the disallowance to &8377; 12,20,049. The dispute centered around the computation of disallowance under Rule 8D. The assessee argued for adjustments in the average total assets and investments, contending that interest paid to the bank was for business purposes related to mining activities. The Tribunal upheld the disallowance of &8377; 12,20,049, considering the nature of the loans and assets acquired, dismissing the revenue's appeal.

Issue 2: Disallowance of provision for bonus under section 43B:
The revenue challenged the CIT(A)'s deletion of the disallowance made by the AO for a provision of bonus under section 43B of the Act amounting to &8377; 33,246. The Tribunal confirmed the CIT(A)'s decision, emphasizing that the provision for bonus should be allowed as a deduction only in the year of actual payment as per section 43B. Since the provision was not allowed as a deduction, the right back of the provision for bonus could not be treated as income. Consequently, the revenue's appeal on this issue was dismissed.

Issue 3: Disallowance for provision of leave encashment:
The Cross Objection by the assessee concerned the disallowance for provision of leave encashment debited during the year. The provision was based on a High Court judgment, which was later stayed by the Supreme Court. The Tribunal decided to remit the issue back to the AO for fresh adjudication in line with the Supreme Court's decision. The matter was set aside to await the Supreme Court's ruling, and the issue of the provision for leave encashment was allowed for statistical purposes.

In conclusion, the Appellate Tribunal ITAT Kolkata's judgment addressed various issues related to the disallowance of expenses and provisions under the Income-tax Act, 1961. The Tribunal upheld the disallowance of bank charges and interest, dismissed the revenue's appeal on the provision for bonus, and remitted the issue of leave encashment provision back to the AO for further consideration based on the pending Supreme Court decision.