2016 (2) TMI 1146 - AT - Income Tax

Addition made under section 43B - assessee has paid service tax in advance before availing the corresponding services - Held that - The assessee has debited the amount of ₹ 22.91 crores to the profit and loss account pertaining to the assessment year under consideration also. Since the amount of ₹ 22.91 crores has been allowed in the assessment year 2006-07 and dispute relating to the same has attained the finality, the assessee is precluded from claiming the same again in the assessment year 2007-08. Accordingly, we are of the view that the AO was justified in disallowing the same in the year under consideration. Accordingly, we set aside the order of ld.CIT(A) passed on the issue relating to ₹ 22.91 crores and direct the AO to add the same on substantive basis. With regard to the balance amount of ₹ 2.93 crores added by the AO, we notice that the ld. CIT(A) has restored the matter to the file of the AO for considering the same afresh in the light of decision rendered by him in the assessment year 2006-07. Since the matter has been restored to the file of the AO for fresh consideration, we do not deem it necessary to interfere with his order on this issue. In the assessment year 2008-09, we notice that the ld. CIT(A) has restored the matter to the file of the AO with a direction to examine the same afresh in the light of the decision rendered by him in the assessment year 2006-07. Hence, we decline to interfere with the order of ld. CIT(A) in this year also as the AO has been directed to examine the issue afresh. Disallowance made u/s 14A - Held that - Considering the fact that the assessee has made investment in one company only, that the investment was made long back, that the assessee has received dividend from that company only, we are of the view that the disallowance computed at 0.5% of the investment value of shares is reasonable, in the facts and circumstances of the case. Disallowance of prior period expenses - Held that - It is a well settled proposition of law that the income relating to one year cannot be assessee in any other year. Under the same principle, the expenditure relating to one year cannot be claimed in any other year. Both the principles shall have exception, if it is expressly provided in the Act. Hence, we are of the view that the tax authorities are not justified in disallowing entire amount of prior period expenses, while assessing the entire amount of prior period income, without bringing support of any of the provisions of the Act. Accordingly, we are of the view that the assessee was justified in computing the disallowance by netting off the prior period income against the prior period expenditure. We further notice that the assessee has offered net income in assessment year 2007-08, i.e., the prior period income was more than the period expenditure. We direct the AO to accept the disallowance/ computation made by the assessee in this regard. Addition made u/s 145A in respect of MODVAT amount- Held that - We set aside the order passed by Ld CIT(A) on this issue in assessment years 2007-08 to 2010-11 and restore them to the file of the AO with the direction to examine the same afresh in all the four years under consideration, by duly considering the information and explanations furnished by the assessee. With regard to the deposit made with Port Trust, we make it clear that the same is not includible in the computation made u/s 145A of the Act, if it does not fall in the category of tax, duty, cess or fee levied under any law. Hence, the same shall be liable to included in the adjustments made u/s 145A of the Act, only if it is shown that the payment was made under authority of any law. Further, if the deposit so made is refundable to the assessee, then also the question of including the same u/s 145A does not arise.

Issues Involved:
1. Deletion of addition under section 43B of the Income Tax Act, 1961.
2. Disallowance under section 14A of the Income Tax Act.
3. Disallowance of prior period expenses.
4. Addition under section 145A of the Income Tax Act regarding MODVAT amount.
5. Non-granting of TDS.

Detailed Analysis:

1. Deletion of Addition under Section 43B:
The revenue contested the deletion of additions made under section 43B for the assessment years 2007-08 and 2008-09. The assessee had a service tax liability of Rs. 104.45 crores but paid only Rs. 101.21 crores, leading to a disallowance of Rs. 2.93 crores. Additionally, Rs. 22.91 crores disallowed in AY 2006-07 was added on a protective basis in AY 2007-08. The CIT(A) deleted both additions, but the Tribunal held that since Rs. 22.91 crores was already allowed in AY 2006-07, it should be disallowed in AY 2007-08. The issue of Rs. 2.93 crores was remanded to the AO for fresh consideration.

2. Disallowance under Section 14A:
For AY 2004-05 and 2007-08, the assessee argued that no expenditure was incurred for earning dividend income from investments made in a subsidiary. The CIT(A) had restricted the disallowance to 5% of the dividend income, but the Tribunal found that a reasonable basis for disallowance should be 0.5% of the investment value, considering the investments were long-standing and in one company only. The Tribunal directed the AO to compute the disallowance at 0.5% of the investment value.

3. Disallowance of Prior Period Expenses:
The assessee netted off prior period income against prior period expenses and disallowed the net amount. The AO and CIT(A) disallowed the entire prior period expenses. The Tribunal held that the tax authorities were not justified in disallowing the entire amount without considering the netting off principle. It directed the AO to accept the computation made by the assessee.

4. Addition under Section 145A Regarding MODVAT Amount:
The AO added the MODVAT amount related to closing stock, but the assessee argued that adjustments should be made for purchases and sales as well. The Tribunal noted that the assessee should have prepared financial statements under both inclusive and exclusive methods to demonstrate no change in profit. The issue was remanded to the AO for fresh examination, excluding deposits with the Port Trust unless they fall under tax, duty, cess, or fee.

5. Non-Granting of TDS:
The assessee raised an issue regarding non-granting of TDS for AY 2007-08 but did not press it during the hearing. The Tribunal dismissed this ground as not pressed.

Conclusion:
Both appeals filed by the revenue were allowed for statistical purposes. The appeals filed by the assessee were partly allowed for statistical purposes. The Tribunal directed the AO to re-examine specific issues and compute disallowances and additions as per the guidelines provided. The judgment was pronounced on 1st February 2016.

← Previous Next →