2012 (7) TMI 452 - AT - Income Tax

Trading liability or capital liability - income u/s 2(24) read with section 41(1) - the credit balance/s, written back in terms of the rehabilitation scheme approved by the Board for Industrial and Financial Reconstruction (BIFR) included not only those on account of trading operations, but also on account of import of plant and machinery. - held that - The write back under reference a receipt of capital nature. - however the credit written back being admittedly on account of import of plant & machinery, the cost of the relevant assets would be required to be recomputed, being not incurred to that extent (s. 43(1)). Trading liability or capital liability - income u/s 2(24) Held that - Without doubt, the nature of the liability stands to be determined independently, and the fact of the sum being credited to the running account of the said party, though relevant, cannot be considered to be conclusive or determinative of the matter, as assumed by the Revenue. - In any case, if it, as contended, represents a loan liability, i.e., on capital account, its write back would without doubt be only a capital receipt in the hands of the assesseecompany. - matter restored to the file of AO. Disallowance u/s. 36(1)(va) r/w s. 2(24)(x) of the Act - payment of the employee s contribution to the Provident Fund being made by the assessee belatedly Held that - Payment in respect of the employee s contribution to the welfare funds, as the EPF and ESI, by the assessee-employer would stand to be allowed as deduction where the contribution was made by the due date of filing the return of income under the Act Against revenue Addition in respect of legal and professional charges paid/payable - by invoking the provision of section 40A(2)(a) of the Act - AO made a generalized statement to the effect that the consideration for such services, i.e., Rs. 104.66 lacs, exceeds the legitimate needs of the assessee-company for its business, treating the same to be unreasonable and excessive Held that - Onus u/s 40(A)(2) being directly on the Revenue - same has not been discharged by it in any manner - details of the charges raised qua various services performed or charged for is available, that would yield the basis for a decision with regard to the reasonability thereof, including with reference to the legitimate needs of the assessee s business, could if at all be taken; in the clear absence of which, the Revenue s case is no more than an allegation or a surmise - appeal by the Revenue is dismissed

Summary

Issues:
1. Deletion of addition made in respect of old credit balances outstanding in the account of importer/s.
2. Disallowance of sum under section 36(1)(va) r/w section 2(24)(x) of the Act for belated payment of employee's contribution to Provident Fund.
3. Confirmation of addition representing part of waiver of credit balance outstanding in the account of legal advisor.
4. Addition made in respect of legal and professional charges paid to the legal advisor under section 40(A)(2)(a) of the Act.

Analysis:

1. The first issue revolves around the deletion of the addition made in the account of importer/s for old credit balances outstanding. The Assessing Officer considered the write back of these credits as revenue in nature. However, the assessee argued that the write back pertained to capital receipts due to a rehabilitation scheme approved by BIFR. The ITAT found merit in the assessee's claim, noting that the write back was on account of import of plant and machinery, making it a capital receipt not taxable under section 2(24) of the Act. The ITAT upheld the impugned order, requiring the recomputation of the assets' cost due to the write back.

2. The second issue involves the disallowance of a sum under section 36(1)(va) for belated payment of employee's Provident Fund contribution. The ITAT upheld the assessee's claim, citing various judicial precedents that allowed the deduction if the contribution was made before the due date of filing the income tax return. The ITAT followed the predominant judicial view in the matter, upholding the impugned order on this ground.

3. The third issue concerns the confirmation of the addition representing a waiver of credit balance in the account of the legal advisor. The ITAT found discrepancies in the classification of the liability and directed the matter back to the AO for further examination. The ITAT emphasized the need for an independent determination of the liability's nature and instructed the AO to provide definite findings of fact before deciding the issue afresh.

4. The fourth issue pertains to the addition made for legal and professional charges paid to the legal advisor under section 40(A)(2)(a) of the Act. The ITAT noted that the Revenue failed to discharge the onus of proving the unreasonableness of the charges. The ITAT directed the deletion of the disallowance, emphasizing the lack of a comprehensive analysis by the Revenue to support its case. The ITAT relied on the decision in Upper India Publishing House (P.) Ltd. v. CIT and found little merit in the Revenue's case, leading to the deletion of the impugned disallowance.

In conclusion, the ITAT dismissed the Revenue's appeal and partly allowed the assessee's appeal, directing further examination on certain issues for a more informed decision.