2012 (11) TMI 283 - AT - Income Tax

Deduction u/s 80HHC Revenue contesting direction of CIT(A) to A.O to re-work the deduction including the export proceeds realized up to the period 31st July, 2001 AY 2000-01 - Rule 46A Held that - Nothing could be shown by the Revenue as to what was the additional evidence admitted by CIT(A) and considered by him to decide the issue in dispute. We find that this decision of CIT(A) is based on the extension granted by RBI for realization of export proceeds up to 31.07.2001, hence the same has to be considered for the purpose of computation of deduction allowable to the assessee u/s 80HHC. Therefore, there is no violation of Rule 46A - Decided against Revenue Dis-allowance of long term capital loss - sale of shares originally acquired and held by amalgamating company - appellant became owner of the shares on amalgamation of that company with the appellant dis-allowance on ground that transactions of capital asset in amalgamation of companies are not regarded as transfer as per sec.47(vi) Held that - Section 47(vi) is in respect of transfer of asset by amalgamating company to amalgamated company and on such transfer, there cannot be any capital gain or capital loss because there is no transfer as per Section 47(vi). But in the present case, the loss was claimed by the assessee on subsequent sale by the amalgamated company, and shares received by it from the amalgamating company. The transaction of sale of shares is found to be genuine, therefore, the dis-allowance of long term capital loss is held to be not proper and the same is deleted. Dis-allowance of commission expenses as not genuine Held that - It is noted by CIT(A) that there is an agreement regarding payment of commission to this party and the sale of the assessee has increased considerably. Also, payment of commission has been approved by the Board of Directors and the agent has shown the commission income in its return of income. Commission had been paid on the basis of orders procured as per clause (3)(d) of the agreement. In view of aforesaid, CIT(A) rightly deleted the addition Addition on account of unaccounted investment difference in purchase figure - Held that - CIT(A) decided this issue on the basis of credit note for rate difference. Since relevant credit notes were never produced before the A.O., hence we restore the matter back to the file of the A.O. for fresh decision. Addition u/s 41(1) made on account of writing back of loan liability Held that - Loan has been taken by the assessee for the purpose of business but this does not mean that taking and giving loan is the business of the assessee and hence, it cannot be said that Section 41(1) can be attracted for remission in respect of loan liability when admittedly, no deduction was allowed to the assessee in respect of such loan liability in the present year or in any earlier year Decided against Revenue Dis-allowance of interest expenses Revenue contended diversion of interest bearing funds to sister concerns, wherefrom no interest was received Held that - CI(A) observed that as per balance sheet, there are no bank loans and there is a bank overdraft only which has been stated to have been invested in trading business of the appellant and it has been stated that on unsecured loans no interest has been paid . The interest expenses pertain to trading business of the appellant on account of various services rendered by the bank for realization of export proceeds. Considering the said facts the dis-allowance of interest made by the A.O. is rightly deleted by CIT(A). Addition on account of interest on Fixed Deposit no interest income shown by assessee - Held that - It is found that the appellant has already offered interest income of Rs.1.03 crores as interest on fixed deposit and out of the said interest income the amount of Rs.66.77 lakhs has not been received so the same has been shown as accrued interest in the Schedule-5 in the balance sheet. As the said income has been offered, no further addition is required to be made and therefore, the addition is deleted. Dis-allowance of trading loss transaction with related party non-maintenance of office or warehousing facilities nor paying any rent - Held that - Merely because the assessee has incurred loss in the present year, it cannot be said that such loss is bogus merely because the transaction of purchase and sales are with related parties without bringing any adverse material on record to show that either the purchase prices are inflated or the sales prices are deflated or that the transaction is bogus. On similar transaction in the preceding year huge profit was declared by the assessee and the allegation of the A.O. and the Ld. D.R. that the assessee is not maintaining any office and warehousing facility and absence of evidence of movement of goods are not conclusive because the situations are the same in the preceding year also in which assessee has declared huge profits in similar transactions with similarly related parties. Books are not rejected by the A.O. and no defect has been pointed out by the A.O. in purchase price or sales price of the goods traded by the assessee, hence, dis-allowance stands deleted Dis-allowance u/s 14A Held that - A.O. has made dis-allowance in respect of interest expenditure and other expenses. Since no interest expenditure is attributable for these investments out of total interest expenditure, dis-allowance should not include any amount in respect of interest expenditure and hence, the dis-allowance can be of balance administrative expenditure

Summary

Issues Involved:
1. Deduction under Section 80HHC
2. Long-term capital loss
3. Disallowance of commission expenses
4. Addition on account of unaccounted investment
5. Addition on account of writing back of loan liability
6. Disallowance of interest expenses
7. Addition on account of interest on Fixed Deposit
8. Disallowance of trading loss
9. Disallowance under Section 14A

Issue-wise Detailed Analysis:

1. Deduction under Section 80HHC:
The revenue contested the Ld. CIT(A)'s direction to the A.O. to rework the deduction under Section 80HHC, including export proceeds realized up to 31st July 2001. The Ld. CIT(A) based his decision on the extension granted by the RBI for realization of export proceeds. The Tribunal found no merit in the revenue's argument, noting that the RBI's extension was valid and the certificate provided by the assessee was accurate. Thus, the Tribunal upheld the Ld. CIT(A)'s decision.

2. Long-term Capital Loss:
The revenue challenged the Ld. CIT(A)'s deletion of the disallowance of a long-term capital loss of Rs. 5,23,41,982. The Ld. CIT(A) noted that the loss arose from the sale of shares originally acquired by Stumbh Financial Pvt. Ltd., which amalgamated with the appellant company. The Tribunal agreed with the Ld. CIT(A) that the sale of shares was genuine and that the loss was correctly computed. It rejected the revenue's argument that there was no transfer under Section 47(vi) because the loss was claimed on the subsequent sale by the amalgamated company.

3. Disallowance of Commission Expenses:
The revenue disputed the deletion of the disallowance of commission expenses of Rs. 5,40,00,000. The Ld. CIT(A) found that the commission was paid under a valid agreement, the sales had increased significantly, and the commission recipient had declared the income. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the revenue failed to provide any adverse material or evidence against the genuineness of the commission payment.

4. Addition on Account of Unaccounted Investment:
The revenue contested the deletion of an addition of Rs. 89,28,672 for unaccounted investment. The Ld. CIT(A) reconciled the difference in purchase figures with credit notes and other purchases. The Tribunal remanded the matter back to the A.O. for fresh consideration, directing the assessee to produce relevant documents and the A.O. to decide the issue as per law.

5. Addition on Account of Writing Back of Loan Liability:
The revenue challenged the deletion of an addition of Rs. 1,28,28,072 for writing back loan liability. The Ld. CIT(A) held that the remission of loan liability was not taxable under Section 41(1) as it was not a trading liability. The Tribunal upheld this decision, finding that the benefit did not arise in the course of business and no deduction was allowed for the loan liability in any year.

6. Disallowance of Interest Expenses:
The revenue disputed the deletion of a disallowance of Rs. 1,05,030 out of interest expenses. The Ld. CIT(A) found that the interest expenses were related to the trading business and not to any diversion of funds to sister concerns. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the findings were not controverted by the revenue.

7. Addition on Account of Interest on Fixed Deposit:
The revenue contested the deletion of an addition of Rs. 66,77,658 for interest on Fixed Deposits. The Ld. CIT(A) noted that the interest income was already offered by the assessee, and the amount in question was shown as accrued interest. The Tribunal upheld the Ld. CIT(A)'s decision, finding no merit in the revenue's argument.

8. Disallowance of Trading Loss:
The revenue challenged the deletion of a disallowance of Rs. 3,35,08,600 for trading loss. The Ld. CIT(A) found that the books of accounts were audited and no defects were found by the A.O. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the transactions were genuine and similar profits were declared in the preceding year.

9. Disallowance under Section 14A:
The revenue disputed the deletion of a disallowance of Rs. 1,00,000 under Section 14A. The Ld. CIT(A) found that no exempt income was received and no expenditure was incurred related to the investments. The Tribunal partly allowed the revenue's appeal, confirming a disallowance of Rs. 70,000 for administrative expenses.

Conclusion:
The Tribunal dismissed the revenue's appeal for the assessment year 2000-01, partly allowed the appeal for the assessment year 2001-02 for statistical purposes, and partly allowed the appeal for the assessment year 2002-03.