2014 (11) TMI 846 - AT - Income Tax

Hire charges paid to Blue Bell Finance Ltd. disallowed Held that - As decided in assessee s own case for the earlier assessment year, wherein it has been held that the decision can be taken only once the petition in the High Court gets decided thus, the matter is remitted back to the AO with the direction to decide the matter accordingly Decided in favor of assessee. Deferred revenue expenses disallowed Held that - CIT(A) rightly was of the view that because in the balance sheet schedule Q-note X(d) it is clearly mentioned that deferred revenue expenditure is incurred prior to commencement of commercial production the expenditure is not revenue expenditure and not incurred during the year under consideration thus, the order of the CIT(A) is upheld Decided against assessee. Rebates and reversal of claims disallowed Held that - The amount which have been written off were shown as sales in earlier years and were also offered to tax in the respective years - the assessee has debited its Profit and loss account and the amount has been written off has not been disputed in T.R.F. Ltd Vs CIT 2010 (2) TMI 211 - SUPREME COURT it has been held that after 1st April 1989, it is not necessary for the assessee to establish that the debt has in fact become irrecoverable - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - since the assessee has written off the amount in its Profit and loss Account, the assessee is entitled to its deduction Decided in favour of assessee. Treatment of term loan interest Deferred revenue expenses or revenue expenses Held that - The assessee had treated the expenses as deferred revenue expenditure in the books of accounts but claimed as revenue expenditure while filing the return of income - CIT(A) rightly deleted the addition made by the AO by relying on its decision in the preceding year thus, the order of the CIT(A) is upheld Decided against revenue. Interest on advances given to employees deleted Held that - AO had made additions by estimating the interest rate at 18% on the amount outstanding - The AO has not brought any material on record to prove that the advance is not for the purpose of business in The Hon ble Madras High Court in the case of CIT vs. Hotel Savera 1997 (11) TMI 37 - MADRAS High Court it has been held that for disallowance of the interest, or a part of it, paid on money borrowed for the business purposes, it is essential that a clear finding should be given by the authority concerned that the borrowed money or part of it has been utilized for non-business purposes thus, the order of the CIT(A) is upheld Decided against revenue. Interest expenses on exempted income disallowed Held that - The Assessee has received dividends on shares which have been claimed as exempt u/s 10(33) - The investment in shares have been made in FY 1996-97 and 1997-98 - CIT(A) was rightly of the view that the Assessee was having interest free funds to the tune of ₹ 52.74 crores against the total investment of ₹ 11.34 crores and thus the interest free funds were in excess of the investments - the AO has failed to establish nexus and prove that the interest bearing funds have been used to make investments and there has been no effective investments in the current assessment year thus, the order of the CIT(A) is upheld Decided against revenue. Prior period adjustment deleted Held that - While computing the total income, the assessee had suo moto made disallowance and added ₹ 1,01,26,985/- to the total income - The AO had again disallowed the expenditure while passing the assessment order - The act of AO in disallowing again the prior period expenditure amounts to double addition of the same expenditure - the action of AO of disallowing the expenditure which has already been disallowed by the assessee results into double addition thus, the order of the CIT(A) is upheld Decided against revenue. Interest free staff advances deleted Held that - CIT(A) while deleting the addition has noted that disallowance was made by the AO in the past but the same were deleted by his predecessor - Revenue could not controvert the findings of CIT(A) - Revenue has not brought any material on record to demonstrate that whether against the order of CIT(A) of earlier years the matter was taken by Revenue before Tribunal and that the matter was decided in its favour by the Tribunal thus, the order of the CIT(A) is upheld Decided against revenue. Interest on capital asset deleted Held that - CIT(A) while deleting the addition has rightly noted that similar additions were made by the AO in earlier years and it were deleted by his predecessor Relying upon DCIT Vs Core Health Care Ltd 2008 (2) TMI 8 - SUPREME COURT OF INDIA - the proviso inserted in section 36(1)(iii) by the Finance Act 2003 with effect from April 1, 2004, will operate prospectively - an assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed Decided against revenue. Order passed u/s 144 challenged Held that - AO has noted to have issued notices to Assessee on various occasions but the Assessee failed to comply with the same - Asseessee has not brought any material on record to prove the compliance of notices issued by AO - the AO had rightly passed order u/s 144 Decided against assessee. Claims, rebate and reversal of claim disallowed Held that - Assessee contended that the investments were made in earlier years and in the year the investments were made, assessee was having interest free funds and no interest bearing funds have been used for making investments - the Assessee has not placed any material on record to demonstrate the availability of interest free funds or the cash flow statement in its support - neither AO nor CIT(A) has given any finding with respect to availability of interest free funds in the year of investments thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of assessee. Sundry balance written off disallowed Held that - CIT(A) was of the view that the assessee had not furnished any details and evidence in order to prove that the appellant had accounted any income from the transaction in past - the Assessee in the paper book has submitted the details of amounts written off - Since the details filed by the Assessee in the paper book were not before AO, the matter is required to be remitted back to the AO for verification Decided in favour of assessee. Legal and professional fees disallowed Held that - The expenses were incurred for the business of the company and were revenue in nature - AO has noted that no details of the expenses were furnished before him thus, the matter is to be remitted back to the AO for verification Decided in favour of assessee. 1/10th of travelling expenses disallowed Held that - Assessee has debited travelling expenses in its profit and loss account and has claimed it as deduction - The Assessee did not furnish the details before the AO or before CIT(A) - The disallowance has been made on the basis of estimate - The fact of incurring of expenses of travelling is not disputed - the disallowance made by AO on account of traveling expenses is on higher side - the adhoc disallowance of ₹ 2 lacs is restricted Decided partly in favour of assessee.

Summary

Issues Involved:
1. Disallowance of hire charges paid to Blue Bell Finance Ltd.
2. Disallowance of deferred revenue expenditure.
3. Disallowance of rebates and reversal of claims.
4. Correct calculation of tax and interest under sections 234B and 234C.
5. Deletion of addition regarding deferred revenue expenditure.
6. Deletion of disallowance of interest on advances to employees.
7. Deletion of disallowance of interest expenditure related to exempt income.
8. Deletion of prior period adjustments.
9. Disallowance of interest on capital assets.
10. Disallowance of claims, rebates, and reversal of claims.
11. Disallowance of sundry balances written off.
12. Disallowance of legal and professional fees.
13. Disallowance of travel expenses.

Issue-wise Detailed Analysis:

1. Disallowance of hire charges paid to Blue Bell Finance Ltd.:
The Assessee paid Rs. 5,24,421/- as hire charges to Blue Bell Finance Ltd. The AO disallowed this payment citing non-existence of plant and machinery, a decision upheld by CIT(A). The Tribunal remitted the matter back to AO for re-examination based on earlier years' findings and pending High Court decision.

2. Disallowance of deferred revenue expenditure:
The Assessee claimed Rs. 15,86,540/- as deferred revenue expenditure. The AO and CIT(A) disallowed it, stating it was not incurred during the year and was not revenue in nature. The Tribunal upheld this disallowance due to lack of evidence from the Assessee.

3. Disallowance of rebates and reversal of claims:
The Assessee claimed Rs. 2,36,27,765/- for rebates and reversals related to earlier transactions. The AO disallowed it, stating the expenses pertained to earlier years and were not substantiated. CIT(A) and the Tribunal upheld this disallowance, noting the Assessee's failure to prove the claims as bad debts.

4. Correct calculation of tax and interest under sections 234B and 234C:
The Tribunal directed the AO to recalculate interest under sections 234B and 234C based on the total income determined, making it consequential to the final assessment.

5. Deletion of addition regarding deferred revenue expenditure:
The Revenue's appeal against deletion of Rs. 1,89,68,093/- as deferred revenue expenditure was dismissed by the Tribunal. CIT(A) had deleted the addition relying on earlier decisions and the Gujarat High Court's ruling in Core Health Care Ltd.

6. Deletion of disallowance of interest on advances to employees:
The AO disallowed Rs. 7,96,520/- as interest on advances to employees, which was deleted by CIT(A). The Tribunal upheld CIT(A)'s decision, citing lack of evidence from AO proving non-business use of funds.

7. Deletion of disallowance of interest expenditure related to exempt income:
The AO disallowed Rs. 5,16,625/- as interest related to exempt dividend income. CIT(A) deleted the addition, noting sufficient interest-free funds. The Tribunal upheld this, referencing the Supreme Court's decision in Core Health Care Ltd.

8. Deletion of prior period adjustments:
The AO disallowed Rs. 1,01,26,985/- as prior period expenses, which the Assessee had already disallowed in its computation. CIT(A) deleted the double addition, a decision upheld by the Tribunal.

9. Disallowance of interest on capital assets:
The AO disallowed Rs. 2,27,64,818/- as interest on capital assets. CIT(A) deleted the addition, referencing earlier years' decisions and the Supreme Court ruling in Core Health Care Ltd. The Tribunal upheld CIT(A)'s decision.

10. Disallowance of claims, rebates, and reversal of claims:
The AO disallowed Rs. 8,04,87,441/- for claims and rebates related to earlier transactions. CIT(A) upheld the disallowance due to lack of evidence from the Assessee. The Tribunal allowed the Assessee's appeal, referencing the Supreme Court's decision in TRF Ltd.

11. Disallowance of sundry balances written off:
The AO disallowed Rs. 39,50,678/- as sundry balances written off due to lack of details. CIT(A) upheld this. The Tribunal remitted the issue back to AO for verification of details provided by the Assessee.

12. Disallowance of legal and professional fees:
The AO disallowed Rs. 6,00,000/- as legal and professional fees, considering it capital in nature. CIT(A) upheld this due to lack of details. The Tribunal remitted the issue back to AO for verification.

13. Disallowance of travel expenses:
The AO disallowed Rs. 3,20,160/- (1/10th of total travel expenses) due to lack of details and increased expenses despite decreased sales. CIT(A) upheld this. The Tribunal reduced the disallowance to Rs. 2,00,000/- considering it reasonable.

Conclusion:
The Tribunal's consolidated order addressed various disallowances and deletions, remitting some issues back to AO for re-examination while upholding others based on evidence and legal precedents. The decisions reflect adherence to principles of justice, requiring detailed verification and substantiation of claims and expenses.