2015 (4) TMI 7 - AT - Income Tax

Contribution towards provident fund - CIT(A) deleted the addition - Held that -No contrary evidence has been placed by the Revenue except half heated arguments devoid of facts, we find no infirmity in the impugned order where considering the past history the AO rejected the assessee s claim and the CIT(A), considering the facts on record relying upon the High Court s decision upto which stage the issue was settled allowed the claim of the assessee by rejecting the departmental plea. It is a matter of record that consistently the view on the issue has not been varied either by the Tribunal or by any Higher Forum in the intervening years. Accordingly being satisfied by the finding in the absence of any fact to the contrary the Ground raised is dismissed. - Decided against revenue. Disallowance u/s 14A - CIT(A) deleted the addition - Held that - Assessing Officer has not considered all relevant facts on record and has also not verified the claim of the assessee with regard to the source of investment. To reach at the conclusion that he was not satisfied with the claim of assessee with regard to expenses incurred to earn exempted income, then only he can invoke Rule 8D for working out the disallowance. Therefore, in our considered view, this issue requires a relook at the level of Assessing Officer. The same is restored to the file of the Assessing Officer for deciding de novo after providing an opportunity of being heard to the assessee. In the case of disallowance with regard to the administrative and other expenses being 0.5% of average value of investment, the assessee s claim is that average value of investment taken by the Assessing Officer was ₹ 2,50,20,59,294/- instead of ₹ 41,88,44,725/- which is only 16.94% of the average value of investment taken by the Assessing Officer. Therefore, for this aspect also, we set aside the issue to the file of the Assessing Officer. The Assessing Officer shall decide both these disallowances after providing an opportunity of being heard to the assessee and considering the legal position on these issues. - Decided in favour of revenue for statistical purposes. Valuation of closing stock of sugar - CIT(A) deleted the addition - Held that - The assessee is valuing closing stock on cost or net realizable value whichever is lower since 1993. The issue was contested in Assessment Year 1993-94 up to the Hon'ble Delhi High Court wherein the contention of the assessee has been accepted. The CIT (A) has granted the relief by relying on the decision of ITAT which has been confirmed by Hon'ble High Court. Therefore, in our considered view, there is no fault in the order of the CIT (A) and the same is sustained on this issue - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of contribution towards provident fund.
2. Deletion of addition made under section 14A read with Rule 8D of Income Tax Rules, 1962.
3. Deletion of addition on account of valuation of closing stock of sugar.
4. Disallowance of interest under section 14A of Income Tax Act read with Rule 8D.
5. Disallowance of interest on late payment of TDS.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Contribution Towards Provident Fund:
The Revenue challenged the deletion of Rs. 29,14,126/- on account of contribution towards the provident fund. The Assessing Officer (AO) disallowed the contribution, arguing that the Provident Fund Trust did not invest the funds as per prescribed rules during AY 2003-04, and thus, it was not entitled to be considered as a "Recognized Provident Fund Trust". The CIT(A) deleted this addition, noting that the Trust had been approved by the competent authority (CIT), and this decision had not been revoked. The CIT(A) relied on past decisions favoring the assessee, including a dismissal by the Hon'ble Delhi High Court for AY 2003-04. The Tribunal upheld the CIT(A)'s decision, noting that the issue had been consistently decided in favor of the assessee in previous years, including a judgment by the Hon'ble High Court.

2. Deletion of Addition Made Under Section 14A Read with Rule 8D of Income Tax Rules, 1962:
The AO made a disallowance of Rs. 5,40,99,521/- under section 14A read with Rule 8D, relating to the expenditure incurred in earning exempt income. The CIT(A) granted partial relief, restricting the disallowance to Rs. 48,31,968/- and considering the assessee's self-disallowance of Rs. 27,60,841/-, resulting in an additional disallowance of Rs. 21,15,126/-. Both the assessee and the Revenue appealed this decision. The Tribunal noted that in the previous year (2008-09), the issue had been remanded to the AO for reconsideration. In judicial propriety, the Tribunal directed the AO to re-examine the issue, set out the reasons for dissatisfaction with the assessee's computation, and pass a speaking order in line with the directions given for AY 2008-09.

3. Deletion of Addition on Account of Valuation of Closing Stock of Sugar:
The AO disallowed Rs. 3,59,33,848/- on account of the valuation of closing stock of sugar, arguing that the assessee had changed its method of valuation from "Cost" to "Cost or net realizable value whichever is lower", which reduced profitability. The CIT(A) deleted this addition, noting that the change in valuation method had been accepted by the Tribunal and the Hon'ble Delhi High Court in previous years (AY 1993-94 to AY 2003-04). The Tribunal upheld the CIT(A)'s decision, referencing the consistent acceptance of the valuation method by higher authorities and dismissing the Revenue's appeal on this ground.

4. Disallowance of Interest Under Section 14A of Income Tax Act Read with Rule 8D:
The assessee contested the disallowance of Rs. 21,15,126/- towards interest under section 14A read with Rule 8D, arguing that investments were made from redemption proceeds of earlier investments or interest-free funds. The CIT(A) had sustained the disallowance, but the Tribunal remanded the issue back to the AO for re-examination, directing the AO to provide a detailed reasoning for any dissatisfaction with the assessee's computation and to pass a speaking order.

5. Disallowance of Interest on Late Payment of TDS:
The assessee's ground regarding the disallowance of Rs. 11,321/- towards interest on late payment of TDS was not pressed and thus dismissed.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on the provident fund and closing stock valuation issues, remanded the section 14A disallowance issue back to the AO for re-examination, and dismissed the assessee's unpressed ground regarding TDS interest disallowance. The decision reflects a thorough examination of past judgments and consistent application of legal principles.