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2015 (4) TMI 101 - AT - Income TaxDisallowance u/s. 14A - CIT(A) deleted the disallowance - Held that - CIT(A) while deleting the addition has noted that assessee has received only two half yearly interest warrant bonds during the year under appeal and which were collected in routine through bank account. He has further noted that the investments were made in the year 1995 and there have been no transactions in bonds during the year under review. We further find that on identical facts, the Co-ordinate Bench of Tribunal while deciding the assessee s appeal for A.Y. 2005-06 and after relying on the decision in the case of CIT vs. Hero Cycle Ltd (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT) decided the issue in favour of the assessee by holdingthat it is not in dispute that in respect of exempt income warrants the assessee had only received two interest warrants and four dividend warrants. No material was brought on record by the Revenue to show that any specific expenditure was incurred for earning exempt income - Decided in favour of assessee. Computation of deduction u/s. 80HHC - CIT(A) directing the A.O not to exclude 'other income' being bad debts recovered, Insurance claim, Sundry Creditors, Forfeiture of advances and Exchange rate fluctuation from the business profits, for the computation of deduction u/s 80HHC - Held that - As decided in assessee's own case in A.Y. 2004-05 2010 (10) TMI 974 - ITAT AHMEDABAD Commissioner of Income Tax (Appeals) was justified in holding that 90% of such receipts are to be excluded for arriving at eligible profits of business. No specific error in the order of the Learned Commissioner of Income Tax (Appeals) could be pointed out by the Learned Departmental Representative. - As far as the issue with respect to exchange fluctuation and forefeiture of advances are concerned, we find that Ld. CIT(A) has considered the aforesaid items as being eligible for deduction u/s. 80HHC in view of the fact that those amounts have been assessed as business income by the AO. Before us, Revenue has not brought any material to controvert the findings of Ld. CIT(A). - Decided in favour of assessee. Addition u/s. 40(a)(i) - TDS short deducted on Royalty payment - CIT(A) deleted the addition - Held that - CIT(A) while deleting the addition has given a finding that assessee has correctly deducted the TDS as per the rates provided in DTAA entered between the Government of India and Government of USA and therefore AO was not justified in disallowing the expenditure. Before us, Revenue has not brought any material on record to controvert the findings of Ld. CIT(A). We therefore find no reason to interfere with the order of Ld. CIT(A) and thus ground of Revenue is dismissed - Decided in favour of assessee. Disallowance of pre-paid excise duty - CIT(A) deleted the addition - Held that - CIT(A) after considering the decision of Hon ble Gujarat High Court in the case of Lakhanpal National Ltd 1986 (3) TMI 42 - GUJARAT High Court and Berger Paints India Ltd 2004 (2) TMI 4 - SUPREME Court has deleted the addition. Before us, Revenue has not brought any contrary binding material in its support. We further find that the assessee s submissions of having followed the same method of accounting and claiming deduction of excise duty in earlier and subsequent years also have not been controverted by Revenue. - Decided in favour of assessee. Disallowance on account of provision for gratuity - CIT(A) deleted the addition - Held that - CIT(A) after considering the submissions of the assessee has noted that the non-deductable provision of gratuity was disallowed by the assessee suo moto and accepted in the original assessment and no further disallowance was warranted as it would be a double disallowance. Before us, Revenue has not brought any material on record in support of its contention. We therefore find no reason to interfere the order of Ld. CIT(A) and thus this ground of Revenue is dismissed. - Decided in favour of assessee. Unpaid sales commission - CIT(A) deleted the addition - Held that - CIT(A) after considering the submissions of the assessee has given a finding that the allowability towards sales commissions arose during the year and has been paid during the year and therefore the same was rightly claimed as expenditure. Before us, Revenue has not brought any contrary material on record in its support. We therefore find no reason to interfere with the order of Ld. CIT(A). - Decided in favour of assessee. Disallowance of bad debts - CIT(A) deleted the addition - Held that - CIT(A) after considering the submissions of the assessee and following the order of his predecessor granted relief to the assessee. We further find that Ld. CIT(A) has noted that AO has not come out with any specific finding for making disallowance in respect of any particular bad debt but had made estimated disallowance. Before us, Revenue has not brought any contrary binding material in its support nor could controvert the finding of Ld. CIT(A). We therefore find no reason to interfere with the order of Ld. CIT(A) and thus this ground of revenue is dismissed. - Decided in favour of assessee.
Issues Involved:
1. Deletion of disallowance under Section 14A. 2. Computation of deduction under Section 80HHC. 3. Deletion of disallowance of royalty under Section 40(a)(i). 4. Deletion of disallowance of prepaid excise duty. 5. Deletion of disallowance of provision for gratuity. 6. Deletion of disallowance of provision for unpaid sales commission. 7. Deletion of disallowance of bad debt claim. Issue-Wise Detailed Analysis: 1. Deletion of Disallowance under Section 14A: The AO noticed that the assessee earned tax-free income but did not provide details of the source of investment. The AO inferred that interest-bearing funds were used for investments and disallowed Rs. 1,44,038/- as administrative expenses under Section 14A. The CIT(A) deleted the disallowance, noting that the investments were made in 1995 and no specific expenses were incurred for earning the tax-free income. The Tribunal upheld the CIT(A)'s decision, referencing the assessee's similar case in A.Y. 2004-05 and the decision in CIT vs. Hero Cycle Ltd. 2. Computation of Deduction under Section 80HHC: The AO excluded other income and interest income from the business profits for the purpose of Section 80HHC deduction, reducing the deduction to Rs. 49,37,379/-. The CIT(A) directed the AO not to exclude certain incomes like bad debts recovered, insurance claims, sundry creditors, forfeiture of advances, and exchange rate fluctuation from business profits. The Tribunal upheld the CIT(A)'s decision, noting that these items arose from regular business activities and were assessed as business income. 3. Deletion of Disallowance of Royalty under Section 40(a)(i): The AO disallowed Rs. 37,82,693/- of royalty expenses, asserting that the TDS deducted was insufficient. The CIT(A) found that the TDS was correctly deducted at 15% as per the Indo-USA DTAA. The Tribunal upheld the CIT(A)'s decision, noting that the AO's disallowance was unjustified as the TDS was in accordance with the DTAA. 4. Deletion of Disallowance of Prepaid Excise Duty: The AO disallowed Rs. 62,59,521/- of prepaid excise duty, stating it was not incurred during the year. The CIT(A) allowed the deduction under Section 43B, referencing judicial authorities like Lakhanpal National Ltd and Berger Paints India Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the excise duty was paid during the year and the method of accounting was consistently followed. 5. Deletion of Disallowance of Provision for Gratuity: The AO disallowed Rs. 13,48,032/- of gratuity provision not paid to approved funds. The CIT(A) noted that the non-deductible provision was already disallowed by the assessee in earlier assessments. The Tribunal upheld the CIT(A)'s decision, finding no material to support the AO's contention. 6. Deletion of Disallowance of Provision for Unpaid Sales Commission: The AO disallowed Rs. 2,00,000/- of sales commission due to lack of details. The CIT(A) found that the commission was accrued and paid during the year. The Tribunal upheld the CIT(A)'s decision, noting that the sales commission was rightly claimed as expenditure. 7. Deletion of Disallowance of Bad Debt Claim: The AO disallowed Rs. 25,86,350/- of bad debts, questioning the justification and recovery measures. The CIT(A) found the disallowance unjustified, noting that the claim was examined in original assessment and similar disallowances were deleted in earlier years. The Tribunal upheld the CIT(A)'s decision, noting the AO's lack of specific findings and reliance on estimated disallowance. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The Tribunal found no reason to interfere with the CIT(A)'s findings, which were based on judicial precedents and consistent accounting practices.
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