2015 (5) TMI 611 - AT - Income Tax

Disallowance of commission expenses - non-deposit of tax deducted at source (TDS) within the stipulated time period u/s. 40(a)(ia) - Held that - Amendment by Finance Act, 2010 (w.e.f 01.04.2010), providing time for deposit of TDS up to the due date of filing of the return of income, which in the instant case is 30.09.2009, lest the expense be allowed in computing the income for the year of payment of TDS, as retrospective, so that it would apply for the current year as well. We are however unable to find any infirmity on that score in-as-much as the tribunal per its decision in Bharati Shipyard Ltd. vs. Dy. CIT 2011 (9) TMI 258 - ITAT MUMBAI relied upon by the Assessing Officer (A.O.), held the amendment as not retrospective. So, however, the decisions by the in the case of CIT vs. Virgin Creations (2011 (11) TMI 348 - CALCUTTA HIGH COURT) and CIT vs. Naresh Kumar 2013 (9) TMI 275 - DELHI HIGH COURT have since been delivered, holding the amendment to section 40(a)(ia) by Finance Act, 2010 as retrospective. Accordingly, the assessee succeeds. As a corollary, we may though add, where the assessee has claimed or otherwise been allowed, as the Revenue was obliged to, deduction in respect of the impugned sum for A.Y. 2010-11, i.e., following the Revenue s stand of the amendment afore-stated being not retrospective, a modification to the assessment for that year shall, in consequence, follow - Decided in favour of assesse. Disallowance u/s.14A - Held that - Assessee has before us raised a plea, relying on the decision by the tribunal in the case of AFL P. Ltd. vs. Asst. CIT 2013 28 ITR (Trib) 263 (Mum), stating that where the entire borrowing by way of cash credit (account) stands absorbed in the relevant class of assets, i.e., those intended to be financed thereby, no disallowance u/s. 14A shall ensue. We find merit in the said argument. Where the borrowing under the cash credit account is within the drawing power (i.e., the amount that the assessee-borrower could validly draw or avail in terms of the relevant loan agreement), the presumption, both on facts and in law, would only be of the entire sum as having been utilized toward the intended business purpose/s, financing of inventory of stock-in-trade for example. The term loans are, in any case, towards specific/defined capital assets, so that, where purchased, the borrowings can only be considered as having been applied toward the same. The matter is, accordingly, restored back for necessary verification, and toward which the assessee shall extend all assistance and cooperation, only for its own benefit. The A.O. shall adjudicate, issuing definite findings of fact, so that where the borrowings are shown to have been utilized in terms of the agreement, as indicated above, the assessee could only be said to have complied with the terms of section 14A(2). - Decided in favour of assesse by way of remand. Treatment of Advance received from Customers as unexplained Advance - Held that - amount/s under reference may have been brought to tax for the following (another) year/s. However, it is only the assessee who is responsible for the same, i.e., by disclosing it as its income for that year/s. It is only where the assessee concedes to the income being subject to tax for the current year that the Revenue could be faulted for, despite the assessee having returned it as so, i.e., for the following year/s, assessing it as income for that year/s, and which is not the case. Be that as it may, there is no denying that the same cannot be subject to tax, and neither could it accrue to the assessee, i.e., as income, twice, so that the second/subsequent accrual, on which there is no finding though; the Revenue having merely accepted the assessee s return for that year/s, is invalid both on facts and in law.We, accordingly, direct the A.O. to verify the assessee s claim/s for the said income as having been offered as income and, consequently, as having been subject to tax for the following year/s and, where so, delete the same. The A.O. shall undertake the examination, and toward which the assessee shall extend all necessary and reasonable cooperation, while passing appeal effect giving order - Decided in favour of assesse by way of remand. Disallowance of bank interest - interest on cash credit account with it s bank, Bank of India - Held that - It is only where the bank balance exceeds the DP of ₹ 750/-, that the excess can be construed as an application by the assessee for other than inventories, or as a liability toward unpaid charges. The payment or otherwise of bank interest shall, therefore, have to be reckoned with reference to drawing power as at the year-end drawn as per the terms of the borrowing agreement. This is precisely why, and also explains reference thereto, in section 43B(e). Further still, as the payment, to qualify for allowance, could be validly made by the date of furnishing the return of income u/s.139(1), the drawing power for the future dates may also be relevant in this regard. Surely, the DP should be on the basis of normative balances and not contrived, i.e., which is brought down only to exhibit a below par balance for a brief period, before assuming its normal, higher balance. The matter is, accordingly, restored to the file of the A.O. for necessary verification and toward which the assessee shall extend cooperation to enable proper determination of the matter by the former, i.e., in accordance with the law, keeping in view its foregoing elucidation - Decided in favour of assesse by way of remand.

Summary

Issues Involved:

1. Disallowance of commission expenses due to non-deposit of TDS within the stipulated time.
2. Disallowance under Section 14A related to indirect expenditure on investments yielding exempt income.
3. Treatment of advances received from customers as income.
4. Disallowance of bank interest due to non-payment.

Issue-wise Detailed Analysis:

1. Disallowance of Commission Expenses:

The first issue concerns the disallowance of commission expenses amounting to Rs. 21,34,840/- due to the non-deposit of TDS within the stipulated time under Section 40(a)(ia) of the Income Tax Act, 1961. The due dates for the deposit of tax were specified, but the actual deposit was made only on 22.09.2009. The tribunal noted that the amendment by Finance Act, 2010, which allowed time for the deposit of TDS up to the due date of filing the return of income, was held to be retrospective by certain High Courts. Accordingly, the assessee's appeal was allowed, provided that the deduction for the impugned sum for A.Y. 2010-11 would be modified if already claimed or allowed.

2. Disallowance under Section 14A:

The second issue deals with the disallowance of Rs. 5,83,310/- under Section 14A for indirect expenditure on investments yielding exempt income. The tribunal upheld the disallowance, noting that the assessee failed to substantiate its claims regarding the purpose of the investments. However, the tribunal accepted the argument that if the entire borrowing under the cash credit account was absorbed in the relevant class of assets, no disallowance under Section 14A should ensue. The matter was remanded back to the Assessing Officer (A.O.) for verification, with instructions to issue definite findings of fact.

3. Treatment of Advances from Customers:

The third issue pertains to the treatment of advances totaling Rs. 1,07,75,254/- received from customers as income. The tribunal noted that most of these sums were offered as income in the subsequent year, and the character of the amounts could not be changed based on journal vouchers. The tribunal directed the A.O. to verify the assessee's claims that these amounts were offered as income and taxed in subsequent years. If verified, the A.O. was instructed to delete the same to avoid double taxation.

4. Disallowance of Bank Interest:

The Revenue's appeal involved the deletion of disallowance of bank interest amounting to Rs. 32,73,421/-. The disallowance was based on the non-payment of the said sum, which was credited to the bank's cash credit account. The tribunal clarified that the non-reflection of liability toward bank interest by the assessee in its account was not incorrect. The tribunal explained that the payment of interest could be reckoned with reference to the drawing power as per the terms of the borrowing agreement. The matter was remanded back to the A.O. for necessary verification, with instructions to determine the matter in accordance with the law.

Conclusion:

In conclusion, the assessee's appeal was partly allowed and partly allowed for statistical purposes, while the Revenue's appeal was allowed for statistical purposes. The tribunal's order emphasized the need for proper verification and compliance with legal provisions in determining the issues at hand.