2018 (5) TMI 1882 - AT - Income Tax

Addition of foreign travel expenses - allowable business expenses - HELD THAT - The assessee in the business of manufacturing and sales of PU Foam PU Foam products coir mattresses cushion etc. Expenditure incurred on visits to Australia related to an Australian Company Joyce Foam Pvt Ltd which was also in the similar business as that of the assessee. Therefore it can safely be concluded that the acquisition was not for a new business but expansion of existing business. Expenditure incurred is legitimate business expenditure and deserves to be allowed. Deduction u/s 80IB - Reallocation of head office expenses - HELD THAT - As considered the relevant documentary evidences brought on record in the form of paper book in the light of Rule 18(6) of the ITAT Rules 1962. Exhibit 36 44, 53 and 62 exhibit financial statements of four eligible units. It can be seen that in all these eligible units the Head Office account was showing debit balance which was converted into credit balance only when profit for the year was transferred. Therefore it cannot be said that the eligible units had borrowed funds from the Head Office. Further we find that the debtors of the eligible units were realized by the Head Office and accordingly necessary entries were passed through Head Office account. Considering the factual matrix exhibited in the statement of account it can be stated that the eligible units have not borne any financial charges and therefore no allocation of financial charges is to be made between these eligible units. We do not find any error or infirmity in the finding of the ld. CIT(A) . Addition on account of delayed payment of employees contribution of provident fund - HELD THAT - We find that the Hon ble Jurisdictional High Court of Delhi in the case of CIT Vs. AIMIL limited 2009 (12) TMI 38 - DELHI HIGH COURT has decided the issue in favour of the assessee and against the Revenue. Disallowance u/s 14A of the Act r.w.r 8D - HELD THAT - We find that the assessee has not earned any exempt income during the year under consideration. Thus this grievance of the assessee has to be allowed following the judgment of the Special Bench of the Tribunal in the case of Cheminvest Ltd Vs. CIT I. 2009 (8) TMI 126 - ITAT DELHI-B which has been affirmed by the Hon ble High Court of Delhi 2015 (9) TMI 238 - DELHI HIGH COURT . Also see CORRTECH ENERGY PVT. LTD. 2014 (3) TMI 856 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues involved:
1. Deletion of addition of foreign travel expenses
2. Allowance of deduction u/s 80IB of the Income-tax Act
3. Deletion of addition on account of delayed payment of employees' provident fund contribution
4. Allocation of financial charges to eligible units affecting deduction u/s 80IB
5. Disallowance u/s 14A of the Act r.w.r 8D of the Rules

Deletion of addition of foreign travel expenses:
The Revenue challenged the deletion of an addition of ?18,03,341 made by the Assessing Officer for foreign travel expenses related to the acquisition of an Australian company. The CIT(A) deleted the disallowance based on precedent. The Tribunal found that the expenditure was for the expansion of the existing business, making it a legitimate business expense. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Allowance of deduction u/s 80IB of the Income-tax Act:
The Revenue disputed the allowance of deduction u/s 80IB at ?3,73,60,972 instead of ?3,00,35,190. The Assessing Officer reallocated head office expenses, leading to a lower deduction. The CIT(A) deleted the disallowance, stating that eligible units did not use borrowed funds. The Tribunal, after reviewing financial statements, concluded that no financial charges should be allocated, upholding the CIT(A)'s decision and dismissing the Revenue's appeal.

Deletion of addition on account of delayed payment of employees' provident fund contribution:
The Revenue challenged the deletion of an addition of ?36,574 due to delayed EPF contribution payment. The CIT(A) deleted the disallowance following previous Tribunal decisions and a High Court ruling in favor of the assessee. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Allocation of financial charges to eligible units affecting deduction u/s 80IB:
The assessee contested the allocation of financial charges to eligible units affecting the deduction u/s 80IB. The Tribunal allowed the appeal, following a detailed discussion from a previous case, concluding that no financial charges should be allocated, thereby allowing the assessee's appeal.

Disallowance u/s 14A of the Act r.w.r 8D of the Rules:
The assessee challenged a disallowance of ?55,870 under section 14A of the Act r.w.r 8D of the Rules. As no exempt income was earned, the Tribunal directed the Assessing Officer to delete the addition, citing relevant judgments. The Tribunal allowed the assessee's appeal, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the assessee's appeals, addressing various issues related to deductions, expenses, and disallowances in a comprehensive and legally sound manner.