2018 (8) TMI 1838 - AT - Income Tax

Addition u/s 14A - HELD THAT - In assessee own case for preceding years on identical facts we consider that the assessee s own interest free funds in the forms of share capital and reserve and surplus were much more than the investment made for earning tax fee income. AO has failed to disprove that borrowed funds were utilized for making investment to earn exempt income. In view of the above facts and finding we do not find any infirmity in the decision of CIT(A) in respect of deleting addition of interest part u/s. 14A. Disallowance of administrative expenses u/s. 14A we restrict the disallowance on account of administrative expenses to the amount of Rs. 15 lakhs for the year under consideration. Therefore the appeal of the assessee is partly allowed and ground of appeal of revenue is dismissed. Liability towards equal pay for equal work as per memorandum of understanding made with the workers of the company - Liabilities as per Memorandum of Understanding with Workers was disallowed by the AO on the ground that the liability was not crystalized during the year - HELD THAT - CIT(A) has directed the assessing officer to allow such expenditure in the year in which the same was actually paid. After considering the material on record and the findings of the CIT(A) we do not find any error in the order of the CIT(A) directing the assessing officer to allow the claim of the assessee on payment basis . Therefore this ground of appeal of the assessee is dismissed. Business loss on trading of fertilizer bonds - HELD THAT - As decided in the case of the assessee pertaining to assessment year 2008-09 we restore this issue to the file of assessing officer to allow the claim of the assessee as business loss after verification of the year in which income was offered and the loss was occurred. Accordingly the appeal of the assessee is allowed for statistical purposes. Disallowance of prior period expenses - AO disallowed the claim on the ground that assessee company was following mercantile system of accounting therefore it was not entitled to claim expenses which was not related to assessment year 2010-11 - HELD THAT - ITAT in the case of the assessee for the assessment year 2009-10 wherein the issue was set aside to the assessing officer to allow after verification that the expenditure were crystalized during that year. Similarly the claim of the assessee in respect of prior period expenses is also restored to the file of the assessing officer to allow the same after verification if it is crystalized during the year under consideration after affording adequate opportunity to the assessee. Accordingly the appeal of the assessee is allowed for statistical purposes. Interest on refund u/s 244A(1) - HELD THAT - No merit in the appeal of the assessee on this issue after considering the decision of the Special Bench of the Tribunal in the case of Avada Trading Co. P. Ltd. vs. ACIT 2006 (1) TMI 465 - ITAT MUMBAI wherein it is held that interest on refund under section 244A(1) would be assessable in the year in which it is granted. Accordingly this ground of appeal of the assessee is dismissed. Addition u/s. 14A r.w. Rule 8D for the purpose of computing book profit u/s. 115JB - HELD THAT - In the case of the assessee itself has restricted the amount to be added for computation of book profit u/s 115 JB of the act to the extent of disallowance of administrative expenses of Rs. 10 lacs and Rs. 15 Lacs confirmed by the ITAT. After taking into consideration the above cited decision of the coordinate bench on identical facts and similar issue we restrict the amount to be added for computation to the extent of disallowance of administrative expenses of Rs. 15 lacs sustained in the case of the assessee as supra in this order. Therefore this ground of appeal of the assessee is partly allowed.

Issues Involved:
1. Disallowance under Section 14A towards administrative and other expenditure.
2. Deduction of liability incurred under Memorandum of Understanding with workmen.
3. Loss on sale of fertilizer bonds.
4. Disallowance of prior period expenses.
5. Addition of interest on income tax refund.
6. Addition to book profit under Section 115JB.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A towards administrative and other expenditure:
The assessing officer noted that the assessee received exempt income but did not show any expenses incurred against it. The officer disallowed Rs. 8,40,91,000/- under Section 14A read with Rule 8D. The CIT(A) deleted the interest expenditure disallowance of Rs. 5,83,15,000/- but upheld the administrative expenses disallowance of Rs. 2,57,76,000/-. The ITAT considered the assessee’s own funds, which were higher than the investments, and found no nexus between borrowed funds and investments. Following precedents, the ITAT restricted the disallowance of administrative expenses to Rs. 15 lakhs.

2. Deduction of liability incurred under Memorandum of Understanding with workmen:
The assessee claimed a deduction of Rs. 37,36,68,000/- for liability under an MoU with workmen. The assessing officer disallowed it, stating it was not accrued during the year. The CIT(A) directed the assessing officer to allow the claim in the year it was actually paid. The ITAT upheld this decision, confirming that the deduction should be allowed on a payment basis.

3. Loss on sale of fertilizer bonds:
The assessee claimed a business loss on the sale of fertilizer bonds. The assessing officer treated it as a capital loss. The CIT(A) upheld this view. However, the ITAT referred to its previous decisions, recognizing the loss as a business loss incurred in the normal course of business. The ITAT restored the issue to the assessing officer for verification and allowance as a business loss.

4. Disallowance of prior period expenses:
The assessing officer disallowed Rs. 3,11,66,000/- as prior period expenses, stating they were not related to the assessment year. The CIT(A) partly allowed the appeal, confirming the disallowance of Rs. 35,40,342/- and Rs. 2,76,25,680/- due to lack of evidence that these expenses were crystallized during the year. The ITAT remanded the issue back to the assessing officer for verification and allowance if the expenses were indeed crystallized during the year.

5. Addition of interest on income tax refund:
The assessing officer added Rs. 1,11,81,827/- as interest on a refund, which the assessee did not show as income. The CIT(A) upheld this addition. The ITAT found no merit in the assessee’s appeal, citing the Special Bench decision in Avada Trading Co. P. Ltd. vs. ACIT, which held that interest on refund is assessable in the year it is granted.

6. Addition to book profit under Section 115JB:
The assessing officer added Rs. 8,40,91,000/- as proportionate expenditure related to exempt income for computing book profit under Section 115JB. The CIT(A) reduced this to Rs. 2,57,76,000/-. The ITAT, following its previous decisions, restricted the addition to Rs. 15 lakhs, aligning with the disallowance of administrative expenses.

Conclusion:
The ITAT provided partial relief to the assessee by reducing disallowances and remanding certain issues back to the assessing officer for verification. The decisions were largely based on precedents and the specifics of the assessee’s financial records. The appeals were disposed of with detailed directions for each contested issue.

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