2019 (3) TMI 1662 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - HELD THAT - CIT(A) has rightly granted relief to the assessee as there is no exempt income in the assessment year 2012-13 and we also draw support from the case of Corrtech Energy Ltd. 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein it is held that the Tribunal had recorded the finding of the fact that assessee did not make any claim for exemption of any income from payment of tax. Hence no disallowance could be made u/s. 14A Addition u/s 41(1) on account of cessation of liability - HELD THAT - As decided in BHOGILAL RAMJIBHAI ATARA 2014 (2) TMI 794 - GUJARAT HIGH COURT there was nothing on record to suggest that there was remission or cessation of liability that too during previous year relevant to AY 2007-08. Whether in peculiar facts of case amount in question could not be added back in income of assessee as deemed income under section 41(1). Held yes TDS u/s 194H - Addition u/s 40 (a)(ia) - HELD THAT - Hon ble Supreme Court has held in the case of CIT vs. Ahmedabad Stamp Vendors Association 2012 (9) TMI 298 - SC ORDER has held that cash discount given for bulk purchase of stamps does not attract provisions of section 194H. In our considered opinion CIT(A) has passed detailed and reasoned order and same does not require any kind of interference at our end. Thus this ground of revenue is dismissed. Disallowance of claimed in respect of foreign exchange (Forex) loss - HELD THAT - Loss recognized on account of foreign exchange fluctuation and same is subsisting liability and not merely a contingent or a hypothetical liability. Hon ble Apex Court in the case of Woodward Governor ( 2009 (4) TMI 4 - SUPREME COURT held loss suffered by the assessee on account of fluctuation in the rate of foreign exchange as on date of balance sheet as an item of expenditure same to be allowed in favour of assessee. Disallowance of interest on advances for purchase of land - HELD THAT - Appellant in its written submission filed before AO has explained that it has acquired land from all the parties except one party in subsequent Assessment Year and Appellant has also submitted ledger account of such parties to show that land has been actually acquired from such parties hence observation of AO that Appellant has not purchased any land till date is incorrect. It is also observed that AO has not established any nexus between use of borrowed funds and above advances hence disallowance is made on presumption. In Appellant s case share capital and reserves are of 250.93 crores and interestfree loan from holding company is of 203.36 crores hence aggregate interest-free fund available with Appellant as on 31st March 2012 is 454.29 crores and such fund is in excess of interest free advances given for acquisition of land for 1.73 crores. - Decided against revenue Addition on account of employees contribution to PF and ESIC - HELD THAT - A.R. has fairly conceded that in view of the GSRTC Ltd. 2014 (1) TMI 502 - GUJARAT HIGH COURT this ground of the assessee is not sustainable. Hence same is dismissed.

Summary

Issues Involved:

1. Deletion of addition made on account of disallowance under Section 14A read with Rule 8D of the Income Tax Act.
2. Deletion of addition made under Section 41(1) of the Income Tax Act on account of cessation of liability.
3. Deletion of addition made under Section 40(a)(ia) of the Income Tax Act.
4. Deletion of addition made on account of disallowance of foreign exchange (Forex) loss.
5. Deletion of addition made on account of disallowance of interest on advances for purchase of land.
6. Disallowance of professional fees treated as capital expenditure.
7. Addition on account of employees' contribution to PF and ESIC.

Detailed Analysis:

1. Deletion of Addition under Section 14A read with Rule 8D:

The Assessing Officer (A.O.) applied Rule 8D read with Section 14A, disallowing ?39,47,992/- despite the assessee not earning any tax-free income. The CIT(A) deleted the disallowance, citing a similar case from the previous year where no exempt income was earned. The Tribunal supported this decision by referencing the Gujarat High Court's ruling in Corrtech Energy Ltd., which stated no disallowance under Section 14A could be made if no exempt income was claimed. Hence, this ground of appeal was dismissed.

2. Deletion of Addition under Section 41(1):

The A.O. added ?16,33,143/- as cessation of liability under Section 41(1), arguing the liability had ceased as it had been outstanding for over three years. The assessee contended that the amount represented advances given to creditors and had not been written back in the books. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court's ruling in Bhogilal Ramjibhai Atara, which stated that Section 41(1) could not be applied unless there was evidence of liability cessation or remission. This ground of appeal was dismissed.

3. Deletion of Addition under Section 40(a)(ia):

The A.O. disallowed ?2,10,056/- for non-deduction of TDS on payments made to Shreyas Relay System Limited. The assessee argued that the payment was a volume discount, not commission or brokerage, and thus not subject to TDS. The Tribunal agreed with the CIT(A), referencing the Gujarat High Court's ruling in Gujarat Tea Processors & Packers Ltd., which held that trade discounts do not attract TDS provisions. This ground of appeal was dismissed.

4. Deletion of Addition on Account of Forex Loss:

The A.O. disallowed ?1,23,08,000/- as a notional loss, arguing it should be treated under Section 43A. The assessee argued the loss was related to business activities and not asset acquisition. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Woodward Governor, which allowed loss from foreign exchange fluctuation as an expenditure. This ground of appeal was dismissed.

5. Deletion of Addition on Account of Interest on Advances for Land Purchase:

The A.O. disallowed ?20,77,500/- for interest on advances for land purchase, arguing no land was acquired. The assessee demonstrated that land was acquired in subsequent years and that sufficient interest-free funds were available. The Tribunal upheld the CIT(A)'s decision, dismissing this ground of appeal.

6. Disallowance of Professional Fees as Capital Expenditure:

The assessee's cross-objection regarding the disallowance of ?8,58,750/- as capital expenditure was dismissed. The Tribunal referenced its earlier decision in the assessee's case for the previous year, which upheld the CIT(A)'s order.

7. Addition on Account of Employees' Contribution to PF and ESIC:

The assessee's cross-objection regarding the addition of ?4,79,056/- for delayed employees' contribution to PF and ESIC was dismissed. The Tribunal referenced the Gujarat High Court's ruling in GSRTC Ltd., which did not support the assessee's claim.

Conclusion:

The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objections, upholding the CIT(A)'s decisions in all contested matters. The judgment was pronounced in open court on 29-03-2019.