2017 (4) TMI 1528 - AT - Income Tax

Addition being interest on mobilization advance - HELD THAT - Assessee being a government undertaking is been following a system of accounting as per which all the items of income and expenditure are treated as accrue only after the approval is granted by competent authority. Further, the coordinate bench deleted the above addition. Therefore, respectfully following the decision of the coordinate bench in assessee s own case for assessment year 2008-2009 we also direct the AO to delete the above addition. In the result, we reverse the finding of the Ld. CIT (A) and allow ground No. 1 of the appeal of the assessee. Disallowance u/s 14A r.w.r. 8D - HELD THAT - According to the provisions of section 14A(2), the Ld. assessing officer before invoking the applicability of Rule 8D should have explained as to why the voluntary disallowances or no disallowances made by the assessee was unreasonable and unsatisfactory. We failed to find any such satisfaction recorded by the Ld. assessing officer. The satisfaction is mandatory in view of the judicial precedents of the jurisdictional High Court laid down before us by the Ld. authorized representative. Therefore, respectfully following the judicial precedent of the jurisdictional High Court we direct the Ld. assessing officer to delete the disallowance u/s 14A of the income tax act applying the provisions of Rule 8D of the Income Tax Rules, 1962. Addition on protective basis - HELD THAT - As the disallowances been deleted in assessment year 2008 09 the addition is required to be confirmed in this year. Disallowance of the assessee s claim of deduction supplier period expenses even when the assessee was following the market system of accounting - CIT(A) has deleted the above addition following the decision of the Hon ble high court in assessee s own case - HELD THAT - DR could not point out any infirmity in the order of the Ld. 1st appellate authority in following that decision of the Hon ble high court in assessee s own case. The coordinate bench as well as the Ld. first appellate authority has also dealt with issue of disallowance of the prior paid expenses and held in favour of the assessee. In view of this we do not find any infirmity in the order of the Ld. CIT(A), in deleting the about disallowance. In the result, appeal of the revenue is dismissed.

Summary

Issues involved:
1. Addition of interest on mobilization advance on notional basis.
2. Disallowance under section 14A of the Income Tax Act.
3. Addition on protective basis consequential to previous year's addition.
4. Disallowance of deduction for prior period expenses.

Analysis:

Issue 1: Addition of interest on mobilization advance on notional basis:
- The assessing officer added ?201.66 Lacs as interest on mobilization advance not recognized as income by the assessee.
- The CIT(A) confirmed the addition, citing the precedent from the previous year.
- The tribunal, following a previous decision in the assessee's case, held that the amount had not crystallized and thus cannot be treated as income.
- The tribunal directed the AO to delete the addition, reversing the CIT(A)'s decision.

Issue 2: Disallowance under section 14A of the Income Tax Act:
- The AO disallowed ?1125844 under section 14A as the assessee claimed exempt income without incurring any related expenses.
- The CIT(A) upheld the disallowance.
- The tribunal noted that the AO did not provide satisfactory reasoning for applying Rule 8D of the Income Tax Rules.
- Relying on judicial precedents, the tribunal directed the AO to delete the disallowance under section 14A.

Issue 3: Addition on protective basis consequential to previous year's addition:
- An addition of ?48.87 crores was made on a protective basis, related to a previous year's addition.
- The tribunal upheld this addition as it was previously confirmed by the coordinate bench in the assessee's case for the earlier year.

Issue 4: Disallowance of deduction for prior period expenses:
- The AO disallowed ?19236000 for prior period expenses, which the assessee contested based on accounting principles.
- The CIT(A) deleted the disallowance, citing a decision in the assessee's favor from the Hon'ble Delhi High Court.
- The tribunal found no infirmity in the CIT(A)'s decision and dismissed the revenue's appeal.

In conclusion, the tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal, addressing each issue in detail and providing reasoned judgments based on legal precedents and accounting principles.