2019 (6) TMI 1626 - AT - Income Tax

Nature of receipt - Credit to capital reserve - Addition holding that profit arising on account of forfeiture of shares is capital receipt in nature - CIT(A) deleted the addition - HELD THAT - DR could not bring to our notice any case laws to controvert the findings of the ld. CIT(A). In the aforesaid facts and circumstances of the case, we hold that CIT(A) was justified in deleting the addition .That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid additions. Interest on unsecured loan and interest on Others TDS and Sales Tax - HELD THAT - Interest expense on the delayed payment of service tax is allowable deduction -Assessing Officer has erred in making disallowance of interest paid being Interest on Unsecured Loans and interest on Others TDS and Sales Tax - Hence, ld CIT(A) has rightly deleted the addition - Appeal of the Revenue are dismissed. Disallowance u/s 14A read with Rule 8D - HELD THAT - The said issue of the Revenue is squarely covered by the judgment of HOLCIM INDIA P. LTD. 2014 (9) TMI 434 - DELHI HIGH COURT wherein it was held that in the absence of any tax free income, the corresponding expenditure could not be worked out for making disallowance u/s. 14A - Hon ble Delhi High Court in the case of Chemnivest vs. Commissioner of Income Tax-Vl, 2015 (9) TMI 238 - DELHI HIGH COURT held that section 14A will not apply if no exempt income is received during the relevant previous year. Therefore, in view of above, the disallowance made u/s 14A of the Act r.w.r. 8D is not sustainable. Disallowance u/s 36(1)(va) - assessee s failure to deposit employees contribution towards statutory ESI and PF within the due date - HELD THAT - The issue involved is no longer reintegra. If the assessee pays PF and ESI contribution within the time of filing return of income under section 139(1) of the Act, it would be sufficient compliance and no disallowance is attracted.

Summary

Issues Involved:
1. Deletion of addition on account of credit to capital reserve.
2. Allowance of interest on unsecured loan.
3. Deletion of disallowances under Section 14A of the Income Tax Act, 1961.
4. Deletion of disallowance made under Section 36(1)(va) for failure to deposit employees' contribution towards statutory ESI and PF within the due date.

Issue-Wise Detailed Analysis:

1. Deletion of Addition on Account of Credit to Capital Reserve:
The Revenue raised the issue of whether the CIT(A) was correct in deleting the addition of ?97,75,000 on account of credit to capital reserve by holding that profit arising on account of forfeiture of shares is a capital receipt in nature. The Assessing Officer (AO) had observed that the amount credited to the capital reserve should have been treated as income and passed through the profit and loss account. The CIT(A) deleted the addition, holding that the amount of ?97,75,000 was correctly credited to the capital reserve as it arose from the forfeiture of shares. The ITAT upheld the CIT(A)'s decision, noting that the Revenue did not provide any case laws to counter the findings of the CIT(A).

2. Allowance of Interest on Unsecured Loan:
The Revenue contested the allowance of interest on unsecured loans amounting to ?27,34,728. The AO had disallowed the interest on the grounds of lack of documentary evidence. The CIT(A) noted that the details of unsecured loans were provided in the Tax Audit Report, which included the name, address, and PAN of the lending companies. The CIT(A) held that the AO had sufficient material to corroborate the transaction and had not issued a show-cause notice before disallowing the interest. The ITAT upheld the CIT(A)'s decision, agreeing that the AO erred in making the disallowance without proper inquiry.

3. Deletion of Disallowances Under Section 14A:
The Revenue challenged the deletion of disallowances under Section 14A read with Rule 8D of the Income Tax Rules. The CIT(A) had deleted the disallowance on the grounds that there was no exempt income during the relevant year. The ITAT noted that the issue was covered by the judgment of the Hon'ble Delhi High Court in CIT vs. Holcim India Pvt. Ltd., which held that in the absence of any tax-free income, the corresponding expenditure could not be disallowed under Section 14A. The ITAT upheld the CIT(A)'s decision, confirming that the disallowance under Section 14A was not sustainable.

4. Deletion of Disallowance Under Section 36(1)(va):
The Revenue raised the issue of disallowance made under Section 36(1)(va) for the assessee's failure to deposit employees' contribution towards statutory ESI and PF within the due date. The CIT(A) deleted the disallowance, noting that the payments were made before the due date of filing the income tax return under Section 139(1). The CIT(A) relied on several judgments, including those of the Hon'ble jurisdictional ITAT and various High Courts, which held that if the payment is made within the due date of filing the return, no disallowance is attracted. The ITAT upheld the CIT(A)'s decision, confirming that the disallowance under Section 36(1)(va) was not warranted.

Conclusion:
The ITAT upheld the CIT(A)'s decisions on all grounds, dismissing the Revenue's appeal. The judgments were based on established legal principles and precedents, ensuring that the additions and disallowances made by the AO were correctly deleted by the CIT(A).