2018 (9) TMI 2079 - AT - Income Tax

Addition u/s 36(1)(va) - disallowance as assessee had not deposited the Employees Contribution to EPF ESI and labour welfare fund within the prescribed due date although the payment was made before the due date of filing of the return - HELD THAT - After hearing the Ld. representatives of the parties we noted that the Ld. CIT(A) inter alia has followed the decision in the case of CIT Vs. Hernia Embroidery Mills (P) Ltd. 2013 (2) TMI 41 - PUNJAB AND HARYANA HIGH COURT which has further followed the decision in the case of CIT Vs. Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT We find no infirmity in the order of the CIT(A) on this issue and the same is therefore upheld. Disallowance of bank charges - HELD THAT - CIT(A) has considered the explanation of the assessee that bank charges were incurred to process the Working Capital Loan Application of the assessee. These facilities were used to meet the day to day requirement of the funds for the business of the company. CIT(A) considering the submissions and further relying upon his decision for the assessment years 2008-09 and 2009-10 on this issue has held that the same was not a capital expenditure but was Revenue expenditure. We do not find any infirmity in the order of the CIT(A) on this issue also and the same is accordingly upheld. Addition u/s 14A r.w.r. 8D - assessee has submitted that the total disallowance made during the year u/s 14A read with rule 8D(2)(iii) has exceeded the total dividend income earned by the assessee during the year - HELD THAT - Considering the above submissions the decision of CIT Faridabad Vs. Lakhani Marketing Inc. 2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT and . Cheminvest Ltd Vs. ITO 2015 (9) TMI 238 - DELHI HIGH COURT are squarely applicable wherein it has been held that the disallowance under section 14A cannot exceed the total exempt income earned by the assessee during the year. In view of this we do not find any infirmity in the order of the CIT(A) on this issue and the same is upheld. Addition u/s 36(i)(iii) - Interest on investment in sister concerns - HELD THAT - CIT-A correctly deleted addition by the Ld. CIT(A) observing that assessee had made investment in shares of its sister concern out of his own funds and that no borrowed funds were used for making such investment.

Summary

Issues involved:
1. Deletion of disallowance under section 36(1)(va) of the Income-tax Act, 1961.
2. Disallowance of bank charges.
3. Restriction of addition under section 14A of the Income Tax Act, 1961.
4. Allocation of interest to the cost of shares under section 36(1)(iii) of the Act.

Analysis:

Issue 1 - Deletion of disallowance under section 36(1)(va) of the Income-tax Act, 1961:
The Revenue challenged the deletion of disallowance made by the Assessing Officer under section 36(1)(va) amounting to ?29,27,987. The CIT(A) deleted the disallowance, citing various case laws, including the decision of the Hon'ble Supreme Court in the case of 'CIT Vs. Alom Extrusions Ltd.' The ITAT upheld the CIT(A)'s decision, stating that the CIT(A) followed the decision of the Hon'ble Punjab & Haryana High Court and the Supreme Court. The ITAT found no infirmity in the CIT(A)'s order and upheld it.

Issue 2 - Disallowance of bank charges:
The Revenue contested the deletion of the addition made on account of disallowance of bank charges. The CIT(A) considered the explanation provided by the assessee that the bank charges were revenue expenditure incurred to process the Working Capital Loan Application. The CIT(A) held that the bank charges were revenue expenditure, not capital expenditure. The ITAT found no fault in the CIT(A)'s order and upheld the decision.

Issue 3 - Restriction of addition under section 14A of the Income Tax Act, 1961:
The Revenue challenged the restriction of the addition made by the Assessing Officer under section 14A of the Income Tax Act, 1961. The CIT(A) held that no interest disallowance under Rule 8D (2)(ii) was warranted but upheld the disallowance on account of administrative expenditure. The ITAT, after reviewing the CIT(A)'s order, found no infirmity and upheld the decision based on the principle that the disallowance under section 14A cannot exceed the total exempt income earned by the assessee during the year.

Issue 4 - Allocation of interest to the cost of shares under section 36(1)(iii) of the Act:
The Revenue raised concerns regarding the allocation of interest to the cost of shares under section 36(1)(iii) of the Act. The CIT(A) deleted the disallowance made by the Assessing officer, stating that the investment in shares was made out of the assessee's own funds, not borrowed funds. The ITAT reviewed the CIT(A)'s order and found no reason to interfere, upholding the CIT(A)'s decision on this issue.

Overall, the ITAT dismissed all the appeals of the Revenue, upholding the CIT(A)'s decisions across the various issues raised in the appeals for assessment years 2010-11 to 2012-13.