2018 (7) TMI 2266 - AT - Income Tax

Disallowance of interest and expenses u/s. 14A r.w.r 8D - HELD THAT - We find that the CIT-A held that the assessee has shown capital reserve fund more than the investments made. Therefore, it is to be presumed that such investment made out of its own fund and, the disallowance made under Rule 8D(2)(ii) of the IT Rules, 1962 is not maintainable and we confirm the impugned order of the CIT-A. Disallowance under Rule 8D(2)(iii) - make disallowance in respect of investments that had yielded exempt income by placing reliance on the order of the Hon ble High Court of Calcutta in the case of REI Agro Ltd 2013 (12) TMI 1517 - CALCUTTA HIGH COURT - Decided against revenue. Disallowance of 25% of air craft flying right charges - HELD THAT - As decided in own case 2016 (10) TMI 323 - ITAT KOLKATA all costs and expenses associated with the operation of the aircraft. The assessee was not required to pay anything over and above the sum of Rs.340 lacs agreed between the parties irrespective of the use of the aircraft. The aircraft flying rights were taken considering the business needs of the assessee and the aircraft was used by very senior officials of the company for the purposes of business and furtherance thereof - Decided against revenue. Allowability of retainer ship fees paid - HELD THAT - As relying on own case 2016 (10) TMI 323 - ITAT KOLKATA allowed the claim of assessee regarding retainership fees paid to M/s. Sree Bala P.Ltd Disallowance of 25% towards guest house expenses - HELD THAT - We find that the issue in hand is covered by the order 2016 (10) TMI 323 - ITAT KOLKATA in assessee s own case for the A.Ys 2006-07 2008-09 allowed claim of assessee. Allowability of licence fees paid to M/s. RPG Enterprises Ltd . - HELD THAT - We find that the issue in hand is covered by the order 2016 (10) TMI 323 - ITAT KOLKATA in assessee s own case for the A.Ys 2006-07 2008-09 allowed claim of assessee. Allowability of unrealized loss on foreign exchange fluctuation - HELD THAT - It is noticed that the assessee claimed loss of Rs.46.58 crores on account of foreign exchange fluctuation. We noticed that the assessee has shown gain in its profit loss account on account of foreign exchange fluctuation for the A.Y 2010-11 and the AO assessed the same as income on account of forward contract gain, in the same way, in our opinion, the AO should have taken the loss due to unrealized forward contract for the A.Y under consideration as real loss - CIT-A held the same as real loss and the assessee is entitled to claim as deduction. We find that similar issue on identical facts and circumstances, this Tribunal has decided the issue by placing reliance on the decision of Woodward Governor India Pvt. Ltd 2007 (4) TMI 118 - DELHI HIGH COURT wherein held that loss recorded due to foreign exchange fluctuation is an allowable deduction - Decided against revenue. Disallowance on account of book profit u/s.115JB on disallowance u/s 14A - HELD THAT - Co-ordinate Bench, ITAT, Kolkata in the case of TMT Viniyogan Pvt. Ltd 2017 (12) TMI 1841 - ITAT KOLKATA wherein the Tribunal held that no disallowance could be made u/s. 14A while computing the book profit u/s. 115JB of the Act and remanded the matter to the file of AO for computing the disallowance under clause (f) to section 115JB of the Act by placing reliance on the decision of the Hon ble High Court of Calcutta in the case of CIT Vs. Jayshree Tea Industries Ltd 2014 (11) TMI 1169 - CALCUTTA HIGH COURT we remand the matter to the AO and to work the disallowance in terms of clause (f) to Explanation-1 of Section 115JB of the Act for the purpose of book profit. Disallowance made on account of misc. expenses - HELD THAT - We find that the assessee claimed the misc. expenses and without there being any evidence to that effect the AO made the disallowance. CIT-A considering the submissions of assessee in respect no inference or adverse remark whatsoever was made by the statutory auditor in the tax audit deleted the same. But, however, taking into consideration the facts and circumstances of the case, we find that the AO was justified in disallowing the same at 25% of claimed expenses. Therefore, we reverse the impugned order of the CIT-A and restore the order of AO on this issue. Disallowance on account of Puja Temple expenses - CIT-A deleted the addition - HELD THAT - We find that the CIT-A placed his reliance on various case laws of Hon ble High Courts and CBDT Instruction. The Hon ble High Courts allowed such expenses treating the same as welfare measure for employees. Thus, the CIT-A was right in directing the AO to delete the same. We find no infirmity in the impugned order of the CIT-A and it is justified.

Summary

Issues Involved:
1. Deletion of disallowance of interest and expenses under Section 14A read with Rule 8D of the Income Tax Rules, 1962.
2. Deletion of disallowance of 25% of aircraft flying right charges.
3. Allowability of retainer ship fees paid to M/s. Sreebala Pvt. Ltd.
4. Disallowance of 25% towards guest house expenses.
5. Allowability of license fees paid to M/s. RPG Enterprises Ltd.
6. Allowability of unrealized loss on foreign exchange fluctuation.
7. Deletion of disallowance made on account of book profit under Section 115JB of the Income Tax Act.
8. Deletion of adhoc disallowance made on account of miscellaneous expenses.
9. Deletion of disallowance of Puja & Temple expenses.

Issue-wise Detailed Analysis:

1. Deletion of disallowance of interest and expenses under Section 14A read with Rule 8D of the Income Tax Rules, 1962:
The assessee made a suo motu disallowance of Rs. 2,25,833/- for AY 2009-10 and Rs. 3,00,500/- for AY 2010-11 under Section 14A. The AO made additional disallowances under Rule 8D(2)(ii) & (iii). The CIT-A deleted these disallowances, noting that the assessee had sufficient own funds exceeding the investments made. The Tribunal upheld the CIT-A's decision, referencing the ITAT Kolkata decision in DCIT Vs. Century Ply Boards (I) Ltd., which directed disallowance only for investments yielding dividend income.

2. Deletion of disallowance of 25% of aircraft flying right charges:
The AO disallowed 25% of the aircraft flying right charges as non-business expenditure. The CIT-A, referencing earlier decisions in the assessee's favor, deleted the disallowance. The Tribunal upheld the CIT-A's decision, noting that the issue was covered by earlier orders and the Hon'ble Calcutta High Court's decision in the assessee's favor.

3. Allowability of retainer ship fees paid to M/s. Sreebala Pvt. Ltd.:
The AO disallowed the retainer ship fees paid to M/s. Sreebala Pvt. Ltd., questioning the party's track record. The CIT-A allowed the expenditure, referencing earlier Tribunal decisions affirming the payments as business expenses. The Tribunal upheld the CIT-A's decision, noting that the issue was covered by the Hon'ble Calcutta High Court's decision in the assessee's favor.

4. Disallowance of 25% towards guest house expenses:
The AO disallowed 25% of guest house expenses as non-business expenditure. The CIT-A deleted the disallowance, referencing the Tribunal's earlier orders in the assessee's favor. The Tribunal upheld the CIT-A's decision, noting that the issue was covered by the Hon'ble Calcutta High Court's decision in the assessee's favor.

5. Allowability of license fees paid to M/s. RPG Enterprises Ltd.:
The AO disallowed the license fees paid to RPG Enterprises, questioning the nature of the agreement. The CIT-A allowed the expenditure, referencing earlier Tribunal decisions affirming the payments as business expenses. The Tribunal upheld the CIT-A's decision, noting that the issue was covered by the Hon'ble Calcutta High Court's decision in the assessee's favor.

6. Allowability of unrealized loss on foreign exchange fluctuation:
The AO disallowed the unrealized loss on foreign exchange fluctuation, treating it as notional. The CIT-A allowed the deduction, referencing the Hon'ble Supreme Court's decision in Woodward Governor India Pvt. Ltd. The Tribunal upheld the CIT-A's decision, noting that the issue was covered by the Hon'ble Supreme Court's decision.

7. Deletion of disallowance made on account of book profit under Section 115JB of the Income Tax Act:
The AO disallowed expenses under Section 14A while computing book profit under Section 115JB. The CIT-A deleted the disallowance, finding the assessee's suo motu disallowance reasonable. The Tribunal remanded the matter to the AO to compute disallowance under clause (f) to Explanation 1 of Section 115JB, referencing the Hon'ble Calcutta High Court's decision in CIT Vs. Jayshree Tea Industries Ltd.

8. Deletion of adhoc disallowance made on account of miscellaneous expenses:
The AO disallowed 20% of miscellaneous expenses due to non-furnishing of details. The CIT-A deleted the disallowance, noting no adverse remarks from auditors. The Tribunal partially reversed the CIT-A's decision, restoring the AO's disallowance to 25% of claimed expenses.

9. Deletion of disallowance of Puja & Temple expenses:
The AO disallowed Puja & Temple expenses, questioning their business expediency. The CIT-A allowed the deduction, referencing CBDT instructions and various High Court decisions treating such expenses as welfare measures for employees. The Tribunal upheld the CIT-A's decision, finding no infirmity.

Conclusion:
The Tribunal dismissed the appeal for AY 2009-10 and partly allowed the appeal for AY 2010-11 for statistical purposes.