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2022 (5) TMI 1465 - AT - Income TaxService Tax Claim - claim denied on the ground that the said demand was related to earlier years and the said Service Tax liability of the assessee or the recipient was on that point of time disputed by the parties - AO has not taken cognisance of the fact that the Service Tax was paid by the assessee during the year under consideration - HELD THAT - The deduction in respect of the Service Tax is statutory liability irrespective of the period to which such liability pertains to. Thus, the assessee is eligible for the deduction of the said amount during the year under consideration. The CIT(A) was right in deleting the said addition and there is no need to interfere with the findings of the CIT(A). Ground no.1 of Revenue s appeal is dismissed. Trade promotion expenses - D.R. submitted that the said expenses are allowable as and when the income is offered and thus the CIT(A) was not right in deleting the same in view of the findings of the Assessing Officer that no evidence was produced before the AO - HELD THAT - The assessee incurred these expenses which are customary practice and the same was allowed in earlier assessment years by the Revenue. These expenses are incurred to maintain cordial and long-lasting relationship with the customers as well as within the business co-ordinator/partners for the benefit of the business. The same are allowable under Section 37 - The said amount is 0.20% compared to assessee s turnover - Thus, the CIT(A) rightly deleted this addition and there is no need to interfere with the findings of the CIT(A). Ground no.2 of Revenue s appeal is dismissed. Nature of expenses - land restoration expenses - revenue or capital expenditure - HELD THAT - The issue is identical in the present assessment year to that of A.Y. 2007-08 wherein the Tribunal has observed that if corresponding income has been offered for tax then corresponding expenses should also be allowed. To that extent the findings of the CIT(A) in assessee s favour for A.Y. 2008-09 is correct. Hence, ground no.3 of Revenue s appeal is dismissed. Employees contribution to PF - HELD THAT - It is pertinent to note that the Hon ble High Court of Gujarat has decided this issue against the assessee in the case of Suzlon Energy Limited 2020 (2) TMI 792 - GUJARAT HIGH COURT Therefore, we are allowing ground no.4 of Revenue s appeal. Bogus purchases - A.R. submitted that the purchases made from the four partiers upon which the CIT(A) observed that the parties are genuine - HELD THAT - It is pertinent to note that the parties were not produced before the Assessing Officer as well as before the CIT(A), but the Assessing Officer also has not issued any notice to call for these parties. The fact also remains that the sales were never disputed and thus purchases were in consonance with the sales made by the assessee. Thus, the deletion of 75% of bogus purchases by the CIT(A) was correct and there is no need to interfere with the findings of the CIT(A). The decision relied by the Ld. A.R. that of Gujarat Ambuja (Export) Limited 2014 (2) TMI 1344 - GUJARAT HIGH COURT is factually distinguishable and hence not applicable in the present case. Ground no.5 of the Revenue s appeal is dismissed. Allowing standard deduction u/s 24(1) - D.R. submitted that treating the rent income as house property income when the assessee has claimed expenses relevant to leased house property as business expenditure amounts to double deduction and, therefore, the AO has rightly made this addition - HELD THAT - CIT(A) has rightly observed that rental income was on account of leasing out part of its business factory building and not of plant and machinery or other equipments. Since the assessee has not changed the head of income at all i.e. rental income as income from house property , the same cannot be changed into income from business and profession in subsequent year. The CIT(A) has rightly deleted the same addition and there is no need to interfere with the findings of the CIT(A). Hence, ground no.6 of Revenue s appeal is dismissed. Disallowance under Section 36(1)(iii) - D.R. submitted that the CIT(A) was not correct in directing the Assessing Officer to disallow the interest worked out as per formula given by him as against amount worked out by the Assessing Officer - HELD THAT - It is not disputed by the Revenue that the interest-free funds are lesser than the interest-free advances. The CIT(A) has properly given part relief thereby directing the Assessing Officer to work out the proportionate interest on specific formula envisaged by the CIT(A) in the order. Therefore, there is no need to interfere with the findings of the CIT(A). Ground no.7 of Revenue s appeal is dismissed. Disallowance made in respect of losses on account of reacquisition of assets - A.R. submitted that the assessee sold certain assets in A.Y. 2007-08 declaring profit but the said transaction of sale was never materialised and, therefore, the assessee in assessment year 2008- 09 reversed the said transaction by booking loss of equipment amount - HELD THAT - It is pertinent to note that the fact remains that the actual transaction of sales never took place in A.Y. 2007-08 and, therefore, the reversal was called by the assessee in A.Y. 2008-09 but the assessee has not given the details as to what caused the reversal of entries. Therefore, the said transaction of sale whether happened in A.Y. 2007-08 or in subsequent year that of 2008-09 was not proved by the assessee. CIT(A) has rightly confirmed this addition as such kind of reversal entry is not acceptable in respect of the transaction which has not been proved by the assessee before the Revenue Authorities. Hence, ground no.1 of the assessee s appeal is dismissed. Disallowance being irrecoverable deposit written off in books - HELD THAT - The contentions of the assessee that the said expenses/sum becomes irrecoverable were not disputed by the Revenue Authorities. Therefore, the Assessing Officer as well as the CIT(A) was not correct in treating the same as capital loss. The case laws relied upon by the Ld. A.R. are very much relevant in assessee s case. Ground no.5 of the assessee s appeal is allowed. Disallowance being professional charges - A.R. submitted that the said expenses were wholly and exclusively incurred for the business purpose are revenue in nature - Alternatively, the Ld. A.R. submitted that the assessee is eligible for claiming 1/5th of such expenses under Section 35D - HELD THAT - As pertinent to note that the CIT(A) has not called for any remand report from the AO in connection with the claim of deduction under Section 35D and, merely on technical ground that there is no material available on assessment record, dismissed this claim of the assessee. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication after verifying the evidences produced before the Assessing Officer. Needless to say the assessee be given opportunity of hearing in respect of claim of deduction under Section 35D of the Act. Ground nos.6 7 are partly allowed for statistical purpose. Disallowance u/s 14A - HELD THAT - The investments which were made by the assessee are more than the interest-free funds and the assessee has earned exempt income in the present A.Y. Therefore, as per the various decisions of the jurisdictional High Court as well as by the Apex Court, the disallowance under Section 14A of the Act is not just and proper on the parts of the Assessing Officer and the CIT(A). Ground No.11 of the assessee s appeal is, therefore, allowed.
Issues Involved:
1. Disallowance of loss on account of reacquisition of assets. 2. Disallowance of land restoration expenses. 3. Verification of TDS credit. 4. Disallowance of bogus purchases. 5. Disallowance of irrecoverable deposits written off. 6. Disallowance of professional charges for project appraisal and negotiations. 7. Deduction under Section 35D of the Act. 8. Disallowance of professional charges paid to Axis Bank. 9. Disallowance of dead stock expenses. 10. Disallowance under Section 14A of the Act. 11. Proportionate disallowance under Section 36(1)(iii) of the Act. 12. Deletion of addition related to service tax. 13. Deletion of trade promotion expenses. 14. Treatment of land restoration expenses as revenue expenditure. 15. Deletion of addition related to late payment of employees' contribution to PF. 16. Allowing standard deduction under Section 24(1). 17. Confirming 25% of disallowance of total bogus purchases. 18. Formula for disallowance under Section 36(1)(iii). Detailed Analysis: 1. Disallowance of Loss on Account of Reacquisition of Assets: The assessee claimed a loss of Rs. 21,87,518/- due to the reacquisition of assets, arguing that the sale transaction never materialized and was reversed in the subsequent year. However, the tribunal upheld the CIT(A)'s decision to disallow the loss, as the assessee failed to provide sufficient details to substantiate the reversal of the sale transaction. 2. Disallowance of Land Restoration Expenses: The CIT(A) partly confirmed the disallowance of Rs. 1,07,375/- out of total land restoration expenses of Rs. 43,70,892/-. The tribunal found the issue identical to the previous assessment year, where it was held that if corresponding income is offered for tax, corresponding expenses must be allowed. Thus, the tribunal upheld the CIT(A)'s decision. 3. Verification of TDS Credit: The tribunal noted that the CIT(A) directed the AO to verify the assessee’s claim regarding TDS credit and allow it only to the extent of corresponding income disclosed in the year. This issue was not pressed by the assessee. 4. Disallowance of Bogus Purchases: The CIT(A) partly confirmed the disallowance of Rs. 42,48,117/- (25%) out of total purchases of Rs. 1,69,92,471/-. The tribunal upheld the CIT(A)'s decision, noting that the sales were not disputed, and the purchases were in line with the sales. The tribunal found no need to interfere with the CIT(A)'s findings. 5. Disallowance of Irrecoverable Deposits Written Off: The CIT(A) confirmed the disallowance of Rs. 14,62,818/- being irrecoverable deposits written off. The tribunal allowed the assessee's appeal, stating that the expenses were incurred in the normal course of business and should be allowed as business loss under Section 28 or 37 of the Act. 6. Disallowance of Professional Charges for Project Appraisal and Negotiations: The CIT(A) confirmed the disallowance of Rs. 1,00,00,000/- being professional charges. The tribunal remanded the issue back to the AO for proper adjudication after verifying the evidences produced by the assessee, allowing the assessee's claim for deduction under Section 35D of the Act. 7. Deduction under Section 35D of the Act: The tribunal remanded the issue back to the AO for proper adjudication after verifying the evidences produced by the assessee, allowing the assessee's claim for deduction under Section 35D of the Act. 8. Disallowance of Professional Charges Paid to Axis Bank: The CIT(A) confirmed the disallowance of Rs. 41,54,372/- being professional charges paid to Axis Bank. The tribunal remanded the issue back to the AO for proper adjudication after verifying the evidences produced by the assessee, allowing the assessee's claim for deduction under Section 35D of the Act. 9. Disallowance of Dead Stock Expenses: The CIT(A) confirmed the disallowance of Rs. 6,23,810/- made in respect of dead stock expenses. The tribunal noted that this issue was covered against the assessee in the previous assessment year and dismissed the ground. 10. Disallowance under Section 14A of the Act: The CIT(A) confirmed the disallowance of Rs. 8,74,323/- under Section 14A of the Act. The tribunal allowed the assessee's appeal, noting that the investments made by the assessee were more than the interest-free funds, and the assessee had earned exempt income in the current year. 11. Proportionate Disallowance under Section 36(1)(iii) of the Act: The CIT(A) partly confirmed the disallowance under Section 36(1)(iii), directing the AO to disallow the interest worked out as per a specific formula. The tribunal upheld the CIT(A)'s decision, noting that the interest-free funds were significantly higher than the interest-free advances. 12. Deletion of Addition Related to Service Tax: The CIT(A) deleted the addition of Rs. 56,08,748/- in respect of service tax, noting that the service tax was paid by the assessee during the year under consideration. The tribunal upheld the CIT(A)'s decision, stating that the deduction in respect of service tax is a statutory liability irrespective of the period to which it pertains. 13. Deletion of Trade Promotion Expenses: The CIT(A) deleted the addition of Rs. 24,21,496/- being trade promotion expenses. The tribunal upheld the CIT(A)'s decision, noting that these expenses were customary practice and incurred to maintain cordial relationships with customers and business partners. 14. Treatment of Land Restoration Expenses as Revenue Expenditure: The CIT(A) treated land restoration expenses to the tune of Rs. 42,63,517/- as revenue expenditure. The tribunal upheld the CIT(A)'s decision, noting that the issue was identical to the previous assessment year, where it was held that if corresponding income is offered for tax, corresponding expenses must be allowed. 15. Deletion of Addition Related to Late Payment of Employees' Contribution to PF: The CIT(A) deleted the addition of Rs. 4,66,007/- being employees' contribution to PF. The tribunal allowed the revenue's appeal, noting that the Hon'ble High Court of Gujarat had decided this issue against the assessee in the case of Suzlon Energy Limited. 16. Allowing Standard Deduction under Section 24(1): The CIT(A) allowed standard deduction under Section 24(1), treating the rent income as house property income. The tribunal upheld the CIT(A)'s decision, noting that the rental income was on account of leasing out part of its business and factory building. 17. Confirming 25% of Disallowance of Total Bogus Purchases: The CIT(A) confirmed 25% of the disallowance of total bogus purchases (Rs. 1,69,92,471/-). The tribunal upheld the CIT(A)'s decision, noting that the sales were not disputed, and the purchases were in line with the sales. 18. Formula for Disallowance under Section 36(1)(iii): The CIT(A) directed the AO to disallow the interest worked out as per a specific formula, using the total funds of the company in the denominator. The tribunal upheld the CIT(A)'s decision, noting that the interest-free funds were significantly higher than the interest-free advances. Conclusion: The tribunal partly allowed the appeals of both the revenue and the assessee, remanding certain issues back to the AO for proper adjudication and upholding the CIT(A)'s decisions on other issues. The tribunal emphasized the importance of proper verification and substantiation of claims made by the assessee and the need for adherence to statutory provisions.
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