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2016 (4) TMI 304 - AT - Income TaxDisallowance of prior period expenses - crystallization of expenses in the present year - Held that - As the liability to pay the expenditure crystallized during the assessment year in question. Similarly, in assessment year 2004-05 the payment to employees was made based upon the performance of the employees in the earlier year. The liability crystallized during the assessment year in question, because the working of the incentives based on performance was cleared for payment in the month of July, 2003 which falls during the assessment year under appeal i.e. assessment year 2004-05. Since the liability to pay the expenditure crystallized during the assessment year under appeal, therefore, the learned CIT(A) was justified in deleting the addition. The learned DR has not produced any material contrary to the findings of the learned CIT(A). Thus, the Revenue has failed to rebut the findings of the learned CIT(A). We, therefore, do not find any infirmity in the order of the learned CIT(A) in deleting the disallowance of the expenditure. - Decided in favour of assessee Disallowance u/s 14A - Held that - Looking to the huge base of capital and free reserve and surplus vis- -vis minor investment it can be easily inferred that most probably non-interest bearing funds have been invested in the Investments. Accordingly, we delete the addition made u/s 14A Decided in favour of assessee
Issues Involved:
1. Disallowance of preliminary expenses. 2. Addition of prior period expenses. 3. Disallowance under section 14A of the Income-tax Act. 4. Deduction of employees' contribution to PF/ESIC. 5. Addition to book profit under section 115JB. Issue-wise Detailed Analysis: 1. Disallowance of Preliminary Expenses: - Ground: The assessee did not press this ground during the hearing. - Judgment: The ground was dismissed as not pressed. 2. Addition of Prior Period Expenses: - Ground: The assessee contested the addition of Rs. 4,08,471 on account of prior period expenses, arguing that these expenses crystallized during the year under appeal. - Arguments: The assessee cited brokerage, commission, and professional expenses from FY 2005-06, which were claimed in the current year as they crystallized during this period. - Precedent: The assessee referred to a previous favorable ruling in its own case for AY 2003-04 and 2004-05. - Judgment: The Tribunal found that the expenses were of a revenue nature and had indeed crystallized during the year under appeal. The Tribunal allowed the ground, citing the Supreme Court and High Court precedents that supported the deduction of liabilities accrued during the relevant assessment year. 3. Disallowance Under Section 14A: - Ground: The assessee challenged the Rs. 5,88,998 disallowance made by the Assessing Officer under section 14A read with Rule 8D. - Arguments: The assessee argued that Rule 8D, inserted by the IT (Vth Amendment) Rules on 24.3.2008, was not applicable for AY 2007-08. It was further contended that the investments were made from the company's capital and reserves, not borrowed funds. - Judgment: The Tribunal agreed with the assessee, noting that Rule 8D was applicable from AY 2008-09 onwards. The Tribunal found no specific details from the Assessing Officer to justify the disallowance and cited the jurisdictional High Court's decision in CIT vs. Torrent Power Ltd., which held that if sufficient funds are available, disallowance under section 14A is not warranted. The disallowance was deleted. 4. Deduction of Employees' Contribution to PF/ESIC: - Ground: The Revenue contested the CIT(A)'s decision to allow the deduction of employees' contributions to PF/ESIC paid before the due date of filing the return. - Judgment: The Tribunal dismissed the Revenue's appeal based on CBDT Instruction No. 21/2015, which prohibits filing appeals where the tax effect is less than Rs. 10 lakhs. The Tribunal noted that the tax effect in this case was below the threshold and dismissed the appeal. However, it allowed for the possibility of re-verification by the AO if the tax effect was found to be higher or if the case fell within exceptions. 5. Addition to Book Profit Under Section 115JB: - Ground: The Revenue also challenged the deletion of Rs. 5,88,998 from the book profit under section 115JB. - Judgment: Similar to the previous ground, the Tribunal dismissed the appeal due to the low tax effect, adhering to the CBDT instructions. Conclusion: - The assessee's appeal was partly allowed (specifically regarding prior period expenses and disallowance under section 14A). - The Revenue's appeal was dismissed due to the tax effect being below the threshold set by CBDT instructions. Order Pronouncement: - The order was pronounced in the open Court on 2/3/2016.
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