2017 (3) TMI 1161 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - Held that - We find that in the case of Dhanuka & Sons (2011 (4) TMI 861 - CALCUTTA HIGH COURT) had categorically held that even though the investments were made in the earlier years, the onus is on the assessee to prove that in those respective years, the investments were made out of own funds and no borrowed funds were utilized for the same. Hence we set aside this aspect of the issue to the file of the ld AO with a direction to the ld AO to produce the earlier year records to prove that the investments in earlier years were indeed made out of own funds. If the same is found to be correct, then no disallowance under Rule 8D(2)(ii) of the Rules towards proportionate interest would operate. We direct the ld AO accordingly. In respect of disallowance made towards administrative expenses under Rule 8D(2)(iii) of the Rules, we hold that the co-ordinate bench of this tribunal in the case of REI Agro Ltd supra had held that only dividend bearing investments should be taken into account for the purpose of working out the disallowance under Rule 8D(2)(iii) of the Rules. We direct the ld AO accordingly. Hence the Grounds raised by the assessee in this regard are partly allowed for statistical purposes. Repairs and maintenance - Allowable of business expenditure - Held that - The expenditure incurred towards repairs and maintenance supra would be squarely allowable as revenue expenditure and the ld AO is hereby directed to delete the disallowance. Legal and professional charges disallowance - Held that - We find that the lower authorities had disallowed the said expenses of legal and professional charges incurred on these three parties on the basis that the assessee had not been able to produce any corroborative evidences to prove that the assessee had availed professional services from the said parties for the purpose of the business. We find that the aforesaid additional evidences would be very crucial to adjudicate the issue under dispute and accordingly we admit these additional evidences and since the same was not available before the lower authorities, we deem it fit and appropriate to set aside this issue to the file of the ld AO to decide the same afresh in the light of the additional evidences filed herein and in accordance with law TDS u/s 192 - Held that - Since there existed an employer-employee relationship, the same is liable for deduction of tax u/s 192 of the Act and assessee also produced copy of employment letter and Form 16 issued to those employees. The ld CIT(A) observed that these persons were employed as Service Engineer and Design Manager on a contractual basis for the period of 2 years and they have been issued Form 16 by the assessee treating them as salaried employee. Hence TDS u/s 192 of the Act alone is attracted and hence no disallowance u/s 40(a)(ia) of the Act could be attracted in the instant case Disallowance of additional depreciation on windmill - Held that - Hon ble Madras High Court in the case of CIT vs Texmo Precision Castings (2009 (10) TMI 140 - MADRAS HIGH COURT ) and CIT vs Hi Tech Arai Ltd (2009 (9) TMI 60 - MADRAS HIGH COURT ) wherein it was held that as far as application of section 32(1)(iia) of the act is concerned, what is required to be satisfied in order to claim the additional depreciation is that a new machinery or plant should have been acquired and installed after 31st March 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of new machinery or plant, which was acquired or installed after 31st March 2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Accordingly the court held that the contention that the setting up of windmills has nothing to do with industry of manufacturing of oil seed is totally not germane to the specific provisions contained in section 32(1)(iia) of the Act. The ld CIT(A) appreciated these submissions of the assessee and respectfully following the decisions supra, correctly deleted the disallowance of additional depreciation on windmill. Deduction in respect of TDS recoverable written off and advance to suppliers written off - Held that - We find that the assessee had filed the list of parties to whom advances were given in the ordinary course of its business i.e. advance paid to suppliers , in the form of additional evidences which, in our considered opinion, would have to be admitted for better appreciation of the facts. However, we find that the same had not been examined by the lower authorities. Hence in the interest of justice and fair play, we deem it fit and appropriate, to set aside this aspect of the issue to the file of the ld AO to examine those additional evidences and if it is found that the said advances were given in the normal course of business of the assessee, then the same would have to be allowed as a trading loss u/s 28 of the Act as admittedly the same were written off in the books by the assessee. The assessee has to prove the fact of irrecoverability of the said advances to the ld AO. With regard to allowability of TDS recoverable written off since the recoverability arose only in the form of collection of TDS certificates, it goes beyond doubt that the assessee had offered the same as income in the earlier years as admittedly the TDS would be relatable to income only. Moreover, we hold that there is no requirement to satisfy the test of offering of income in the earlier years in terms of section 36(2) of the Act as the subject mentioned issue is not towards bad debts but only bad advances written off. Hence, the allowability of the same would be governed by the provisions of section 28 of the Act. The assessee in the instant case had written off the TDS portion due to non-availability of the same and hence it becomes a trading loss u.s 28 of the Act as to that extent, it had neither received the money nor the TDS certificate. Hence it becomes a trading loss allowable u/s 28 of the Act.

Summary

Issues Involved:
1. Delay in filing the appeal by the revenue.
2. Disallowance under Section 14A of the Income-tax Act.
3. Disallowance of provision for leave encashment.
4. Disallowance of expenditure incurred for repairs and maintenance.
5. Claim of additional depreciation on plant and machinery.
6. Disallowance of legal and professional charges.
7. Disallowance under Section 40(a)(ia).
8. Addition towards retention money.
9. Disallowance of additional depreciation on windmill.
10. Disallowance of additional depreciation on machinery.
11. Disallowance of TDS recoverable and advances written off.

Detailed Analysis:

1. Delay in Filing the Appeal by the Revenue:
The tribunal condoned the delay of 8 days in filing the appeal by the revenue in ITA No. 1575/Kol/2011 for the Assessment Year (AY) 2008-09, admitting the appeal for adjudication.

2. Disallowance under Section 14A of the Income-tax Act:
The assessee contested the disallowance of ?2,73,558 for AY 2008-09 and ?1,73,862 for AY 2009-10 under Section 14A read with Rule 8D. The tribunal directed the Assessing Officer (AO) to verify if the investments in earlier years were made out of own funds. If proven, no disallowance under Rule 8D(2)(ii) would apply. For disallowance under Rule 8D(2)(iii), only dividend-bearing investments should be considered. The grounds were partly allowed for statistical purposes.

3. Disallowance of Provision for Leave Encashment:
The AO disallowed ?11,17,925 for leave encashment under Section 43B(f). The tribunal set aside the issue to the AO to decide based on the Supreme Court's final decision in the case of Exide Industries Ltd. The ground was allowed for statistical purposes.

4. Disallowance of Expenditure Incurred for Repairs and Maintenance:
The AO treated the expenditure of ?1,600,952 as capital in nature. The tribunal, citing various precedents, held that the expenses were revenue in nature and directed the AO to delete the disallowance. The grounds were allowed.

5. Claim of Additional Depreciation on Plant and Machinery:
The assessee did not press this ground during the hearing, and it was dismissed as not pressed.

6. Disallowance of Legal and Professional Charges:
The AO disallowed ?1,68,51,648 for lack of corroborative evidence. The tribunal admitted additional evidence provided by the assessee and set aside the issue to the AO for fresh adjudication. The grounds were allowed for statistical purposes.

7. Disallowance under Section 40(a)(ia):
The AO disallowed ?1,38,409 for short deduction of tax. The tribunal upheld the CIT(A)'s decision that the payments were to employees and TDS under Section 192 was applicable, not Section 194J. The revenue's ground was dismissed.

8. Addition towards Retention Money:
The AO added ?9,56,450 for AY 2008-09 and ?3,09,09,437 for AY 2009-10 as retention money. The tribunal admitted additional evidence showing the offer of retention money in subsequent years and set aside the issue to the AO for verification. The grounds were allowed for statistical purposes.

9. Disallowance of Additional Depreciation on Windmill:
The AO disallowed ?79,69,231 as additional depreciation on windmill. The tribunal upheld the CIT(A)'s decision, citing the Madras High Court's rulings that additional depreciation is allowable irrespective of the asset type. The revenue's ground was dismissed.

10. Disallowance of Additional Depreciation on Machinery:
The AO disallowed ?10,51,944 for not proving the increase in installed capacity. The tribunal upheld the CIT(A)'s decision that the condition for increased capacity was dispensed with by Finance Act 2005. The revenue's ground was dismissed.

11. Disallowance of TDS Recoverable and Advances Written Off:
The AO disallowed ?31,48,061, including TDS recoverable and advances written off. The tribunal admitted additional evidence for advances written off and set aside the issue to the AO for verification. The tribunal also allowed the TDS recoverable as a trading loss under Section 28. The grounds were allowed for statistical purposes.

Conclusion:
The appeals of the assessee in ITA No. 2776/Kol/2011 for AY 2008-09 and ITA No. 927/Kol/2013 for AY 2009-10 were partly allowed for statistical purposes. The appeal of the revenue in ITA No. 1575/Kol/2011 for AY 2008-09 was also partly allowed for statistical purposes.