2017 (3) TMI 1328 - AT - Income Tax

Additional disallowance u/s 14A - Held that - Since then no new investment in shares has been made by the appellant and various loans obtained by the appellant have been utilized for specific purpose of business working capital requirement. We note that Ld. CIT(A) has rightly observed that the assessee s argument have force and it is undisputed that the AO had determined in AY.2006-07, the loan amount of 857.04 lac utilized for investment in shares out of total borrowings of ₹ 4612.12 lac and same has been followed in AY 2007-08 as the quantum of investment in shares remained unchanged. The facts being the same during the year under consideration and the amount of disallowance has already been disallowed by the appellant under Rule 8D(2)(i) of IT Rules as directly attributable expenditure; there remains no justification for making further disallowance under Rule 8D(2)((ii) of IT Rules. Thus, total disallowance u/s 14A of the Act comes at ₹ 1,11,21,08l/-. Thus, out of total addition on account of disallowance of ₹ 5,35,65,500/- made by the AO uls 14A of the Act, an amount of ₹ 92,88,538/- (Rs. 1,11,21,08l - 18,32,543) only was rightly sustained and the assessee gets the consequential relief, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on the issue in dispute and accordingly, we dismiss the ground nos. 1 & 2 raised by the Revenue. Disallowance of prior period expenses - Held that - The perusal of the invoice shows that the appellant company purchased the raw material through this invoice which is dated 11.03.2007. The same had been reportedly sent from Kochi (Kerala) to Chennai factory of appellant company. As per the invoice, the said raw material was delivered to the assessee company on 30.04.2007, as certified by the representative of the authorized carrier. This fact has been recorded at part II, S1. No. 43/30/4/07, which has been reflected on the face of the invoice itself. The AO has not given any reason to disbelieve the invoice after acknowledging the same. From the documents, it is clear that the raw material was received during the current year, even if it was bought on 28.03.2007. As the liability got crystallized during the current year, such expenses are very much allowable as held by various courts, relied upon by the assessee in its submissions. Regarding the remaining expenses of prior period viz. Godown Rent, Repair and Maintenance and Freight on Sales, no documentary evidences in support of the claim that the liability got crystallized during the current year have been filed by the assessee and therefore, the AO was justified in disallowing the same. Therefore, the assessee gets a relief of ₹ 12,32,814/- out of total addition of ₹ 51,81,578/-, which does not need any interference on our part, therefore, we uphold the order of the Ld. CIT(A) on the issue in dispute and accordingly, we dismiss the ground no. 3 raised by the Revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Computation under Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Income Tax Rules, 1962.
3. Prior period expenses.

Detailed Analysis:

Issue 1: Disallowance under Section 14A of the Income Tax Act, 1961
The Revenue challenged the Ld. CIT(A)'s decision to restrict the disallowance under Section 14A to ?92,88,538/- and grant relief of ?4,42,76,962/- to the assessee. The Ld. CIT(A) had elaborately discussed this issue, noting that the disallowance was made by the AO after invoking Rule 8D(2)(ii) and 8D(2)(iii). The AO observed no direct expenses related to investments yielding exempt dividend income. The Ld. CIT(A) considered the historical context, where the quantum of investments had remained unchanged since AY 2005-06, and the proportionate interest expenses had been consistently disallowed. The Ld. CIT(A) found no justification for further disallowance under Rule 8D(2)(ii) as the amount had already been disallowed under Rule 8D(2)(i). Consequently, the Ld. CIT(A) sustained a disallowance of ?92,88,538/- out of the total addition of ?5,35,65,500/-. The Tribunal upheld this decision, dismissing the Revenue's grounds on this issue.

Issue 2: Computation under Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Income Tax Rules, 1962
The Revenue contended that the Ld. CIT(A) erred in deleting the disallowance computed under Rule 8D(2)(ii) amounting to ?5,14,64,000/- and accepting the assessee's working of ?71,86,533/- under Rule 8D(2)(i). The Ld. CIT(A) noted that the AO had determined the loan amount utilized for investment in shares out of total borrowings in previous assessment years and that the facts remained unchanged. The Ld. CIT(A) concluded that there was no justification for further disallowance under Rule 8D(2)(ii) as the amount had already been disallowed under Rule 8D(2)(i). The Tribunal agreed with the Ld. CIT(A)'s findings and dismissed the Revenue's grounds on this issue.

Issue 3: Prior Period Expenses
The Revenue challenged the Ld. CIT(A)'s deletion of the addition of ?12,32,814/- being prior period expenses. The assessee had claimed prior period expenses in a revised return, supported by an invoice from M/s Fertilizers & Chemicals Travancore Ltd. The AO disallowed the entire claim due to lack of documentary evidence for other expenses like Godown Rent, Repairs and Maintenance, and Freight on Sales. The Ld. CIT(A) found that the invoice clearly showed the raw material was received during the current year, thus crystallizing the liability. The Ld. CIT(A) allowed the expense of ?12,32,814/- but upheld the disallowance of other expenses due to lack of evidence. The Tribunal upheld the Ld. CIT(A)'s decision, dismissing the Revenue's ground on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Ld. CIT(A)'s decisions on all issues. The Ld. CIT(A)'s detailed and reasoned findings were found to be justified and did not require interference. The order was pronounced in the Open Court on 27/03/2017.