2017 (6) TMI 591 - AT - Income Tax

Short term capital loss - Held that - We find the Hon ble Delhi High Court in the case of Shambhu Mercantile Ltd 2009 (2) TMI 478 - Delhi High Court has held that the conditions prescribed in clauses (a) to (c) of sub-section (7) of section 94 are cumulative in nature. Accordingly, it has been held that it is only when the transaction of purchase and sale is in relation to a security or a unit in respect of which dividend or income received is exempt and it is within stipulated period of three months as prescribed in clauses (a) and (b) of section 94(7) of the Act, the loss, if any, would stand disallowed to the extent of dividend or income received or receivable on such securities or units in computing assessee s income chargeable to tax. Similar view has been taken by the Hon ble Bombay High Court in the case of Smt. Alka Bhonsle 2010 (6) TMI 16 - BOMBAY HIGH COURT . So far as the argument of the ld. DR that FIFO is not an acceptable principle is concerned, we find the CBDT itself vide Circular No. 768 dated 24.06.1998 has held that FIFO is an accepted method. Under these circumstances and in view of the detailed order passed by the ld. CIT(A) on this issue, we find no infirmity in the same. Accordingly, the same is upheld and Ground No. 1 raised by the Revenue is dismissed. Addition to difference between the figures reported to the Sales Tax authorities and the figures as per the Income-tax return - Held that - We find the ld. CIT(A) deleted such addition on the ground that the assessee is following this method consistently and such difference has already been disclosed in the return filed for subsequent year. We do not find any infirmity in the order of the ld. CIT(A) on this issue. The submission of the ld. counsel for the assessee that the assessee is consistently following this method of accounting and the difference between the value of stock declared to Sales Tax authorities and the Income-tax authorities are offered to tax in the subsequent years could not be controverted by the ld. DR. Under these circumstances and in view of the detailed reasoning given by the ld. CIT(A), we do not find any infirmity in his order deleting the addition by following the rule of consistency. The ground raised by the Revenue is accordingly dismissed. Claim of deduction u/s 80IA - captive power plant of the assessee - Held that - From the order of the Assessing Officer, it is not clear as to whether he wanted to allow 10% deduction on the total turnover or sustained the same. In the end, the Assessing Officer herein has made addition of ₹ 13.72 crores towards disallowance of deduction claimed under Chapter VIA. From the various details furnished by the assessee in the paper book as well as copy of order of the ld. CIT(A), we find under identical facts and circumstances of the case, the Assessing Officer had allowed similar claim in the preceding year. Submission of the assessee that assets which were purchased out of borrowings were liquidated in the previous years could not be controverted by the ld. DR. Under these circumstances and in view of the detailed order passed by the ld. CIT(A) on this issue, we find no infirmity in his order. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed. Addition towards late deposit of employee s contribution of ESI - Held that - Various benches of the Tribunal are consistently taking the view that if the employee s contribution towards PF and ESI etc are deposited with the concerned authorities before the due date of filing return, then there cannot be any disallowance u/s 43B of the Act. Since the assessee in the instant case has made such deposit before the due date of filing of the return, therefore, the ld. CIT(A) was fully justified in deleting the disallowance made by the Assessing Officer. - Decided against revenue Addition on ad-hoc basis u/s 14A - Held that - Although, there is no disallowance of interest expenditure for earning tax-free dividend income, however, it cannot be said that no administrative expenditure has been incurred for earning the tax-free income of ₹ 3,60,000/- on the investment of ₹ 15,00,000/-. Since the dividend income is on account of investment in Magnum Global Fund of ₹ 15,00,000/-, therefore, considering the totality of the facts of the case, disallowance of ₹ 50,000/- on ad-hoc basis under the facts and circumstances of the case appears to be on higher side. Although, the ld. counsel for the assessee submitted that no disallowance has been made in the past, however, it was not brought to our notice as to whether the disallowance was not made in scrutiny assessment or summary assessment. Considering the totality of the facts of the case, disallowance of ₹ 25,000/- under the facts and circumstances of the case, in our opinion, will meet the ends of justice. Addition as interest from temporary deployment of surplus loan funds and not allowing it to be reduced from the total interest cost of the loan funds - Held that - We find the Hon ble Supreme Court in the case of Rajendra Prasad Mody 1978 (10) TMI 133 - SUPREME Court has held hat expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income is an allowable deduction. Following the above decision, we are of the considered opinion that assessee should be given due credit for interest expenditure incurred for earning such interest income. Accordingly, the alternate submission of the assessee is allowed. The Assessing Officer is directed to verify the amount of expenditure apportioned for the investment required for earning such interest income.

Summary

Issues Involved:
1. Short term capital loss on sale of Tata Guilt Securities Fund units.
2. Recognition of sales for accounting purposes.
3. Deduction under section 80IA for captive power plant.
4. Late deposit of employee’s contribution to ESI.
5. Disallowance under section 14A for earning exempt income.
6. Taxability of interest income from temporary deployment of surplus loan funds.
7. Deduction under section 80G for donations.

Issue-wise Detailed Analysis:

1. Short Term Capital Loss on Sale of Tata Guilt Securities Fund Units:
The Revenue contested the CIT(A)'s decision to allow the assessee's claim of short term capital loss of ?1,84,48,188 on the sale of Tata Guilt Securities Fund units, arguing that the provisions of section 94(8) of the Income Tax Act were not considered. The assessee had invested ?4 crores in the fund and was allotted bonus units at a 1:1 ratio, resulting in a total of 37.96 lakh units. The sale of 18.98 lakh units for ?2,03,61,324 was accounted for at the original cost, leading to a declared loss. The CIT(A) deleted the addition made by the AO, stating that the FIFO method used by the assessee was acceptable and directed verification for AY 2007-08. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the application of FIFO and the non-applicability of section 94(8) as the conditions were not met.

2. Recognition of Sales for Accounting Purposes:
The AO added ?19.51 crores to the assessee's income, citing discrepancies between sales reported to Sales Tax Authorities and those declared in the IT return. The assessee argued that the difference was due to the accounting method consistently followed, where goods lying at the port were shown at cost and later at enhanced value. The CIT(A) deleted the addition, emphasizing the rule of consistency and referencing the Supreme Court's decision in Radhasoami Satsang v. CIT. The Tribunal upheld the CIT(A)'s decision, noting the consistent accounting method and the subsequent year's disclosure of the difference.

3. Deduction Under Section 80IA for Captive Power Plant:
The AO reduced the deduction claimed under section 80IA for captive power plants from ?26.07 crores to 10% of the turnover, citing inflated profits due to non-accounting of interest and low administrative expenses. The CIT(A) allowed the full claim, referencing government communications and the settled law that captive use does not disqualify eligibility. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's separate books of account and consistent method of accounting were not effectively challenged by the Revenue.

4. Late Deposit of Employee’s Contribution to ESI:
The AO added ?5329 as income due to delayed deposit of ESI contributions. The CIT(A) allowed the deduction, stating that deposits made before the due date of filing the return should not be disallowed. The Tribunal upheld the CIT(A)'s decision, aligning with the consistent view of various Tribunal benches that timely deposits before the return filing date negate disallowance under section 43B.

5. Disallowance Under Section 14A for Earning Exempt Income:
The AO made an ad-hoc disallowance of ?50,000 under section 14A for earning exempt dividend income. The CIT(A) upheld the disallowance, deeming it reasonable. The Tribunal, while recognizing that some administrative expenses must have been incurred, reduced the disallowance to ?25,000, considering it more appropriate under the circumstances.

6. Taxability of Interest Income from Temporary Deployment of Surplus Loan Funds:
The AO added ?6,11,95,775 as income from other sources, which was interest earned from temporary deployment of surplus loan funds for the Orissa Project. The CIT(A) upheld this addition. The Tribunal, while agreeing with the taxability of the interest income, allowed the assessee's alternate contention for deduction of related interest expenditure under section 57(iii), directing the AO to verify the expenditure amount.

7. Deduction Under Section 80G for Donations:
The assessee did not press this ground of appeal, and the Tribunal dismissed it as not pressed.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on most issues, emphasizing the principles of consistency, appropriate application of accounting methods, and compliance with statutory provisions. The Tribunal provided partial relief to the assessee on the disallowance under section 14A and allowed the deduction of interest expenditure related to taxable interest income. The appeal by the Revenue was dismissed, and the appeal by the assessee was partly allowed for statistical purposes.