2017 (12) TMI 1531 - HC - Income Tax

ADMIT question A Whether the Income Tax Appellate Tribunal was justified in law and on facts in deleting the disallowance of ₹ 30,27,85,170/- made on account of loss claimed due to cancellation of forward contract? Disallowance of unexplained capital introduced by the partners - Held that - In the opinion of this court, when the unexplained capital had been introduced by the partners, such unexplained addition could only be made in the hands of the partner. Therefore, no infirmity can be found in the view adopted by the Tribunal so as to give rise to a question of law. Disallowance on account of foreign travel expenses - AO had disallowed travel expenses only on the ground that Sapin Shah and Priyanka Shah were not partners of the firm - Tribunal has observed that it was true that Mr. Sapin Shah and Ms. Priyanka Shah were not partners of the assessee firm, but it was also true that they were employees of the firm who had travelled abroad for the purposes of the business of the assessee - Held that - The Tribunal correctly noted that the assessee had filed details of sales made at Hong Kong and Dubai in respect of its foreign travel expenditure and was of the view that merely because the two persons who went abroad were not partners of the assessee firm, would not justify the disallowance. In the opinion of this court, having regard to the findings of fact recorded by it, no infirmity can be found in the reasoning adopted by the Tribunal. Disallowance u/s 40(a)(ia) - Tribunal held that the Commissioner (Appeals) had rightly deleted the disallowance after reconciling the tax deducted at source amount with the quantum on which the tax had been deducted at source. Since the conclusion arrived at by the Tribunal is based upon a finding of fact, the same does not give rise to any question of law. Disallowance on account of labour charges - AO disallowed on the ground that in spite of fall in the turnover, the labour charges were found to be higher than the previous year and made disallowance of 5% of the total labour charges claimed by the assessee - Held that - The Tribunal correctly found that the assessee had deducted labour charges of ₹ 23.22 crore during the year under consideration as compared to ₹ 22.75 crore incurred in the immediately preceding year and further found that the rise in the labour expenses is only to the tune of ₹ 47 lakh which was higher by 2% from the expenses incurred in the immediately preceding assessment year and was of the opinion that this by itself could not be a reason for making the disallowance and confirmed the deletion made by the Commissioner (Appeals). Having the Assessing Officer has made the disallowance only on the basis of presumption, no question of law can be said to arise in respect of this issue.

Summary

Issues:
1. Disallowance of loss claimed due to cancellation of forward contract.
2. Disallowance of unexplained capital introduced by partners.
3. Disallowance of foreign travel expenses.
4. Disallowance made under section 40(a)(ia) of the Income Tax Act, 1961.
5. Disallowance of labour charges.

Analysis:

1. Disallowance of loss claimed due to cancellation of forward contract:
The Tribunal deleted the disallowance of ?30,27,85,170 made on account of loss claimed due to cancellation of forward contract. The High Court admitted the substantial question of law regarding the justification of the Tribunal's decision. The issue was thoroughly examined, and the Tribunal's decision was upheld as legally sound and justified.

2. Disallowance of unexplained capital introduced by partners:
The Tribunal deleted the disallowance of ?2,69,00,000 made on account of unexplained capital introduced by the partners. The High Court concurred with the Tribunal's reasoning that if unexplained capital was introduced by the partners, the addition should be made in the hands of the partners, not the firm. Citing relevant precedents, the High Court found no infirmity in the Tribunal's decision, leading to the rejection of this proposed question.

3. Disallowance of foreign travel expenses:
The disallowance of ?7,43,852 made on account of foreign travel expenses was deleted by the Tribunal. The High Court agreed with the Tribunal's findings that the travel expenses were for business purposes, even though the individuals were not partners of the firm. The Court upheld the Tribunal's decision, emphasizing that the disallowance was not justified based on the facts presented.

4. Disallowance made under section 40(a)(ia) of the Income Tax Act, 1961:
The disallowance of ?2,51,91,060 under section 40(a)(ia) was deleted by the Tribunal after reconciling the tax deducted at source with the quantum on which tax was deducted. The Commissioner (Appeals) and Tribunal both found no discrepancy in the tax deductions, leading to the deletion of the disallowance. The High Court upheld this decision, stating that no question of law arose from the factual findings.

5. Disallowance of labour charges:
The disallowance of ?1,16,10,000 made on account of labour charges was deleted by the Tribunal. The Commissioner (Appeals) and Tribunal found that the increase in labour charges was justified due to higher quantity of rough diamonds issued for manufacturing. The High Court concurred with the findings, stating that the disallowance was based on presumption without logical basis, and no question of law arose. The proposed question related to this issue was disallowed.

In conclusion, the High Court analyzed each issue comprehensively, upholding the Tribunal's decisions in most cases due to sound legal reasoning and factual findings. The proposed questions were rejected where no legal infirmity was found, ensuring a thorough examination of the tax matters presented in the appeal.