2018 (4) TMI 400 - AT - Income Tax

Disallowance on account of pollution control fees paid for a period of three years - nature of expenditure - revenue or capital expenditure - Held that - Even though the expenditure of ₹ 30,000/- in question incurred by the assessee for getting pollution control certificate for three years had an enduring benefit, the same by its very nature was revenue. Therefore, find merit in the arguments of the learned counsel for the assessee that the said expenditure having been incurred in the revenue field and not in the capital, is allowable as deduction. The disallowance to be deleted. Disallowance of share transaction expenses - claim of the assessee for deduction on account of share transaction expenses is deserved to be considered by the A.O. under the head capital gains and the A.O. may accordingly be directed to consider the same on merit - Held that - Direct the A.O. to consider the claim of the assessee for deduction on account of share transaction expenses alternatively under the head capital gain on merit. Ground No. 2 of the assessee s appeal is accordingly treated as allowed. Addition on account of non-payment of provident fund dues - Held that - As contended that the entire provident fund collected during the year under consideration upto February, 2002 was fully paid by the assessee and only the provident fund collected during the March was outstanding as on 31.03.2002 which was also paid in time on 08.04.2002. Also that this factual position can be verified by the A.O. from the documentary evidence available with the assessee-company and matter may be sent back to the A.O. for such verification. Thus find merit in this contention of the learned counsel for the assessee and since the learned DR has not raised any objection in this regard, restore this issue to the file of the A.O. for deciding the same afresh. Disallowance of cultivation expenses - Held that - This matter requires verification by the A.O. keeping in view that there is a specific observation recorded by the A.O. in the assessment order that no such documentary evidence was produced by the assessee to show that the expenditure in question on cultivation was incurred for the existing plantation and not for any extension. I find merit in this contention of the learned DR. This issue is accordingly restored to the file of the A.O. for deciding the same afresh. Not treating 40% of its interest income as income from the business of cultivation and manufacture of tea under Rule 8 of Income Tax Rules, 1963 - Held that - Although the learned counsel for the assessee has made an attempt to contend some of the deposits on which the interest income in question had been earned by the assessee were made for the purpose of business, find merit in the contention of the learned DR that interest income received by the assessee on deposits cannot be held to be eligible for the benefit of Rule 8 as the same was not the result of integrated activity of cultivation and manufacture of tea carried on by the assessee-company. Therefore, find no merit in Ground raised by the assessee in this appeal and dismiss the same. Addition u/s 14A - Held that - It would be fair and reasonable to restrict the said disallowance to 5% of the dividend income earned by the assessee

Summary

Issues Involved:
1. Disallowance of pollution control fees treated as capital expenditure.
2. Disallowance of share transaction expenses under capital gains.
3. Disallowance of provident fund dues.
4. Disallowance of cultivation expenses.
5. Treatment of interest income related to tea business.
6. Disallowance under section 14A for dividend income.

Analysis:

Issue 1 - Disallowance of Pollution Control Fees:
The dispute centered around the disallowance of ?30,000 by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax Appeals (CIT(A)) regarding pollution control fees treated as capital expenditure. The Appellate Tribunal found that the expenditure, though providing an enduring benefit, was revenue in nature. The tribunal allowed the appeal, stating that the expenditure was incurred in the revenue field and not in capital, hence deductible.

Issue 2 - Disallowance of Share Transaction Expenses:
The A.O. disallowed ?48,848 share transaction expenses, considering them ineligible under capital gains. The tribunal directed the A.O. to reconsider the claim under capital gains, allowing the appeal for further consideration.

Issue 3 - Disallowance of Provident Fund Dues:
A disallowance of ?6,85,314 for non-payment of provident fund dues was challenged. The tribunal found discrepancies in the A.O.'s conclusion, directing a re-verification of the claim by the A.O. The issue was restored for fresh assessment.

Issue 4 - Disallowance of Cultivation Expenses:
The A.O. disallowed ?14,94,668 cultivation expenses, treating them as capital in nature due to lack of evidence. The tribunal directed a reassessment by the A.O. based on documentary evidence submitted by the assessee.

Issue 5 - Treatment of Interest Income:
The A.O. taxed the entire interest income, rejecting the claim under Rule 8 for tea business. The tribunal upheld the A.O.'s decision, stating that interest income from deposits did not qualify under Rule 8.

Issue 6 - Disallowance under Section 14A:
Dispute arose over a ?7,09,093 dividend income claimed exempt under section 10(33), with a disallowance of ?1,59,845 under section 14A. The tribunal found the disallowance excessive and unreasonable, directing the A.O. to re-compute the disallowance to 5% of the dividend income earned.

In conclusion, the tribunal partly allowed the appeal, addressing various disallowances and directing reassessments for some issues.