2018 (10) TMI 1288 - AT - Income Tax

Disallowance of interest in respect of advances to companies / other concerns - Held that - The issue of disallowance of interest in respect of advances to companies / other concerns has been subject matter of deliberation from AYs 1993-94 to 2001-02 where the ITAT, after considering relevant submissions and by following the judgement of Hon ble Supreme Court in the case of S.A. Builders vs CIT 2006 (12) TMI 82 - SUPREME COURT has restored the matter to the file of the AO for fresh consideration. We set aside the issue to the file of the AO to be considered afresh. Adjustment to closing stock of finished goods - Held that - We direct the AO to make suitable adjustments towards opening stock in respect of Modvat adjustment made to closing stock of finished goods. Disallowance of pooja expenses - Held that - Since, the facts involved in this year are identical to the facts which have been considered by the ITAT for earlier assessment years, by following the Tribunal s order in assessee s own case, we decide the issue in favour of the assessee and direct the AO to delete disallowance made towards disallowance of pooja expenses. Payments to relatives of deceased employees to be allowed. Disallowance of expenditure in relation to exempt income u/s 14A - Held that - We find that the co-ordinate bench has considered similar issue for AY 2001-02 wherein by following the decision of Hon ble jurisdictional High Court in the case of Godrej & Boyce Mfg Co Ltd 2010 (8) TMI 77 - BOMBAY HIGH COURT has restored the matter back to the file of the AO for fresh consideration. Disallowance of loss on compensation of enforcement of security - deduction u/s 37(1) claimed - Held that - We do not find any merit in the findings of the AO for the reason that the AO has not denied the fact that the assessee has borrowed loan from M/s ILFS for the purpose of its business. In the process, the assessee has pledged NOCIL shares held by two of its subsidiary companies with the lender for security of loan. As per the contractual agreement between the parties, the assessee has reimbursed loss incurred by two subsidiary companies. Therefore, said loss is incurred wholly and exclusively in connection with the business of the assessee and accordingly, the AO was incorrect in disallowing loss on account of compensation on enforcement of security. Loss claimed by the assessee the assessee has arrived at a loss by taking into account the price of shares of NOCIL as on the date of pledging such shares with ILFS and reduced from the sale price of shares, then the total loss claimed by the assessee can be allowed in total. The facts are not clear. Though the assessee has filed copies of returns filed by two subsidiary companies for AY 2002-03, on perusal of statement of long term capital loss computed by the companies, it appears that the companies have applied the benefit of indexation to arrive at a loss. Therefore, we are of the considered view that the issue needs to be reexamined by the AO for the limited purpose of verification of facts with regard to computation of loss arrived at by the parties in terms of their agreement. Accordingly, we set aside the issue to the file of the AO and direct him to cause necessary enquiries in the light of our discussion hereinabove, after providing reasonable opportunity of hearing to the assessee. Appeal filed by the assessee is partly allowed, for statistical purpose.

Summary

Issues Involved:

1. Disallowance of interest in respect of advances to companies/other concerns.
2. Valuation of closing stock.
3. Disallowance of pooja expenses.
4. Disallowance of payments to relatives of deceased employees.
5. Disallowance under section 14A.
6. Non-exclusion of CFC grant from total income.
7. Disallowance of loss on compensation on enforcement of security.
8. Penalty and fine.
9. Interest under section 244A.
10. Grounds not decided/adjudicated.

Issue-wise Detailed Analysis:

1. Disallowance of Interest in Respect of Advances to Companies/Other Concerns:
The assessee objected to the disallowance of interest amounting to ?2,25,14,307 on advances to various companies. The ITAT noted that this issue had been deliberated in earlier years (AYs 1993-94 to 2001-02) and was consistently set aside to the AO for fresh consideration in light of the Supreme Court judgment in S.A. Builders vs CIT (288 ITR 1). The ITAT directed the AO to reconsider the issue following the precedent set in earlier years.

2. Valuation of Closing Stock:
The assessee challenged the addition of ?25,00,000 on account of excise duty in the valuation of closing stock of finished goods. The ITAT observed that the issue was covered against the assessee by its own case for AY 2001-02, where the addition was upheld but with a direction to adjust the opening stock of the next year. The ITAT directed the AO to make suitable adjustments to the opening stock in respect of Modvat adjustment.

3. Disallowance of Pooja Expenses:
The ITAT noted that the disallowance of ?1,63,210 for pooja expenses was considered in earlier years (AY 2001-02 and AY 1998-99) and decided in favor of the assessee. Following the precedent, the ITAT directed the AO to delete the disallowance.

4. Disallowance of Payments to Relatives of Deceased Employees:
The ITAT observed that similar disallowance was allowed in favor of the assessee in earlier years (AY 2001-02). The ITAT directed the AO to allow the payments made to relatives of deceased employees, following the precedent set in earlier years.

5. Disallowance under Section 14A:
The ITAT noted that the issue of disallowance under section 14A was deliberated in earlier years (AY 2001-02) and set aside to the AO for fresh consideration in light of the Bombay High Court judgment in CIT vs Godrej & Boyce Mfg Co Ltd (320 ITR 81). The ITAT directed the AO to ascertain the correct facts and determine the exact expenditure incurred in relation to exempt income.

6. Non-exclusion of CFC Grant from Total Income:
The ITAT did not provide specific details on this issue in the judgment.

7. Disallowance of Loss on Compensation on Enforcement of Security:
The assessee claimed a loss of ?7,15,39,300 on account of compensation for enforcement of security. The AO disallowed the loss, considering it capital in nature. The ITAT examined the facts and concluded that the loss was incurred wholly and exclusively for business purposes. However, the ITAT directed the AO to verify the computation of the loss, particularly whether it was based on the cost of shares as on the date of pledging or the indexed cost. The issue was set aside to the AO for re-examination.

8. Penalty and Fine:
The ITAT did not provide specific details on this issue in the judgment.

9. Interest under Section 244A:
The ITAT did not provide specific details on this issue in the judgment.

10. Grounds Not Decided/Adjudicated:
The ITAT did not provide specific details on this issue in the judgment.

Conclusion:
The ITAT partly allowed the appeal, setting aside several issues to the AO for fresh consideration and directing adjustments as per the precedents set in earlier years. The judgment emphasized adherence to established legal principles and thorough verification of facts.