2019 (4) TMI 294 - HC - Income Tax

Diversion of income - disallowance of expenses for transportation of the employees, paid to the Employees' Welfare Trust - Tribunal held that there was force in the version of the assessee that it was only towards the transportation cost of the employees as arranged by the Welfare Trust - HELD THAT - Section 40A(9) permits deduction only in respect of contributions like provident fund, approved superannuation fund and approved gratuity fund as envisaged under the relevant clauses of Section 36 . The 'Employees Welfare Trust' is contended as not an approved one and it does not come within the purview of the statutory prescriptions. In fact, in respect of the transportation of the employees, the Tribunal verified the facts and figures and held that the contribution effected was to an 'approved fund' and further that, the Transportation of the employees would otherwise have had to be undertaken by the assessee company, in terms of the service conditions. This finding also is a question of fact and no substantial question of law is involved. Disallowance of interest and other expenses under section 14A to 0.5% of the total interest and expenditure - HELD THAT - Dis-allowance of the interest worked out by the Commissioner of Income Tax Appeals on the basis of the loan taken and for the period in which it was held. It was after referring to the facts and figures, that a definite finding was rendered by the Tribunal, interdicting disallowance of interest on other expenses to an extent of 0.5% of the total interest and the expenditure. The said aspect is more a question of fact, than any question of law and as such, even if the additional ground and the question of law mooted by the Department are permitted to be raised by allowing the I.A., it will not tilt the balance in any manner projecting any substantial question of law. Loss sustained on IRFC bonds - capital loss OR business loss - version of the Department, with reference to the loss sustained on IRFC bonds is that it is a 'capital loss' and not a business loss - HELD THAT - The verdict passed by the Tribunal, in favour of the assessee under this head is perfectly within the four walls of law and does not warrant any interference, as no substantial question of law is involved. See APOLLO TYRES LTD. VERSUS COMMISSIONER OF INCOME TAX 2002 (5) TMI 5 - SUPREME COURT . Addition u/s 43A - Adjustment of actual cost of capital asset only on settlement of the liability, that is, on actual payment - entitled to claim the deduction due to foreign exchange fluctuation - HELD THAT - he said question is in relation to Section 43A of the I.T. Act. The Court has rendered a finding placing reliance on the verdict passed in APOLLO TYRES LIMITED VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 11, NEW DELHI AND THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1 (1) , ERNAKULAM. 2019 (4) TMI 82 - KERALA HIGH COURT and connected cases, which stands answered against the Department and in favour of the assessee. Scope of remand proceedings - omission of first proviso to clause (ii) of Sub section (1) to Section 32 with effect from 1/4/1996 by finance Act which provided for 100 % depreciation - HELD THAT - The first proviso to Clause (ii) of sub section (1) of Section 32 which provided for 100% depreciation was omitted w.e.f. 01.04.1996 and as such, the remand is bad. This Court is of the view that this is a matter which can be considered by the assessing officer even on remand and there is no estoppal against law. As such it is not a matter for interference of this Court.

Summary

Issues:
1. Treatment of loss on sale of IRFC bonds as capital loss or business loss.
2. Allowability of deduction for contribution to Employees' Welfare Trust.
3. Disallowance of interest and other expenses under section 14 of the IT Act.
4. Omission of first proviso to clause (ii) of Sub section (1) to Section 32 regarding depreciation.

Analysis:

1. Treatment of loss on sale of IRFC bonds:
The case involved a dispute over whether the loss on the sale of IRFC bonds should be treated as a capital loss or a business loss. The Tribunal relied on a previous decision in the assessee's own case to allow the claim of expenditure, stating that the business of trading shares and securities was an eligible business of the assessee company. The Court found no substantial question of law involved in this issue and upheld the Tribunal's decision.

2. Allowability of deduction for contribution to Employees' Welfare Trust:
The assessing officer disallowed the claim for deduction of expenses for transportation of employees to the Employees' Welfare Trust under Section 40A(9). However, the Tribunal allowed the claim, considering it as part of the actual expenses incurred by the assessee. The Court found this to be a question of fact and not a substantial question of law, thus upholding the Tribunal's decision.

3. Disallowance of interest and other expenses under section 14 of the IT Act:
The Department raised concerns regarding the disallowance of interest and other expenses by the Tribunal. The Tribunal had interdicted the disallowance to an extent of 0.5% of the total interest and expenditure. The Court viewed this as a question of fact rather than law, and thus found no substantial question of law to interfere with the Tribunal's decision.

4. Omission of first proviso to clause (ii) of Sub section (1) to Section 32 regarding depreciation:
The Department challenged the remand ordered by the Tribunal regarding the omission of the first proviso to Section 32. The Court held that this matter could be considered by the assessing officer even on remand, and there was no legal bar against it. Therefore, the Court did not find any grounds for interference in this matter.

In conclusion, the Court found no substantial questions of law under Section 260A of the IT Act that warranted interference. As a result, the appeals were dismissed, and the decisions of the Tribunal were upheld.