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2023 (6) TMI 1393 - AT - Income TaxAddition on account of office and other expenses - expenses incurred under commercial expediency or not? - HELD THAT - We note that the assessee has debited expenses on account of office other expenses and consultancy fee and these expenses were covered under the agreement and suppose to be incurred by M/s. Ballarpur Industries Ltd. therefore the Assessing Officer was right in disallowing both the claim of expenditure on account of office other expenses and consultation fee the ld. counsel could not show us any factual position to take a view that the assessee incurred expenditure under commercial expediency for the purpose of business and to protect its business interest. We note that the AO has not doubted incurring of expenditure and quantum but for claiming such expenditure the assessee has to establish and discharge the onus that the assessee incurred expenditure wholly an exclusively for the purpose of business and to protect its business interest under commercial expediency. Therefore ground no. 2 3 of assessee being devoid on merits are dismissed. Disallowing long term capital loss - relevant assessment year incurred on account of transfer of land - AO treated the transaction as sham and disallowed claim - HELD THAT - rom relevant paras of first appellate order we note that the ld. CIT(A) dismissed the claim of assessee of long term capital loss by observing that the transfer of capital asset by appellant company to its parent/holding company (in which appellant company is 100% subsidiary of its parent company i.e. BILT) therefore in view of provision of 47(v) of the Act the transaction of transfer of land from subsidiary to holding company is not covered u/s. 45 of the Act. We are in complete agreement with the findings arrived by the ld. CIT(A) based on section 47(v) of the Act and when the transaction does not falls within ambit of section 45 of the Act then any claim of long term capital loss/profit cannot be held as allowable. Accordingly, we are unable to see any reason to interfere with the findings of ld. CIT(A) and thus, we uphold the same - Decided against assessee. Allowability of exchange rate losses - whether incidental to the nature of business of the assessee? - HELD THAT - We note that the AO has not doubted the quantum and reason that the assessee sustained loss on fluctuation of foreign currency rates of Rs. 16,06,000/-. It is noted by the AO that the assessee company is non banking financial company and it provided loan for earning interest which is offered for taxation. In such a situation the loss incurred to the assessee due to fluctuation in the foreign currency rate cannot be held as capital loss and the CIT(A) was right in allowing the same to the assessee. Our conclusion also gets support with the order of V.S Dempo 1993 (7) TMI 63 - BOMBAY HIGH COURT . Accordingly, ground no. 1 2 of revenue are dismissed. Expenses incurred on insurance and audit fees - HELD THAT - We note that the ld. CIT(A) after considering the agreement disallowed expenditure toward office other expenses and consultation fee however he allowed the expenditures towards insurance charges and payment to the auditor which was not covered under the agreement and the same was the liability of assessee. On being asked by the bench the ld. Senior DR could not show us that how these payments are covered under the agreement and were to be incurred by the BILT. Therefore, we are unable to see any reason to interfere with the said findings of ld. CIT(A) and hence we uphold the same. Accordingly, ground no 3 of revenue is dismissed. Disallowance u/s 14A - Exempt income earned or not? - HELD THAT - We note that the Hon ble High Court of Delhi in the case of PCIT vs. Era Infrastructure Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT by referring its earlier judgment in the case of Cheminvest Ltd. vs. CIT (supra) held that the amendment made by Finance Act 2022 to section 14A of the Act by inserting a non-obstante clause and Explanation will take effect from 01.04.2022 and cannot be presumed to have retrospective effects thus in view of this preposition the amendment cannot be applied retrospectively to present AY 2004-05. Thus we are in agreement with the conclusion drawn by ld. CIT(A) that the disallowance u/s. 14A of the Act should be restricted to exempt income. Accordingly ground no. 4 5 of revenue being devoid of merits are dismissed. Upward adjustment us 115JB(2)(C) of liabilities shown in Provision for doubtful loans advances' - HELD THAT - The assessee consistently submitting that the impugned loss is real and such loss has been debited to the P L account under the head provision for doubtful loans and advances. It was further submitted that from the perusal of audited account it is clear that the same was return of in the account as irrecoverable though the nomenclature was used as provision. On being asked by the bench the ld. Senior DR could not show us any factual matrix which may lead us to take a view that the impugned amount was not certain and was merely a provision. Thus the ld. CIT(A) keeping in view the judgment of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT held that the impugned amount was certain in nature and therefore upward adjustment as per clause (c) of explanation 1 to section 115JB (2) of the Act cannot be made as per provisions of the Act. Therefore we are unable to see any valid reason to interfere with the findings arrived by the ld. CIT(A) on this issue and hence we uphold the same.
Issues Involved:
1. Confirmation of additions/disallowances by the Assessing Officer. 2. Disallowance of long-term capital loss. 3. Exchange rate losses. 4. Disallowance u/s 14A. 5. Upward adjustment u/s 115JB. Summary: Issue 1: Confirmation of Additions/Disallowances by the Assessing Officer The assessee contested the CIT(A)'s decision to confirm the Assessing Officer's addition of INR 4,79,699 for office and other expenses, and INR 12,83,868 for consultancy fees. The CIT(A) upheld these additions, stating that the expenses were covered under an agreement with Ballarpur Industries Ltd. The tribunal concurred, noting that the assessee failed to demonstrate that the expenses were incurred wholly and exclusively for business purposes. Thus, grounds 2 and 3 of the assessee were dismissed. Issue 2: Disallowance of Long-Term Capital Loss The assessee challenged the disallowance of a long-term capital loss of INR 3,74,14,984 related to the transfer of land to Ballarpur Industries Limited. The CIT(A) and the tribunal upheld the disallowance, citing that the transaction was between the assessee and its holding company, falling u/s 47(v) of the Income-tax Act, 1961, which exempts such transactions from capital gains tax. The tribunal agreed with the CIT(A) that the transaction did not qualify for long-term capital loss, dismissing grounds 4 to 4.5 of the assessee. Issue 3: Exchange Rate Losses The revenue argued that exchange rate losses of INR 16,06,000 should be considered capital losses, referencing a similar case (M/s. Siemens Nixdorf Information Systems GmbH). The tribunal upheld the CIT(A)'s decision that the losses were incidental to the assessee's business as a non-banking finance company, thus constituting business losses. Grounds 1 and 2 of the revenue were dismissed. Issue 4: Disallowance u/s 14A The revenue contested the CIT(A)'s deletion of a disallowance of INR 11,16,14,637 made u/s 14A, arguing that it exceeded the exempt income. The tribunal upheld the CIT(A)'s decision, referencing the Delhi High Court's ruling that disallowance u/s 14A cannot exceed exempt income and noting that the amendment to section 14A by the Finance Act, 2022, is not retrospective. Grounds 4 and 5 of the revenue were dismissed. Issue 5: Upward Adjustment u/s 115JB The revenue argued that the CIT(A) erred in holding that no upward adjustment u/s 115JB(2)(c) was required for provisions for doubtful loans and advances. The tribunal upheld the CIT(A)'s finding that the liabilities were certain in nature, referencing the Supreme Court's judgment in Vijaya Bank vs. CIT. Ground 6 of the revenue was dismissed. Conclusion: Both the assessee's appeal and the revenue's appeal were dismissed. The tribunal upheld the CIT(A)'s decisions on all contested issues. The order was pronounced in the open court on 09.06.2023.
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