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2014 (2) TMI 675 - AT - Income TaxDeletion made on account of delayed payment Payment to ESI and PF and superannuation fund u/s 43B of the Act Held that - The amounts were paid before the due date of filing of return for the assessment year under consideration Relying upon C.I.T. vs. Vinay Cement Ltd. 2007 (3) TMI 346 - Supreme Court of India - due date for payment of contribution towards superannuation fund relating to the financial year could only fall in the immediately following financial year - The amount of contribution towards superannuation funds gets qualified / crystalised only after the salary of the last month of the financial year has been paid, just on or after 31st March of that financial year and due date for payment of such contribution can only be after and not before the 31st March of the financial year thus, the findings of the CIT(A) accepted that the balance amount being superannuation fund was within the due date and the disallowance of the same u/s. 43B of the Act was not warranted - Decided against Revenue. Deletion made towards installation of plant Held that - The assessee has incurred the expenses on the replacement of heavy duty internal mixer and reduction gear box the Assessing Officer has not made out the case that the expenditure in question has resulted in bringing into the existence any independent capital asset nor the same has in any way enhanced the capacity / efficiency of the machines Relying upon COMMISSIONER OF INCOME-TAX Versus SARAVANA SPINNING MILLS P. LTD. 2007 (8) TMI 16 - SUPREME COURT OF INDIA - since the items in question are part and parcel of Banbury mixture and 3 Roll Calendar respectively, the same would fall within the meaning of current repairs only the expenditure has been incurred by the assessee on Banberry mixtures etc. in the earlier years also - it is a running expenses incurred to keep the machine in running condition - Thus, the disallowance of expenditure in the relevant previous year is not sustainable even on the ground of consistency the order of the CIT(A) upheld Decided against Revenue. Disallowance of prior period expenses Electricity and Water Charges - Held that - The CIT(A) is correct in holding that assessee has not accepted the said liability in as much as representation has been made before the Power Ministry thus, it cannot be said that the amount has become ascertained liability - payment / adjustment was made during the assessment year under consideration - Therefore, the same should be allowed as deduction - the Assessing Officer is directed for examination - Decided in favour of Assessee. Exgratia payment Held that - The assessee claim that the expenditure in this regard should be allowed in the current assessment year cannot be sustained as it is the duty of the assessee to satisfy the primary requirement of law that the expenditure claimed under the head prior period expenses was actually laid down or expended wholly and exclusively for the purposes of the business and furthermore, the same has been incurred and got crystallized only in the year under consideration thus, there is no infirmity in the order of the authorities - Decided against Assessee. Disallowance of interest u/s 37(1) of the Act - Interest paid on late payment of purchase tax and sales tax - Held that - The CIT(A) has disallowed the sum on the ground that assessee has not submitted necessary details / evidence in this regard - assessee has contended that this amount was allowable but, the assessee has not submitted any detail in this regard also he claimed that the interest paid by the assessee was compensatory and not penal in nature there was no infirmity in the order of the CIT(A) - Decided against Assessee. Disallowance of loan procurement charges Held that - The Assessing Officer and Ld. Commissioner of Income Tax (A) had noted that assessee has not submitted any detail/ supporting with respect to this expenditure the claim of the assessee is not supported with any credible or tangible evidence - There is no information as to the immediate requirement of the funds, if any, borrowed and services rendered by these parties in arranging the funds in question - since the assessee has failed to submit the proper evidence in this regard there was no Infirmity in the order of the CIT(A) Decided against Assessee. Disallowance of interest free loan Loan advanced to group companies Held that - There is no fresh loan or advance made by the assessee to M/s Modi Stone Ltd. during the relevant previous year - The advance was made in the earlier period - Assessee had business relationship with Modi Stone Ltd. In such situation, there is cogency in the submissions of the assessee that there was commercial expediency involved in advancing the loan in this regard Relying upon SA Builders Ltd. vs. C.I.T. 2006 (12) TMI 82 - SUPREME COURT - in the absence of one to one nexus between borrowed funds and loan advance to Modi Stone Ltd., the presumption in law is that the loan to Modi Stone Ltd. should be presumed to have come out of own funds thus, the order of the CIT(A) set aside- Decided in favour of Assessee.
Issues Involved:
1. Deletion of addition on account of delayed payment of ESI and PF and superannuation fund. 2. Deletion of addition of Rs. 3,97,53,676/- towards installation of plant. 3. Disallowance of prior period expenses amounting to Rs. 1,96,61,963/-. 4. Disallowance of interest to the extent of Rs. 51,43,792/-. 5. Disallowance of loan procurement charges amounting to Rs. 19,20,826/-. 6. Disallowance of Rs. 24,00,000/- on account of notional interest on loan given to Modi Stone Ltd. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Delayed Payment of ESI and PF and Superannuation Fund: The Assessing Officer (AO) disallowed contributions towards ESI & PF and superannuation fund due to delayed payments. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted these additions, relying on the Hon'ble Delhi High Court decision in C.I.T. vs. AIMIL Ltd. The Tribunal upheld the CIT(A)'s decision, referencing the Hon'ble Apex Court's ruling in C.I.T. vs. Vinay Cement Ltd., which allows such claims if payments are made before the due date of filing the return. 2. Deletion of Addition of Rs. 3,97,53,676/- Towards Installation of Plant: The AO treated the expenditure on overhauling plant and machinery as capital expenditure, allowing 25% depreciation and disallowing the balance. The CIT(A) deleted this disallowance, stating that the expenses were for repairs and maintenance, not resulting in new independent assets or enhancing the capacity/efficiency of existing machinery. The Tribunal agreed, stating that the expenditure fell within the meaning of current repairs and noting that similar expenses had been allowed in previous years. 3. Disallowance of Prior Period Expenses Amounting to Rs. 1,96,61,963/-: The AO disallowed prior period expenses due to lack of evidence showing they crystallized during the year. The CIT(A) upheld this disallowance, noting the absence of supporting documents. The Tribunal sustained the addition, agreeing with the CIT(A) that the assessee failed to provide necessary details to prove the expenses were incurred and crystallized during the assessment year. 4. Disallowance of Interest to the Extent of Rs. 51,43,792/-: The AO disallowed interest paid on late payment of purchase tax and sales tax, considering it penal in nature. The CIT(A) allowed part of the interest as compensatory but disallowed Rs. 53,26,640/- due to lack of details. The Tribunal upheld the CIT(A)'s decision, noting the absence of evidence to support the claim that the interest was compensatory. 5. Disallowance of Loan Procurement Charges Amounting to Rs. 19,20,826/-: The AO disallowed loan procurement charges due to lack of details on services rendered by the parties involved. The CIT(A) upheld this disallowance, citing the absence of credible evidence. The Tribunal agreed, noting the assessee's failure to provide supporting documents or details of services rendered. 6. Disallowance of Rs. 24,00,000/- on Account of Notional Interest on Loan Given to Modi Stone Ltd.: The AO disallowed interest on loans given to group companies, including Modi Stone Ltd., while the assessee paid interest on borrowings. The CIT(A) deleted the disallowance for other companies but sustained it for Modi Stone Ltd. due to lack of evidence of interest-free funds. The Tribunal reversed this, citing commercial expediency and the absence of evidence that the loan was made from interest-bearing funds. Conclusion: - The Tribunal upheld the CIT(A)'s deletion of additions on delayed ESI, PF, and superannuation payments and plant installation expenses. - It sustained the disallowance of prior period expenses and interest on late tax payments due to lack of evidence. - It upheld the disallowance of loan procurement charges for lack of supporting documents. - It reversed the disallowance of notional interest on the loan to Modi Stone Ltd., citing commercial expediency and lack of proof of interest-bearing funds. Final Order: - Assessee's appeal partly allowed. - Revenue's appeal dismissed.
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