2014 (10) TMI 389 - AT - Income Tax

Deduction u/s 14A Held that - The benefit of Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax 2011 (11) TMI 267 - Delhi High Court was not available to the AO it has been rightly requested that the matter is to be remitted back to the AO for fresh adjudication in the light of the decision above mentioned Decided in favour of assessee. Expenses on contribution to Cooperative Education Fund disallowed Prior period expenses disallowed - Held that - Following the decision in Commissioner of Income-tax, New Delhi Versus Shri Ram Pistons & Rings Ltd. 2008 (5) TMI 631 - DELHI HIGH COURT - merely because an expense relates to a transaction of an earlier year, it does not become a liability payable in the earlier year unless it can be said that the liability was determined and crystallized in the year in question. If such liability has been actually claimed and paid in the later previous years, it cannot be disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis - when there was no change in the rate of tax between the two years, it is immaterial whether the deduction is allowed in one year or the other - the liability of prior period expenses for consumption of raw material has been stated to have arisen in the earlier year, but got crystallized on a later date. The expenditure and the liability have been certified by the tax auditors, and there appears to be no dispute that the appellant had actually incurred the expenditure - the claim of assessee has been allowed by the AO for last several years as held in Radhasoami Satsang Versus Commissioner of Income-Tax 1991 (11) TMI 2 - SUPREME Court - principle of res judicata does not apply to income tax proceedings - each assessment year being an independent unit, what is decided in one year may not apply in the following year, but where fundamental aspect permeating through the different assessment year has been found as a fact one way or other and parties have allowed, that position to be sustained by not challenging the order, it would not be appropriate to allow the position to be changed in a subsequent year thus, Revenue is not permitted to take a different stand in the year under consideration thus, the order of the CIT(A) is upheld Decided against revenue.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Disallowance of contribution to Cooperative Education Fund.
3. Disallowance of prior period expenses.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961:
The assessee contested the order of the CIT(A) upholding the disallowance of Rs. 21,43,45,000/- made by the Assessing Officer (AO) under Section 14A by wrongly applying Rule 8D of the Income Tax Rules, 1962. The assessee argued that Rule 8D is applicable only from AY 2008-09 and not for the AY 2007-08. The CIT(A) erred by not considering the assessee's submissions that no expenditure was incurred for earning the exempted income. The Tribunal noted that the AO did not record satisfaction as mandated by the Jurisdictional High Court in Maxopp Investment Ltd. vs CIT. Therefore, the issue was remanded back to the AO to pass a speaking order considering the mandate of the Hon'ble High Court in Maxopp Investment. The AO was directed to provide the assessee with a reasonable opportunity of being heard before passing the order.

2. Disallowance of contribution to Cooperative Education Fund:
The Revenue challenged the deletion of the addition of Rs. 1,75,25,541/- towards the contribution to the Cooperative Education Fund. The AO disallowed the claim, stating it was not wholly and exclusively incurred for the purpose of business and was an application of income. The CIT(A) deleted the addition, relying on the orders of the ITAT for earlier assessment years, which were confirmed by the Jurisdictional High Court. The Tribunal upheld the CIT(A)'s decision, noting that the contribution is a statutory obligation under Rule 25 of the Multi-State Cooperative Rules, 2002, and is allowable as a deduction under Section 37 of the Act. The Tribunal emphasized the principle of consistency, as the claim had been allowed in earlier years, and there was no change in the fundamental aspect of the case.

3. Disallowance of prior period expenses:
The Revenue also contested the deletion of the addition of Rs. 6,00,000/- on account of prior period expenses. The AO disallowed the expenses, stating there was no evidence that the liabilities crystallized during the current year. The CIT(A) deleted the addition, accepting the assessee's explanation that the expenses crystallized in the current year. The Tribunal upheld the CIT(A)'s decision, relying on the Jurisdictional High Court's ruling in CIT vs Ram Pistons and Rings Ltd., which held that expenses crystallized in the current year are allowable, even if they relate to transactions of an earlier year. The Tribunal found no reason to interfere with the CIT(A)'s findings, as the facts and legal position were correctly considered.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, and the appeal of the Revenue was dismissed. The Tribunal directed the AO to reconsider the disallowance under Section 14A in light of the Jurisdictional High Court's mandate and to provide the assessee with a reasonable opportunity of being heard. The Tribunal upheld the CIT(A)'s decisions regarding the disallowance of the contribution to the Cooperative Education Fund and the prior period expenses.