2015 (3) TMI 533 - AT - Income Tax

Disallowance u/s. 14A r.w. Rule -8D - argument of assessee that no disallowance on account of interest is called for as the own funds of the assessee which include share capital and reserves and surplus is much more than the investment made by the assessee from where the assessee has earned tax free income - Held that - The factual position regarding own funds of the assessee has not been disputed by the Revenue. Similarly, the factual position regarding investment made by the assessee in tax free securities is also not disputed. If it is so, then the investment of the assessee in the tax fee securities would be a meager sum of ₹ 9.60 crores, against own funds available with the assessee of ₹ 513.25 crores. Respectfully following the decision of Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. ( 2014 (8) TMI 119 - BOMBAY HIGH COURT), we hold that according to the facts of the present case no disallowance on account of interest factor is called for. - Decided in favour of assessee. Addition to closing stock - under valuation of closing stock - whether CIT(A) erred in computing the value of closing stock by taking into consideration excise duly on that portion of closing stock where no excise duty is actually payable in law (goods procured under advance license, exempted, etc.)? - Held that - As relying on assessee's own case 2014 (7) TMI 426 - ITAT MUMBAI assessee is following inclusive method of accounting and the only actuals are entered in the books of accounts. There is no need for adjustment of inventories as they were already adjusted basing on the actuals in accordance with the provisions of section 145A of the Act. On hearing both the parties and on perusal of the material on record, we are of the opinion that this issue needs to revisit the file of the AC and the closing stock valuations have to be redone in the light of the provisions of section 145A of the Act. Accordingly, we remand the issue to the file of the AO for adjudicating the issue afresh - Decided in favour of assessee for statistical purposes. Expenditure in respect of guest houses and residential flats disallowed - appellants have failed to produce documentary evidence in respect of use of guest house and residential flats - Held that - As relying on assessee's own case confirmation given by Shri Sharma is supported by the guest house register , also that the expenditure incurred on employees may be fully allowed as it is incurred for the business purposes. As such, it is not dear from the record that why the assessee has to incur on the residential flats allotted to the employees of the company. Considering the no objection from the Ld DR, we remand the matter to the file of the AO with a direction to decide the issue afresh after examining the details and contents made in the said affidavit and pass a speaking order after granting a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Disallowance of exemption claimed in respect of dividend income earned from subsidiary based in Sri Lanka - Held that - It will serve the interest of justice if the matter is restored back to the file of AO for the purpose of verification of claim of the assessee that dividend income received from subsidiary based at Sri Lanka has already been offered to tax, if after verification the AO found that the version of the assessee is correct, then disallowance to that extent is not called for. - Decided in favour of assessee for statistical purposes. Not giving effect to brought forward losses while recomputing total income - the issue being a subject matter of rectification requires action u/s. 154 of the I.T. Act, the AO is directed to take necessary action accordingly by CIT(A) - Held that - We consider it just and proper to direct the AO to give effect to the directions given by Ld. CIT(A) to him, as the assessee is entitled to get benefit of the brought forward losses which are determined in the earlier years subject to fulfillment of other conditions laid down for valid claim for set off of brought forward losses. The AO will pass appropriate order after giving the assessee a reasonable opportunity of hearing.- Decided in favour of assessee for statistical purposes. Disallowance of club expenses - expenditure on account of payments made to clubs which includes annual subscription as well as cost of club services - CIT(A) deleted addition - Held that - n the earlier years, the similar issue has been consistently decided by the Revenue in favour of the assessee by relying on the judgment of the Hon ble High Court in the case of Otis Elevator vs. CT (1991 (4) TMI 53 - BOMBAY High Court). Considering the same, we are of the opinion that the CIT (A) has rightly adjudicated the issue. - Decided in favour of assessee.

Summary

Issues Involved:

1. Disallowance of expenditure under Rule 8D.
2. Addition to closing stock valuation.
3. Disallowance of guest house and residential flats expenditure.
4. Disallowance of exemption claimed for dividend income from a subsidiary in Sri Lanka.
5. Remanding the matter regarding brought forward depreciation.
6. Denial of benefit of carry forward of unabsorbed depreciation.
7. Deletion of addition of club membership expenses.

Detailed Analysis:

1. Disallowance of Expenditure under Rule 8D:

The assessee challenged the disallowance of Rs. 42,16,000 under Rule 8D, arguing that investments had decreased and non-interest-bearing funds exceeded interest-bearing funds. The Tribunal considered the assessee's submission that the grievance was limited to Rs. 38,16,000 related to interest disallowance. The Tribunal noted that the assessee's own funds were significantly higher than the investments in tax-free securities, referencing the Bombay High Court's decisions in CIT vs. HDFC Bank Ltd. and CIT vs. Reliance Utilities & Power Ltd. Consequently, the Tribunal ruled that no disallowance on account of interest was warranted, partly allowing the assessee's appeal.

2. Addition to Closing Stock Valuation:

The assessee contested the addition of Rs. 5,33,21,978 to the closing stock, arguing that the CIT(A) incorrectly included excise duty on non-payable stock. The Tribunal referred to its previous decision for AY 2007-08, where the issue was remanded to the AO for revaluation in light of Section 145A. Following this precedent, the Tribunal remanded the issue for fresh adjudication, allowing the ground for statistical purposes.

3. Disallowance of Guest House and Residential Flats Expenditure:

The assessee disputed the disallowance of Rs. 1,11,44,055 for guest house and residential flats expenses, claiming documentary evidence was provided. The Tribunal, referencing its earlier decision, remanded the issue to the AO to verify the details and the affidavit submitted by the assessee. The ground was allowed for statistical purposes.

4. Disallowance of Exemption Claimed for Dividend Income from Subsidiary in Sri Lanka:

The assessee argued that the dividend income from its Sri Lankan subsidiary was already offered for taxation, and thus, the disallowance was unwarranted. The Tribunal remanded the issue to the AO for verification of the assessee's claim. If verified, the disallowance would not be applicable. This ground was allowed for statistical purposes.

5. Remanding the Matter Regarding Brought Forward Depreciation:

The CIT(A) had directed the AO to take necessary action under Section 154 regarding brought forward depreciation of Rs. 26,36,45,365. The Tribunal noted that no action had been taken by the AO and directed the AO to comply with the CIT(A)'s instructions, allowing the ground for statistical purposes.

6. Denial of Benefit of Carry Forward of Unabsorbed Depreciation:

The assessee contended that the law applicable on the first day of the assessment year, which allowed for the carry forward of unabsorbed depreciation for an unlimited period, should apply. The Tribunal directed the AO to pass an appropriate order considering the assessee's entitlement to the benefit of brought forward losses, subject to other conditions. This ground was allowed for statistical purposes.

7. Deletion of Addition of Club Membership Expenses:

The Revenue appealed against the deletion of Rs. 22,94,292 for club membership expenses. The Tribunal referred to its previous decision, which followed the Bombay High Court's ruling in Otis Elevator Co. (India) Ltd. and upheld the CIT(A)'s decision to grant relief. The Revenue's appeal was dismissed.

Final Order:

The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed. The Tribunal directed the AO to take necessary actions as per the Tribunal's and CIT(A)'s directions, ensuring a fair and just resolution of the issues raised.