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2015 (6) TMI 678 - AT - Income TaxReopening of assessment - CIT(A) quashed reopening - prior approval of the Commissioner of Incometax- II, Lucknow was duly taken u/s 151 of the Income-tax Act by the Assessing Officer for re-assessment proceedings - Held that - In the present case, the order of CIT(A) is dated 30/07/2010 and therefore, as per the provisions of the first proviso to section 147, reassessment was time barred at that point of time because of the provisions of first proviso to section 147 because four years from the end of the relevant assessment year has already expired on 31/03/2009 and the order of the CIT(A) is dated 30/07/2010. Under these facts, even if it is held that there is direction of CIT(A), as required under sub section (1) of section 150, the provisions of sub section (1) of section 150 cannot be invoked as per the per the provisions of sub section (2) of section 150 of the Act and under these facts and legal position, we do not find any infirmity in the order of CIT(A) on this issue. - Decided against revenue. Addition on current assets - royalty received and interest on term deposit - CIT(A) deleted the addition - Held that - In the present case, this is not the case of the Assessing Officer that corresponding amount is appearing in the liability side of the balance sheet but it is apparent from Schedule-12 that the assessee has shown corresponding amount as income. The amount of income shown under both these heads i.e. royalty received and interest on term deposit is higher than the amount shown in the balance sheet under the head other current assets on account of royalty receivable and interest accrued on term deposit. It means that entire income under these heads were accounted for as income and that part of these two income, which were receivable at the end of the year, were shown in the balance sheet under the head current assets and therefore, it cannot be said that the assessee has not shown these two items as income in the present year. - Decided against revenue. Deduction u/s 35(2AB) - CIT(A) mentioning that no in house scientific research has been carried out by the appellant - Held that - As decided in assessee s own case for assessment year 2005- 06 and 2006-07 2015 (2) TMI 894 - ITAT LUCKNOW merely getting approval from ARAI and purchasing certain material from the market cannot be said to be carrying out in-house research & development activity. Research & development means to carry out research to find out some new technology or new equipment or product and that should be carried out in-house as per the requirement of section 35(2AB) of the Act. The assessee has failed to justify his claim of in-house scientific research carried out and therefore, no deduction under section 35(2AB) is admissible to the assessee. - Decided against assessee. Disallowance of interest paid on loans - Held that - Since the assessee could not establish that borrowings were for business purposes, deduction is not allowable u/s 36(1)(iii) of the Act and moreover, u/s 57(iii) also, deduction is already allowed by the Assessing Officer to the extent of interest income and entire interest expenditure cannot be allowed because it could not be established by the assessee that the borrowing was made for making investment in FDR by showing direct nexus between the borrowing from bank and making FDR in bank. Considering all these facts, we do not find any reason to interfere in the orders of the authorities below. - Decided against assessee. Disallowance of Bad and Doubtful Debts, Advances and other written offs on account of Sundry Debtors written off and Earnest Money Security Deposit written off - Held that - As decided in assessee s own case for AY 2005-06 and 2006-07 a clear finding is given by CIT(A) that the assessee has not written off bad debts in question and assessee has credited the amount to the account with the heading provision for doubt debts. As per the provision of section 36(1)(vii), bad debt is allowable on actual write off and not on provision and hence, we do not find any reason to interfere in the order of CIT(A) on this issue - Decided against assessee. Disallowance of Benevolent expenses - Held that - As decided in assessee s own case for AY 2009-10 2013 (11) TMI 1541 - ITAT LUCKNOW these expenses are to be accepted as incurred for business purpose but regarding quantum of expenditure, the assessee has to bring on record full details in respect of collection from employees and contribution by the employer company and also the proof of payment to the legal heir of the deceased employee and to the extent contribution by assessee is in accordance with factory order, the deduction should be allowed. The Assessing Officer should pass necessary order as per law as per above discussion after providing proper opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Disallowance of Prior Period Adjustment - Held that - The total disallowance made by the Assessing Officer included ₹ 796.41 lac on account of gratuity and ₹ 275.82 on account of leave encashment. Regarding these two amounts, we find that the provisions of section 43B are also applicable and therefore, it is necessary to find out as to whether the assessee has made payments in the present year or not in respect of these two amounts of gratuity and leave encashment. Therefore, we set aside the order of learned CIT(A) and restore the matter back to the file of the Assessing Officer for fresh decision. Regarding other amounts we find that a clear finding has been given by CIT(A) that the assessee has not pressed the claim of expenses for financial year 2004-05. Regarding interest and penalties on taxes he has given a finding that the same is not allowable under the Income-tax Act and therefore, the claim relating to earlier years is not allowable. Regarding the claim on account of material adjustment, he has given a finding that the assessee has not filed any detail other than that it relates to resale. In the absence of any detail regarding this claim, the same is not allowable. Deposit with Sales Tax is also not allowable because this is a deposit and not an expense. Regarding depreciation he has given a finding that the same is to be allowed in the year with which the depreciation is related with. Regarding repairs and maintenance also, the same is not allowable unless it is shown that the liability has crystallized in the present year. Hence, on all these aspects, we do not find any reason to interfere in the order of learned CIT(A). - Decided partly in favour of assessee for statistical purposes. Disallowance of provision made towards pending Sales Tax Cases - Held that - We find that any amount payable to Sales Tax Department is allowable subject to the provisions of section 43B and since the assessee has made a provision only of ₹ 13,95,518/- towards pending Sales Tax cases and it is not the case of the assessee that payment was also made in the present year, deduction is not allowable u/s 43B of the Act. - Decided against assessee. Disallowance out of advances written off as bad and doubtful debt - CIT(A) restricted part disallowance - Held that - As only part relief of ₹ 36,671/- was allowed by CIT(A) in respect of shortages in spares and general stores and for evaporation loss of petrol and diesel in assessee s own pumps. It was held by CIT(A) that these losses are incurred during the course of business and therefore, allowable. We do not find any infirmity in the order of CIT(A) on this issue - Decided against revenue. Disallowance of demand and interest on taxes - CIT(A) restricted part disallowance - Held that - CIT(A) allowed relief of ₹ 62,933/- but he has not given any finding that this amount was actually paid in the present year and in the absence of that finding, the order of CIT(A) is not sustainable but still we feel that in the interest of justice, the matter should go to CIT(A) for fresh decision. He should give finding that the amount was actually paid or not and if amount was paid then only the deduction should be allowed and otherwise the disallowance should be confirmed. - Decided in favour of revenue for statistical purposes. Disallowance of gratuity paid under LIC scheme - CIT(A) deleted the addition - Held that - Since the issue is covered against the assessee by the Tribunal decision in assessee s own case for assessment year 2002-03 and 2003-04 we do not find any reason to take a contrary view. - Decided in favour of revenue. Addition on account of interest subsidy on house building loans - CIT(A) deleted the addition - Held that - As in assessee s own case for assessment year 2002-03 and 2003-04, this issue was decided in favour of the assessee and it was held that the interest subsidy to the employees is for maintaining harmonious relationship and welfare of the employees, which is nothing but business expenditure. Respectfully following this Tribunal decision in assessee s own case, we hold that in the present year also, this disallowance is not justified. - Decided against revenue. Addition on account of royalty receivable and interest accrued in term deposits - CIT(A) deleted the addition - Held that - from the above Para from the order of CIT(A), we find that a clear finding is given by him that the amount shown by the assessee under the head current assets on account of royalty receivable and interest were also shown by the assessee in income in Schedule-12 of the balance sheet. This finding of CIT(A) could not be controverted by Learned D.R. of the Revenue and therefore, we do not find any reason to interfere in the order of CIT(A). - Decided against revenue.
Issues Involved:
1. Validity of reassessment proceedings under Section 147. 2. Deletion of addition under heads Royalty Receivable and accrued interest. 3. Deduction under Section 35(2AB) for in-house scientific research. 4. Disallowance of interest paid on loans under Section 36(1)(iii). 5. Disallowance under Bad and Doubtful Debts, Advances, and other write-offs. 6. Disallowance of Benevolent expenses. 7. Disallowance of Prior Period Adjustments. 8. Disallowance of provision made towards pending Sales Tax Cases. 9. Disallowance of Gratuity paid under LIC scheme. 10. Disallowance of interest subsidy on house building loans. 11. Deletion of addition of royalty receivable and interest accrued in term deposits. Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147: The Tribunal upheld the CIT(A)'s decision that the reassessment proceedings were invalid. The CIT(A) observed that the AO's initiation of reassessment was not based on any directions from the CIT(A) and was barred by the proviso to Section 147, as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. 2. Deletion of Addition under Heads Royalty Receivable and Accrued Interest: The Tribunal found no merit in the Revenue's appeal, agreeing with the CIT(A) that the amounts shown under current assets in the balance sheet were also reflected in the income side of the profit & loss account. Therefore, no addition was justified. 3. Deduction under Section 35(2AB) for In-house Scientific Research: The Tribunal upheld the CIT(A)'s decision, denying the deduction under Section 35(2AB) as the assessee failed to justify the claim of in-house scientific research. The Tribunal noted that similar claims were rejected in previous assessment years. 4. Disallowance of Interest Paid on Loans under Section 36(1)(iii): The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of interest paid on loans. The assessee could not establish that the borrowings were for business purposes, and the interest was allowed only to the extent of interest income on deposits. 5. Disallowance under Bad and Doubtful Debts, Advances, and Other Write-offs: The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of bad debts, advances, and other write-offs as the assessee could not prove that these amounts were considered as income in the current or earlier years. 6. Disallowance of Benevolent Expenses: The Tribunal restored the issue to the AO for fresh decision, directing the AO to examine the details of collections from employees and contributions by the employer. The expenses were to be accepted as incurred for business purposes, subject to verification of the quantum. 7. Disallowance of Prior Period Adjustments: The Tribunal partly allowed the appeal, directing the AO to verify if payments were made in the present year for gratuity and leave encashment as required under Section 43B. For other expenses, the Tribunal upheld the CIT(A)'s decision, confirming the disallowance. 8. Disallowance of Provision Made Towards Pending Sales Tax Cases: The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of the provision made towards pending Sales Tax cases as it was a contingent liability and not allowable under Section 43B. 9. Disallowance of Gratuity Paid under LIC Scheme: The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of gratuity paid under the LIC scheme, as the issue was covered against the assessee in previous assessment years. 10. Disallowance of Interest Subsidy on House Building Loans: The Tribunal upheld the CIT(A)'s decision, allowing the interest subsidy on house building loans as a business expenditure. The issue was covered in favor of the assessee in previous assessment years. 11. Deletion of Addition of Royalty Receivable and Interest Accrued in Term Deposits: The Tribunal upheld the CIT(A)'s decision, confirming the deletion of the addition as the amounts shown under current assets were also reflected in the income side of the profit & loss account. Conclusion: The Tribunal dismissed the appeals of the Revenue for assessment years 2004-05 and 2008-09 and partly allowed the appeal for assessment year 2007-08. Both appeals of the assessee were partly allowed. The Tribunal's decision was based on detailed examination of facts and adherence to legal provisions, ensuring fair and just treatment of the issues involved.
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