2016 (8) TMI 602 - AT - Income Tax

Addition made for depositing the employees contribution to PF and ESI beyond the prescribed time limit - Held that - It is undisputed fact that the assessee had paid both the amounts before due date of return. The Hon ble Jurisdictional High Court decision in the case of CIT Vs SBBJ (2014 (5) TMI 222 - RAJASTHAN HIGH COURT ) is squarely applicable, therefore, we uphold the order of the ld. CIT(A) in deleting the addition. - Decided against revenue. Disallowance U/s 14A of the Act read with Rule 8D - Held that - It is undisputed fact that the investments in shares were made up to F.Y. 2005-06. During the year, no investment has been made by the assessee. The assessee had share capital of ₹ 3.14 crores and reserve and surplus of ₹ 4.57 crores. It is further found that investments made in subsidiary company not in the share of any other unrelated party. Therefore, the primary object of the investment was holding and controlling stake in the group concern and not earning any income out of investment. The ld Assessing Officer had not established any nexus between borrowed fund with investments made in shares on which dividend earned. The case laws relied by the ld. AR are squarely applicable, therefore, we uphold the order of the ld CIT(A)in deleting the addition. - Decided against revenue. Addition made on account of foreign exchange gain - Held that - It is undisputed fact that the debtors was in dispute since F.Y. 2007-08 and 2008-09, there was a remark by the Auditor on account of foreign exchange gain in the audit report and clarified that amounting to ₹ 37,05,685/- had not been credited in the account of the assessee. The assessee has explained the reasons that it has not received this income. There is a dispute with the Brazilian party on account of quality of goods. The original bill amount was in dispute, therefore he has not shown this increase in foreign exchange gain. The interest income on sticky loans, which has calculated on the basis of hypothetical income not real income of the finance company. In this case also, the ld Assessing Officer has calculated this foreign exchange gain on notional basis, which was not real. The other case laws referred by the assessee are also squarely applicable on real income theory. Accordingly, we uphold the order of the ld CIT(A) in deleting the addition. - Decided against revenue. Addition U/s 43B - advance payment of VAT - Held that - There is no dispute about the fact of the amount payments made and deduction claimed in computation of income at the time of filing of return but it is also undisputed fact that this is advance payment of VAT. Statutory liability is to be allowed on payment basis. The liability for which was incurred in the previous year will be allowed as deduction and the liability should be related to previous year. Wherein sales tax liability of last quarter could not be paid before closing date of the every year, therefore, this incentive was given U/s 43B of the Act by the Legislature. This issue has been considered by the Coordinate Bench of Hyderabad in the case of DCIT Vs CWC Wines Pvt. Ltd. (2003 (11) TMI 302 - ITAT HYDERABAD-A ) and held that advance payment is not deductible. Section 43 may not be understood as authorizing payment which have not become due but all the sum paid in advance. Therefore, we are of the considered view that the ld CIT(A) had rightly disallowed the deduction claimed U/s 43B of the Act for advance payment of VAT - Decided against assessee

Summary

Issues Involved:

1. Deletion of addition for late deposit of employees' contribution to PF and ESI.
2. Deletion of disallowance under Section 14A read with Rule 8D.
3. Deletion of addition on account of foreign exchange gain.
4. Sustaining addition under Section 43B for advance VAT payment.

Issue-wise Detailed Analysis:

1. Deletion of addition for late deposit of employees' contribution to PF and ESI:

The Assessing Officer (AO) added ?31,952 for late deposit of employees' PF and ESI contributions, citing Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act. The CIT(A) deleted this addition, referencing the Supreme Court's decision in CIT Vs. Vinay Cements and the jurisdictional High Court's decision in CIT Vs. SBBJ, which allowed deductions for PF and ESI contributions made before the filing of the return. The Tribunal upheld the CIT(A)'s decision, noting that the amounts were paid before the due date of the return, thus dismissing the revenue's appeal on this ground.

2. Deletion of disallowance under Section 14A read with Rule 8D:

The AO disallowed ?2,64,320 under Section 14A read with Rule 8D, arguing that the assessee did not maintain separate accounts for investments and business operations, and had paid interest during the year. The CIT(A) deleted this disallowance, stating that the assessee had sufficient interest-free funds for investments and the primary objective was holding and controlling stakes in group concerns, not earning income. The Tribunal upheld the CIT(A)'s decision, noting the investments were made from interest-free funds and the AO did not establish a nexus between borrowed funds and investments. Thus, the revenue's appeal on this ground was dismissed.

3. Deletion of addition on account of foreign exchange gain:

The AO added ?37,05,685 for foreign exchange gain not recognized by the assessee, citing the auditor's note on unrealized export receivables and import payables. The CIT(A) deleted this addition, considering it hypothetical income not actually received by the assessee. The Tribunal upheld the CIT(A)'s decision, noting the dispute with the Brazilian party over the quality of goods, which made the foreign exchange gain notional and not real. The Tribunal referenced the Delhi High Court decision in Brahmaputra Capital & Financial Services Ltd. Vs. ITO, which supported the real income theory. Therefore, the revenue's appeal on this ground was dismissed.

4. Sustaining addition under Section 43B for advance VAT payment:

The AO disallowed ?90,51,858 claimed by the assessee under Section 43B for advance VAT payment, arguing it was not allowable as it was not due in the relevant year. The CIT(A) confirmed this disallowance, stating that advance tax payments are not covered under 'any sum payable' as per Section 43B. The Tribunal upheld the CIT(A)'s decision, noting that the advance VAT payment did not meet the criteria for deduction under Section 43B, referencing the Hyderabad ITAT decision in DCIT Vs. CWC Wines Pvt. Ltd. and distinguishing the cases cited by the assessee. Thus, the assessee's appeal on this ground was dismissed.

Conclusion:

Both the revenue's and the assessee's appeals were dismissed. The Tribunal upheld the CIT(A)'s decisions on all grounds, maintaining the deletions and disallowances as per the legal precedents and factual circumstances presented. The judgment emphasizes the importance of actual payment and real income in tax assessments, aligning with established judicial interpretations.