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2018 (1) TMI 1077 - AT - Income TaxDisallowance of bad debts u/s 36(2) - Held that - It appears that disallowance has been upheld considering this claim as for bad debts and not fulfilling the conditions of section 36(2) of the Act. However, since this was an advance given in the course of business and neither services rendered nor advance returned back, the claim is required to be allowed as a business loss. In the interest of justice, we restore the matter back to AO and we direct the AO to verify the facts and decide afresh. We direct accordingly. Non granting deduction for provision for leave encashment - Held that - We have considered rival contentions and found that issue is squarely covered by the decision of the Supreme Court in case of Bharat Earth Movers 2000 (8) TMI 4 - SUPREME Court . Respectfully following the same, we direct the AO to delete the disallowances as claimed by assessee on account of provision for leave encashment. Disallowance of depreciation on plant and machinery - assessee was unable to prove that the machinery was used in production - Held that - Respectfully following the order of Tribunal in assessee s own case for the A.Y.1996-97, we do not find any infirmity in the order of CIT(A) for deleting the addition made on account of disallowance of depreciation on plant and machinery wherein held that the machine in question is used for cutting and wrapping confectionary toffees and were delivered at ready to use condition. Thus, it is evident that the machine has no role to play in the production activity. Therefore, when the learned Commissioner (Appeals) has accepted the fact that the machine was purchased and commissioned and formed part of the fixed asset in the relevant financial year, there is no reason to disallow assessee s claim of depreciation. Disallowance on account of foreign travel expenses - Held that - As during the year under consideration, assessee has incurred foreign travel expenses for visit of Directors as well as Executives to Switzerland. As per the noting on passport, the travel was for the purpose of business. The correspondence with the foreign parties also indicate that travel was for business purpose. Thus restore the matter back to the file of the AO for deciding afresh Disallowance u/s.14A r.w.R. 8D - Held that - Keeping in view the decision of Bombay High Court in the case of HDFC Bank Ltd. 2016 (3) TMI 755 - BOMBAY HIGH COURT we do not find any merit for the disallowance of interest in so far as share capital reserves and surplus of the company was much more than the investment. With regard to the disallowance of administrative expenses under Rule 8D(2)(iii), following the reasoning given in the A.Y.2008-09, we restore the mater back to the file of AO for deciding afresh. We also direct AO to consider only those investments wherein exempt income is received during the year. Furthermore, strategic investments are not to be considered while computing disallowance under Rule 8D (2)(iii).
Issues Involved:
1. Rejection of book results and estimation of income. 2. Addition on account of alleged suppressed production and sales of biscuits. 3. Disallowance of prior period expenses. 4. Disallowance of long-term capital loss on redemption of preference shares. 5. Disallowance of publicity general expenses. 6. Disallowance of provision for leave encashment. 7. Disallowance of depreciation on plant and machinery. 8. Disallowance of foreign travel expenses. 9. Disallowance under section 14A of the IT Act. Detailed Analysis: 1. Rejection of Book Results and Estimation of Income: The learned Commissioner (Appeals) confirmed the action of the Assessing Officer in rejecting the book results of the appellant, holding that the books of accounts were not complete and did not enable the determination of profits for different classes of products. The Tribunal found that the facts and circumstances during the year under consideration were the same as in the previous years. The Tribunal noted that the issue was already decided in favor of the assessee in the assessee's own case for the A.Y. 1996-97, and thus, grounds raised by the assessee were allowed, and grounds raised by the revenue were dismissed. 2. Addition on Account of Alleged Suppressed Production and Sales of Biscuits: The Assessing Officer made additions on account of alleged suppressed production resulting in suppressed sales of biscuits based on the difference in yield between the assessee's own unit and Contract Manufacturing Units (CMUs). The CIT(A) partially allowed the relief by reducing the addition. The Tribunal, following its earlier decision in the assessee's own case for the A.Y. 1996-97, deleted the addition made by the Assessing Officer fully, holding that the rejection of books of account and addition made on an estimate basis was not in accordance with the law. 3. Disallowance of Prior Period Expenses: The assessee challenged the disallowance of prior period expenses of ?13,06,342/-. The Tribunal found that the expenditure bills had been verified and approved during the present year, and hence the expenditure could not be regarded as prior period. The Tribunal directed the AO to verify if the assessee had not claimed double deduction in any earlier years. 4. Disallowance of Long-term Capital Loss on Redemption of Preference Shares: The AO disallowed the long-term capital loss of ?41,200/- on redemption of preference shares. The Tribunal noted that the issue was already decided in favor of the assessee's subsidiary company by the ITAT and confirmed by the Hon’ble Bombay High Court. The Tribunal allowed the assessee's claim of loss by following the decision in the case of Parle Biscuits Pvt. Ltd. 5. Disallowance of Publicity General Expenses: The Tribunal did not provide a detailed analysis of this issue in the consolidated order. However, it can be inferred that the same principle of consistency with previous years' decisions would apply. 6. Disallowance of Provision for Leave Encashment: The assessee's claim for provision for leave encashment of ?14,82,636/- was disallowed. The Tribunal directed the AO to delete the disallowance, following the decision of the Supreme Court in the case of Bharat Earth Movers. 7. Disallowance of Depreciation on Plant and Machinery: The AO disallowed depreciation on plant and machinery amounting to ?18,61,835/- on the ground that the machines were never received by the assessee. The CIT(A) deleted the disallowance by following the order of his predecessor in the A.Y. 1996-97. The Tribunal upheld the CIT(A)'s order, noting that the issue had been decided in favor of the assessee in the A.Y. 1996-97. 8. Disallowance of Foreign Travel Expenses: The AO disallowed 25% of the total foreign travel expenses of ?34,08,197/-. The CIT(A) allowed the assessee’s claim by following the order of the Tribunal in the A.Y. 1984-85 to 1986-87. The Tribunal restored the matter back to the file of the AO for deciding afresh after considering the documents highlighted by the learned AR during the hearing. 9. Disallowance under Section 14A of the IT Act: For the A.Y. 2008-09 to 2010-11, the AO made disallowances under section 14A r.w.r. 8D. The Tribunal restored the issue back to the file of the AO for deciding afresh after considering the assessee’s balance sheet and directed the AO to consider only those investments wherein exempt income was received during the year. The Tribunal also directed that strategic investments should not be considered while computing disallowance under Rule 8D (2)(iii). Conclusion: The Tribunal allowed the appeals of the assessee and revenue in part, following the reasoning given in the earlier years and directing the AO to follow the Tribunal's decisions in the assessee's own case for the A.Y. 1996-97. The Tribunal's order emphasized consistency with previous decisions and directed the AO to verify and decide on specific issues afresh based on the provided evidence.
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