2018 (7) TMI 1424 - AT - Income Tax

Addition on account of expenses found to be unverifiable during the assessment proceeding - Held that - AO has made an ad hoc disallowance @ 10% of the various expenses under the head under consideration which was restricted to 8% by the Ld. CIT(A), while considering the upholding of disallowance @ 8% for the Asst. Year 2011-12, by his predecessor. Even Co-ordinate Bench at Amritsar for the Asst. Year 2011-12 sustained the similar disallowances @ 8% as restricted by the Ld. CIT(A), which is not in dispute, hence, the ground No.1 stands dismissed. Addition on account of development of road by treating the same as capital expenditure - Held that - The similar addition was also deleted by the Ld. CIT(A) for the Asst. Year 2011-12 which was further sustained by the Co-ordinate Bench at Amritsar and therefore, the Ld. CIT(A) while relying upon the order passed by the predecessor for the Asst. Year 2011-12 as well as while analyzing various case laws, deleted the addition under challenge treating the same as Revenue expenditure. Disallowance u/s 14A - addition in respect of investment of ₹ 3,55,00,000/- in shares holding on the reason that the same is not in a proximity to the business of the assessee company and used the business funds on dividends which is exempt income - Held that - In the instant case, the assessee company had interest free funds of ₹ 52,84,12,357/- and out of which only ₹ 3,55,00,000/- has been invested in share of group companies which goes to show that the appellant has not invested interest bearing funds, hence on this reason alone, no disallowance can be made in view of the judgment rendered by Jurisdictional High Court in the case of CIT vs. Hero Cycles Limited 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT Addition in terms of provision of Sec.36(1)(va) read with Sec.2(24)(x) - sum not been deposited within the due date as prescribed under the PF Act and the ESI Act - Held that - Employees contribution towards PF paid by the assessee before due date on filing of return u/s 139(1) of the Act for the Asst. Year under consideration is admissible for deduction . Prior period expenses and on account of leave encashment to be allowed

Summary

Issues:
1. Deletion of expenses found to be verifiable during assessment proceedings.
2. Treatment of road development expenditure as capital expenditure.
3. Disallowance under section 14A for investment in shares.
4. Treatment of employee contributions as income under IT Act.
5. Prior period expenses and leave encashment additions.

Analysis:

1. The first issue pertains to the deletion of expenses amounting to ?3,56,978 out of a total of ?17,84,680, found to be unverifiable during assessment proceedings. The CIT(A) restricted the disallowance to 8%, which was upheld based on previous decisions. The Ground No.1 was dismissed.

2. The second issue concerns the deletion of ?33,43,327 made by the AO on account of road development expenditure treated as capital expenditure. The CIT(A) relied on previous decisions and case laws to treat it as revenue expenditure, leading to the dismissal of Ground No.2.

3. The third issue involves the deletion of ?24,58,397 disallowed under section 14A for investing in shares not closely related to the business. The CIT(A) followed judgments and held that no disallowance was warranted as there was no exempt income. The Ground No.3 was dismissed.

4. The fourth issue relates to the deletion of ?30,56,704 and ?4,98,965 under Sec.36(1)(va) for employee contributions not deposited within due dates. The CIT(A) referred to precedents and jurisdictional High Court decisions to support the deletion. Ground No.4 was dismissed.

5. The fifth issue concerns the deletion of ?22,43,06 for prior period expenses and ?16,05,398 for leave encashment. The CIT(A) decision was upheld based on previous rulings, leading to the dismissal of Ground No.5.

In conclusion, the appeal filed by the Revenue Department was dismissed by the Appellate Tribunal based on detailed analysis and application of relevant legal principles and precedents. The judgment provided a comprehensive explanation for each issue raised, ensuring a fair and just decision in accordance with the IT Act.