2018 (9) TMI 223 - HC - Income Tax

Disallowance being the liabilities for business expenditure on the ground that they relate to earlier previous year - Held that - Assessing officer had spoken about crystallising of expenditure during the year previous to the relevant previous year. This was on the basis of the accounting practice followed by the assessee. The factum of receipt of bills did not matter according to the tribunal. We are of the view that the tribunal had taken a plausible view. The issue involves more questions of fact and principles of accounting than law Addition u/s 14A - investment of the assessee s surplus fund in securities stocks specified bonds etc - Held that - It does not seem that the point the income from shares securities etc. was business income was raised before the tribunal. At least the order of the tribunal does not discuss this point at all. It has been raised before us. We can distinguish the two cases cited by stating that in those cases the shares securities etc. were used for trading. They were used as trading assets. We reject the contention of the assessee. In this case these shares securities etc. on which dividend income was earned were purchased compulsorily by the assessee in obedience to the direction of the Reserve Bank of India and were different from those which are bought and sold for the purpose of profit making. These assets of the assessee could not be considered as its trading assets. None the less investment in shares securities etc. was so much an integrate part of the business of the assessee that the business expenditure could not be segregated into parts representing expenses for earning dividend and other expenses. If for convenience and speedy disposal of cases one per cent of the expenses is deducted as attributable to earning exempted income it cannot be said that it is a bad practice. At times even damages are computed on the basis of approximation and accepted by the Court. The calculation of the exact expenses incurred for earning dividend may not be theoretically possible. Therefore computation on the basis of one per cent of the total business expenditure is reasonable in our view. This point fails. Provident fund contribution by assessee beyond the due date but before filing their return - Held that - Under Section 43B any sum payable by the assessee as an employer by way of his contribution to any provident fund can be claimed as a deduction in the previous year in which the sum was actually paid by him by the first proviso. Time to make such payment is extended by the first proviso till the filing of the return of income tax under Section 139(1) of the said Act in respect of the previous year in which the liability to pay such sum was incurred. Hence by using the expression liability incurred the legislature permitted the assessee to deposit the money with the return for the year in which the liability was incurred irrespective of the fact whether payment was made or not in that previous year. In Commissioner of Income-Tax Circle I Kolkata Vs. Vijay Shree Ltd. 2011 (9) TMI 30 - CALCUTTA HIGH COURT the Court has allowed the deduction on provident fund contribution made beyond the due date for its deposit but made before the due date for filing the assessee s return for the previous year when the liability was incurred. Thus the order of the tribunal relating to the above questions is erroneous and is set aside. The matter is remanded to the assessing officer to make a computation in terms of the observations made in this judgment and order and determine the income of the appellant for the assessment year 1999- 2000 within three months of this order

Issues Involved:
1. Depreciation on long-term leasehold properties.
2. Disallowance of business expenditure based on the timing of bill receipt.
3. Disallowance of business expenditure under Section 14A related to earning exempt dividend income.
4. Deferred liability for excess collection of processing charges.
5. Disallowance under Section 43B for delay in payment of employees' contribution to provident fund.

Issue-wise Detailed Analysis:

1. Depreciation on Long-term Leasehold Properties:
The appellant initially raised the issue of depreciation on long-term leasehold properties but later chose not to press this issue. Consequently, the court did not provide a detailed analysis or ruling on this matter.

2. Disallowance of Business Expenditure Based on the Timing of Bill Receipt:
The appellant claimed business expenditure of ?1,31,002 for a specific previous year, arguing that the bills were received and payments made in the relevant assessment year. The assessing officer disallowed the expenditure, stating no evidence was provided to show it was incurred in the relevant year. The Commissioner of Income Tax (Appeals) accepted the appellant's plea and deleted the addition. However, the tribunal reversed this decision, holding that the expenditure crystallized in the previous year based on the accounting practice followed by the assessee. The court upheld the tribunal's view, stating it was a plausible one involving questions of fact and accounting principles rather than law, and no substantial question of law was raised.

3. Disallowance of Business Expenditure Under Section 14A Related to Earning Exempt Dividend Income:
The Reserve Bank of India directed the assessee to invest in securities, stocks, and specified bonds as a condition for their license. The income tax department disallowed ?8,86,266 as business expenditure under Section 14A, attributing it to earning exempt dividend income. The Commissioner of Income Tax (Appeals) reduced this to one percent, which the tribunal affirmed. The appellant argued that the income from such investments should be treated as business income, not dividend income, citing precedents. However, the court distinguished these cases, stating the investments were compulsory and not trading assets. The court found the one percent approximation reasonable for convenience and speedy disposal, rejecting the appellant's contention and upholding the tribunal's order.

4. Deferred Liability for Excess Collection of Processing Charges:
The appellant sought a direction for alternative relief for deferred liability of ?325,15,18,102, debited in the yearly account. The court noted that this issue was not pressed by the appellant, as they had received the relief they wanted in a related appeal. Consequently, the court did not provide a detailed analysis or ruling on this matter.

5. Disallowance Under Section 43B for Delay in Payment of Employees' Contribution to Provident Fund:
The appellant argued that the deduction should be allowed for provident fund contributions paid beyond the due date but before filing the return. The court discussed the amendments to Section 43B and relevant case law, including the Supreme Court's ruling in Commissioner of Income Tax Vs. Alom Extrusions Ltd., which allowed such deductions retrospectively from 1st April 1988. The court found the tribunal's order erroneous and remanded the matter to the assessing officer for computation in line with the judgment, allowing the deduction for provident fund contributions made before filing the return.

Separate Judgments Delivered:
The court delivered separate judgments for each appeal (ITA No.600 of 2004, ITA No.601 of 2004, ITA No.246 of 2005, and ITA No.248 of 2005), addressing the specific issues raised in each case. The rulings were consistent across the appeals, particularly concerning the disallowance under Section 14A and the treatment of deferred liabilities and provident fund contributions.

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