2018 (11) TMI 544 - AT - Income Tax

Character of income - Addition u/s. 28(iv) - liability ceased to exist - Held that - In the case of the assessee the loan was taken in the initial year of the company for capital expansion and the loan was written off as capital in nature and assessee had also not claimed any deduction on account of that loan from the income. After considering the above facts and the findings, we do not find any infirmity in the decision of the ld. CIT(A). Therefore, the appeal of the Revenue is dismissed. Disallowance on account of employee s benefits - Held that - On perusal of the detailed furnished by the assessee, we find that assessee had demonstrated that increase in salary and other related expenditure was because of the business requirement of the assessee during the year under consideration. The main factors connected to the increase in the impugned expenditure are briefly described that assessee has received new contract Idea Cellular which require more manpower as compared to earlier years. There is a change of management of the company which resulted in different business planning and business philosophy which resulted in providing more remuneration to the employees. The assessee has also provided comparative details of salary payment during the year under consideration compared to the preceding years. AO has not found any defect in the books of accounts and bills and vouchers furnished by the assessee in support of its claim. CIT(A), we observe that AO has disallowed these expenses on presumption basis without disproving the evidences and document/ material furnished by the assessee.- Decided against revenue

Issues Involved:
1. Deletion of addition of ?3,21,66,204/- under Section 28(iv) of the Income Tax Act.
2. Deletion of disallowance of ?3,44,78,600/- on account of employee benefits.
3. Disallowance of ?33,30,790/- on account of consultancy fee expenses.
4. Confirmation of disallowance of ?1,26,000/- out of total disallowance of ?5,70,413/- for accrued expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?3,21,66,204/- under Section 28(iv) of the Income Tax Act:
During the assessment, the Assessing Officer (AO) noted that the assessee had shown a ceased liability of ?3,21,66,204/- as income in its Profit & Loss Account but did not offer it for tax, arguing it was capital in nature. The AO treated this ceased liability as income under Section 28(iv) of the Income Tax Act. The CIT(A) deleted this addition, noting that the loan was taken for capital purposes and its waiver did not change its nature from capital to revenue. The CIT(A) relied on judicial precedents, including the Hon’ble Gujarat High Court's decision in CIT vs. Chetan Chemical Pvt. Ltd. and the Hon’ble Bombay High Court's decision in Mahindra & Mahindra Ltd., which held that waiver of a loan taken for capital purposes is not taxable under Section 28(iv) or Section 41(1). The Tribunal upheld the CIT(A)'s decision, confirming that the waiver of the loan, being capital in nature, is not taxable.

2. Deletion of Disallowance of ?3,44,78,600/- on Account of Employee Benefits:
The AO disallowed ?3,44,78,600/- from the total employee benefits claimed by the assessee, deeming the expenditure disproportionate and not genuine. The assessee justified the increase in employee expenses due to new contracts requiring additional manpower and provided detailed evidence, including salary registers and TDS payments. The CIT(A) deleted the disallowance, noting that the AO did not point out any defects in the provided details and that the increase in employee expenses was justified by the business's operational needs. The Tribunal agreed with the CIT(A), emphasizing that the AO's disallowance was based on presumptions without disproving the evidence provided by the assessee.

3. Disallowance of ?33,30,790/- on Account of Consultancy Fee Expenses:
The judgment does not provide detailed analysis or discussion on the disallowance of ?33,30,790/- on account of consultancy fee expenses. Therefore, this issue remains unaddressed in the provided text.

4. Confirmation of Disallowance of ?1,26,000/- out of Total Disallowance of ?5,70,413/- for Accrued Expenses:
The assessee raised a cross-objection against the CIT(A)'s confirmation of disallowance of ?1,26,000/- out of ?5,70,413/- for accrued expenses. However, during the hearing, the assessee's counsel did not press this cross-objection, leading to its dismissal as not pressed.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on the deletion of additions and disallowances. The cross-objection by the assessee was also dismissed as not pressed. The order was pronounced in the open court on 06-09-2018.

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