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2020 (5) TMI 22 - AT - Income TaxAddition as excessive payment u/s 40A(2)(b) - HELD THAT - Provisions of Section 40A(2)(b) of the Act are applicable on expenses claimed as deduction whereas the assessee had purchased a capital asset and therefore, learned CIT(A) had rightly allowed relief to the assessee.Provisions of S,40A(2) b) of the Act are applicable on expenses claimed as deduction. As the appellant has not claimed any deduction out of the related party transaction, the provisions of S.40A(2)(b) cannot be applied. Disallowance of expenses as same related to SEZ unit only - assessee had apportioned the same between two units - HELD THAT - Before the learned CIT(A), the assessee filed detailed explanations and also filed additional evidences and also filed detailed calculations of cost per unit in SEZ unit as well as in non SEZ unit. From the submissions made before the learned CIT(A), we have observed that cost per unit in both units were almost same and therefore, he rightly deleted the addition There is hardly any difference between the cost of total raw material including the accessories. Even the product mix of the appellant is quite different in both the Units which has also not been taken into account by the AO while making the addition. In such circumstances, the addition made by the AO is not based on the facts of the case and therefore, the addition made by the AO is directed to deleted Negative adjustment made by AO to the eligible profits u/s 10AA - HELD THAT - It is a well settled rule that the expenses have to be apportioned on actual basis, however when such apportionment is not possible, then the assesse has to retort to other methods. In the present case the appellant submitted the list of expenses which were apportioned on the actual basis and the details of such expenses and the justification for accounting it on actual basis. Regarding the segregation on the actual basis of the appellant, the AO has not found any fault with the basis of allocation on actual basis. If the expenses are allocated on the actual basis, then it is the best method of allocation. If any expense cannot be bifurcated on the actual basis, then only the allocation has to be resorted to. Since the appellant has booked all these expenses on the basis of actual, and the AO has not pointed out any specific fault in such actual basis of booking, the same cannot be disallowed on the basis of general observation by the AO until and unless some defects in the booking of expenses on actual basis is pointed out. Accordingly, the negative adjustment made by AO to the eligible profits u/s 10AA is not justified. Disallowance on account of notional interest - HELD THAT - CIT(A) has allowed relief to the assessee by holding that assessee had furnished factual submissions and the advances were given for business purposes and therefore, same cannot be treated as non-business purposes. Moreover, the assessee had sufficient interest free reserves to finance interest free advances. In view of the above, ground is also dismissed. Addition of bad debts - HELD THAT - AO had made this addition by holding that the sale was made out of SEZ unit whereas the fact is otherwise as the sale was made from non SEZ unit. The learned CIT(A) has made a finding of fact that sale to the party was made out of non SEZ unit. Finding no infirmity in the order of leaned CIT(A), ground is also dismissed. EPF penalty and penalty on late submission of excise return - suo moto disallowance made by assessee - HELD THAT - Observation has been specifically made by learned CIT(A) in his order. We further find that the remaining amount of penalty related to interest on sales tax and re-connection charges of electricity board and learned CIT(A) had rightly held that interest charged by sales tax was compensatory in nature and re-connection charges charged by electricity board were also compensatory in nature and were not penal in nature and therefore had rightly allowed the relief. Disallowing employees contribution PF ESIC - HELD THAT - We find that learned CIT(A) has dismissed this ground of appeal by relying on the judgment of Gujarat State Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT and no argument was advanced by the learned AR, therefore, there is no infirmity in the order of learned CIT(A). In view of the above, ground nos. 1 to 4 are dismissed.
Issues Involved:
1. Deletion of disallowance of expenses under the head material accessories. 2. Deletion of disallowance of deduction u/s 10AA of the Act. 3. Deletion of disallowance of EPF & ESI contribution. 4. Deletion of disallowance of interest on deposits. 5. Deletion of disallowance of bad debts. 6. Deletion of disallowance of penalty. 7. Deletion of addition u/s 40A(2)(b). 8. Cross Objection by assessee on disallowance of employee's contribution towards PF and ESIC. 9. Cross Objection on levying interest u/s 234A/B/C/D. 10. Cross Objection on initiating penalty u/s 271(1)(c). Detailed Analysis: 1. Deletion of disallowance of expenses under the head material accessories: The AO disallowed ?1,22,62,031/- by reducing the cost of accessories in the non-SEZ unit to 23.7%. The CIT(A) found that the cost per unit in both SEZ and non-SEZ units was almost the same and rejected the AO's findings. The Tribunal upheld CIT(A)'s decision, dismissing the Revenue's appeal. 2. Deletion of disallowance of deduction u/s 10AA of the Act: The AO disallowed ?35,20,119/- under s.10AA, claiming that expenses were wrongly allocated between SEZ and non-SEZ units. CIT(A) found that exports were made from both units and that the expenses were correctly allocated. The Tribunal upheld CIT(A)'s decision, dismissing the Revenue's appeal. 3. Deletion of disallowance of EPF & ESI contribution: The CIT(A) confirmed the disallowance of ?15,62,361/- for late payment of employee's contribution to PF & ESIC. The Tribunal noted this issue was not pressed by the Revenue and dismissed the ground. 4. Deletion of disallowance of interest on deposits: The AO disallowed ?4,03,200/- of interest on deposits, claiming advances were not for business purposes. CIT(A) found the advances were for business purposes and that the assessee had sufficient interest-free reserves. The Tribunal upheld CIT(A)'s decision, dismissing the Revenue's appeal. 5. Deletion of disallowance of bad debts: The AO disallowed ?54,148/- of bad debts, claiming they related to the SEZ unit. CIT(A) found the sale was made from the non-SEZ unit. The Tribunal upheld CIT(A)'s decision, dismissing the Revenue's appeal. 6. Deletion of disallowance of penalty: The AO disallowed ?89,419/- of penalties. CIT(A) found that some penalties were compensatory in nature and not penal. The Tribunal upheld CIT(A)'s decision, dismissing the Revenue's appeal. 7. Deletion of addition u/s 40A(2)(b): The AO added ?3,17,941/- under s.40A(2)(b), claiming excessive payment for plant and machinery. CIT(A) found that Section 40A(2)(b) applies to revenue expenditure, not capital expenditure. The Tribunal upheld CIT(A)'s decision, dismissing the Revenue's appeal. 8. Cross Objection on disallowance of employee's contribution towards PF and ESIC: The assessee argued the disallowance was incorrect. CIT(A) relied on the Gujarat High Court judgment in Gujarat State Road Transport Corporation. The Tribunal found no infirmity in CIT(A)'s decision and dismissed the cross objection. 9. Cross Objection on levying interest u/s 234A/B/C/D: The Tribunal found these grounds consequential and did not require adjudication, dismissing the cross objection. 10. Cross Objection on initiating penalty u/s 271(1)(c): The Tribunal found these grounds consequential and did not require adjudication, dismissing the cross objection. Conclusion: Both the Revenue's appeal and the assessee's cross objections were dismissed.
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