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2020 (12) TMI 353 - AT - Income TaxDisallowance u/s 14A - contention of the assessee before the Assessing Officer was there was no expenditure incurred in relation to income which does not form part of total income, the amount of expenditure in relation to such income shall be worked out in accordance to sub-Rule (2) - HELD THAT - In order to attract the applicability of section 14A of the Act, an assessee has to incur expenditure. In the present case the income pertains to income on dividend, which by no stretch of imagination can be treated to be an expenditure to attract the provisions of section 14A - Hon ble Supreme Court in case of Maxopp Investments Ltd. 2018 (3) TMI 805 - SUPREME COURT and Walfort Share and Stock Brokers (P.) Ltd. 2010 (7) TMI 15 - SUPREME COURT reiterated the same. CIT(A) was rightly deleted this addition as there is no exempt income in this particular assessment year. - Decided against revenue. Addition on account of Royalty payment to Assam Govt. - contravention of the accounting standards with regard to prior period expense - DR submitted that the assessee has used the mix accounting system which categorically prohibits the allowability of prior period expenses unless it is proved that the expenses and the liability thereof is crystallized during the relevant year under consideration - CIT-A deleted the addition - HELD THAT - CIT(A) has given a categorical finding that royalty payment is an additional payment and the same was not disputed by the Revenue. Once the royalty expenses of ₹ 14.95 crores have been crystallized in the present Assessment Year, the genuineness of the same is not questioned by the Revenue authorities. Hence, there is no need to interfere the findings of the CIT(A). Ground of the Revenue s appeal is dismissed. Addition of contingent liability, which do not constitute expenditure and not allowable u/s 37 (1) - DR submitted that in the present case the expenses on account of royalty payable to Government of Arunachal Pradesh Gujarat has been debited on estimated basis as assessee is not able to furnish any documentary evidence or explain basis as to how the expenditure on royalty has been crystallized - CIT-A deleted the addition - HELD THAT - CIT(A) has given a categorical finding that the Assessee Board is under an obligation of payment of royalty to the respective State Governments wherein oil wells are located. The amount payable on account of royalty is determined by the Government with regard to the rate, quantity of crude oil extracted etc. The assessee Board does not have any domain or control on this issue. It is the Ministry of Petroleum Natural Gases which advises the Board about the payment of royalty to the respective State Governments which is evident from the letters produced by the Assessee Board during the Assessment Proceedings and the appellate proceedings. Thus, the CIT(A) has rightly deleted the said addition. - Decided against revenue.
Issues:
1. Disallowance of expenditure on schemes and projects by the assessee. 2. Disallowance under Section 14A of the Act. 3. Disallowance of royalty payment to Assam Govt. 4. Addition on account of contingent liability. Analysis: Issue 1: Disallowance of expenditure on schemes and projects by the assessee - The assessee filed an appeal against the assessment order treating expenditure on direct operations as appropriation of profits, invoking Section 37(1) and Section 14A for disallowance of expenditure. - The CIT(A) partly allowed the appeal, leading to further arguments by the Ld. AR regarding the nature of expenditure. - The Tribunal remanded the issue back to the Assessing Officer for examination of documents supporting the justification of expenses, citing similar cases in previous assessment years. - The Tribunal found the facts similar to previous years and remanded the issue for further examination, allowing the appeal partly for statistical purposes. Issue 2: Disallowance under Section 14A of the Act - The Revenue's appeal challenged the deletion of addition made by the AO under Section 14A. - The Ld. AR argued that no exempt income was earned during the assessment year, hence Section 14A did not apply. - Citing relevant case laws, the Tribunal upheld the CIT(A)'s decision to delete the addition, emphasizing that income from dividends cannot be treated as expenditure under Section 14A. Issue 3: Disallowance of royalty payment to Assam Govt - The Revenue's appeal contested the deletion of disallowance made by the AO regarding royalty payment to the Assam Govt. - The Ld. DR argued against the deletion, stating prior period expenses are not allowable unless crystallized during the relevant year. - The Tribunal upheld the CIT(A)'s decision, noting that the royalty expenses were genuine and crystallized in the present assessment year, dismissing the appeal. Issue 4: Addition on account of contingent liability - The Revenue's appeal challenged the deletion of addition on account of contingent liability. - The Ld. DR argued that the expenses were debited on an estimated basis without proper documentation. - The Tribunal upheld the CIT(A)'s decision, stating the Assessee Board's obligation to pay royalty to State Governments was evident, and there was no need to interfere with the finding of the CIT(A). In conclusion, the appeal of the assessee was partly allowed for statistical purposes, while the appeal of the Revenue was dismissed. The Tribunal provided detailed analysis and reasoning for each issue, emphasizing the importance of proper examination of expenses, applicability of relevant sections, and adherence to accounting standards.
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