2021 (2) TMI 1059 - HC - Income Tax

Disallowance of Expenditure relating to loose tools - despite opportunity being given the assessee has failed to produce the complete details of the materials received including inventory of materials date time and delivery of the loose tools - HELD THAT - The assessee company has also failed to produce the material receipt register. Though it has been contended by the assessee before the tribunal as recorded in para11 of the order passed by the tribunal that assessee had produced the C.D. containing the details as requested by the Assessing Officer at the time of hearing. However the tribunal has not recorded any finding with regard to aforesaid contention of the assessee and in para 14 has recorded the finding in favour of the assessee. In view of the reasoning assigned by the Assessing Officer in his order for disallowing the claim and in view of the assertion made by the assessee that it had furnished the details the tribunal ought to have ascertained whether or not the assessee had furnished the details as contended by him. Therefore in our opinion the matter requires adjudication afresh by the tribunal so far as first substantial question of law is concerned. Therefore the first substantial question of law is answered accordingly. Addition of interest - interest free loan to two of its subsidiaries company - HELD THAT - The assessee again has contended before the Commissioner of Income Tax (Appeals) as is evident from para 3(ii) of the order passed by the tribunal that the assessee s own funds were 124 Crores whereas the loan advanced is to the tune of 64 Crores. However in this regard also we find that the tribunal has not recorded the any finding whether or not the interest free loans were given from the borrowed funds or from the assessee s own funds. Therefore the aforesaid issue also requires adjudication afresh by the tribunal. Accordingly the second substantial question of law is answered. Addition u/s 43B - deposit of property tax amounts to crystallized liability - difference between the taxes actually paid under Section 43B of the Act and taxes deposited as per the directions of the Court when the liability to tax is disputed by the assessee and recorded a perverse finding - HELD THAT - From perusal of Section 43B of the Act provides that any sum payable by way of tax duty cess or fee shall be allowed in the year in which it is actually paid. It is not in dispute that on account of directions issued by the court the assessee paid a sum of 87, 50, 000/- towards property tax. Therefore the assessee is entitled to deduction to the extent of property tax which was paid by it. The Commissioner of Income Tax (Appeals) appeal as well as the tribunal have rightly held that the liability was certain and has rightly deleted the disallowance. Reference in this connection may be made to decision of the Supreme Court in BHARAT EARTH MOVERS 2000 (8) TMI 4 - SUPREME COURT . Substantial question of law is answered against the revenue and in favour of the assessee.

Summary

Issues Involved:
1. Write-off of expenditure on purchase of tools as revenue expenditure.
2. Nexus between interest-bearing funds and interest-free advances.
3. Allowability of salaries as revenue expenditure.
4. Crystallization of liability for property tax under Section 43B of the Income Tax Act.

Detailed Analysis:

1. Write-off of Expenditure on Purchase of Tools as Revenue Expenditure:
The Assessing Officer disallowed the claim of ?4,41,08,588/- for expenditure on loose tools, citing the assessee's failure to provide complete details, including inventory and material receipt registers. The Tribunal allowed the claim, stating it was revenue in nature. However, the Tribunal did not ascertain whether the assessee had indeed furnished the required details. Therefore, this issue requires fresh adjudication by the Tribunal to verify the details provided by the assessee.

2. Nexus Between Interest-Bearing Funds and Interest-Free Advances:
The Assessing Officer held that interest-free loans to subsidiaries were from borrowed funds. The assessee contended that it had sufficient own funds (?124 crores) compared to the loans advanced (?64 crores). The Tribunal did not record a finding on whether the loans were from borrowed funds or the assessee's own funds. This issue also requires fresh adjudication by the Tribunal to determine the source of the interest-free loans.

3. Allowability of Salaries as Revenue Expenditure:
The Tribunal directed the Assessing Officer to verify the claim of ?1,31,05,337/- paid as salaries to employees. If verified, the amount should be allowed. Since the matter has been remitted for verification, this substantial question of law does not arise for consideration at this stage.

4. Crystallization of Liability for Property Tax Under Section 43B:
Section 43B allows deduction of any sum payable by way of tax, duty, cess, or fee in the year it is actually paid. The assessee paid ?87,50,000/- towards property tax under court directions. The Tribunal and Commissioner of Income Tax (Appeals) rightly held that the liability was certain and deleted the disallowance. This issue is resolved in favor of the assessee, referencing the Supreme Court decision in Bharat Earth Movers.

Conclusion:
The Tribunal's order dated 21.12.2012 is quashed concerning the first two substantial questions of law, and the matter is remitted to the Tribunal for fresh adjudication on these issues. The appeal is disposed of, allowing parties to raise all admissible contentions under the law.