2021 (11) TMI 766 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - CIT(A) has restricted the disallowance after taking into consideration the submission of the assessee that it had sufficient interest free funds available with it and the nature of the expenditure incurred by the assessee was not related to investment made by it on which exempt income earned - HELD THAT - It is undisputed fact that the total exempt income earned during the year under consideration was of ₹ 16,78,260/- only. In this regard, we observed that in a number of decisions the ITAT Ahmedabad had adjudicated that disallowance u/s. 14A cannot exceed the amount of exempt income earned by the assessee during the year under consideration i.e. in the case of Jivraj Tea Ltd. 2014 (9) TMI 131 - ITAT AHMEDABAD and decision of Sahara India Financial Corporation Ltd. 2014 (1) TMI 1597 - ITAT DELHI - disallowance u/s. 14A cannot exceed exempt income, therefore, we restrict the disallowance u/s. 14A of the act to the extent of exempt income of ₹ 16,78,260/- earned by the assessee during the year under consideration. Accordingly, the ground of appeal of revenue is dismissed. Excess depreciation claim on commercial vehicle - assessee submitted that it was entitled for depreciation @ 50% on purchase of new commercial vehicle on or after 1st January, 2009 but before 30th Sep, 2009 and put to use before 30th Sep, 2009 - As per AO the requirement for registration for commercial vehicle was different from private vehicles and in the case of the assessee the vehicle on which higher deprecation claimed was not registered as commercial vehicle. Therefore, the claim of depreciation was restricted to the normal rate of depreciation at 15% and the excess claim of depreciation - HELD THAT - CIT(A) has deleted the addition after following the decision on identical issue and similar facts in the case of Voltamp Transformers Ltd. 2013 (3) TMI 804 - ITAT AHMEDABAD and the decision of Sunil Kumar Dhulichand HUF 2013 (6) TMI 902 - ITAT AHMEDABAD as elaborated in his findings supra in this order. Following the decision of Co-ordinate Bench, we do not find any infirmity in the decision of ld. CIT(A), therefore, this ground of appeal of the Revenue is dismissed. Disallowance of excise duty - assessee has claimed excise duty claim adjusted against securities premium account - assessee explained that the same has not been charged to P L account rather it has been set off against the share premium account as per the scheme of capital reduction sanction by High Court of Gujarat dated 15th Feb, 2013 being an item of section 43B - AO has not accepted the submission of the assessee stating that the assessee has reversed the CENVAT credit on the order of excise department and the same was not certified by the auditor in his report in form 3CDCIT-A deleted the addition - HELD THAT - The assessee has followed exclusive method of accounting as purchases and sales in the P L A/c are reflected at net of excise duties. The CENVAT credit receivable is shown in the Balance Sheet under the head loan and advances. Since the excise authority held that CENVAT credit on fuel used for generation of electricity supplied to the outside entities is not available therefore the assessee has adjusted CENVAT credit receivable against CENVAT payable/excise duty. The assessee has exercised his option to set off CENVET credit against excise liability, which amounts to payment of excise duty, therefore, assessee is entitled to deduction u/s. 43B . Assessee has used the CENVAT credit balance for making payment of excise duty. The records of CENVAT credit is maintained in RG 23 register as per excise law and adjustment of CENVAT credit is one of the mode of payment of excise duty under Excise Rule. Considering the above facts and findings, we do not find any infirmity in the decision of ld. CIT(A). Disallowance u/s. 14A for computing book profit u/s. 115JB - HELD THAT - As relying on VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI disallowance made u/s. 14A is not required to be added for computing book profit u/s. 115JB of the Act. Therefore, this ground of cross objection of the assessee is allowed. Disallowance on account of employee s contribution - assessee has failed to deposit employee s contribution to provident fund and ESIC before due date prescribed under relevant provisions of the said acts - addition as per provision of section 36(1)(va) r.w.s. 2(24)(x - HELD THAT - It is observed that the issue is covered by the decision of Hon ble Gujarat High Court in the case of Gujarat State Road Transport 2014 (1) TMI 502 - GUJARAT HIGH COURT wherein it is held that where an employer has not credited sum received by it as employee s contribution to employees account in relevant fund on or before due date as prescribed in explanation to section 36(1)(va), the assessee is not entitled to deduction of such amount, therefore, we do not find any infirmity in the decision of ld. CIT(A). - Decided against assessee. Addition made u/s. 41(1) - assessee has shown sundry creditors of ₹ 506.16 crores - liability presumed to be ceased in view of the fact that till date the amount due to such parties has not been paid - HELD THAT - It is undisputed fact that assessee has not written back the aforesaid liability and it is still shown in the books of account as payable. Therefore, considering the decision of Hon ble Jurisdictional High Court of Gujarat in the case of CIT vs. Bogilal Kamjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT we do not find any infirmity in the decision of ld. CIT(A) ld. CIT(A) since there was noting on record to indicate that there was cessation of liability during the year under consideration. Therefore, this ground of appeal of the revenue is dismissed. Nature of expenditure - expenditure on repairs on plant and machinery - revenue or capital expenditure - CIT(A) has allowed the appeal of the assessee - HELD THAT - It is clear from the facts as elaborated above in the finding of ld. CIT(A) that the assessee has incurred the expenditure for repairing of existing spare parts as evident from the invoices and detail of contract note mentioned in the finding of ld. CIT(A). The Revenue has not controverted the facts reported in the finding of the ld. CIT(A), therefore, following the decision of BANCO PRODUCTS (I) LTD. 2012 (12) TMI 572 - ITAT AHMEDABAD as referred by the ld. CIT(A), we do not find any infirmity in the decision of ld. CIT(A). Therefore, this ground of appeal of the revenue stands dismissed. Disallowance of commission expenditure - assessee explained that it has been consistently making provision for commission expenditure on mercantile basis on year to year basis at the end of financial year on the basis of sale made in that financial year -CIT(A) has allowed the appeal of the assessee - HELD THAT - In view of the decision of Hon ble Co-ordinate Bench of the ITAT in the case of Adani Enterprises 2015 (4) TMI 324 - ITAT AHMEDABAD as elaborated in the finding of ld. CIT(A) as above, we do not find any infirmity in the decision of ld. CIT(A). Therefore, this ground of appeal of the revenue stands dismissed. Disallowance u/s. 40(a)(ia) - Assessee has made payment as recruitment expenses to Perfect Connection Ltd. without deducting tax on the aforesaid payment - HELD THAT - We do not find any infirmity in the decision of ld. CIT(A), since the Assessing Officer has not disproved the fact that assessee has made payment on account of reimbursement of expenditure on which no TDS is deductable. Therefore, this ground of appeal of the Revenue stands dismissed Long term capital loss as against long term capital gain offered in the original return of income and revised return of income filed by revenue - HELD THAT - assessee has brought to the knowledge of the Assessing Officer vide letter dated 29th March, 2012 that because of error in computing the income under the head long term capital gain, it has omitted to take correct cost of acquisition while computing the long term capital loss of ₹ 7,640,519/- on the sale of ₹ 7,13,383 shares of Arvind Brand Ltd. The assessee further submitted that correct long term loss on the sale of those shares would have worked out to the amount of ₹ 1,265,46,770/- as against the loss of ₹ 76,40,519/- computed in its return of income. The assessee has given the working as per which the long term capital gain of ₹ 5,30,66,091/- shown in the revised return was required to be re-stated as long term capital loss of ₹ 6,58,40,160/-. The aforesaid submission of the assessee was not considered by the Assessing Officer. Subsequently, in the appellate proceedings, the ld. CIT(A) referred the decision of CIT vs. Pruthvi Brokers and Shareholders 2012 (7) TMI 158 - BOMBAY HIGH COURT and decisionin the case of MITESH IMPEX 2014 (4) TMI 484 - GUJARAT HIGH COURT wherein it is stated that assessee can claim additional claim before CIT(A) even though no revised return of income is filed. Therefore, in accordance with the findings laid down in these decisions, the ld. CIT(A) has directed the Assessing Officer to allows the losses as per provision of the act after verification of the working given by the assessee - No error in the direction of the ld. CIT(A). Therefore, this ground of appeal of the revenue stands dismissed. Computation of deduction u/s 14A r.w.r. 8D - HELD THAT - In VIREET INVESTMENT (P.) LTD. 2017 (6) TMI 1124 - ITAT DELHI it is held by the Special Bench of the Tribunal that only those investment are to be considered by computing average value of investment which yielded exempt income during the year. We are of the considered view that ratio laid in the above decision is squarely applicable in the instant case. Therefore, we set aside the order of the ld. CIT(A) for the impugned assessment year and restore the matter to the file of the Assessing Officer to make a de-novo order after following the ratio laid down in Vireet Investment Pvt. Ltd. (supra) after giving a reasonable opportunity of being head to the assessee. In the result, this ground of appeal of Revenue and assessee are partly allowed for statistical purpose

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Excess depreciation claim on motor vehicles.
3. Disallowance of excise duty claims.
4. Addition of disallowance under Section 14A for computing book profit under Section 115JB.
5. Disallowance of employee’s contribution to provident fund and ESIC.
6. Addition on account of cessation of liability under Section 41(1).
7. Disallowance of repairs on plant and machinery as capital expenditure.
8. Disallowance of commission expenditure.
9. Disallowance of foreign exchange derivative loss.
10. Disallowance of claim of bad debts.
11. Long term capital loss computation.
12. Disallowance under Section 40(a)(ia) for non-deduction of tax.

Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The Assessing Officer (AO) disallowed expenses under Section 14A read with Rule 8D, which were related to earning exempt income. The assessee argued that the investments were strategic and not for earning exempt income. The AO did not accept this and computed disallowance. The CIT(A) restricted the disallowance, and the Tribunal further restricted it to the amount of exempt income earned, following precedents that disallowance cannot exceed exempt income.

2. Excess depreciation claim on motor vehicles:
The AO disallowed higher depreciation claimed on a motor vehicle not registered as a commercial vehicle. The CIT(A) allowed the claim, referencing judicial precedents that defined commercial vehicles under the Motor Vehicle Act, which includes light motor vehicles. The Tribunal upheld the CIT(A)’s decision.

3. Disallowance of excise duty claims:
The AO disallowed the excise duty claim, arguing it was not actually paid but adjusted against CENVAT credit. The CIT(A) allowed the claim, stating that adjustment of CENVAT credit is a recognized mode of payment under the Excise Act. The Tribunal upheld this decision, noting that the adjustment is equivalent to payment.

4. Addition of disallowance under Section 14A for computing book profit under Section 115JB:
The Tribunal, following the Special Bench decision in ACIT vs. Vinit Investment Pvt. Ltd., held that expenses incurred to earn exempt income should not be added for computing book profit under Section 115JB.

5. Disallowance of employee’s contribution to provident fund and ESIC:
The AO disallowed the employee’s contribution to provident fund and ESIC not deposited before the due date. The CIT(A) upheld the disallowance, and the Tribunal confirmed this decision, referencing the Gujarat High Court's ruling that such contributions must be deposited by the due date to be deductible.

6. Addition on account of cessation of liability under Section 41(1):
The AO added certain sundry creditors as income under Section 41(1), presuming cessation of liability. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting there was no evidence of cessation of liability.

7. Disallowance of repairs on plant and machinery as capital expenditure:
The AO capitalized certain repair expenses, treating them as providing enduring benefit. The CIT(A) allowed the expenses as revenue expenditure, and the Tribunal upheld this decision, noting the expenses were for maintaining existing assets.

8. Disallowance of commission expenditure:
The AO disallowed commission expenses, treating them as prior period expenses. The CIT(A) allowed the claim, and the Tribunal upheld this decision, noting the consistent accounting practice of the assessee and the genuineness of the expenses.

9. Disallowance of foreign exchange derivative loss:
The AO disallowed market-to-market loss on foreign exchange derivatives, treating it as notional. The CIT(A) allowed the claim, and the Tribunal upheld this decision, referencing judicial precedents that such losses are allowable as business expenses.

10. Disallowance of claim of bad debts:
The AO disallowed the claim of bad debts not debited in the profit and loss account. The CIT(A) allowed the claim, noting the debts were written off in the books and related income was offered in earlier years. The Tribunal upheld this decision.

11. Long term capital loss computation:
The AO did not consider the revised computation of long-term capital loss submitted by the assessee. The CIT(A) directed the AO to verify and allow the correct computation. The Tribunal upheld this direction.

12. Disallowance under Section 40(a)(ia) for non-deduction of tax:
The AO disallowed certain expenses for non-deduction of tax. The CIT(A) allowed the claim, treating the payments as reimbursements not subject to TDS. The Tribunal upheld this decision.

Conclusion:
The Tribunal provided detailed rulings on various disallowances and additions, largely upholding the CIT(A)’s decisions and providing relief to the assessee on multiple grounds. The judgments emphasized adherence to judicial precedents and proper verification of facts.