2022 (1) TMI 786 - AT - Income Tax

Disallowance on a/c of expenses relating to earlier years - expenses will be allowable in the year when such liability has been quantified or paid - CIT-A deleted the addition - HELD THAT - Huge inconsistencies/anamolies in submissions of the assessee before the authorities vis-avis facts reflected in its audited books of accounts ought to have triggered investigation and enquiry by ld. CIT(A) before allowing the aforesaid claim - CIT(A) ought to have verified whether sugarcane purchase tax was paid on the entire amount claimed to be state advised purchase price of sugarcane and the persons to whom and when such payments were made in discharge of its liability for purchase of sugarcane. The powers of ld. CIT(A) are co-terminus with powers of the AO CIT(A) also ought to have looked into the fact that the said amount of deduction which is provided in the audited accounts of financial year 1997-98 is not claimed as deduction while filing return of income for ay 1998-99 to avoid duplication of claim of deduction. All this aspects were never looked into by ld. CIT(A) before granting relief to the assessee as there are no observations whatsoever on these critical issues and merely cryptic unreasoned and non speaking order is passed by ld. CIT(A) and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law and ld. CIT(A) is directed to pass reasoned and speaking order. Assessee has set up a claim of deduction of Rent in the year under consideration which was not provided in the books of accounts of the year under consideration viz. fy 1996-97 and which was claimed to be debited in the books of accounts for subsequent year viz. fy 1997-98 and claimed as deduction for ay 1997-98 by filing revised return of income with Revenue on 29.12.1998. We have observed that there is no discussions whatsoever by ld. CIT(A) on this issue in its order and he has merely accepted the contentions of the assessee. There is no investigation of facts by ld. CIT(A) as to the premises in connection with which Rent was paid and whether the said premises was used wholly and exclusively for the purposes of business of the assessee. Further there is no evidence whatsoever available on record on this issue to give any conclusive finding by us on this issue. There is no investigation of facts by ld. CIT(A) as to when the interest was debited by SBI and whether the said loans were used for regular business of the assessee and whether there was compliance of Section 43B. Further there is no evidence whatsoever available on record on this issue to give any conclusive finding by us on this issue. These aspects were never looked into by ld. CIT(A) and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law and ld. CIT(A) is directed to pass reasoned and speaking order. Disallowance of interest accrued and due which was reflected in the Balance-Sheet of the assessee company by invoking provisions of Section 43B - CIT accepted the contentions of the assessee and ordered the deletion of disallowance as was made by the AO - HELD THAT - Section 43B does not put any such restrictions so far as interest payable on loans raised from State Government or Central Government and we cannot expand the scope of Section 43B. The assessee has rightly relied upon the decisions of Delhi-tribunal in the case of Baghpat Co-operative Sugar Mills Company Limited 2015 (8) TMI 1267 - ITAT DELHI and Ramala Sahkari Chini Mills Limited 2016 (3) TMI 1397 - ITAT DELHI . However the composition/details/bifurcation/working of interest payable as also corresponding loans availed by the assessee has not been looked into by ld. CIT(A) as discussed by us as above in this order and hence we have already set aside the matter to ld. CIT(A) but so far as ratio of law is concerned interest payable on loans raised from State Government/Central Government are not hit by provisions of Section 43B as it stood at relevant time. Needless to say that ld. CIT(A) shall give proper opportunity of being heard to the assessee in set aside remand proceedings and evidences/explanations submitted by the assessee in its defense shall be admitted by ld. CIT(A) and adjudicated on merits in accordance with law. We order accordingly. Disallowance on account of interest payable on loans by invoking provisions of Section 43B - unpaid liability towards interest payable on various loans - HELD THAT - The provision of Section 43B stipulates that evidence of payment is to be enclosed with return of income in the first proviso to Section 43B. However the assessee has not enclosed evidence of such payment along with return of income but the factum of mention of interest paid to IIBI is found in tax audit report. In our view to claim the extended period benefit u/s 43B the mandatory requirement is the substantial compliance of making payment by assessee before the due date for filing of return of income u/s 139(1) while the second condition as stipulated under the first proviso to Section 43B of enclosing evidence of such payment along with return of income is directory in nature and even if the said challan evidencing that payment is made before due date prescribed u/s 139(1) is produced at appellate stage the assessee will be entitled for getting extended period benefit u/s 43B. The assessee is directed to produce evidence of payment of interest and working thereof in correlating with the existing loan liability before ld. CIT(A) as we are also remitting this issue to the file of ld. CIT(A). Interest payable on Sugar Development Fund - As contentions of the assessee will require verification which needs investigation and enquiries into the factual aspects to unravel the truth as also adjudication of legal issue as to applicability of Section 43B in such a scenario as ultimately the assessee will be claiming depreciation u/s 32 of the 1961 Act on the interest being capitalized even though presently as claimed by assessee the interest is capitalized by debiting to Capital Work in progress and not debited presently to P L Account(which also requires verification ). Since all these aspects were never looked into by ld. CIT(A) and hence the appellate order passed by ld. CIT(A) on this issue cannot be sustained and we are inclined to set aside and restore this issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law and ld. CIT(A) is directed to pass reasoned and speaking order. Addition on account of unclaimed deposits/loans and on account of interest thereon - AO observed that the assessee claim of liability on unclaimed deposit/loan is not ascertainable which sum stood added by the AO to the income of the assessee - HELD THAT - These loans/deposits have remained unclaimed and are more than 16-22 years old. There is no evidence brought on record even before us to establish that any of the aforesaid parties have come forward to claim these amounts after such a long gap of 16-22 years. Even law of limitation provides for a period of 3 years and beyond that the debt become time barred if no claim is made or debt is not acknowledged. No doubt law of limitation only bars legal suit for recovery of debt through Court of law and creditor can always voluntarily come forward and acknowledge or pay debt even beyond limitation period of 3 years and Section 41(1) will not be applicable. But in this instant case before us on the touchstone of preponderance of probabilities we are of the considered view that these unclaimed deposits/loans are 16-22 years old which is a considerable period of time-gap these loans/deposits are admittedly shown as unclaimed deposits/loans by assessee itself in its audited financial statements the assessee has claimed albeit in earlier years benefit of deduction of interest expenses on these deposits/loans as revenue deduction while computing income chargeable to tax for those earlier years and even before us it could not be shown that there is any claim made by any of these depositors/lenders for reviving their claim of debt/loan or assessee has acknowledged its debt towards these unclaimed deposits/loans that the aforesaid amount as unclaimed deposit/loan and interest payable thereon on these unclaimed deposits/loans were rightly added by AO to the income of the assessee and we uphold the view of the AO and set aside the appellate order passed by ld. CIT(A) on this issue. Unpaid liabilities towards sale tax payable on molasses - assessee submitted that unpaid liability towards sales tax on molasses has been discharged by making actual payment on 17.04.1997 and the assessee claimed to have filed challan before ld. CIT(A) evidencing such payment - HELD THAT - To claim the extended period benefit u/s 43B the mandatory requirement is the substantial compliance of making payment by assessee before the due date for filing of return of income u/s 139(1) while the second condition as stipulated under the first proviso to Section 43B of enclosing evidence of such payment is directory in nature and even if the said challan evidencing that payment is made before due date prescribed u/s 139(1) is produced by the tax-payer at appellate stage the tax-payer will be entitled for getting extended period benefit u/s 43B. The assessee is directed to produce visible/legible copy of challan evidencing payment of unpaid liability of 48, 172/- towards sales tax before ld. CIT(A) for verification by ld. CIT(A) as we are also remitting this issue to the file of ld. CIT(A) for verification of challans for remitting payment to Government by assessee towards unpaid sales tax liability on molasses to the tune of 48, 172/- vis- -vis liability as is appearing in its audited financial statements as at 31.03.2007. The ld. CIT(A) shall provide proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice. Disallowance on account of PF EPF of the employees of the company - assessee has deposited employees contribution to PF/EPF beyond the time stipulated under the PF/EPF Act and additions were made by AO by invoking provisions of Section 36(1)(va) - HELD THAT - There is no dispute between rival parties as to actual deposit of aforesaid employees contribution towards PF/ESI to the credit of employees with relevant fund as is reflected in chart reproduced above. It could be seen from the aforesaid chart reproduced above that all the aforesaid payments were made prior to the due date of filing of return of income u/s 139(1) and in our considered view the assessee will be entitled for deduction u/s 36(1)(va) read with Section 2(24)(x) if the payment is made before the due date of filing of return of income u/s 139(1). There is a recent amendment by Finance Act 2021 in Section 36(1)(va) and 43B- several Benches of ITAT across India have already adjudicated this issue in favour of tax-payer even after considering the recent amendments made by Finance Act 2021 in Section 36(1)(va) and 43B. Presently we are concerned with ay 1997-98. This issue is adjudicated in favour of the assessee. Addition on account of payment to Dinners Club - CIT - A deleted addition - HELD THAT - there is no evidence on record which could justify that these expenses were incurred by assessee for business purposes. There is no evidence on record as to whom name this Dinners Club Membership was taken who all are authorized to use the facilities granted by Dinners Club and actual usage of facilities for business activities or business promotion. In the absence of any evidence on record we are afraid these expenses cannot be allowed as business/revenue expenses. Even before us no evidence is filed or brought to our notice to justify that these expenses are business expenses incurred wholly and exclusively for the purposes of business of the assessee. Thus we reverse the appellate order passed by ld. CIT(A) and uphold the addition as was made by AO. Addition to the income of the assessee on account of short credit of income in the P L Account - HELD THAT - Instead of giving reasons for acceptance or rejection of assessee s contention ld.CIT(A) simply accepted the assessee s contentions without giving its own reasons or results of verification conducted by him. The powers of ld.CIT(A) are co-terminus with powers of the AO. The claim submitted by assessee that the differential amount was refund of insurance premium which was included in the sum of 9, 30, 576.28 already credited in other income under the head Sundry Receipts requires verification and investigation into facts to unravel truth and hence we are inclined to set aside and restore this issue to file of ld.CIT(A) for fresh adjudication on merits in accordance with law and ld. CIT(A) is directed to pass reasoned and speaking order. Addition on account of entertainment expenses - HELD THAT - We have observed that the assessee has claimed that employees of the assessee company accompanied the customers of the assessee and 25% of the total expenses incurred under the head Entertainment Expenses were attributable to employees of the assessee. CIT(A) has simply accepted the contentions of the assessee and granted relief to the assessee by passing a cryptic non speaking and unreasoned order wherein no independent finding of fact is recorded by ld. CIT(A) based on evidences Order is clearly not sustainable in the eyes of law being non-speaking cryptic and unreasoned order passed by ld. CIT(A) wherein no independent verifications were done and no finding of fact on the employees accompanying customers based on evidence is recorded by ld. CIT(A) and we are inclined to set aside the appellate order passed by ld. CIT(A) and restore the issue back to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law. The ld. CIT(A) is directed to pass speaking and reasoned order wherein finding of fact based on evidence be recorded on the issue under consideration. Appeal filed by the Revenue stands partly allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance of ?92,00,536/- on account of expenses relating to earlier years.
2. Deletion of disallowance of ?94,93,016/- on account of interest accrued and due.
3. Deletion of disallowance of ?46,39,150/- on account of interest payable on loans.
4. Deletion of disallowance of ?39,000/- on account of unclaimed deposits/loan and ?1049/- on account of interest thereon.
5. Deletion of addition of ?48,172/- without proof of payment.
6. Deletion of disallowance of ?91,508/- on account of P.F./E.P.F. of employees.
7. Deletion of disallowance of ?1,042/- on account of payment to Dinners Club.
8. Deletion of disallowance of ?49,310/- on account of short income credited in P&L account.
9. Deletion of disallowance of ?18,333/- on account of entertainment expenses.
10. General issue regarding CIT(A)'s reliance on assessee's submissions without proper examination.

Detailed Analysis:

1. Deletion of disallowance of ?92,00,536/- on account of expenses relating to earlier years:
The AO disallowed ?92,00,536/- claimed by the assessee in the revised return for the year 1997-98, stating that these expenses should be allowed in the year when the liability was quantified or paid. The CIT(A) deleted the disallowance, accepting the assessee's submission that the expenses were incurred during the year but payable later. The Tribunal found that the CIT(A) passed a cryptic, non-speaking order without proper investigation and set aside the issue for fresh adjudication by the CIT(A).

2. Deletion of disallowance of ?94,93,016/- on account of interest accrued and due:
The AO disallowed ?94,93,016/- of interest accrued on loans from the State Government, invoking Section 43B. The CIT(A) deleted the disallowance, stating that interest payment to the government was not covered under Section 43B. The Tribunal noted that the CIT(A) passed a non-speaking order without verifying the details of loans and interest. The issue was set aside for fresh adjudication by the CIT(A).

3. Deletion of disallowance of ?46,39,150/- on account of interest payable on loans:
The AO disallowed ?46,39,150/- of interest payable on various loans, invoking Section 43B. The CIT(A) deleted the disallowance, stating that interest payable to the U.P. government is not amenable to disallowance under Section 43B. The Tribunal found that the CIT(A) did not verify the details and composition of the loans and interest. The issue was set aside for fresh adjudication by the CIT(A).

4. Deletion of disallowance of ?39,000/- on account of unclaimed deposits/loan and ?1049/- on account of interest thereon:
The AO added ?39,000/- of unclaimed deposits/loans and ?1049/- of interest thereon to the income of the assessee. The CIT(A) deleted the addition, stating that these amounts were not written back in the books. The Tribunal found that the deposits/loans were 16-22 years old and unclaimed, and upheld the AO's addition, setting aside the CIT(A)'s order.

5. Deletion of addition of ?48,172/- without proof of payment:
The AO disallowed ?48,172/- of unpaid sales tax liability on molasses, invoking Section 43B. The CIT(A) deleted the disallowance, accepting the assessee's submission that the liability was paid before the due date of filing the return. The Tribunal found that the CIT(A) passed a non-speaking order without verifying the payment challans and set aside the issue for fresh adjudication by the CIT(A).

6. Deletion of disallowance of ?91,508/- on account of P.F./E.P.F. of employees:
The AO disallowed ?91,508/- of employees' contribution to PF/EPF, stating that it was paid beyond the prescribed dates. The CIT(A) deleted the disallowance, accepting the assessee's submission that the payment was made within the permissible time. The Tribunal upheld the CIT(A)'s order, noting that the payment was made before the due date of filing the return.

7. Deletion of disallowance of ?1,042/- on account of payment to Dinners Club:
The AO disallowed ?1,042/- paid to Dinners Club, stating that it was not related to the business. The CIT(A) deleted the disallowance, accepting the assessee's submission that it was for promoting business. The Tribunal found that there was no evidence to justify the expense as business-related and upheld the AO's addition, setting aside the CIT(A)'s order.

8. Deletion of disallowance of ?49,310/- on account of short income credited in P&L account:
The AO added ?49,310/- of short income credited in the P&L account. The CIT(A) deleted the addition, accepting the assessee's explanation that it was a refund of insurance premium already credited under Sundry Receipts. The Tribunal found that the CIT(A) passed a non-speaking order without verifying the details and set aside the issue for fresh adjudication by the CIT(A).

9. Deletion of disallowance of ?18,333/- on account of entertainment expenses:
The AO disallowed ?18,333/- of entertainment expenses, allowing only ?28,333/- out of ?46,666/- claimed. The CIT(A) deleted the disallowance, accepting the assessee's submission that 25% of the expenses were attributable to employees. The Tribunal found that the CIT(A) passed a non-speaking order without verifying the details and set aside the issue for fresh adjudication by the CIT(A).

10. General issue regarding CIT(A)'s reliance on assessee's submissions without proper examination:
The Tribunal noted that the CIT(A) passed cryptic, non-speaking orders without proper investigation and verification of facts in several issues. The Tribunal emphasized the importance of reasoned and speaking orders and set aside multiple issues for fresh adjudication by the CIT(A).

Conclusion:
The Tribunal partly allowed the Revenue's appeal for statistical purposes, setting aside several issues for fresh adjudication by the CIT(A) with directions to pass reasoned and speaking orders after proper investigation and verification of facts.