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TMI Blog2012 (12) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... wance of interest u/s 14A – Expense in relation to earn exempt income - Whether interest expenses relatable to borrowed funds which are used for making investment in the share capital of a firm can be said to be expenditure incurred for earning income not includible in the total income – Held that:- The intend of the assessee not to earn tax free income in the form of share of profits from the firm. Once it is found that the provisions of Sec.14-A are applicable then irrespective of the fact that there was no receipt of share of profits from the firm in the present year or the argument that the disallowance cannot exceed the amount of share of profits received from the firm, cannot be accepted. Therefore, disallowance has to be sustained. In favour of revenue - ITA No. 211(B)/2012 - - - Dated:- 18-7-2012 - SHRI N.BARATHVAJA SANKAR AND SHRI N.V.VASUDEVAN, JJ. Assessee by : Shri S. Sukumar, Advocate Revenue by : Shri S.K. Ambastha, CIT-I ORDER PER SHRI N.V.VASUDEVAN, JM: This is an appeal by the assessee against the order dated 30- 11-2011 of CIT(A)-I, Bangalore, relating to AY: 2008-09. 2. Ground No.1 raised by the assessee is with regard to disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have considered the above. In view of the observations made by the AO in para-2 3 of the assessment order. I see no reason to interfere in the disallowance. Para 2, the AO points out that though the turnover has increased from Rs.103 Crores of last year to Rs.120 Crores, the corresponding net profit has not shown similar increase rather shown decline from Rs.11.69 Crores to Rs.10.26 Crores. Though, it has not been stated in clear terms, the obvious interference is that it is a proven case of inflation of expenses. Even the statistics provided in the written submission strengthens such conclusion. As per AR s statistics the turnover has increased in sales promotion expenses is 2.044% (Rs.2,54,31,711/Rs.124,43,438/-) i.e. almost 0.9 increase. In short, the AO has rightly doubted the genuineness of the claim of sales promotion expenditure shown at Rs.2,54,31,711/-. Therefore, he had called for the details and with experience and haunch asked the assessee to produce all the bills and vouchers of the unmarked sales promotion expenditure details of which had been narrated in para-3 of the assessment order vide supra. Admittedly, the assessee had not produced all vouchers and bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees shall be treated as income of the assessee. The AO also referred to the fact that u/s 36(1)(va) of the Act, any sum which is treated as income u/s 2(24)(x) of the Act will be allowed as deduction only if the same is credited by the assessee to the employees account in the relevant fund of funds on or before the due date. The due date for the above purpose is the due date/last date as per law governing PF ESI within which employees contributions have to be paid by the Employer to the credit of the concerned employee. According to the AO since the assessee has paid the aforesaid contribution beyond the due date, the same cannot be allowed as deduction while computing the total income of the assessee. On appeal by the assessee, the CIT(A) confirmed the order of the AO. Aggrieved by the order of the CIT(A), the assessee has raised ground no.2 before the Tribunal. 8. The question whether employees contribution that are paid after the due date prescribed under the relevant law relating to PF or ESI but paid on or before the due date filing return of income u/s.139(1) of the Act came up for consideration before the Hon ble Delhi High Court in the case of CIT Vs. AIMIL Limited, ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the first Proviso. Dharmendra Sharma 297 ITR 320 (Del) P.M. Electronics 313 ITR 161 (Delhi) followed; (iii) If the employees contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed, as per the principle laid down in Vinay Cement. 9. In the present case, it is not in disputed before us that the assessee had made payments of the impugned PF ESI contribution on or before the due date for filing of return of income. In the circumstances, following the decision of the Hon ble Delhi High Court referred to above, we hold that the assessee is entitled to claim for deduction. The AO is directed to allow the deduction. This ground of appeal is allowed. 10. The third ground of appeal raised by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ataka, which had standing tress thereon. To ensure uninterrupted and constant supply of timber, the Assessee had entered into agreement with Lakshmi Estates. Disputes arose between the Assessee and M/S.Lakshmi Estates regarding the supply of timber under the agreement. The dispute was settled by arbitration. An award dated 12.2.2003 was passed whereby the amounts advanced by the Assessee to M/s.Lakshmi Estates for purchase of timer/wood was treated as 75% share of capital contribution of the firm M/s.Lakshmi Estates. 12. The AO after considering all facts and circumstances as above as well as submissions made by the assessee by a letter dated 6-11- 10 found that the loan profile of the assessee company has continued over last many years. The assessee has borrowed money for the purpose of working capital requirements. The assessee has also maintained overdraft account for the last many years. All the investments stated above had flown out of the composite bank account of the assessee. Considering the facts as above, he held that there was clear proximity between the interest and other expenses as well as tax exempt investments of the assesse. The AO proceeded to compute the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was whether the provisions of Sec.14A would be applied, where expenses are incurred by an assessee in the course of its business, merely because, the assessee was also having dividend income, especially when there is no material brought to show that the assessee had incurred expenditure for earning dividends income which is exempt from tax. The Hon ble High Court held as follows; When no expenditure is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63% of the shares, which were purchased, are sold and the income derived therefrom is offered to tax as business income. The remaining 37% of the shares are retained. It has remained unsold with the assessee. It is those unsold shares have yielded dividend, for which the assessee has not incurred any expenditure at all. Though, the dividend income is exempted from payment of tax, if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny AYs beginning on or before 1.4.2001. On appeal by the assesse, the Court held that the Proviso to s. 14A which gives protection to the assessee with respect to AY 2001-02 earlier years was inserted w.e.f. 11.5.2001. As the order of the CIT u/s 263 was passed earlier on 29.12.99, the protection under the Proviso was not available to the Assessee as on that date. 16. We have considered the rival submissions. On the issue whether interest expenses relatable to borrowed funds which are used for making investment in the share capital of a firm can be said to be expenditure incurred for earning income not includible in the total income of the Assessee, we find that the Hon ble Karnataka High Court in the case of Mahesh G.Shetty (supra) has clearly held that such expenses have to be considered as expenditure incurred to earn tax free income. The decision of the Special Bench of Ahmedabad in the case of Shri Vishnu Anant Mahajan (supra) also supports the plea of the Revenue. We therefore reject the argument of the learned counsel for the Assessee contrary to the aforesaid decision. 17. As the facts go to show that the sum of Rs.62,20,50,000 was advanced by the Assessee to M/s.Laks ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondent will not insist upon supply of timber in discharge of its liability, except as may be needed by the business requirements of the claimant, at mutually agreed rates on mutually determined time schedule, the sale proceeds of which would be taken into accounts of the newly created partnership. It can be seen from the award of the arbitrator that the Assessee can hope to get only share income from the partnership and there was no other business necessity which can justify the investment in the capital of the partnership. Therefore the decision of the Hon be Karnataka High Court in the case of M/s.CCI Ltd.(supra) will not support the case of the Assessee. It cannot therefore be said that the Assessee did not intend to earn tax free income in the form of share of profits from the firm. Once it is found that the provisions of Sec.14-A of the Act are applicable then irrespective of the fact that there was no receipt of share of profits from the firm in the present year or the argument that the disallowance cannot exceed the amount of share of profits received from the firm, cannot be accepted in the light of the various decisions referred by the CIT(A) in his order. On th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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