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TMI Blog2019 (3) TMI 1581X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee in the year under consideration in respect of the investment in shares as discussed above. Once it is on record that there is no dividend income/exempted income then the question of making the disallowance u/s 14A does not arise in view of the judgment of Hon ble Gujarat High Court in the case of Corrtech Energy (P) Ltd . [ 2014 (3) TMI 856 - GUJARAT HIGH COURT]. No disallowance u/s 14A as made by the AO. - decided in favour of assessee. Disallowance of prior period expenses - AO disallowed expenses and held that expenses related to earlier years are not allowed as no corresponding income has been offered. Further, no copy of bills and invoices has been submitted as contended by him - HELD THAT:- The assessee in the year under consideration and in the earlier years was paying the tax at the maximum marginal rate. As such there was no loss to the Revenue as the assessee was very much entitled to the deduction of such expenses in the earlier year. Thus merely the assessee omitted to claim the expenses in the earlier year cannot be a ground for the disallowance for the year under consideration. In this regard we find support and guidance from the judgment of Hon ble Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is that the ld. CIT-A erred in deleting the addition made by the AO on account of interest in respect of capital WIP. 4. During assessment proceeding, the AO found that the assessee had shown ₹ 37,74,543/- as capital work in progress (for short CWIP) but corresponding interest cost was not attributed to such CWIP. Accordingly, a clarification was sought from the assessee. 4.1 In response, the assessee submitted that machinery is kept ready for use and hence need not to capitalize. 4.2 However, the ld. AO disregarded the contention of the assessee by observing that the assessee company did not produce any material on record showing the CWIP whether any interest element was involved therein. 4.3 AO in support of his contention also relied on Punjab & Haryana High court in case of Power drugs ltd. Vs. CIT (201 Taxmann 194) and ITAT Calcutta bench B in case of Cellica developers Pvt. Ltd. Vs. DCIT. Accordingly, AO made the disallowance of ₹ 4,52,945/- u/s 36(1)(iii) and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal to the ld. CIT-A and submitted that depreciation had been claimed only on assets appearing in column-A of Note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogress as disclosed in the audited accounts. The above comparison of both the tables reveals that no such depreciation has been claimed on capital work in progress of ₹ 37,74,543/- as alleged. The decision which had been relied upon by the AO while making addition are therefore not applicable since both these decisions involved the capitalization of expenses prior to the assets having been put to use. In view of the above facts and discussion, the addition made by the A.O. cannot be sustained. The A. O. is directed to delete the same. The ground of the appellant is allowed.'' 7. Aggrieved by the order of learned CIT (A) the Revenue is in appeal before us. Both the learned DR and the AR before us relied on the order of authorities below as favorable to them. 8. We have heard the rival contentions and perused the materials available on record. At the outset, we note that the own fund of the assessee exceeds the amount of capital work in progress. Therefore, a presumption can be drawn that there was no borrowed fund used in such capital work in progress. Accordingly, the question of utilization of borrowed fund in such capital work in progress does not arise. Accordingly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that it has not earned any exempt income nor claimed any exemption in respect of any income. Similarly, it has not incurred any expenditure nor claimed any expenditure in respect of any exempt income. Therefore, there is no need of invoking of the provision of section 14A of the ACT. The assessee also placed his reliance on Gujarat high court in case of Corrtech Energy Pvt. Ltd reported in 223 taxman 130 and contended that this decision is binding in the state of Gujarat. 10.2 Assessee also contended that it has own sufficient fund in the form of the share capital of ₹ 5.94 Crores and quasi-capital of ₹ 4.75 Crores as on 31/03/2011 & 31/03/2012. 10.3 However, AO disregarded the contention of the assessee by observing that it had taken a huge secured loan of ₹ 14,19,86,326/- and unsecured loan of ₹ 1,40,96,339/- on which it paid interest of ₹ 1,47,38,566/-. Assessee only contended that it has own sufficient fund but not demonstrated how these interest-free funds were used for making the investment. 10.4 AO also relied in support of his contention on the judgment of Bombay High Court in case of Godrej & Boyce Mfg. Co. Ltd vs. DCIT, Mumbai ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correctly applied by the Revenue. We however, notice that subsection( 1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made." In view of the above judgment, there is no ambiguity that there cannot be any disallowance under section 14A of the Act as made by the AO. Accordingly, we do not find any reason to disturb the finding of the learned CIT (A). Thus the AO is directed to delete the addition made by him. Hence, the ground of appeal of the Revenue is dismissed. 15. The third ground of appeal raised by Revenue in deleting the addition of ₹ 1,38,752/- made on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year under consideration and in the earlier years was paying the tax at the maximum marginal rate. As such there was no loss to the Revenue as the assessee was very much entitled to the deduction of such expenses in the earlier year. Thus merely the assessee omitted to claim the expenses in the earlier year cannot be a ground for the disallowance for the year under consideration. In this regard we find support and guidance from the judgment of Hon'ble Gujarat High Court in the case of Indian petrochemicals corporation Ltd (Supra) wherein it was held as under: "2.3 Mr. Soparkar, learned Senior Counsel assisted by Mr. Amit K. Mathur and Mrs. Swati Soparkar, learned advocates for the assessee supported the impugned order and submitted that the issue involved in the present appeal is now squarely covered by a decision of the Apex Court in the case of CIT v. Excel Industries Ltd. [2013] 358 ITR 295/219 Taxman 379/38 taxmann.com 100 (SC). 2.4 The Apex Court in the case of Excel Industries Ltd. (supra) has held as under: "32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... according to the method of accounting upon the basis of which the profits or gains are computed under this section". Therefore, an actual payment is not necessary for the purpose of this deduction; it is sufficient if the liability to bonus is incurred according to the method of accounting upon the basis of which the profits or gains are computed. Now, considering that the profits or gains are computed on the mercantile basis, the amount of bonus for the year 1951 would properly be treated under the mercantile system as an expense for the year 1951. It appears to us to be a matter of little consequence that in point of fact no entry was made in the account of that year making a provision for the bonus, because obviously such an entry could only be made after the conclusion of that year when the profits of that year were known, and, therefore, the liability for a bonus, and it could have been made at any time. The absence of an entry, therefore, does not appear to us to affect the question of whether the assessee was entitled to a deduction in respect of this amount of ₹ 1,80,000. The position appears to us to be made clearer when one turns to the prescribed form of retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as on 31/0/2010, 31/03/2011 and on 31/03/2012. AO issued SCN to the assessee for making the disallowance under section 41(1) of the Act as payment till the date has not been made. 22.1 In response assessee submitted liability has not been ceased to exist and no benefit by way of cessation or remission in respect of any trading liability is obtained under the meaning of u/s 41(1). The assessee is still under the legal obligation to make the payment. Therefore, no presumption can be made for remission or cessation of liability. 22.2 The assessee in support of his contention also relied on the judgment of Hon'ble Gujarat high court in case of CIT vs. Bhogilal Ramjibhai Atara (222 Taxman 313). 22.3 However, AO disregarded the contention of the assessee and held that creditors had not been paid off even after three years. The facts of the case relied upon by the assessee is different. Moreover, it has not attained finality. AO also held that as per limitation act, 1963 current account liability ceased to exist if it is not paid within the three years. The creditors are also not traceable. Therefore, the question of making the payment towards trading liability does not arise. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year relevant to the assessment year under consideration. In the present case, both elements are missing. There was nothing on record to suggest there was remission or cessation of liability that too during the previous year relevant to the assessment year 2007-08 which was the year under consideration. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The Assessing Officer undertook the exercise to verify the records of the so called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income under section 41(c) f the Act. This is one of the strange cases where even if the debt itself ..... X X X X Extracts X X X X X X X X Extracts X X X X
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