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TMI Blog2020 (9) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of CIT versus Vision Finstock Stock Ltd. [ 2017 (7) TMI 1277 - GUJARAT HIGH COURT]. We hold that the disallowance of the expenses under section 14A read with rule 8D cannot exceed the amount of exempted income. Addition on account of prior period expenses - HELD THAT:- There is no ambiguity to the fact that such item of prior period expenses represents the excise duty paid by the assessee in the year under consideration. Similarly, the provisions of section 43B, being overriding section, provides to allow the deduction to the assessee on payment basis with respect to certain items including the excise duty. As the assessee has paid the excise duty, pertaining to the earlier year, in the year under consideration, we are of the view that such payment of excise duty is eligible for deduction in the current year. The case law referred by the AO i.e. Saurashtra Cement and chemicals industries Ltd [ 1994 (10) TMI 30 - GUJARAT HIGH COURT] the principles of it are not applicable to the present facts and circumstances as the issue therein was in relation to the expenses other than the expenses covered under section 43B of the Act whereas the issue on hand relates to the deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB - We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the the assessee is partly allowed. - ITA No. 1761/AHD/2016 With C.O. No.133/Ahd/2016 - - - Dated:- 19-8-2020 - Shri Rajpal Yadav, Vice President And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri S.N. Soparkar, Sr. Advocate with Shri Parin Shah, And Shri Vartik Chokshi, A.Rs For the Revenue : Shri Vinod Tanwani, Sr. D.R ORDER PER WASEEM AHMED, ACCOUNT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoked the provisions of section 14A read with rule 8D of Rules for making the disallowance against such exempted income. The AO has made the disallowance of ₹ 2,11,98,182/- as detailed under: S.No. Particulars amount 1. Direct expenses Nil 2. Interest expenses 1,78,99,404.00 3. Administrative expenses 32,98,778.00 Total expenses 2,11,98,182.00 5. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO. Being aggrieved by the order of the learned CIT (A) the revenue is in appeal before us. 6. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 7. We have heard the rival contentions of both the parties and perused the materials available on record. The issue arises before us for the adjudication whether the disallowances made under section 14A r.w rule 8D can exceed the amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The Revenue has challenged the judgement of the Income Tax Appellate Tribunal dated 07.07.2016 raising following questions for our consideration: A. Whether on the facts and circumstances of the case and in low, the ITAT was justified in restricting the disallowance made of Rs. l,02,82,049/- u/s. 14A to the extent of exempt income of ₹ 55,6047- only? B. Whether on the facts and circumstances of the case and in law, the ITAT was justified in restricting the disallowance of ₹ 1,02,82,049/- made u/s. 14A of the Act to the extent of income earned of ₹ 55,6047- without appreciating that the assessee had paid interest of ₹ 1,45,52,6327- on borrowed funds? 2. From the record it emerges that, during the period relevant to the assessment year 2008-09, the assessee had earned exempt income of ₹ 55,604/-. As against that, the Assessing Officer had worked out the disallowance of expenditure under section 14A of the Act read with Rule 8D to Rs. 1,02,82,049/-. The Tribunal, while restricting the disallowance to ₹ 55,604/-, relied on the decision of Delhi High Court in case of Joint Investments (P) Ltd vs. CIT reported in 372 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated during the manufacturing process. The assessee during the assessment proceedings admitted that such expenses pertains to the earlier year but the same is allowable on payment basis under section 43B of the Act. 10. However, the AO disagreed with the contention of the assessee by observing that the assessee was very much aware about such liability in the year of its incurrence. Therefore the assessee should have claimed the deduction of such expenses in the year in which it was crystallized. Accordingly the AO disallowed the claim of the assessee and added the sum of ₹ 8,35,560/- to the total income of the assessee. 11. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing that the deduction for the excise duty paid by the assessee is available on payment basis under the provisions of section 43B of the Act which has overriding effect over any other provisions of the Act. Being aggrieved by the order of the learned CIT (A), the revenue is in appeal before us. 12. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 13. We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But in actuality it represents the amount receivable from certain parties which was given as an advance for the import purchase/domestic purchase/services to be received. Accordingly such amount does not represent any trading liability. Thus the question of applying the provisions of section 41(1) of the Act does not arise. 16.1 The assessee without prejudice to the above also contended that there cannot be any addition under the provisions of section 41(1) of the Act merely it was barred under the limitation Act, more particularly in a situation, it has not ceased to exist/ written off in the books of accounts. 17. The learned CIT (A) after considering the submission of the assessee reversed the order of the AO by observing that the provisions of section 41(1) of the Act deals with the remission or cessation of trading liability whereas the amount of ₹ 2,36,63,532/- relates to the trade advances made by the assessee. Thus the impugned amount of trade advance cannot attract the provisions of section 41(1) of the Act. 17.1 The learned CIT (A) without the prejudice to the above also held that trading liability shown by the assessee cannot be treated as income merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question of treating such trading receivable as income under the provisions of section 41(1) of the Act does not arise. The learned DR at the time of hearing has also not brought anything on record contrary to the finding of the learned CIT (A). 19.2 We also note that even if we assume that such amount of ₹ 2,36,63,532/- represents the trading liability, then also it cannot be treated as income of the assessee under the provisions of section 41(1) of the Act as the same has not ceased to exist in the books of accounts. In this regard we draw support and guidance from the judgment of Hon ble Gujarat High Court in the case of PCIT vs. Babul Products (P.) Ltd. reported in 96 Taxman.com 82 wherein it was held as under: 3. Now so far as proposed question no.(b) is concerned, the same is squarely covered against the revenue in view of the decision of the Hon'ble Supreme Court in the case of Commissioner v. Mahindra Mahindra Ltd. [2018] 93 taxmann.com 32/255 Taxman 305. The factual matrix, which came to be considered by the learned Tribunal is that the learned Tribunal while deleting the addition made under Section 41(1) of the Income Tax Act on account of ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore the same should be treated as capital expenditure. Accordingly the AO disallowed the claim of the assessee and added the same to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT (A). 23. The assessee besides reiterating the submissions as made before the AO contended that such expenses were not incurred in connection with introduction of new capital or diversification of the business. As such the professional fees expenses relates to the study of existing market situation to ascertain the share of the assessee in the market. 24. The learned CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing that the impugned professional expenses were incurred for carrying out survey for the existing products and the same does not give any benefit of enduring nature. Therefore the same cannot be treated as capital expenditure. Being aggrieved by the order of learned CIT (A), the revenue is in appeal before us. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 25. We have heard the rival contentions of bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 170 wherein it was held as under: In view of the above and considering section 36(1)(va), read with sub-clause (x) of clause (24) of section 2, it is to be held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees account in the relevant fund or funds on or before the 'due date' mentioned in Explanation to section 36(1)(va). Consequently, it is held that the Tribunal has erred in deleting respective disallowances being employees' contribution to PF Account/ESI Account made by the Assessing Officer as, as such, such sums were not credited by the respective assessee to the employees 'accounts in the relevant fund or funds on or before the due date as per the Explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees account in the Provident Fund under the Provident Fund Act and/or in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962. 34.2 The ratio laid down by the Hon ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act. 34.3 However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- We find computation of the amount of expenditure relatable to exempted income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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