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TMI Blog2021 (9) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... e - CIT(A) confirmed the disallowance on the ground that even before him the assessee failed to produce the evidence for statutory of liabilities - HELD THAT:- The law is settled on this issue if the assessee has paid the statutory liabilities before the due date of filing of return income u/s 139(1) of the Act, no disallowance is warranted. Therefore, we remit this issue to the file of the AO with a direction to examine whether the assessee has paid the aforementioned statutory liabilities within due date for filling return of income U/s 139(1) , if it is found in order , allow the claim of the assessee. The assessee is directed to substantiate its claim by way of documentary evidence that the same are paid before the due date of filing of return of income. Accordingly, grounds raised allowed for statistical purposes. Addition towards miscellaneous expenses - As assessee is following mercantile system of accounting, prior period expenditure cannot be allowed - AR submitted that it was a product development expenditure incurred earlier and allowable as per section 35D - HELD THAT:- We find that nowhere from the orders of revenue authorities that the earlier year expenditure has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim, matter is restored to the file of AO with a direction to examine the factual aspect of the contentions of assessee and then decide whether the amount can be allowed as revenue expenditure or not as per the provisions of Act. For this purpose, this issue is also restored to the file of AO and Grounds raised on this issue are accordingly considered allowed for statistical purposes. Addition towards capital work in progress written off - CIT(A) confirmed the addition observing that the assessee failed to substantiate its claim by way of documentary evidence - HELD THAT:- In assssee s own case for AY 2009-10 [ 2015 (5) TMI 897 - ITAT HYDERABAD] whether capital work in progress can be reduced or not was not an issue before the AO and this aspect was not examined at all. Since the AO put it to CIT(A), with reference to claim And capital work in progress reduced in the computation, which the Ld. CIT(A) directed to be enhanced by an amount of 6,75,96,165/- , that too without giving opportunity to assessee as contended, we are of the opinion that this capital work in progress issue also requires re-examination. AO is directed to take the revised computation filed by the assessee and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out of compliance with statutory provisions, i.e. accounting standards and also requirement of statute are allowable u/s 37 of the Act. The ld. AR of the assessee relied on the following cases: 1. Ocimum Bio Solutions India Ltd., ITA No. 2090/Hyd/2018. 2. SA Builders, 158 Taxmann 74 (SC) 3. West Bengal State Electricity Board, ITA no. 2126/Kol/2017. 4. Mahanagar Gas Ltd., 42 Taxmann.com 40 5. Fact Securities, 61 Taxmann.com 192 6. Pharmacia Health Care Ltd., ITA no 2585/Mum/2010 7. CIT Vs. Jagatjit Industries Ltd., ITA No. 848/2010 (HC Delhi) 8. Saurashtra Cement & Chemical Industries Ltd., Vs. CIT, 80 Taxmann 61 )HC Gujarat) 6.4 On the other hand, the ld. DR relied on the orders of revenue authorities and submitted that the assessee failed to substantiate its claim before the authorities below by way of documentary evidence, therefore, the revenue authorities have rightly made the disallowance. 6.5 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. In the case of Ocimum Bio Solutions India ltd (supra), on which reliance placed by the ld. AR assessee, the coordinate bench has h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R of the assessee submitted that the statutory liabilities were paid before the due date of filing of return income u/s 139(1) of the Act, hence, disallowance is not warranted. He relied on the following cases: 1. Usha Ltd. Vs. CIT, 184 Taxmann 83 (HC - Delhi) 2. Vinay Cement Ltd. Vs. CIT, 213 CTR 268 (SC) 3. CIT Vs. Lakhani Rubber Udyog Ltd. 184 Taxmann 236 (HC P&H). 7.4 The ld. DR, on the other hand relied on the orders of revenue authorities. 7.5 We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. The law is settled on this issue if the assessee has paid the statutory liabilities before the due date of filing of return income u/s 139(1) of the Act, no disallowance is warranted. Therefore, we remit this issue to the file of the AO with a direction to examine whether the assessee has paid the aforementioned statutory liabilities within due date for filling return of income U/s 139(1) , if it is found in order , allow the claim of the assessee. The assessee is directed to substantiate its claim by way of documentary evidence that the same are paid before the due date of filing of return of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce as on 31.03.2013 is 22,623,146/-, it shows that it relates to the earlier years. The AR submitted that it was a product development expenditure incurred earlier and allowable as per section 35D of the Income Tax Act. 1961 is accepted. We find that nowhere from the orders of revenue authorities that the earlier year expenditure has been disallowed. Once the deduction claimed by the assessee is accepted, in subsequent year it cannot be denied. This view is supported by the decision of ITAT CHENNAI BENCH 'B' in the case of Handy Waterbase India (P.) Ltd. Vs. Deputy Commissioner of Income-tax, Company Circle II(2), Chennai , [2021] 127 taxmann.com 634 (Chennai - Trib.) Though the judgment is related to the deduction u/s 10B, but, in the said case are that assessee had set up a new 100 per cent EOU in year 2004 on legitimate expectation that it will get deduction towards profit derived from such unit for 10 consecutive years as per provisions of section 10B and the fact that there was no change in facts prevailing at time when deduction was allowed to assessee in assessment year 2004-05. Therefore, following the conclusions drawn therein, we direct the AO to delete the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under: "6. Having regard to the rival contentions and the material available on record, I find that undisputedly, the assessee has not made TDS from the payment made towards legal and professional fee. The Hon'ble Delhi High Court in the case of CIT vs. Ansal Land Mark Township (P.) Ltd [2015] 61 taxmann.com 45 (Delhi), has considered the applicability of second proviso to section 40(a)(ia) of the Act and held that the second proviso to section 40(a)(ia) is declaratory and curative and it has retrospective effect from 01/04/2005. Relevant portion of the Hon'ble High Court order is reproduced hereunder for the sake of convenience and ready reference: "9. It is seen that the second proviso to Section 40(a)(ia) was inserted by the Finance Act, 2012 with effect from 1st April 2013. The effect of the said proviso is to introduce a legal fiction where an Assessee fails to deduct tax in accordance with the provisions of Chapter XVII B. Where such Assessee is deemed not to be an assessee in default in terms of the first proviso to sub-section (1) of Section 201 of the Act, then, in such event, "it shall be deemed that the assessee has deducted and paid the tax on such sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax. 13. Turning to the decision of the Agra Bench of ITAT in Rajiv Kumar Agarwals case (supra ), the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40(a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under: On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of related payments, even when the corresponding income is duly brought to tax. That will be going much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004. 14. The Court is of the view that the above reasoning of the Agra Bench of ITAT as regards the rationale behind the insertion of the second proviso to Section 40(a)(ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance." 7. Since the facts before me are similar, respectfully following the decision of the Hon'ble Delhi High Court in the case of Ansal Land Mark Township (P.) Ltd (supra), I hold that without treating the assessee as 'an assessee in default' the disallowance u/s 40(a)(ia) should not be made. The assessee's appeal is accordingly allowed. 9.5 Respectfully following the above decision, we hold that without treating the assessee as 'an assessee in def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , fact remains that the amount represents bad debts written off as it was offered as income in the earlier years and is allowable u/s. 36(i)(vii) of the Act. The assessee has not furnished any evidence to substantiate its claim that the above Income was offered in earlier years. In absence of details, the Assessing Officer, disallowed 5,22,05,305/- and added to the total income. 11.2 The CIT(A) confirmed the action of the AO observing that in the absence of proper explanation and documentary evidence, the addition made by the AO is upheld. 11.3 Before us, the ld. AR submitted that the amount of ₹ 5,22,05,305/- towards "Investment Written Off" represents bad debts written off and it is offered to tax in the earlier years and hence it is allowable u/s.36(i)(vii) of the Act as it is wholly and exclusively for the purpose of business. 11.4 The ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that the assessee failed to substantiate its claim by way of documentary evidence before the authorities below, hence, the addition is made is proper. 11.5 We have considered the rival submissions and perused the material on record as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the annual reports filed before us. In order to examine the issue and to give one more opportunity to assessee to substantiate the claim, matter is restored to the file of AO with a direction to examine the factual aspect of the contentions of assessee and then decide whether the amount can be allowed as revenue expenditure or not as per the provisions of Act. For this purpose, this issue is also restored to the file of AO and Ground No.4 is accordingly considered allowed for statistical purposes." 11.6 Respectfully following the above decision, in order to examine the issue and to give one more opportunity to assessee to substantiate the claim, matter is restored to the file of AO with a direction to examine the factual aspect of the contentions of assessee and then decide whether the amount can be allowed as revenue expenditure or not as per the provisions of Act. For this purpose, this issue is also restored to the file of AO and Grounds raised on this issue are accordingly considered allowed for statistical purposes 12. Ground Nos. 48 to 50 are relating to the addition of ₹ 2,01,71,965/- towards capital work in progress written off. 12.1 During the assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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