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TMI Blog2022 (5) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 raised by the assessee is allowed in terms of our aforesaid observations. Disallowance of deduction of contributions to temple/panchayat - as contributions made by the assessee to the temple/panchayat were not eligible for deduction u/s. 80G, A.O disallowed the assessee s claim for deduction of the aforesaid amount in question - HELD THAT:- Aforesaid contributions/expenditure which are neither in the nature of personal expenditure or capital expenditure and have been incurred by the assessee company in order to facilitate running of its business of mining smoothly, i.e., without any disturbance from the people in the surrounding villages thus, being in the nature of an expenditure incurred by the assessee wholly and exclusively for the purpose of its business was allowable as a deduction u/s. 37(1) of the Act - no infirmity in the view taken by the CIT(Appeals) who had vacated the aforesaid disallowance. Addition u/s 41(1) - cessation of liabilities - Assessee had failed to furnish confirmations in respect of four creditors - HELD THAT:- Now when it is the claim of the assessee that the impugned liabilities had ceased to exist in the aforementioned succeeding years, then, in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(Appeals)-2, Panaji, dated 28.09.2017, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (for short 'the Act') dated 19.12.2011 for assessment year 2009-10. Before us the assessee has assailed the impugned order on the following grounds of appeal: "1. The order of the Commissioner of Income Tax (Appeals)-2 Panaji-Goa (hereinafter referred to as CIT(A) is opposed to law and facts of the case. 2.(a) The CIT(A) erred in confirming the disallowance made by the Assessing Officer (AO) under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 amounting to Rs.15,03,242/-. The whole of the additions be deleted in full. (b) The CIT(A) erred in not deciding about AO's recording of satisfaction in invoking the provisions of section 14A of the Act read with rule 8D of the Income Tax Rules, 1962. (c) Without prejudice to the ground numbers 2(a) & (b), the CIT(A) in not allowing the alternative ground of the appellant that the average of the value of investments which yielded exempted income alone is to be considered for calculating disallowance as per rule 8D(2)(iii) and not on the basis of the average of total val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of contribution to Temple Rs. 10,89,334/- 3. Disallowance u/s. 40(a)(ia) of the Act Rs. 11,39,867/- 4. Addition towards cessation of liabilities u/s. 41(1) of the Act Rs. 9,96,547/- 5 Addition of un-paid creditors/advances Rs.3,24,27,504/- 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). After deliberating at length on the contentions advanced by the assessee the CIT(Appeals) vacated certain additions/disallowances made by the A.O, viz. (i) disallowance of donation to temple: Rs.10,89,334/-; (ii) disallowance u/s. 40(a)(ia) of the Act : Rs.11,39,867/-; and (iii) addition made by the A.O u/s. 41(1) of the Act : Rs.9,96,547/-. As regards the addition by the AO of unpaid creditors/advances u/s. 28(iv) of the Act amounting to Rs.3,24,27,504/-, the CIT(Appeals) taking cognizance of the fact that in case of three parties, viz. (i). M/s S.S. Soya Future Resources: Rs.50 lacs (ii). M/s KMMI Steels (P) Ltd. : Rs.40,29,928/-; and (iii). M/s Essar Logistics Ltd.: Rs.2,56,625/-, the balances were though claimed by the assessee company to be outstanding towards the said respective parties in its balance sheet, but it had not been able to obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of administrative expenses under Sec. 14A r.w Rule 8D(2)(iii) by the CIT(Appeals). On a perusal of the orders of the lower authorities, we find that though the assessee had during the year under consideration received exempt dividend income of Rs.34,02,730/-, however, it had not offered any disallowance of expenditure u/s. 14A of the Act. On being queried as to why disallowance may not be computed as per methodology contemplated under Rule 8D, it was claimed by the assessee that it was in the business of extraction, export of cargo handling and trading of iron ore and was in the normal course of its business parking its surplus funds with the banks. It was stated by the assessee that as certain mutual fund managers who were attached with the banks would approach him for making investments in mutual funds, therefore, in order to keep good relations with the banks and financial institutions and to effectively use the surplus funds it had as per their advice invested a small portion of the said funds in mutual funds. It was claimed by the assessee that mutual funds officials would collect the forms and cheques from its office and render all the services at its doorsteps. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation to record his dissatisfaction as regards the disallowance offered by the assessee u/s. 14A of the Act, the Ld. AR relied on the judgments of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi (2018) 91 taxmann.com 154(SC) and Godrej & Boyce Manufacturing Company Ltd. vs. DCIT [2017] 81 taxmann.com 111 (SC). It was submitted by the Ld. AR that as laid down by the Hon'ble Apex Court in its aforesaid judicial pronouncements, it was mandatory on the part of the A.O to record his dissatisfaction as regards the claim of disallowance of expenditure incurred for earning of the exempt dividend income, failing which he was divested of his jurisdiction from working out the disallowance u/s. 14A r.w Rule 8D of the Rules. Also, support was drawn by the Ld. AR from the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd. (2020) 429 ITR 358 ( Bom.) and that of the Hon'ble High Court of Delhi in the case of H.T Media Ltd. Vs. Pr. CIT (2017) 399 ITR 576 ( Delhi). It was submitted by the Ld. AR that as per the judgment of the Hon'ble Jurisdictional High Court in the case of Sociedade De Fomento Industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the A.O before rejecting the disallowance offered by the assessee remains under a statutory obligation to give a clear finding with reference to the accounts of the assessee that the other expenditure which were being claimed qua the non-exempt income were in fact related to its exempt income. Also, as stated by the Ld. AR, and rightly so, a similar view had been taken by the Hon'ble High Court of Delhi in the case of H.T Media Ltd. Vs. Pr. CIT (2017) 399 ITR 576 ( Delhi). Now, in the case before us, we find that the A.O had though deliberated at length on the scheme of section 14A of the Act, but had failed to give any reason as to why the claim of the assessee that no part of the expenditure could be attributed towards earning of exempt income was not to be accepted. Although, the CIT(Appeals) in his order had tried to improve upon the aforesaid lapse of the A.O, but a perusal of his observations too do not inspire much of confidence, as the statutory obligation requiring recording of a clear finding with reference to the assessee's accounts that the expenditure claimed by the assessee to have been incurred in respect of its non-exempt income was in fact related to its exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, was duly eligible for deduction u/s. 37 of the Act. For the sake of clarity, the observations of the CIT(Appeals) qua the aforesaid issue are culled out as under: "4.3 I have gone through the assessment order and the submissions of the appellant. It is not denied that the appellant is maintaining the regular books of account which are audited. The appellant has produced necessary proof of incurring expenditure and business need as the appellant has mines in and around the villages where this expenditure has been incurred. This expenditure is necessary for the appellant to incur so as to run its business smoothly without any disturbance from the people in the surrounding villages. The AO has not been able to prove that the expenditure in question is personal expenditure or capital expenditure and hence, the expenditure disallowed by the AO amounting to Rs.10,89,334/- is hereby deleted. Ground No.3 is allowed." We have heard the ld. Authorized Representative for both the parties and perused the orders of the lower authorities as regards the aforesaid issue in hand. After giving a thoughtful consideration to the observations of the CIT(Appeals), we find no infirmity in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow advert to the grievance of the Revenue that the CIT(Appeals) had erred in law and on facts of the case in vacating the addition of Rs.9,96,547/- that was made by the A.O u/s. 41(1) of the Act. 18. As is discernible from the records, we find that as the assessee in the course of the proceedings before the A.O had failed to furnish confirmations in respect of four creditors aggregating to Rs.9,96,547/-, therefore, the A.O had brought the same to tax in its hand under Sec. 41(1) of the Act. 19. On appeal, it was the claim of the assessee before the CIT(Appeals) that due to dispute with the aforesaid parties as regards the quantity/quality of work done/goods supplied, their confirmations could not be filed in the course of the assessment proceedings with the A.O. It was, however, the claim of the assessee before the CIT(Appeals) that as the credit balances in respect of all the four creditors in question had been written off in its books of accounts for the succeeding years, i.e., A.Y.2012-13 and A.Y.2014-15 and had been offered as income in the said respective years, therefore, there was no justification on the part of the A.O in treating the liabilities in question as having bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities to the extent of Rs.28,72,736/- upto 31.03.2010 either by making payment or by writing back the sum but sustained addition of Rs.20,58,095/- which relate to the unrecovered advances. We may clarify that so far the claim of the assessee in respect of unrecovered advances are concerned, the assessee can claim deduction only u/s 36(1)(vii) in the year in which these debts have been written off by the assessee in his books of accounts. It is an undisputed fact that the said amount has not been written off by the Assessee during the impugned assessment year. So far as the addition made u/s 41(1) is concerned, the onus, in our opinion, lies on the Revenue to prove that the liability has ceased during the impugned assessment year. Merely liability has become barred by limitation will not prove that the liability of the Assessee has ceased. The liability ceases when it has become barred by limitation and assessee has unequivocally expressed its intention not to honour the liability even when demanded. Our aforesaid view is duly supported by the decision of the jurisdiction High Court in the case of CIT s. Chase Bright Steel Pvt Ltd., 177 ITR 128. We, therefore, set aside the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, the assessee had received advances/deposits in the preceding years from 6 parties, i.e., for providing handling services in connection with its business which stood reflected in its 'balance sheet' on 31.03.2009, as under: (i) Zeenath Transport Co. Rs.1,43,00,000/- (ii) Kariganur Iron Steel (P) Ltd. Rs. 67,43,530/- (iii) S.S. Soya/ Future Resources Rs. 50,00,000/- (iv) KMMI Steels (P) Ltd. Rs. 40,29,928/- (v) MSPL Ltd. Rs. 20,97,421/- (vi) Essar Logistics Ltd. Rs. 2,56,625/- Total Rs.3,24,27,504/- As the assessee explained its inability to submit confirmations of the aforementioned parties, therefore, the A.O being of the view that as the said amount of deposits/advances were not anymore payable by the assessee to them, thus, the same were in the nature of benefit of perquisite within the meaning of section 28(iv) of the Act. Accordingly, the A.O made an addition of Rs.3,24,27,504/- u/s. 28 (iv) of the Act. 22. On appeal, it was the claim of the assessee before the CIT(Appeals) that as there were certain disputes with the aforesaid parties, therefore, their confirmations could not be placed on record in the course of the assessment proceedings. On merits, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid party's account comprising of three ledger accounts (copies enclosed collectively as Annexure "C"). The party is insisting to refund the money as is confirmed from their email in the month of May, 2014 (copy enclosed as Annexure "D"). The party also confirmed the balance vide its letter dated 30.9.2009 which is enclosed herewith for your reference as Annexure "E". This was also filed before the AO. Your appellant therefore submits that the balance due to the party is refundable as on date. 6. Essar Logistics Ltd. Rs.2,56,625/- This pertains to the amount of tax deducted at source by the said party belatedly and remained to be paid to them as and when demanded by them. In the light of our aforesaid detailed submissions, we request your honour to allow our appeal and direct the AO accordingly." 23. As is discernible from the order of the CIT(Appeals), we find that finding favour with the claim of the assessee that its outstanding lability towards three parties, viz. (i) M/s. Zeenath Transport Co.: Rs.1,43,00,000/- (ii) M/s. Kariganur Iron Steel Pvt. Ltd.: Rs.67,43,530/- and (iii) M/s. MSPL Ltd.: Rs.20,97,421/- was on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount represented cash/money, therefore, the provisions of section 28(iv) would not be applicable. By way of an analogy, it was claimed by the Ld. AR that now when waiver of loan for acquiring a capital asset has been held as a benefit in shape of money, which would take it beyond the realm of Sec. 28(iv) of the Act, therefore, on a similar footing the alleged cessation of the outstanding liabilities in the case of the present assessee company, i.e., advances/deposits of the aforesaid six parties in question could also not be brought to tax within the realm of section 28(iv) of the Act. In sum and substance, it was claimed by the Ld. AR that as section 28(iv) presupposes the benefit received to be in some form other than in shape of money, therefore, as per the ratio decidendi of the judgment of the Hon'ble Supreme Court in the case of Mahindra and Mahindra Ltd. (supra) the cessation of the advances/deposits as alleged by the department would not trigger the provisions of the said statutory provision. 25. On the contrary, it was the claim of the Ld. DR that as the cessation of advances/deposits had resulted to a benefit to the assessee, therefore, the A.O had rightly held the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act." As in the case before us, it is the claim of the Revenue that the advances/deposits that were received by the assessee in the preceding years were no more payable, therefore, the same were to be held as its income u/s. 28(iv) of the Act. We are of a strong conviction that as the view taken by the AO, i.e, assessing of the alleged cessation of the assessee's liability qua the advances/deposits of Rs. 3,24,27,504/- as its income under Sec. 28(iv), is not found to be in conformity with the judgment of the Hon'ble Supreme Court in the case of Mahindra & Mahindra Ltd. (supra), thus, the same cannot be sustained and is liable to be vacated on the said count itself. As stated by the Ld. AR, and rightly so, as cessation of a capital receipt of an amount by the assessee, i.e., deposits/advances for providing handling services that were received by the assessee in the normal course of its business in the preceding years, would undisputedly represent cash/money and is not in the nature of benefit or perquisite other than any shape of money, therefore, the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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