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2017 (2) TMI 1290 - AT - Income TaxDisallowance u/s 14A - Held that:- CIT(A) has rightly given a finding that the investment in units of UTR was made in the earlier years and all that it had to do for earning the dividend was to deposit the cheque. This does not require the assessee to incur expenditure, the assessee’s contention that Section 14A does not envisage disallowance to any ad-hoc or an estimated expenditure. It is only en expenditure actually incurred for earning an income exempt from tax that would be disallowed u/s 14A. CIT(A) has rightly relied on the order of Hon’ble Delhi High Court in case of CIT Vs. Chemical & Metalogical Design Company Ltd [2008 (7) TMI 1005 - DELHI HIGH COURT] wherein it is held that making a proportionate disallowance of expenses on estimated basis could not be sustained under Section 14A of the act. Thus, the CIT (A) has rightly deleted the said addition. Long term capital loss on sale of 1140 units of VECAUS-II 1990 - Held that:- CIT(A)’s finding is correct that the Assessing Officer fail to take into account the indexed cost of acquisition for Assessment Year 1990-91 and also the fact that the same pertaining to 1140 units. This is supported by the notes attached to the return of income and computation of capital gains for the year under appeal. Addition on account of change in method of valuation of closing stock applying provisions of Section 145A - Held that:- the assessee has adopted method of valuation of closing stock which is most suitable to the GNF Unit also method has been changed to weighted average cost method in line with other units so that the principle of consistency could be followed among all the units. In-fact, the Assessing Officer’s addition on account of change in method of valuation of closing stock applying provisions of Section 145A does not come in consistence with the proper change of method of accounting, without this fact it could not have been possible to implement the ARP Software for accounting, the said reason is not disputed by the Assessing Officer either in the order or in the remand report. The CIT(A) (A) has rightly deleted this addition. Addition of interest paid by the assessee being 10% of the sum advanced by the assessee to its subsidiary company in an earlier year - Held that:- This amount was paid by the assessee to its subsidiary company Kelbex International Ltd, which was no longer an operating company being under liquidation, to meet its statutory expenses such as filing fee and audit fee, etc. The assessee had enough funds of its own to advance this money in the year when it was paid. The A.O nowhere suggested that the assessee used any interest bearing loan funds to make this payment. Thus, the CIT(A) rightly agreed with the assessee’s contentions and followed the decision of the Delhi High Court in the case of CIT vs. Tin Box Co. [2002 (11) TMI 75 - DELHI High Court] by directing deletion of disallowance disallowance of contribution to PF as paid belated - Held that:- Though the contribution to PF & ESIC were paid during the previous year, the presented amounts paid beyond the relevant due dates of the respective months. In view of the amendment of the first provision of Section 43 (B) deletion of the second proviso by Finance Act, 2003 any payment on account of PF etc if made before the due date for filing return would not be hit by Section 43(B). The reliance on the judgment of Delhi ITAT in case of ACIT Vs. M/s Vestas RRB India Ltd. [2004 (5) TMI 245 - ITAT DELHI-C ] is rightly taken into account by CIT(A). This ground is dismissed. Disallowance of provision for Warranty and Optional Service Contract (OSC) - Held that:- Assessing Officer observation that the provision on the basis of acturual valuation certificate could not be allowed due to over statement of book loss on account of change in the method of accounting for the year under consideration. The decisions cited provides the proposition that provision for warranty was for a definite and ascertain liability and the same could not be disallowed as contingent liability. In-fact in the immediate preceding year i.e. Assessment Year 2000-01 similar disallowance made by the Assessing Officer was deleted in appeal by the CIT(A) and in A.Y. 1993-94 by the ITAT. There is no interference required in the order of the CIT(A) as related to this ground. Disallowance of lease rentals - Held that:- A.O did not take into account the accounting of the sale proceeds in the year ended 31/3/2000 and also the interest factor for the period of 51 months. Lease financing through sale cum lease back transactions have been in practice for quite some time and if it is only when the existence of assets itself is in doubt or when an asset subject matter of transfer actually from a physical part of another larger asset or such sham transaction takes place that the revenue can rightly object to the arrangements. in the present case, there was no doubt about existence of the assets, the sale proceeds and consequent short term capital gains were duly assessed in Assessment Year 2000-01, and the transaction entitled the assessee to the use of the sale proceeds at a cost lower than borrowing through debentures. The CIT(A) has rightly deleted the same. This ground is dismissed.
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