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2017 (8) TMI 1624 - AT - Income TaxAddition of royalty payable to the State Government being unascertained liability as the same were debited on estimate basis - CIT (A) confirmed the decision of AO by recording similar reasons by holding that no contingent expenditure are allowable even u/s 36(1)(xii) - HELD THAT:- AO has not disputed the genuineness of these expenses and has also not taken care of the fact that the exercise of allowing these expenses is revenue neutral, the addition thereof on account of disallowance is not sustainable in the eyes of law. In these circumstances, we find it necessary to restore the case back to the AO to allow the expenses incurred by the Assessee Board on account of payment of royalty to the State of Arunachal Pradesh and state of Gujarat debited in its profit & loss account after due verification of the letter relied upon by the Assessee Board as well as ld. CIT (A). Disallowance u/s 14A - rejecting the contentions raised by the assessee that no expenses have been incurred by the assessee to earn the exempt income during the year under assessment - CIT (A) observed that it cannot be ruled out that there is a proximate relationship between office establishment expenditure and interest expenditure to the investment resulting income not chargeable to tax - HELD THAT:- When the assessee has not earned any exempt income during the year under assessment, no disallowance is permissible u/s 14A of the Act. So, in these circumstances, this issue is also set aside to the AO to decide accordingly in view of the decision rendered by Hon’ble Delhi High Court in case titled as Cheminvest Limited [2015 (9) TMI 238 - DELHI HIGH COURT] in favour of the assessee. Disallowance of expenditure u/s 36(1)(xii) - As argued when the Assessee Board has placed on record documents under Rule 46A to prove the justification of the expenses made in normal course of business, the disallowance is not sustainable - HELD THAT:- When the assessee has brought on record documentation to prove the justification of debit of expenses disallowed by the AO as well as by CIT (A), the AO is required to examine and verify these documents before deciding the issue in controversy. So, we remand this issue also to AO to decide after entertaining the documents relied upon by the Assessee Board under Rule 46A of the Rules after providing an opportunity of being heard to the assessee. Consequently, grounds allowed for statistical purposes.
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