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2019 (8) TMI 288 - AT - Income TaxDisallowance u/s. 14A as per rule 8D - HELD THAT:- So far as certain facts for more than one assessment year are definitely required to be adjudicated in a uniform manner. We are saying this for the reason that though the factual assertions of the assessee having substantial own funds which are more than the investments that yielded interest free income, we are conscious of the facts that out of total investments of ₹ 132.24 crore, nearly ₹ 2.5 crore have been made during the year whereas the balance are brought forward from earlier years. So far as the earlier years are concerned, fact as to whether or not the expenses are attributable to the income earned is still open before the Assessing Officer, since such matters have been set aside to his file for adjudication afresh right from assessment years 2004-05 to 2006-07. Therefore, in the fitness of things, we deem it fit and proper to set aside the issue to the file of the AO to re-compute the disallowance out of the interest expenditure in terms of section 14A of the Act if the facts and law so warrants. Even the issue raised by the assessee with regard to absence or otherwise of the requisite satisfaction of section 14A of the Act is concerned, the same shall also be restored to the AO to be dealt afresh as per law. Disallowance of general and administrative expenses by applying Rule 8D(2)(iii) - Since it is found to be inconsistency with the position of law the disallowance is not maintainable. The learned CIT(A) has rightly set aside the same. Since the disallowance of interest u/s. 14A has been set aside to the AO as done by the CIT(A) for adjudication afresh as per law. Accordingly, the ground of appeal of the assessee is partly allowed as above and that of the Revenue is dismissed. Disallowance of inventory written off - HELD THAT:- AO disallowed the inventory written off by relying on the decision of CIT vs. Herdilla Chemicals Ltd. [2017 (10) TMI 421 - BOMBAY HIGH COURT] . We have further noted that the Hon’ble jurisdictional High Court by considering the decision of Herdilla Chemicals Ltd. held that write off claimed is essential on the basis of obsolesces of any particular equipment that claimed as write off, which is essentially on account of deterioration of various material including raw-material over a period of time due to wear and tear and that assessee would be entitled to write off in Profit & Loss Account. The assessee’s similar claim for A.Y. 2010-11 and 2011-12 has been allowed by First Appellate Authority in order dated 17.11.2016 and 20.03.2017 respectively. Therefore, considering the peculiarity of fact for the year under consideration, we are of the view that the assessee is entitled for inventory written off, however for limited purpose, the issue is restored to the file of AO to verify the fact, if equivalent provision thereof had been made in the books and there is no impact on Profit & Loss Account and allow the relief to the assessee in accordance with law. Disallowance on account of non-deduction of TDS - no information was provided by AO in respect of disallowance - HELD THAT:- CIT(A) was not justified in confirming the action of AO, when the assessee has specifically stated that the alleged recipient i.e. Jahangir Homi Bhandara is not known to the assessee. Therefore, considering the fact that the AO neither shared the information/material evidence allegedly received by him nor brought any material to prove that assessee made any payment of expenditure attracting the provisions for disallowance u/s 40A(ia). We direct the AO to delete the disallowance of ₹ 11,78,136/-. In the result, this ground of appeal is allowed. Disallowance of service tax written off - AO and CIT(A) referred it as sales tax - assessee submits that assessee in its books of account, accounted the payment of rent net of service tax - CIT(A) confirmed the action of AO holding that assessee has not routed service tax in Profit & Loss Account and hence write off cannot be permitted - HELD THAT:- Assessee before us vehemently submitted that the assessee accounted the amount separately to a separate account instead of accounting the tax as a part of cost of purchase made, being service tax on rent and was to be adjusted against this output tax liability. It was also convinced that during the year, the assessee could not utilized the input tax credit on service tax paid for rent and at the end of year such amount was charged to the Profit & Loss Account and it should have been included in the rental income itself. We find force in the submission of ld. AR of the assessee that the said expenses gross of service tax is allowable as deduction u/s 37(1). Thus, by accepting the submission of assessee we allowed the deduction u/s 37(1). In the result, this ground of appeal is allowed. Disallowance of interest on loan to its subsidiary company - HELD THAT:- As relying on assessee own for A.Y. 2006-07 case assessee stated that loans and advances which are under consideration have already been considered by the Tribunal in earlier years and decided the issue in favour of assessee allowing the claim of the assessee. The assessee stated that the issue now stands covered in favour of assessee. On the other hand, the learned Sr. DR fairly conceded that there is reduction in loans and advances what was in earlier years. We find that this issue is squarely covered in favour of assessee and against Revenue by the decision of the Tribunal in assessee’s own case. Hence, respectfully following the same we allow the claim of the assessee. The orders of the lower authorities are set aside and this issue of assessee’s appeal is allowed. Disallowance of capital advance and depreciation - AO disallowed written off capital advances given to vendors for purchase of enterprises resources planning (ERP) software - HELD THAT:- lower authorities have not given any finding on the explanation furnished by assessee about the submission of assessee that implementation was ERP software was not materialized and was scrapped. The lower authorities simply concluded that the advances paid for ERP software was capital in nature. In our considered view, it is settled legal position that the expenses incurred by assessee on software are revenue in nature. Moreover, the implementation of software was not materialized. Thus, it is purely a business loss and is allowable expenses. So far as disallowance on account of depreciation on accelerated basis of ₹ 19,23,421/- is concerned. Assessee vehemently submitted that accelerated depreciation of ₹ 19,23,421/- was offered to tax by assessee on account of disallowance of entire amount of book depreciation and disallowance by AO resulted in disallowing the accelerated depreciation twice and it should be deleted. We have noted that the lower authority has not examined the clam related to the factual explanation furnished by assessee on depreciation on accelerated basis. Therefore, this part of disallowance is restored to the Assessing Officer to verify the fact as explained by assessee before ld. CIT(A) as well as before us and grant relief to the assessee in accordance with law. Disallowance of prior period expenditure - HELD THAT:- Hon’ble Bombay High Court in CIT vs. Nagri Mills Co. Ltd. [1957 (9) TMI 30 - BOMBAY HIGH COURT ] while considering the question of law held that actual payment is not necessary for purpose of deduction and it is sufficient if liability to bonus is incurred according to method of accounting upon basis of which profits or gains are computed. Considering the decision of jurisdictional High Court, we are of the view that the assessee is entitled for claiming prior period expenses. However, the lower authority has not examined the expenses. Therefore, we restore this issue to the file of AO to verify fact and expenses and allow the same in the year to which is pertains. In the result, this ground of appeal is allowed for statistical purpose. Provision for contingencies and recoveries for calculation of books profit - HELD THAT:- As we have noted above the assessee is now pressing only provisions for contingencies and provisions of recoveries. For provisions of contingencies, the assessee vehemently submitted that due inadvertence in computing book profit and a wrong figure due to typographical mistake was taken. We have noted that despite bringing the fact in the notice of CIT(A), CIT(A) not examined furnished by assessee. Similarly for provisions of recoveries, the lower authority has not examined the explanation furnished by assessee. Therefore, both the components of this issue are restored to the Assessing Officer to verify the fact as per the contention/explanation furnished by assessee before ld. CIT(A) as well as before the Tribunal and to pass the order afresh. In the result, this ground of appeal is allowed for statistical purpose. Addition u/s 50C - AO invoked the provision of section 50C and increased the sale consideration by 10%, which resulted in difference in the capital gain - HELD THAT:- Before the CIT(A), the assessee furnished detail submission and specifically stated that valuation considered by assessee on transfer of land, is the same as that considered by stamp duty authority. CIT(A) instead of giving any finding over the explanation/submission furnished by assessee confirmed the action of AO. Therefore, considering the submission of the assessee, this ground of appeal is also restored the file of AO to verify the fact, if the assessee adopted same value as considered by stamp duty authority for the purpose of computation of capital gain and pass the order afresh in accordance with law. In this result, this ground of appeal is allowed for statistical purpose.
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