TMI Blog2014 (7) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in favour of Assessee. Expenses for scientific research u/s 35(2AB) Held that:- The term 'in-house' used in section 35(2AB) must be viewed in the context of which it has been used. If by utilizing the staff or resources of an organization, research is conducted within the organization rather than through utilization of external use of resources or staff, it can be stated to be an in-house research - The decision in CIT vs. Cadila Healthcare Ltd. [2013 (3) TMI 539 - GUJARAT HIGH COURT] followed the AO is directed to allow the claim of assessee Decided in favour of Assessee. Claim of interest Interest considered as diverted for non-business purpose Held that:- The addition on the basis that the advances given have been continuing for a long period of time - the decision in Commissioner of Income-tax Versus Raghuvir Synthetics Ltd. [2013 (7) TMI 806 - GUJARAT HIGH COURT] followed - no businessman can be compelled to maximize its profit - The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act it has to see that the transfer of the borrowed funds to a sister concern from the point of view of commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) TMI 673 - GUJARAT HIGH COURT] followed - decided in favour of Assessee. Short deduction of TDS u/s 40(a) Held that:- Provision of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account - The decision in CIT vs. M/s S.K.Tekriwal [2012 (12) TMI 873 - CALCUTTA HIGH COURT] followed - with regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139 - it is not the case of non-deduction of tax or after deduction of the tax the same is not deposited in the Government Account, but it is a case where there is a shortfall in deduction of tax Decided against Revenue. Product registration expenses Capital expenses or not Held that:- It cannot be gainsaid that the expenses for garden had nexus with business activity - It can well be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed, as considered to be diverted for non-business purposes. The disallowance may be cancelled. 7. The Ld.CIT(A) has erred in law and in facts circumstances of the case in confirming disallowances u/s.14A of the Income Tax Act, 1961 to the extent of ₹ 64,13,532/-. The disallowance may be cancelled. 8. The Ld.CIT(A) has erred in law and in facts circumstances of the case in confirming disallowance of Depreciation on building and plant and machinery for ₹ 28,77,600/-. The disallowance may be cancelled. 9. The Ld.CIT(A) has erred in law and in facts circumstances of the case in confirming the Ld.Assessing officer making addition of ₹ 52,59,803/- in calculation of Adjusted Book profit for the purpose of MAT considered as towards provision for doubtful debt and dimunition in the value of investment. The additions maybe cancelled. 10. Irrespective of the outcome of the ground no.4, the Ld.CIT(A) has erred in law and in facts circumstances of the case in adding in book profit for the purpose of MAT, the sum of ₹ 23,27,520/- considered as prior period expenses. The addition may be cancelled. 11. The Ld.CIT(A) has erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessee submitted that the payment was made within the grace period. He placed reliance on the judgement of the Hon ble High Court rendered in the case of CIT vs. Amoli Organics (P.) Ltd. reported at (2014) 41 taxmann.com 149 (Guj.). 4.1. On the contrary, Sr.DR supported the orders of the authorities below. 5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The contention of the ld.counsel for the assessee requires verification whether the amount was paid within the grace period and if the amount was paid within the grace period, then it requires to be deleted in the light of the judgement of Hon ble High Court rendered in the case of Amoli Organics (P.)Ltd.(supra). Therefore, this issue is restored back to the file of AO for verification and ground of assessee s appeal is allowed for statistical purposes. 5.1. Ground No.3 is against confirmation of disallowance of the unpaid leave encashment u/s.43B of the Act amounting to ₹ 2,04,973/-. The ld.counsel for the assessee submitted that the authorities below were not justified in making the disallowance. On the contrary, ld.Sr.D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80). 8. On the contrary, ld.Sr.DR supported the orders of the authorities below. 9. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The ld.CIT(A) has decided this issue in para-6.3.of his order byobserving as under:- 6.3. I have considered the facts of the case, assessment order and appellant s submission. Appellant claimed prior period expenses on account of interest, sales expenses and reversal of cost recovery. The auditor of the appellant certified these expenses as prior period and not relating to previous year concerned. As per decision of jurisdictional High Court, only those expenses which were crystalised during the year are allowable. However appellant did not submit any material or evidence to prove that these expenses were actually crystallized during the year. In absence of any evidence, the findings of the auditor treating these expenses as prior period cannot be nullified. Accordingly this claim is not allowed. 9.1. Before the Assessing Officer, the contention of the assessee was that out of ₹ 23,27,520/-, ₹ 35,927/- towards out of pocket expenses of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or period. Similarly, ₹ 2,50,000/- being adjustment of cost recovery recorded on 30/4/2005 is reversed, not having the character of prior period for the financial year 1/4/2005 to 31/3/2006. The ld.CIT(A) has not given any finding of the submission of the assessee. The ld.counsel for the assessee placed reliance on the judgement of the Hon ble Bobmay High Court rendered in the case of CIT vs. Mahanagar Gas Ltd. in Appeal No.1978 of 2011:: (2014) 42 taxmann.com 40 (Bombay) and the judgement of Hon ble Delhi High Court rendered in the case of CIT vs. Jagatjit Industries Ltd. reported at (2011) 339 ITR 382 (Delhi). In both these judgements the issue was with regard to the prior period expenses and the issue was decided on the basis of consistency. In the case in hand, it is not the case where assessee has been following practice in past. However, considering the fact that the submissions of the assessee with regard to the reversal of entry is not decided by the ld.CIT(A). Moreover, the ld.CIT(A) has allowed the claim of bad debt of the assessee. Therefore, the issue is restored back to the file of ld.CIT(A) to decide it afresh after verifying the claim of the assessee that the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Thus, this ground of assessee s appeal is allowed. 12. Ground No.6 is against the disallowance of interest amounting to ₹ 17,06,566/-. The ld.counsel for the assessee submitted that the AO made disallowance of interest on the basis that the interest freeloans/ advances given by the assessee to its sister-concern, namely, M/s. Casil Health Products Ltd. (CHPL). The AO made addition of ₹ 30,93,151/- as compared to, in the same average rate of borrowing i.e.7.25% applied on the daily balances outstanding. On appeal, the ld.CIT(A) restricted the disallowance to the extent of 4% of the average cost of fund. The ld.counsel for the assessee submitted that the assessee was having sufficient interest-free funds. The ld.counsel for the assessee placed reliance on the judgement of the Hon ble Gujarat High Court rendered in the case of CIT-I vs. UTI Bank Ltd. reported at (2013) 32 taxmann.com 370 (Gujarat). He also placed reliance on the judgement of the Hon ble Gujarat High Court rendered in the case of CIT vs. Raghuvir Synthetics Ltd. reported at (2013) 354 ITR 222 (Guj.) 12.1. On the contrary, ld.Sr.DR supported the order of the AO and submitted that the advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not controverted by the authorities below that the advances have been given for business purposes since the assessee has been making purchases and getting job-work from the associate-concern. This goes to prove that advances were given for business purpose. The Hon ble Jurisdictional High Court has decided the issue in favour of the assessee by following the judgement of the Hon ble Apex Court rendered in the case of S.A.Builders Ltd. vs. CIT (supra), wherein it has been held that if the advances have been made for business purpose, then disallowance is not called for. The Hon ble Supreme Court in that case has approved the judgement of Hon ble Delhi High Court rendered in the case of CIT vs. Dalmia Cement (B.) Ltd. reported at (2002) 254 ITR 377 (Delhi), wherein the Hon ble Delhi High Court has held that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of ₹ 64,13,532/-. The ld.CIT(A) recorded the submissions of the assessee in para-11.2 of his order and decided the issue in para- 11.3 of his order as under:- 11.3 I have considered the facts of the case, assessment order and appellant s submission. It is not in dispute that appellant earned exempt income in the form of dividend on investment of more than ₹ 1522 lakhs. It is also not in dispute that appellant borrowed funds on which interest to the extent of ₹ 1527 lakhs were paid. Apart from this, substantial administrative expenses were incurred, part of which may relate to investment resulting in exempt income. Considering these facts it is clear that there are expenses in the form of interest and other administrative expenses relatable to earning of exempt income which are to be disallowed under section 14A. Therefore disallowance under section 14A is necessary. Coming to the method of computing disallowance under section 14A, assessing officer disallowed expenses relatable to exempt income as per rule 8D. Up to 2007-08 the method to arrive at disallowable expense was estimation. Thereafter rule 8D was framed which gives formula for disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Torrent Power Ltd. vs. DCIT [(2013) 33 taxmann.com 287] in ITA Nos.504 773 (Ahd.) of 2008 for AY 2004-05, dated 12/10/2012, wherein the Coordinate Bench has held as under:- 10. We have heard the rival contentions and perused the material on record. We find that the Assessing Officer has disallowed the administrative expenses pertaining to salary of staff, rent, etc., on ad hoc basis. He has not given a finding as to the amount incurred by the assessee for earning exempt income. In the case of Maxopp Investment Ltd. vs. CIT (2012) 347 ITR 272[2011] 203 Taxman 364/15 taxmann.com 390 (Delhi), the Hon ble High Court has held the expression expenditure incurred refers to actual expenditure and not to some imagined expenditure but the actual expenditure that is in contemplation under section 14A(1) is the actual expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to exempt income, no disallowance can be made under section 14A. 11. We find that the Assessing Officer has estimated the expenses at 1.5 per cent of the exempted income. He has not given any fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from Pfizer Ltd. and also production so made. 17. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgement relied upon by the ld.counsel for the assessee. The authorities below have not disputed the fact that the assessee has purchased the plant machinery and installed the same. The authorities below have also not disputed the fact that the assessee has furnished the electricity bill, etc. and also the salary paid to the staff. The Hon ble Gujarat High Court in the case of ACIT vs. Ashima Syntex Ltd.(supra) has held as under:- 39. We are, therefore, of the opinion that when there is commencement of business by way of production of the articles, it can be said that the assessee is entitled to depreciation. 40. It is required to be noted that when an entrepreneur undertakes to invest huge amount for the manufacture of the product, he has to plan it properly. Installation of machinery or plant and machinery in the building itself is not sufficient to attract provisions contained in s. 32 of the Act. There must be use of plant and machinery for the purpose of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation of vehicles, law is made clear. Therefore, it is for the legislature to make a provision in that regard. Unless and until that provision is made, plant, machinery and building used for the purpose of business in a particular year irrespective of number of days for which it worked, and if worked for the purpose of business, would attract the provisions of s. 32 of the Act. 17.1. In the present case, the assessee has produced the evidence of electricity power consumption that goes to show that the Plant was running and this fact is not rebutted by placing any contrary evidence on record by the Revenue that the electricity so consumed for any other purpose. Therefore, respectfully following the ratio laid down by the Hon ble Jurisdictional High Court in the case of ACIT vs. Ashima Syntex Ltd.(supra), we hereby delete the disallowance and direct the AO to allow the depreciation amounting to ₹ 28,77,600/- as claimed by the assessee. 18. Ground No.9 is against the addition of ₹ 52,59,803/- in calculation of adjusted book profit for the purpose of MAT. The ld.counsel for the assessee submitted that the AO made addition of ₹ 52,59,402/- on account of provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court rendered in the case of CIT vs. Meghmani Organics Ltd. in Tax Appeal No.109 of 2010. He drew our attention towards page Nos.53-58 of the paper-book. On the contrary, ld.Sr.DR supported the orders of the authorities below and submitted that there is no illegality in the order of the ld.CIT(A). 21. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the Hon ble Jurisdictional High Court in the case of CIT vs. Meghmani Organics Ltd.(supra), the question No.1(C) before the Hon ble Court was as under:- (c) Whether on the facts and in the circumstances of the case and in law the Appellate Tribunal erred in directing to reduce the prior period expenses of ₹ 71,16,879/- for the computation of taxable income u/s.115JA of the Act, 1961? 21.1. The Hon ble Gujarat High Court answered the question in favour of assessee by observing as under:- 10. In that view of the matter, as rightly pointed out by the counsel for the assessee, in view of the decisions of the Apex Court in the case of Apollo Tyres Ltd. vs. Commissioner of Income-Tax reported in (2002) 255 ITR 273 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exempt income was wrongly negatived by both the authorities on the ground that it was not the liability for expenses, but a liability relating to assets. 6.5 We find no fault in the approach adopted by both the authorities. The addition under Section 115JB of the Act of a sum of ₹ 1,14,43,040/- when was made as an expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed. 23.1. Since the ld.DR could not controvert anything by placing material on record, we, respectfully following the aforesaid judgement of the Hon ble Gujarat High Court, allow this ground of assessee s appeal. 24. In the result, the appeal of the assessee is partly allowed for statistical purposes. 25. Now, we take up the Revenue s appeal in ITA No.518/Ahd/2011 for AY 2006-07. In this appeal, the Revenue has raised the following grounds:- 1. The Ld.CIT(A) erred in law and on fats in deleting the addition of ₹ 6,74,282/- on account of disallowance u/s.40(a) due to short deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that provision of section 40(a)(ia) of the Act has two limbs one is where, inter alia, assessee has to deduct tax and the second where after deducting tax, inter alia, the assessee has to pay into Government Account. There is nothing in the said section to treat, inter alia, the assessee as defaulter where there is a shortfall in deduction. With regard to the shortfall, it cannot be assumed that there is a default as the deduction is not as required by or under the Act, but the facts is that this expression, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction has not been paid on or before the due date specified in sub-section (1) of section 139 . This section 40(a)(ia) of the Act refers only to the duty to deduct tax and pay to government account. If there is any shortfall due to any difference of opinion as to the taxability of any item or the nature o payments falling under various TDS provisions, the assessee can be declared to be an assessee in default u/s.201 of the Act and no disallowance can be made by invoking the provisions of section 40(a)(ia) of the Act. In the present case also, it is not the case of non-d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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