TMI Blog2015 (3) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... escribed due date, and following the decision of Hon'ble Gujarat High Court in the case of Gujarat State Road Transport Corporation (2014 (1) TMI 502 - GUJARAT HIGH COURT), and in the absence of any contrary binding decision, we are of the view that the AO was justified in disallowing the belated payments - Decided in favour of revenue. Disallowance made u/s. 14A r.w.r. 8D - Held that:- Considering the fact that the Assessee has stated that investments have been made in earlier years and the disallowance u/s. 14A is in excess of the tax free income. We therefore set aside the issue to the file of AO to re-examine the issue as relying on Joint Investments Pvt Ltd Versus Commissioner of Income Tax [2015 (3) TMI 155 - DELHI HIGH COURT] and thereafter decide the issue in accordance with law and after giving reasonable opportunity of hearing to the assessee. - Decided in favour of assessee for statistical purposes. Disallowance of travelling expenses - AO while disallowing the expenses has noted that the expenses were incurred on account of trip by cruise ship by director and his family. The aforesaid finding of AO has not been contorverted by ld. A.R. We find that CIT(A) while r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee did not include CENVAT credit for valuing the closing stock as per the provisions of Section 145A. 2. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 2,326/- being employee s contribution to provident fund though the same had not been deposited within the time limit prescribed in the ESI Act. The Ld. CIT(A) did not appreciate the fact that employee s contribution was not covered u/s. 43B but it was covered under the provisions of section 36(1)(va) r.w.s. 2(24)(x). On the other hand, the grounds raised by the Assessee in its CO read as under:- 1 The learned CIT(A) has erred in confirming the disallowance of Rs.l,39,210/-made by the AO u/s. 14A r.w,r. 8D on the ground that on introduction of Rule 8D w.e.f. A.Y.2008-09, there is no legal obligation on part of the AO to consider the nexus between the utilisation of borrowed funds in investment yielding taxable income. In view of elaborate submissions filed and the legal position laid down by various courts of law including the Hon'ble Apex Court in the case of CIT vs. Walfort Share Stock Brokers (P.) Ltd, 326 ITR 1 (SC) the provisions of Section 14A are not attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in CENVAT credit account which is basically in nature of advance recoverable in cash or kind. Further, I agree with AR of the appellant that there would be no impact on Profit or Loss irrespective of the method followed. Further, on perusal of a statement showing computation of profit under Exclusive and Inclusive method as per the Guidance note on Tax Audit issued by the ICAI, it is transpired that there is no impact on the final profit. The appellant has vide form NO 3CD also demonstrated that there would be no impact on the profit irrespective of the method of valuation followed. Even the Explanation to Section 145A does not imply that CENVAT credit ( a right arising as a result of such payment') should be included as there would be increase in profit. It only implies that such payment on purchases inventory should be included. But as can be seen from the computation reproduced by the appellant on the basis of guidelines of ICAI, after including such cost in purchase, the same has to be deducted from cost of goods sold as it in facts reduces the cost. Further, as per provision of Section 145A, adjustment of duty tax cess etc. is not required to be made only in closing sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal profit. CIT(A) has further relied on the decisions in the case of Bharat Bijlee vs. ACIT and decision of Ahmedabad Tribunal in the case of Ashwin Shah vs. ACIT. Before us, Revenue has not brought any material on record to controvert the findings of the CIT(A) nor has brought any contrary binding decision in its support. We therefore find no reason to interfere with the order of CIT(A) and thus this ground of Revenue is dismissed. Ground No. 2 is with respect to deleting of disallowance of employee s contribution to ESIC. 8. During the course of assessment proceedings and on perusing the tax audit report, AO noticed that Assessee had not deposited the Employee s contribution of ESIC for the month of September, 2007 and October, 2007 aggregating to ₹ 2,326/- in time to the credit of the respective fund. He therefore considering the provisions of section 2(24)(x) held that the amount of belated contribution cannot be allowed as deduction. He accordingly disallowed the aggregate amount for ₹ 2,326/-. 9. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who after considering the submissions of the assessee and following the decision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the total Reserves and Surpluses were in excess of ₹ 1.39 crore, no borrowed funds were invested in shares and it had not incurred any expense to earn the dividend income. The submission of the assessee was not found acceptable to the AO. He therefore following the criteria laid down in Rule 8D of the Income Tax Act, 1962 worked out the disallowance and determined the total amount of disallowance of ₹ 1,39,240/- u/s. 14A. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who confirmed the order of AO by holding as under:- 3.2 I have gone through assessment order Provision of Section 14A, Rule 8D and submission of the AR of the appellant. The contentions and arguments raised by the AR of the appellant hold good only where the disallowance u/s 14A is in respect of period prior to A Y 2008-09 and not in respect of A Y 2008-09 and subsequent years. Wef 24/03/2007, Rule 8D has been inserted to compute the disallowance of financial and administrative expenses u/s 14A on estimated basis. Rule 8D lays down the formulae to compute the financial expenses deemed to have been incurred to earn exempt income. It is a legal fiction created to disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which such shares were acquired. Mr. Khaitan strenuously contended before us that for the last few years before the relevant previous year, no new share has been acquired and thus, the loan that was taken and for which the interest is payable by the assessee was not for acquisition of those old shares and, therefore, the authorities below erred in law in giving benefit of proportionate deduction. In our opinion, the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant Assessment Year, no interest is payable by the assessee for acquiring th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end of AO. We therefore set aside the issue to the file of AO to re-examine the issue in the light of the above cited decisions and thereafter decide the issue in accordance with law and after giving reasonable opportunity of hearing to the assessee. The assessee is also directed to furnish all the required details called for by the AO promptly. In the result, this ground of assessee is allowed for statistical purposes. Ground No. 2 was not pressed and therefore the same is dismissed as not pressed. Ground No. 3 is with respect to disallowance of travelling expenses of ₹ 3,68,020/- 20. During the course of assessment proceedings, AO noticed that assessee has incurred travelling expenses of ₹ 8,21,392/-. From the details of expenses furnished by the assessee, he noticed that the major parts of the expenses incurred by the director and his family for a trip on cruise ship. In the absence of any satisfactory explanation with respect to the expenses, AO concluded that the expenses to be personal in nature and therefore disallowed the expenses of ₹ 5,25,743/- 21. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who after consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% of ₹ 525,743/-). As such addition of ₹ 368020/- is confirmed. 22. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. 23. Before us, Ld. AR reiterated the submissions made before AO and CIT(A) and submitted that the addition upheld by CIT(A) be deleted. In the alternate he submitted that the disallowance which has been upheld by CIT(A) works out to 45% of expenses and that in subsequent years, the AO has worked out disallowance at 25% of travelling expenses. He also placed on record the assessment orders framed u/s. 143(3) for A.Y. 2010- 11, 2011-12 and 2012-03. He therefore submitted that the disallowance at the most be restricted to 25%. Ld. DR on the other hand supported the order of AO. 24. We have heard the rival submissions and perused the material on record. We find that AO while disallowing the expenses has noted that the expenses were incurred on account of trip by cruise ship by director and his family. The aforesaid finding of AO has not been contorverted by ld. A.R. We find that CIT(A) while restricting the addition has noted that AO while disallowing the expenses had not even mentioned the countries visited by the directors n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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