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2016 (4) TMI 304 - ITAT AHMEDABAD

2016 (4) TMI 304 - ITAT AHMEDABAD - TMI - Disallowance of prior period expenses - crystallization of expenses in the present year - Held that:- As the liability to pay the expenditure crystallized during the assessment year in question. Similarly, in assessment year 2004-05 the payment to employees was made based upon the performance of the employees in the earlier year. The liability crystallized during the assessment year in question, because the working of the incentives based on performance .....

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firmity in the order of the learned CIT(A) in deleting the disallowance of the expenditure. - Decided in favour of assessee

Disallowance u/s 14A - Held that:- Looking to the huge base of capital and free reserve and surplus vis--vis minor investment it can be easily inferred that most probably non-interest bearing funds have been invested in the Investments. Accordingly, we delete the addition made u/s 14A Decided in favour of assessee - ITA No.1996 /Ahd/2012, ITA No.2140 /Ahd/2012 .....

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First we take up assessee s appeal in ITA No.1996/Ahd/2012 for Asst. Year 2007-08. The assessee has raised following grounds in this appeal :- 1. On the facts and in the circumstances of the appellant s case, the ld. CIT(A) has erred in confirming disallowance of ₹ 12,10,000/- made by the Assessing Officer on account of preliminary expenses. The same may be deleted. 2. On the facts and in the circumstances of the appellant s case the ld. CIT(A) has erred in confirming addition of ₹ .....

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ed company engaged in the business of manufacturing/refining and trading of edible oil, seeds and cakes. It filed its return of income on 6.10.2007. Assessee s case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 22/07/2008 which was duly served on the assessee. Assessment was completed after making following additions :- 1. Disallowance of preliminary expenses Rs.12,10,000/- 2. Disallowance for late payment of PF/ESIC Rs.6,68,797/- 3. Disallowance of prior pe .....

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course of hearing and so the same is dismissed as not pressed. 7. Ground no.2 of the assessee is against the action of ld. CIT(A) confirming addition of ₹ 4,08,471/- on account of prior period expenses. Ld. AR submitted that expenses of ₹ 4,08,471/- are included in brokerage and commission expenses at ₹ 2,35,721/- and professional expenses of ₹ 1,72,750/- which were pertaining to F.Y. 2005-06 and the same were shown in the audited statement also as prior period expenses b .....

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ord. The issue in this ground is whether the expenses of ₹ 4,08,471/- claimed as expenditure in Asst. Year 2007-08 being crystallized in the year under appeal even if the expenditure relates to Asst. Year 2006-07. We find from the record that these expenses relate to brokerage/commission and professional fees and assessee has claimed that these expenses have crystallized in the year under appeal and the same, therefore, have been claimed as expenditure. We further find from annexure -9 to .....

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of ₹ 17,23,464/- pertaining to the expenditure of prior period which had crystallized during the assessment year under appeal. The assessee, therefore, made a claim which was denied by the AO. The submission of the assessee is reproduced in the appellate order. The learned CIT(A) found that the entire amount in question pertains to the payment of employees which was in the nature of incentives and performance rewards. The same was worked out by the HR Department on the basis of performance .....

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. On the other hand, the learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the liability was crystallized during the assessment year under appeal. Therefore, additions have rightly been deleted by the learned CIT(A). 6. On consideration of the rival submissions, we do not find any infirmity in the order of the leaned CIT(A) in deleting both the additions. The Hon ble Supreme Court in the case of Metal Box Company 73 ITR 53 held that .....

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ated by the sales tax authorities on November 2, 1976, and therefore t4he additional demand created in the relevant assessment year ought to have been allowed as a deduction. On a reference at the instance of the Revenue: Held, that the assessee had realized sales tax from its customers and whatever amount had been realized had been paid over to the sales tax authorities. The demand of sales tax was over and above the admitted amount of tax liability which had been created pursuant to the assess .....

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ility arising in relevant assessment year is deductible expenditure. Considering the facts of the case in the light of the above decisions, it is clear that the liability of the assessee for the expenditure crystallized during the assessment year in question. The learned CIT(A) in assessment year 2003-04 after verification of the certificate of completion of dismantling/erection work found that same was given in May, 2002 which pertains to the assessment year under appeal i.e. assessment year 20 .....

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was cleared for payment in the month of July, 2003 which falls during the assessment year under appeal i.e. assessment year 2004-05. Since the liability to pay the expenditure crystallized during the assessment year under appeal, therefore, the learned CIT(A) was justified in deleting the addition. The learned DR has not produced any material contrary to the findings of the learned CIT(A). Thus, the Revenue has failed to rebut the findings of the learned CIT(A). We, therefore, do not find any in .....

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r appeal. This ground of assessee is allowed. 11. Ground no.3 of the appeal is against the action of ld. CIT(A) in confirming the disallowance of ₹ 5,88,998/- made by Assessing Officer u/s 14A of the Act. Ld. AR has submitted that rule 8D of ITAct Rules have been inserted by the IT (Vth Amendment) Rules on 24.3.2008 and the appeal is for Asst. Year 2007-08 and, therefore, ld. Assessing Officer was not correct in applying the method of rule 8D of the IT Rules in the case of assessee and fur .....

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of assessee that rule 8D of IT Rule was inserted from Asst. Year 2008- 09 and before this insertion the duty is cast upon the Assessing Officer for determining the amount of expenditure under the provisions of section 14A in relation to such income which does not form part of the total income. From going through the assessment order we find that Assessing Officer has just mentioned the amount of exempt income at ₹ 30 lacs and about investment as on 31.3.2007 at ₹ 2,01,09,000/-, No s .....

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ned that Assessing Officer has placed on record that he is not satisfied with the correctness of the claim of expenditure made by the assessee or the claim made by the assessee that no expenditure has been incurred. We find that Hon. Jurisdictional High Court in the case of CIT vs. Torrent Power Ltd. 363 ITR 474 (Guj) - Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income net includible in total income (Interest - Non-user of borrowed funds) - Assessment year 2006 .....

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ed order passed by Tribunal deleting disallowance was to be upheld - Held, yes [Para 7] [In favour of assessee] FACTS • For the relevant assessment year, the assessee filed its return showing exempt income being fax free imerest on bonds, exempted under section I Of I5j and dividend exempt under section IO(23Di. The total sum worked out to Ks, J4 crorcs. • The Assessing Officer having invoked the provisions of section 14A. disallowed one percent of interest expenses incurred for earnin .....

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urplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. • With regard to disallowance of 1% of administrative expenses averred to have incurred on account of ihe earning of interest, there is nothing on record to indicate that there has been in fact any actual expenditure incurred by the assessee for earning tax free income of Rs.i4 crores. It is also to be noted that out of the total amount of exempt income of ₹ 14 crores, the assessee c .....

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out any burden of administrative expenses. • In view of fact that no expenditure was incurred for earning exempted income and that being the question of fact, disallowance of 1% of interest expenditure artificially or on the basis of assumption rightly has not been sustained by the Tribunal. • The revenue's appeal therefore, requires no further entertainment and hence dismissed. 14. Applying the facts of the case in the light of decision of Jurisdictional High Court in the above re .....

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. ₹ 2 crores and there is minor decrease in investment in NSC which has scaled down from ₹ 1,56,000/- to ₹ 1,09,000/-. 15. In view of our above discussion and respectfully following the decision of Hon. Jurisdictional High Court in the case of CIT vs. Torrent Power (supra) and also looking to the related facts and figures of assessee we are of the view that looking to the huge base of capital and free reserve and surplus vis-à-vis minor investment it can be easily inferr .....

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tribution to PF/ESIC paid before due date of filing return despite the fact that such late payments are required to be treated as income u/s 2(24)(x) read with section 36(1 )(va) of the Act. 2. That the Id. CIT(A) has erred in law and on facts in deleting the addition of s.5,88,998/- to the Book Profit u/s 115JB of the Act despite the fact that disallowance u/s 14A is to be added to Book Profit as per Explanation (1)(c) to section 115JB(2) of the Act. On the fact and in the circumstances of the .....

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