TMI Blog2012 (12) TMI 1102X X X X Extracts X X X X X X X X Extracts X X X X ..... ter any grounds of appeal. I.T.A. No.923/D/2011[Revenue] 1 The order of Ld. CIT(A) is wrong, perverse, illegal and against the provisions of law, liable to be set aside. 2. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 29,45,898/- on account of disallowance of depreciation. 3. On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ₹ 16,73,593/- on account of foreign traveling expenses. 4. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the addition of Rs. 16,87,274/- on account of employers contribution to assessee s provident fund trust. 5. On the facts and circumstances of the case and in law, the CIT (A) has erred in deleting the addition of Rs. 2,10,50,189/- on account of addition of under section 14A of I.T. Act read with Rule 8D. 6. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing. 2. Adverting first to ground no.2 in the appeal of the Revenue, facts ,in brief, as per relevant orders are that return declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) s order passed in A.Y. 2004-05 has been upheld by the Income Tax Appellate Tribunal, Delhi Bench C vide order dated 29.04.2011 by holding and observing as under: - 35. We have heard both the parties. There is no dispute about the fact that assessee had purchased the property in the financial year 1999-2000 and was occupied by the assessee. The assessee had been paying house tax in its own name. The Assessing Officer had disallowed the claim of the assessee on the ground that the conveyance deed was not registered in the name of the assessee. Hon ble Supreme Court however, in the case of Mysore Minerals vs. CIT 239 ITR 775 has held that sec. 32 of the Income Tax Act, 1961 allows deduction by way of depreciation on building etc. owned by the assessee and used for the purpose of business or profession. The terms owner , ownership , owned are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. The decision in the case of CIT vs. Podar Cement P. Ltd. 226 ITR 625 (SC) has to be taken as a trendsetter in the concept of ownership. Assistance from the law laid down therein can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -03, the AO disallowed the claim for these foreign travel expenses. 7. On appeal, the learned CIT(A) deleted the disallowance in the following terms:- 5.1 Finding on ground No.3: The counsel has submitted that the company s business is export/import of sugar. It is important for the assessee company s Directors/Committee Members to attend international conferences and even highlighted specific provisions in the MOA/AOA of the assessee company. Global Alliance for Sugar trade reform and liberalization is an alliance of some of the major sugar producing developing countries and represent half of the world sugar production. It was formed with the objective of removing distortions in the world sugar market and objective are to phase out export subsidies, to remove domestic support and remove non tariff barriers. The Assessing Officer has not brought anything on record as to why the attending of such international conferences is not a business purpose for the assessee. Moreover, I have gone through the letters/brochures received with regard to Global Sugar Alliance members meeting to be held at Geneva and Hong Kong (pages 459 to 487 of paper book) which clearly indicates busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue relates to disallowance of ₹ 16,87,274/- towards employer s contribution towards provident fund. The AO noticed during the course of assessment proceedings that the provident fund of the assessee company namely Indian Sugar General Industry Export Import Corporation Ltd. Delhi Provident Fund did not invest the funds as per prescribed Income-tax Rules. Accordingly, while relying on his findings in the AY 2003-04, the AO disallowed the claim for deduction in terms of provisions of sec. 43B of the Act. 11. On appeal, the learned CIT(A) allowed the claim of the assessee in the following terms:- 6. Ground of appeal No.4 relates to disallowance of employers contribution to assessee s provident fund trust of ₹ 16,87,274/- u/s 43B of the Income-tax Act considering the same to be ITA nos. 8 130 923/Del./2011 unrecognized. The appellant has submitted that it is having a registered provident fund trust u/s 2(38) of the Income-tax Act, M/s Indian Sugar General Industry Export Import Corporation Ltd. Delhi Provident Fund . The counsel for the appellant submitted that their provident fund trust is a trust registered under Provident Fund Act, 1925/1952. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the decision dated 15.11.2011 in the assessee s own case in ITA nos.5943 5960/Del./2010 for the AY 2005-06. 13. We have heard both the parties and gone through the facts of the case and as also the aforesaid decision dated 15.11.2011 in ITA nos.5943 5960/Del./2010 for the AY 2005-06 wherein while adjudicating an identical issue, the ITAT concluded as under:- 20. The identical issue has been decided in favour of the assessee in A.Y. 2003-04 by the Tribunal by observing and holding as under: - 7. We have heard the parties and considered the material available on record. Sec. 36(1)(iv) provides as under: (iv) any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognizing the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest free funds at its disposal while interest was paid only in relation to packing credit for export of sugar. However, the AO did not accept the submissions of the assessee and disallowed an amount of ₹ 2,10,50,189/-[1,00,32,018+1,10,18,171] in terms of provisions of Rule 8D of the I.T. Rules, 1962. 15. On appeal, the learned CIT(A) adjudicated the issue in the following terms:- 7.1 Finding on Ground No.5:- As regards the issue that whether interest expenditure is attributable to earning of the exempt income, it is seen that an amount of Rs. 2,34,21,496/- has been debited to the income and expenditure a/c. The AR has filed the ledger a/cs from which it is noted that the break up of the same is Bank interest Rs. 24,89,451/- and Rs. 209,32,045/- being interest paid to factories. It has been submitted by the appellant that interest has been paid to factories towards advance taken by the assessee for import of sugar. The assessee had agreed to receive payment for rakewise quantities by DD to be deposited in FDR and the interest was subsequently passed on to factories concerned. It has been noted that as against interest paid to factories, there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Fund as on 31/3/2006 is ₹ 231.59 Crores The Investments of the assessee as at 31/3/2005 is ₹ 191.77 Crores and 31/3/2006 is ₹ 209.51 Crores respectively. In Reliance Utilities Power Ltd. 313 ITR 340 (Born) (supra), the High Court has held that if there be interest free funds available to an assessee sufficient to meet its investments and that at the same time the assesse had raised a loan it can be presumed that the investment were from the interest free funds available From the above discussions of the financials of the appellant it is observed that the ratio of the decision of Reliance Utilities is applicable and therefore there is no question of attribution of interest expenditure for earning of tax exempt income u/s 14A in appellant's case. 7.2 The other issues to be considered is whether or not provisions of section 14A of the Act can be applied to disallow part of administrative expenditure on a reasonably estimated ba\sis in absence of the assessing officer pointing out any specific/particular expense or drawing any direct nexus between the expense incurred and earning of the dividend income. Viewed differently, it is also to be decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade the following judgments : - Hence, the intention of Section 14A is clearly to disallow all expenses relating to the nontaxable income, and to curb the practice (claiming allowances for expenditures on exempt income. All that is required is to show that there is a 'proximate cause' between the expenditure incurred and the exempt income. A 'proximate cause' connotes a relationship between the expense and the exempt income (Walfort supra). So understood, even indirect expenses may have a proximate cause to the exempt income, and the same must hence be disallowed. For example. if the staff employed in an office partake in both manufacturing and dividend business, that proportion of the staff (indirect) expenses incurred in relation to the dividend business will be disallowed. However, if the assessee does not maintain separate accounts, it would be necessary for the Assessing Officer to determine the proportion of expenditure incurred in relation to the dividend business (i.e. earning exempt income) (para 49) Even in the absence of sub sections (2) and (3) of Section 14A and of Rule 8D, the Assessing Officer was not precluded from making apportionment. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment (Para 74). In terms of the above observations of Bombay High Court in case of Godrej Boyce (Supra) it is observed that for making disallowance under section 14A there needs to be a reasonable and proximate nexus between the expenditure and the exempt income and that the AO is not precluded from making apportionment in a case where the assessee does not maintain separate accounts. It would be relevant to consider the details of the various expenses incurred under the head Administrative Expenses to determine whether was any proximate nexus between the expenditure incurred and the exempt income. On a perusal of the details of administrative expenses and performed by the personnel, I find that the administrative expenses would mostly relate to the carrying on of the normal and primary business activities of the appellant However, even the appellant has admitted vide submission dated 26.11.2010 and 12.12.2010 to the fact of part of such expenses having been Incurred to earning exempt income In fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al funds during the year, in my opinion, it would be reasonable to disallow under section 14A of the Act 15% of salary remuneration paid to the GM Dy Manager of the Company. The total remuneration paid them (Which includes salary, employers contribution to PF and employee welfare expenses) is ₹ 8,17,811/- and 15% thereof works out to ₹ 1,22,672/- which is disallowed under Section 14A of the IT Act. Further a 10% disallowance on salary, employer's contribution to PF and employee's welfare payment to personnel of Accounts Department (Total ₹ 11,12,660/-) which works out to ₹ 1,11 ,266/-is also made. Further, out of the total administrative expenses as discussed in preceding para for ₹ 1,99,62,349/- an amount of 3% thereof (The appellant has in its submission dated 26.11.2010/02.12.2010 has allocated 1% of such expenses) is reasonably attributed to earning of exempted income. This works out to ₹ 5,98,870/- which is disallowed u/s 14A of the IT Act. Thus the total disallowance u/s 14A of the IT Act and as discussed above would work out to ₹ 8,32,808/-(Rs 1,22,672/-+ ₹ 111266/-+ ₹ 5,98,870/-). Apart from this disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis. The ld. CIT(A) has sustained the addition of ₹ 6,49,336/- after giving his working. In the course of hearing of this appeal, the ld. counsel for the assessee has not been able to point out any irregularity or defect in working given by the ld. CIT(A). It is not in dispute that the assessee has incurred various expenses for earning exempt income. The expenditure incurred by the assessee in earning exempt income has been worked out by the ld. CIT(A) at ₹ 6,49,336/- on a reasonable basis. We, therefore, find no reason to interfere with the order of ld. CIT(A) in sustaining the disallowance to the extent of ₹ 6,49,336/-. Thus, this ground raised by both revenue as well as by assessee is rejected. 17.1. In the year under consideration, as regards disallowance out of interest, the ld. CIT(A) concluded that interest has been paid to factories towards advance taken by the assessee for import of sugar. As against interest paid to factories, there is a contra item on receipt side as interest on term deposits for ₹ 2,20,35,762/-. Therefore, the ld. CIT(A) accepted the contention of the assessee that interest paid to factories is not to be considered for p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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