TMI Blog2019 (3) TMI 1581X X X X Extracts X X X X X X X X Extracts X X X X ..... above. Once it is on record that there is no dividend income/exempted income then the question of making the disallowance u/s 14A does not arise in view of the judgment of Hon ble Gujarat High Court in the case of Corrtech Energy (P) Ltd . [ 2014 (3) TMI 856 - GUJARAT HIGH COURT]. No disallowance u/s 14A as made by the AO. - decided in favour of assessee. Disallowance of prior period expenses - AO disallowed expenses and held that expenses related to earlier years are not allowed as no corresponding income has been offered. Further, no copy of bills and invoices has been submitted as contended by him - HELD THAT:- The assessee in the year under consideration and in the earlier years was paying the tax at the maximum marginal rate. As such there was no loss to the Revenue as the assessee was very much entitled to the deduction of such expenses in the earlier year. Thus merely the assessee omitted to claim the expenses in the earlier year cannot be a ground for the disallowance for the year under consideration. In this regard we find support and guidance from the judgment of Hon ble Gujarat High Court in the case of Indian petrochemicals corporation Ltd . [ 2016 (9) TMI 110 - GU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 21,12,302/- made u/s.41(1) of the Act being cessation of liabilities. 3. The first ground of appeal raised by the Revenue is that the ld. CIT-A erred in deleting the addition made by the AO on account of interest in respect of capital WIP. 4. During assessment proceeding, the AO found that the assessee had shown ₹ 37,74,543/- as capital work in progress (for short CWIP) but corresponding interest cost was not attributed to such CWIP. Accordingly, a clarification was sought from the assessee. 4.1 In response, the assessee submitted that machinery is kept ready for use and hence need not to capitalize. 4.2 However, the ld. AO disregarded the contention of the assessee by observing that the assessee company did not produce any material on record showing the CWIP whether any interest element was involved therein. 4.3 AO in support of his contention also relied on Punjab Haryana High court in case of Power drugs ltd. Vs. CIT (201 Taxmann 194) and ITAT Calcutta bench B in case of Cellica developers Pvt. Ltd. Vs. DCIT. Accordingly, AO made the disallowance of ₹ 4,52,945/- u/s 36(1)(iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is absolutely distinct and different from the additions made to the gross block in the Column- A of Note-9 comprising of tenable assets forming part of audited accounts. Therefore, the AO has completely misled himself in believing that the appellant has claimed depreciation on capital work in progress as disclosed in the audited accounts. The above comparison of both the tables reveals that no such depreciation has been claimed on capital work in progress of ₹ 37,74,543/- as alleged. The decision which had been relied upon by the AO while making addition are therefore not applicable since both these decisions involved the capitalization of expenses prior to the assets having been put to use. In view of the above facts and discussion, the addition made by the A.O. cannot be sustained. The A. O. is directed to delete the same. The ground of the appellant is allowed. 7. Aggrieved by the order of learned CIT (A) the Revenue is in appeal before us. Both the learned DR and the AR before us relied on the order of authorities below as favorable to them. 8. We have heard the rival contentions and perused the materials available on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete the addition made by him. Thus the ground of appeal of the Revenue is dismissed. 9. The second ground of appeal raised by the Revenue is regarding deleting the addition of ₹ 48,19,526/- made on account of disallowance u/s.14A r.w.r 8D of the Act. 10. AO found that assessee has shown investment in securities at ₹ 14,23,47,500/- as at 31/03/2011 and 31/03/2012 but did not make any disallowance u/s 14A r.w. Rule 8D of the Income Tax Rule. 10.1 On the question for the disallowance, the assessee submitted that it has not earned any exempt income nor claimed any exemption in respect of any income. Similarly, it has not incurred any expenditure nor claimed any expenditure in respect of any exempt income. Therefore, there is no need of invoking of the provision of section 14A of the ACT. The assessee also placed his reliance on Gujarat high court in case of Corrtech Energy Pvt. Ltd reported in 223 taxman 130 and contended that this decision is binding in the state of Gujarat. 10.2 Assessee also contended that it has own sufficient fund in the form of the share capital of ₹ 5.94 Crores and quasi-capital o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. We have heard the rival contentions and perused the materials available on record. It is an undisputed fact that there is no exempt income earned by the assessee in the year under consideration in respect of the investment in shares as discussed above. Once it is on record that there is no dividend income/exempted income then the question of making the disallowance under section 14A does not arise in view of the judgment of Hon ble Gujarat High Court in the case of Corrtech Energy (P) Ltd reported in 372 ITR 97 wherein it was held as under: 4. Counsel for the Revenue submitted that the Assessing Officer as well as CIT(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correctly applied by the Revenue. We however, notice that subsection( 1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the genuineness of the expenditure it can be allowed in said assessment year as such exercise is tax neutral. 19. Aggrieved by the order of learned CIT (A) the Revenue is in appeal before us. Both the learned DR and the AR before us relied on the order of authorities below as favorable to them. 20. We have heard the rival contentions and perused the materials available on record. Regarding the prior period expenses claimed by the assessee we note that the genuineness of such expenses has not been doubted. Therefore, we can presume that the impugned prior period expenses were incurred in connection with the business of the assessee under section 37(1) of the Act. 20.1 The sole basis of the disallowances is that these expenses are pertaining to the period of earlier years. Therefore, the same was disallowed. However, we note that the assessee in the year under consideration and in the earlier years was paying the tax at the maximum marginal rate. As such there was no loss to the Revenue as the assessee was very much entitled to the deduction of such expenses in the earlier year. Thus merely the assessee omitted to claim the expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the accounting year 1952, that is in the assessment year 1953-54, should be a matter of no consequence to the Department; and one should have thought that the Department would not fritter away its energies in fighting matters of this kind. But, obviously, judging from the references that come up to us every now and then, the Department appears to delight in raising points of this character which do not affect the taxability of the assessee or the tax that the Department is likely to collect from him whether in one year or the other. 4. The point raised for determination turns on the words used in section 10, sub-section (2), clause (x), which allows a deduction in respect of bonus and section 10(5). Now, in section 10(2)(x), what is allowable as a deduction is any sum paid to an employee as bonus . By itself this contemplates actual payment; but section 10(5) defines the word paid which appears in subsection (2) as meaning actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under this section . Therefore, an actual payment is not necessary for the purpose of this deduction; it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our opinion, the amount was rightly allowable in the assessment year 1952-53 and the Tribunal came to the correct conclusion. 3. In the above view of the matter, no elaborate reasons are required to be given as the controversy already stands concluded. It is amply clear that the only dispute is with regard to the year in which the amount should be allowed. We agree with the view adopted by the Tribunal and accordingly the question raised is answered in favour of assessee and against the revenue. Tax Appeal No. 1773 of 2008 is accordingly dismissed. In view of the above we do not find any reason to disturb the finding of ld. CIT-A. Hence the ground of appeal of the Revenue is dismissed. 21. The fourth ground of appeal raised by Revenue is regarding the deletion of the addition of ₹ 21,12,302/- made u/s 41(1) of the Act being the cessation of liability. 22. Assessee has shown ₹ 21,12,302/- under the heading creditors consisting of 8 persons as on 31/0/2010, 31/03/2011 and on 31/03/2012. AO issued SCN to the assessee for making the disallowance under section 41(1) of the Act as payment till the date h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities below as favorable to them. 26. We have heard the rival contentions and perused the materials available on record. It is settled law that the provisions of section 41(1) of the Act can be applied in respect of those liabilities which have ceased to exist in the books of accounts. From the preceding discussion, there was no dispute that these liabilities are very much appearing in the books of accounts of the assessee. Therefore, in our considered view, the provisions under section 41(1) of the Act cannot be applied to the instant case. Regarding this, we find support and guidance from the judgment of Hon ble High Court of Gujarat in the case of Bhogilal Ramji Bhai Atara (supra) reported in 222 taxman 313 wherein it was held as under: 8. We are in agreement with the view of the Tribunal. Section 41(1) of the Act as discussed in the above three decisions would apply in a case where there has been remission or cessation of liability during the year under consideration subject to the conditions contained in the statute being fulfilled. Additionally, such cessation or remission has to be during the previous year relevant to the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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