TMI Blog2022 (5) TMI 1574X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by the assessee is allowed in terms of our aforesaid observations. Disallowance of deduction of contributions to temple/panchayat - as contributions made by the assessee to the temple/panchayat were not eligible for deduction u/s. 80G, A.O disallowed the assessee s claim for deduction of the aforesaid amount in question - HELD THAT:- Aforesaid contributions/expenditure which are neither in the nature of personal expenditure or capital expenditure and have been incurred by the assessee company in order to facilitate running of its business of mining smoothly, i.e., without any disturbance from the people in the surrounding villages thus, being in the nature of an expenditure incurred by the assessee wholly and exclusively for the purpose of its business was allowable as a deduction u/s. 37(1) of the Act - no infirmity in the view taken by the CIT(Appeals) who had vacated the aforesaid disallowance. Addition u/s 41(1) - cessation of liabilities - Assessee had failed to furnish confirmations in respect of four creditors - HELD THAT:- Now when it is the claim of the assessee that the impugned liabilities had ceased to exist in the aforementioned succeeding years, then, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue are directed against the order passed by the CIT(Appeals)-2, Panaji, dated 28.09.2017, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (for short the Act ) dated 19.12.2011 for assessment year 2009-10. Before us the assessee has assailed the impugned order on the following grounds of appeal: 1. The order of the Commissioner of Income Tax (Appeals)-2 Panaji-Goa (hereinafter referred to as CIT(A) is opposed to law and facts of the case. 2.(a) The CIT(A) erred in confirming the disallowance made by the Assessing Officer (AO) under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 amounting to Rs.15,03,242/-. The whole of the additions be deleted in full. (b) The CIT(A) erred in not deciding about AO s recording of satisfaction in invoking the provisions of section 14A of the Act read with rule 8D of the Income Tax Rules, 1962. (c) Without prejudice to the ground numbers 2(a) (b), the CIT(A) in not allowing the alternative ground of the appellant that the average of the value of investments which yielded exempted income alone is to be considered for calculating disallowance as per rule 8D(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars Amount ( in Rs.) 1. Disallowance u/s. 14A of the Act Rs. 15,03,242/- 2. Disallowance of contribution to Temple Rs. 10,89,334/- 3. Disallowance u/s. 40(a)(ia) of the Act Rs. 11,39,867/- 4. Addition towards cessation of liabilities u/s. 41(1) of the Act Rs. 9,96,547/- 5 Addition of un-paid creditors/advances Rs.3,24,27,504/- 4. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). After deliberating at length on the contentions advanced by the assessee the CIT(Appeals) vacated certain additions/disallowances made by the A.O, viz. (i) disallowance of donation to temple: Rs.10,89,334/-; (ii) disallowance u/s. 40(a)(ia) of the Act : Rs.11,39,867/-; and (iii) addition made by the A.O u/s. 41(1) of the Act : Rs.9,96,547/-. As regards the addition by the AO of unpaid creditors/advances u/s. 28(iv) of the Act amounting to Rs.3,24,27,504/-, the CIT(Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to assail the addition of Rs.2,56,625/- (supra) that formed part of the addition of Rs.3,24,27,504/- that was made by the A.O towards unpaid creditors/advances, therefore, the additional ground of appeal so raised by the assessee before us merits admission. 10. Adverting to the merits of the case, we shall first take up the grievance of the assessee company as regards the upholding of the disallowance of administrative expenses under Sec. 14A r.w Rule 8D(2)(iii) by the CIT(Appeals). On a perusal of the orders of the lower authorities, we find that though the assessee had during the year under consideration received exempt dividend income of Rs.34,02,730/-, however, it had not offered any disallowance of expenditure u/s. 14A of the Act. On being queried as to why disallowance may not be computed as per methodology contemplated under Rule 8D, it was claimed by the assessee that it was in the business of extraction, export of cargo handling and trading of iron ore and was in the normal course of its business parking its surplus funds with the banks. It was stated by the assessee that as certain mutual fund managers who were attached with the banks would approach him for making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee in reference to its books of account had dislodged the same and mechanically computed the disallowance under the aforesaid statutory provision by triggering the mechanism contemplated in Rule 8D(2)(iii) of the Rules. In support of his aforesaid contention that before taking recourse to Sec. 14A(2) and triggering the mechanism contemplated in Rule 8D an A.O remains under a statutory obligation to record his dissatisfaction as regards the disallowance offered by the assessee u/s. 14A of the Act, the Ld. AR relied on the judgments of the Hon ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi (2018) 91 taxmann.com 154(SC) and Godrej Boyce Manufacturing Company Ltd. vs. DCIT [2017] 81 taxmann.com 111 (SC). It was submitted by the Ld. AR that as laid down by the Hon ble Apex Court in its aforesaid judicial pronouncements, it was mandatory on the part of the A.O to record his dissatisfaction as regards the claim of disallowance of expenditure incurred for earning of the exempt dividend income, failing which he was divested of his jurisdiction from working out the disallowance u/s. 14A r.w Rule 8D of the Rules. Also, support was drawn by the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e qua the disallowance so offered by him is not being accepted. On a similar footing would be a case where the assessee had not attributed any part of the expenditure for earning of exempt dividend income and, the A.O is not satisfied with the said claim. Apart from that we find that the Hon ble Jurisdictional High Court in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd (supra) had observed, that the A.O before rejecting the disallowance offered by the assessee remains under a statutory obligation to give a clear finding with reference to the accounts of the assessee that the other expenditure which were being claimed qua the non-exempt income were in fact related to its exempt income. Also, as stated by the Ld. AR, and rightly so, a similar view had been taken by the Hon ble High Court of Delhi in the case of H.T Media Ltd. Vs. Pr. CIT (2017) 399 ITR 576 ( Delhi). Now, in the case before us, we find that the A.O had though deliberated at length on the scheme of section 14A of the Act, but had failed to give any reason as to why the claim of the assessee that no part of the expenditure could be attributed towards earning of exempt income was not to be accepted. Althou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claim for deduction of the aforesaid amount in question. 15. On a perusal of the order of the CIT(Appeals), we find that he had after taking cognizance of the fact that the aforesaid contributions /expenditure were incurred by the assessee for the purpose of smoothly running its business, i.e., without any disturbance from the inhabitants of the surrounding villages, therefore, the same, as claimed by the assessee, was duly eligible for deduction u/s. 37 of the Act. For the sake of clarity, the observations of the CIT(Appeals) qua the aforesaid issue are culled out as under: 4.3 I have gone through the assessment order and the submissions of the appellant. It is not denied that the appellant is maintaining the regular books of account which are audited. The appellant has produced necessary proof of incurring expenditure and business need as the appellant has mines in and around the villages where this expenditure has been incurred. This expenditure is necessary for the appellant to incur so as to run its business smoothly without any disturbance from the people in the surrounding villages. The AO has not been able to prove that the expenditure in question is personal expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchase of bent type fencing poles 38391/- 3,14,334/- 10,89,334/- 10,89,334/- However, the A.O being of the view that the aforesaid payments were in the nature of donations to temple/panchayat had disallowed the same, for the reason that they were not eligible for deduction u/s. 80G of the Act. 16. In our considered view, as observed by the CIT(Appeals), and rightly so, the aforesaid contributions/expenditure which are neither in the nature of personal expenditure or capital expenditure and have been incurred by the assessee company in order to facilitate running of its business of mining smoothly, i.e., without any disturbance from the people in the surrounding villages thus, being in the nature of an expenditure incurred by the assessee wholly and exclusively for the purpose of its business was allowable as a deduction u/s. 37(1) of the Act. Accordingly, finding no infirmity in the view taken by the CIT(Appeals) who had vacated the aforesaid disallowance of the assessee s claim for deduction of Rs.10,89,334/-, we uphold the same. Thus, the Ground of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n had ceased to exist during the year under consideration, therefore, the same could not have been brought to tax in its hand u/s. 41(1) of the Act during the year under consideration, i.e., A.Y.2009-10. At this stage, we may herein observe, that though cessation of a trading liability, inter alia, would lead to addition of the same in the hands of an assessee u/s. 41(1) of the Act, but then onus is cast upon the Revenue to establish that the assessee had during the year under consideration obtained some benefit in respect of such trading liability by way of remission as cessation thereof. Our aforesaid conviction is fortified by the order of this Tribunal in the case of G.N Agarwal (HUF) Vs. JCIT, ITA No.201/PNJ/2013 dated 18.07.2014 wherein involving identical facts, the Tribunal had vacated the addition made by the A.O u/s. 41(1) of the Act, observing as under: We have heard the rival submissions and carefully considered the same. We noted that the total outstanding liabilities in the books of the assessee as on 31.03.2001 were to the extent of Rs.75,75,693/- and there was debit balance of Rs.26,44,862/-. The AO added sum of Rs.49,30,831/- being the difference of creditors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s its income for the said years. Backed by the aforesaid facts, we are in agreement with the Ld. AR that now when it is the claim of the assessee that the impugned liabilities had ceased to exist in the aforementioned succeeding years, then, in case the A.O was to hold otherwise, he was obligated to substantiate on the basis of irrefutable material that the said outstanding liabilities had in fact ceased to exist during the year under consideration itself, i.e., A.Y.2009-10. Having failed to do so, we are of the considered view that the A.O could not have summarily concluded that the cessation of the aforementioned outstanding liability had occasioned during the year under consideration, i.e., AY 2009-10. We, thus, in terms of our aforesaid observations, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated the addition of Rs.9,96,547/- made by the A.O u/s. 41(1) of the Act, uphold the same. Thus, the Ground of appeal No.2 raised by the Revenue is dismissed in terms of our aforesaid observations. 21. We shall now advert to the common grievance of the assessee/ revenue wherein they have assailed the action of the CIT(Appeals) in partly sustaining/vaca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for return of the said deposit (copy of the letter enclosed as Annexure A ). This letter was filed before the AO at the time of assessment proceedings. The said amount is thus refundable and or adjustable against future services to the said party. 2. Kariganur Iron Steel (P) Ltd. Rs.67,43,530/- The appellant is showing credit balance to the party's account as on date. The party vide his email dated 2'd August 2008 (previous year relevant to the assessment year under appeal) confirmed the balance due by the appellant by filing their statement of account for the period 01.04.2004 to 31.03.2008 (copy of the email is enclosed as Annexure B ). This documents was also filed before the AO at the time of assessment proceedings. The said amount is therefore still refundable and or adjustable against future services to the said party. 3. S.S. Soya/Future resource Rs.50,00,000/- This amount was received on 8.2.2008 for handling of their iron ore fines by the appellant company. The appellant submits that this is still payable to the said party on their demanding the money or adjustable against future supply of services. 4. KMMI Steels (P) Ltd. Rs.40,29,928/- This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ger payable. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations sustained the addition as regards three advances/deposits of Rs.92,86,553/- (out of total addition of Rs.3,24,27,504/- made by the A.O.) 24. Before us, Shri Nishant Thakkar, the Ld. AR has assailed the validity of addition of the advances/deposits that were made by the A.O u/s. 28(iv) of the Act. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that as section 28(iv) of the Act contemplates charging of the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession to income-tax under the head Profits and gains of business or profession, therefore, now when advances/deposits received by the assessee would not fall within the realm of any benefit or perquisite, whether convertible into money or not , therefore, the provisions of section 28(iv) of the Act could not have been triggered for making an addition of the aforesaid amount as the income of the assessee company. In order to support his aforesaid contention the Ld. AR had relied on the judgment of the Hon ble Supreme Court in the case of Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad concluded that the provisions of section 28(iv) of the Act would not be applicable. For the sake of clarity the relevant observations of the Hon ble Supreme Court are culled out as under : 12) The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- 28. Profits and gains of business or profession. The following income shall be chargeable to income-tax under the head Profits and gains of business profession , -- xxx---- (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ----x xx--- 13) On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received ..... X X X X Extracts X X X X X X X X Extracts X X X X
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