Tribunals
Summary and Review of Case Laws Decided by Income Tax Appellate Tribunals
Wednesday, 30 March 2016 14:06

Section 41(1) - For attracting provisions of sec. 41(1) of the Act, the liability of the assessee must have seized and there should not be any possibility of revival in future - Ahmedabad Tribunal

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Cessation of Liability u/s 41(1) Cessation of Liability u/s 41(1)

Disallowance of Expenses

For attracting provisions of sec. 41(1) of the Act, the liability of the assessee must have seized and there should not be any possibility of revival in future

Facts

A. Deduction u/s 10A -

1. Assessee is a company engaged in the business of manufacturing of Laser System for material processing and others. The assessee-company is located within the limits of Surat Special Economic Zone

2. Assessee filed return of income on 30/10/2007 showing total income of Rs.1,47,41,231/-

3. Assessing Officer has not accepted the claim of the appellant u/s. 10A of the Act on the following reasons that -

a. The assessee has not furnished Auditor's certificate in form No. 56F from a Chartered Accountant as condition stipulated in subsection (5) of section 10A of the IT Act

b. The assessee has not furnished any certificate regarding undertaking established in special economic zone from competent authority

c. The assessee has not stated about the use of old machineries and whether the company was formed by splitting/ reconstruction of business despite of given it many opportunities of being heard

d. Sale proceeds of articles or things or computer software exported out of India should be received in or brought into India by the assessee in convertible foreign exchange within a period of six months from the end of previous year or within such further period as the competent authority may allow in this behalf

4. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of the assessee and having considered the same, the CIT(A) granted relief to the assessee

5. Revenue moved to ITAT on this ground in the present appeal

6. ITAT allowed this ground in favour of the Assessee

B. Disallowance of Interest expenses -

7. Assessing Officer observed that the assessee paid interest of Rs.68,94,829/- during the year under consideration as against Rs.69,88,315/- in the last year

8. The Assessing Officer further found that the assessee had given interest free loans and advances to various parties to the extent ofRs.1,26,80,993/-

9. The Assessing Officer, without discussing the facts of the issue in details, relying on the decision in the case of CIT vs. Abishek Industries Ltd [2006] 156 Taxman 257 (P&H), disallowed the claim of interest expenses amounting to Rs.15,21,790/-

10. Matter was carried before the First Appellate Authority wherein various contentions were raised on behalf of the assessee and having considered the same, the CIT(A) deleted the disallowance in question

11. Revenue moved to the Tribunal

12. ITAT decided the issue in favour of the Assessee

C. Disallowance of Miscellaneous Expenses - 

13. Assessing Officer has disallowed Rs.1 lakh out of total expenses of Rs.9,44,247/- on the ground of possibility of nonbusiness expenses

14. Matter was carried before the First Appellate Authority, wherein various contentions were raised by the assessee and having considered the same, the CIT(A) deleted the disallowance in question amounting to Rs.1 lakh

15. Revenue moved to ITAT

16. ITAT decided the issue in favour of the Assessee

D. Disallowance of depreciation on building -

17. The Assessing Officer has disallowed the claim of depreciation amounting to Rs.3,37,157/- on building situated at A/8, Gandhinagar which was purchased on 27.03.2007 by executing deed of conveyance

18. The Assessing Officer noticed that the assessee has filed to furnish any evidences in support of its claim with regard to the depreciation except deed of conveyance and light bill. In liminie, the Assessing Officer disallowed claim of depreciation of the assessee

19. In appeal before the CIT(A), the same was allowed on the ground that the assessee was fully eligible for the claim of depreciation as the evidences like deed of conveyance and light bill produced by the assessee signifies that the assessee had infact used the building in the year under consideration

20. Revenue filed appeal before the ITAT and the matter was decided in favour of the Assessee

E. Disallowance u/s 41(1) -

21. The Assessing Officer in the assessment order has held that as the assessee has failed to explain why payments were not made to the eight parties in the subsequent years when purchases were booked long back, the said liabilities needs to be disallowed

22. The Assessing Officer did not find the explanation of the assessee tenable and disallowed the said amount u/s. 41(1) of the Act

23. Matter was carried before the First Appellate Authority and having considered the submissions of the assessee, the CIT(A) granted relief to the assessee

24. Department went to ITAT but could not get any relief. Issue decided in favour of the Assessee

F. Disallowance of Staff Welfare expenses, Vehicle expenses and Travelling expenses -

25. The Assessing Officer has disallowed staff welfare expenses of Rs.1,12,368/-, vehicle expenses of Rs.1,53,970/- and travelling expenses of Rs.13,05,162/-

26. Before the CIT(A), the assessee vide its submissions dated 15.04.2010 provided a detailed working of the fringe benefit tax paid by the assessee during the relevant previous year

27. The CIT(A), having considered the same, held that the assessee had already paid fringe benefit tax on these expenses and they could not be brought to tax once again

28. Revenue preferred appeal to ITAT but no relief granted. Issue decided in favour of the Assessee

29. In the result appeal filed by the revenue is dismissed. 

Adjudication

On Deduction u/s 10A - Before the CIT(A), the Authorized Representative of the assessee furnished the working vide letter dated 03.06.2010. As per the said working, on an amount of Rs.30,05,70,495/-, if the claim amount was Rs.5,82,65,233/-, then on Rs.2,67,68,997/- the proportionate disallowance came to Rs.51,89,138/-. Therefore, the said amount of Rs.51,89,138/- was directed to be deducted from the total amount of claim of Rs.5,82,65,233/-. Thus, allowable claim u/s. 10A of the Act was of Rs.5,30,76,095/-. Therefore, the claim u/s.10A of the assessee-company was rightly allowed to the extent of Rs.5,30,76,095/- and rest was rightly disallowed by the CIT(A). No interference is called for and we uphold the order of the CIT(A) in this regard.

On Disallowance of Interest - We find that that assessee has paid the interest on the borrowed fund and has also advanced loan but did not charge any interest on that because it was the business/commercial necessity to take and give the loan simultaneously for business purpose. As the assessee was having fund more than the amount of advance given without interest, it did not cause any adverse effect on the business prudence. Therefore, the disallowance made by the Assessing Officer was rightly deleted by the CIT(A) and these reasoned findings of the CIT(A) do not require any interference from our side. We uphold the same.

On Disallowance of Misc. Expenses - We find that the Assessing Officer, without put forth any cogent reasons, has made the ad-hoc disallowance in question. The Assessing Officer has also not recorded any specific reasons or evidences which can be categorized as that of personal nature; therefore, the CIT(A) has rightly directed the Assessing Officer to delete the disallowance in question. This reasoned finding of the CIT(A) needs no interference from our side. We uphold the same.

On Disallowance u/s 41(1) - For attracting provisions of sec. 41(1) of the Act, the liability of the assessee must have seized and there should not be any possibility of revival in future. The Assessing Officer though has held that sec. 41(1) of the Act was attracted but has failed to state any reasons for the same. Moreover when the confirmations of concerned parties were produced before the CIT(A), he rightly observed that liability is still in existence. Therefore, in view of the facts and circumstances of the case, the CIT(A) was justified in deleting the addition in question and we uphold the same.

On Disallowance of Staff Welfare, Vehicle and Travelling Expenses - in our opinion, the CIT(A) has rightly deleted the disallowance made by the Assessing Officer on these counts as the assessee had already paid fringe benefit tax on these expenses. These reasoned and factual findings of the CIT(A) need no interference from our side. We uphold the same.

Cases referred to

CIT vs. Abishek Industries Ltd [2006] 156 Taxman 257 (P&H)

Additional Info

Read 4497 times Last modified on Wednesday, 04 May 2016 11:59
Amit

Amit is a Chartered Accountant and a part of Taxpundit's Support Team. He has experience in various industry sectors including manufacturing, power and utilities, financial services, alternative investments etc. He is a passionate blogger and keep writing articles on Income Tax for various publications.

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