THOMSON PRESS (INDIA) LTD.,NEW DELHI vs. ADDL. CIT, SPL. RANGE- 9, NEW DELHI

per the audit report, the auditors has mentioned an amount

of Rs.24,55,271/- as disallowable u/s 40(a)(i) of the Act,

which has already been added to the total income by the

assessee and no further disallowance should be made. The

assessee further submitted that the amount which was

disallowed by the Assessing Officer consists of amounts spent

in foreign currency on account of participation fee in various

book fares and exhibition, bank charges, interest, import of

material, salary and wages paid outside India and general

charges. Thus, the assessee claimed all these expenses are

not subjected to TDS as the income in the hand of the

recipient is not taxable in India. The Ld. CIT(A) has granted

part relief to the assessee by excluding the bank charges,

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ITA Nos. 4306 to 4308/Del/2017

import of spare parts and general charges total amounting to

Rs.52,93,114/- and balance disallowance was confirmed.

assessee has submitted that the Ld. CIT(A) has confirmed the

part disallowance without deciding the issue whether the

amount in the hand of recipient is chargeable to tax in India

or not. He has referred to the details of the expenditure and

submitted that these expenditures were incurred in respect of

exhibition of book fare and salary paid outside India which

will not constitute an income in India of the recipient to be

taxed in India. He has further submitted that the Assessing

Officer has not given proper opportunity to the assessee being

heard and to explain the nature of payment. The payment is

in the nature of fee for participation in various books fares

and exhibition held outside India would not be liable for TDS

u/s 195(2) of the Act being no service received by the assessee

company and the same is covered under Article-7 of DTAA

between India- UK and India USA.

the Assessing Officer has recorded in the assessment order

that the assessee has not even furnished the details regarding

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ITA Nos. 4306 to 4308/Del/2017

the nature of payment and TDS liability. He has relied upon

the orders of the authorities below and submitted that the Ld.

CIT(A) has already granted substantial relief where the

amount paid by the assessee in foreign currency for purchase

of spares, general charges and bank charges are excluded

from the disallowance.

material available on record. At the outset, we note that the

Assessing Officer has made the disallowance of

Rs.1,15,64,807/- u/s 40(a)(i) of the Act for want of TDS as

well as the explanation of the assessee. The Ld. CIT(A) has

granted part relief to the assessee in respect of expenditure

incurred for bank charges, spares parts and general charges.

The rest of the disallowance to the extent of Rs.62,71,694/-

was confirmed by the Ld. CIT(A) on the ground that the

assessee has not able to substantiate its claim of non-

taxability of these amounts in the hands of the recipient by

producing supporting relevant details as to the residential

status of the payee and the relevant provisions of DTAA. We

find even before the Tribunal, the assessee has not produced

the relevant details of the residential status as well as the

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ITA Nos. 4306 to 4308/Del/2017

respective DTAA between India-UK and India-USA. Though, it

is contended by the assesse that in view of the Article-7 of the

DTAA, the income is not taxable in India in the hands of the

recipient however, nothing has been brought on record to

point out how the income in the hand of the recipient is not

taxable in India. Accordingly, in the facts and circumstances

of the case, we do not find any reason to interfere with the

impugned order of the Ld. CIT(A) qua this issue and the same

is upheld.

proportionate interest on capital working in progress.

Assessing Officer noted that the assessee has shown capital

work in progress and the interest cost attributable to the

expenditure incurred for capital work in progress has to be

capitalised to the capital work in progress instead of charging

the entire interest to profit & loss account. Accordingly, the

Assessing Officer has made a proportionate disallowance by

taking the average cost of work in progress amounting to

Rs.60,70,134/-.

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ITA Nos. 4306 to 4308/Del/2017

Officer before the Ld. CIT(A) but could not succeed.

submitted that the financial cost which is apportioned by the

Assessing Officer towards the cost of capital work in progress

is specific to the purpose for which the loans were taken by

the assessee. He has submitted that the loans were taken

and utilized for specified assets and therefore, no

apportionment is permitted on presumption basis when the

actual expenditure is incurred in the shape of interest and

bank charges for specific assets. The Ld. Sr. Counsel has

submitted that the disallowance made by the Assessing

Officer and the confirmed by the Ld. CIT(A) is unjustified and

the same is liable be deleted.

the assessee has failed to substantiate its claim by producing

any evidence before the authorities below. He has relied upon

the orders of the authorities below.

as material available on record. So far as the interest

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ITA Nos. 4306 to 4308/Del/2017

expenditure incurred on the secured loans is concerned, it is

matter of record that the loan is taken for specific purpose

and utilized for specified the assets. Therefore, the

expenditure incurred on secured loans which is not utilized

for capital working in progress cannot be attributed towards

the capital work in progress. However, it is a matter of fact to

be verified whether any unsecured loan is taken by the

assessee for specific purpose being part of the capital working

in progress. As regards the unsecured loans, it is primary

onus of the assessee to prove that the unsecured loan is not

utilized for the expenditure incurred towards capital work in

progress. In the absence of these specific details, this issue

cannot be decided conclusively. Accordingly, in the facts and

circumstances of the case, we set-aside the issue to the record

of the Assessing Officer for verification of the facts regarding

purpose of taking secured and unsecured loans and also to

verify the details whether any part of the loans was utilized by

the assessee in respect of the expenditure forming part of the

capital work in progress. The Assessing Officer then decide

the issue after giving an opportunity of hearing to the

assessee.

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ITA Nos. 4306 to 4308/Del/2017

raised the following grounds.

Ground of Assessment Year 2011-12 1 That the order of the Ld. Commissioner of Income Tax (Appeals) is contrary to law and the facts of the case and is required to be quashed; 2(a) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs.7,18,256/-; 2(b) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs.7,18,256/-by considering those Investments on which no dividend has been received by the assessee company during the year; 2(c) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs.7,18,256/- by considering term loan interest & working capital loan interest as the chart filed by the assessee company depicting that the investments have been made out of internal revenue generation / profit earned during the year and not out of borrowed funds has not been considered; 2(d) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent of Rs.7,18,256/- by considering those Investment on which no exempt income is receivable either in the form of dividend or in the form of capital gain; 2(e) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses for earning dividend income to the extent

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ITA Nos. 4306 to 4308/Del/2017

of Rs.7,21,646/- by considering interest paid on loan taken only for business purposes; 3(a) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 4,30,687/- towards exemption u/s 10AA, further this amount has been computed incorrectly in fact as well as in law; 3(b) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 4,30,687/- towards exemption u/s 10AA by calculating the profits derived from export of article or things after reducing other incomes; 3(c) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 4,30,687/- towards exemption u/s 10AA by not treating the other incomes earned from export activities as export turnover but treating the same as total turnover; 4(a) That the Ld. Commissioner of Income Tax (Appeals) has further gone wrong in disallowing a sum of Rs. 26,62,862/- [out of Rs. 47,09,848/- towards payment made in foreign currency; (b) That the Ld. Commissioner of Income Tax (Appeals) has further gone wrong in disallowing a sum of Rs. 26,62,862/- by presuming that the provisions of TDS as required u/s 195(2) read with section 40(a)(i) has not been complied with by the assessee company. 5. That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 14,41,183/- towards proportionate interest on capital work in progress; 6. That the appellant reserves the right to add, alter, amend, delete, any/all grounds of appeal either before or at the time of the hearing of the appeal. Ground of Assessment Year 2012-13

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ITA Nos. 4306 to 4308/Del/2017

1 That the order of the Ld. Commissioner of Income Tax (Appeals) is contrary to law and the facts of the case and is required to be quashed; 2(a) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses amounting to Rs. 8,36,181/- for earning dividend income; 2(b) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses amounting to Rs. 8,36,181/- for earning dividend income by considering those Investments on which no dividend has been received by the assessee company during the year; 2(c) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses amounting to Rs. 8,36,181/- for earning dividend income by considering term loan interest & working capital loan interest by ignoring the chart filed by the assessee company depicting that the investments have been made out of internal revenue generation / profit earned during the year and not out of borrowed funds; 2(d) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing expenses amounting to Rs. 8,36,181/- for earning dividend income by considering interest paid on loan taken only for business purposes; 3(a) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs. 59,30,771/- towards exemption u/s 10AA; 3(b) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs.3,14,636/- towards exemption u/s 10AA by calculating the profits derived from export of article or things after reducing other incomes [Misc Income, Compensation,]; 3(c) That the Ld. Commissioner of Income Tax

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ITA Nos. 4306 to 4308/Del/2017

(Appeals) has gone wrong in disallowing a sum of Rs.3,14,636/- towards exemption u/s 10AA by not treating the other incomes [Misc Income, Compensation] earned from export activities as export turnover but treating the same as total turnover; 3(d) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs.56,16,135/- towards provision for doubtful debts debited to exempt unit [A - 129, SEZ Noida] by ignoring the fact that the assessee company ahs computed total income on the profits of all the taxable income. 3(e) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowing a sum of Rs.56,16,135/- towards provision for doubtful debts [section 10AA] on account of rate of net profit to sale; 4(a) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in disallowance a sum of Rs.1,03,71,827/- towards leave encashment in light of section 43b (f) of the IT Act 1961; 4(b) That the Ld. Commissioner of Income Tax (Appeals) has gone wrong in ignoring the fact that there are many cases where in it has been held that that leave encashment would be allowed on accrual basis; That the appellant reserves the right to add, alter, amend, delete, any/all grounds of appeal either before or at the time of the hearing of the appeal.

grounds for AY 2010-11. We will discuss in brief each of the

ground for these two Assessment Years.

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ITA Nos. 4306 to 4308/Del/2017

require any specific adjudication.

u/s 14A, which is common for both the assessment years and

identical to the AY 2010-11. Accordingly, in view of our

finding on this issue for the A Y 2010-11 the ground no.2

stands disposed of in the same terms.

deduction u/s 10B/10AA. This common ground is also

identical to the ground no.3 for AY 2010-11. In view of our

above finding on this issue for A Y 2010-11, this ground

stands partly allowed.

disallowance made u/s 40(a)(i) of the Act. This ground is

identical to the ground no.4 of the AY 2010-11. In view of the

our findings on this issue for the AY 2010-11, this ground

stands dismissed.

ground No.5 of AY 2010-11 therefore, in view of our finding on

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ITA Nos. 4306 to 4308/Del/2017

this issue, this issue also stand set-aside to the record of the

Assessing Officer for fresh adjudication.

disallowance of leave encashment.

submitted that in view of the judgment of the Hon’ble

Supreme Court in the case of UOI Vs. Exide Industries 273

Taxmann 189, the claim of the leave encashment is not

allowable for the year under consideration. Thus, he has

pleaded that the Assessing Officer may be directed to consider

the issue in the subsequent year by following the judgment of

the Hon’ble Supreme Court in the case of UOI vs M/s Exide

Industries Ltd.

since this claim is not allowable for the year under

consideration therefore, no direction is required to be given to

the Assessing Officer for the subsequent years.

material available on record. There is no dispute that this

expenditure on account of leave encashment has not been

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ITA Nos. 4306 to 4308/Del/2017 actually paid by the assesse to the employees during the year under consideration therefore, in view of the judgment of the Hon’ble Supreme Court in the case of UOI vs Exide Industries

Ltd. (Supra), the same is allowable as deduction in the year of actually payment and not in the year when the provisions is

made. Therefore, this ground of the assessee’s appeal stand dismissed. However, the Assessing Officer is directed to

consider the claim of the assessee in the year when actual

payment is made towards the leave encashment.

allowed for statistical purpose.

Order pronounced in the Open court on 14th Oct. 2021.

Sd/- Sd/- (R.K.PANDA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER Delhi/Date 14.10.2021 f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI

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