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Income Tax Appellate Tribunal, DELHI “G” BENCH: NEW DELHI
Before: SHRI R.K.PANDA & SHRI VIJAY PAL RAO
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, import of spare parts and general charges total amounting to Rs.52,93,114/- and balance disallowance was confirmed.
Before the Tribunal, the Ld. Sr. Counsel for the 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.
On the other hand, the Ld. DR has submitted that the Assessing Officer has recorded in the assessment order that the assessee has not even furnished the details regarding 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.
We have considered the rival submissions as well a 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 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.
Ground no.5 is regarding the disallowance towards proportionate interest on capital working in progress.
During the course of assessment proceedings, the 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/-.
The assessee challenged the action of the Assessing Officer before the Ld. CIT(A) but could not succeed.
Before the Tribunal, the Ld. Sr. Counsel has 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.
On the other hand, the Ld. DR has submitted that 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.
We have considered the rival submissions as well as material available on record. So far as the interest 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.
For the AY 2011-12 and 2012-13, the assessee has 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 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.
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
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
(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.
31. The majority of these grounds are common to the grounds for AY 2010-11. We will discuss in brief each of the ground for these two Assessment Years.
32. Ground No.1 is general in nature and does not require any specific adjudication.
33. Ground No.2 is regarding the disallowance made 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.
34. Ground No.3 is regarding the disallowance of 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.
35. Ground No.4 for AY 2011-12 regarding 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.
36. Ground No.5 for the AY 2011-12 is identical to the ground No.5 of AY 2010-11 therefore, in view of our finding on this issue, this issue also stand set-aside to the record of the Assessing Officer for fresh adjudication.
37. Ground No.4 for the AY 2012-13 is regarding disallowance of leave encashment.
The Ld. Sr. Counsel for the assessee has farely 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
On the other hand, the Ld. DR has submitted that 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.
We have considered the rival submissions as well a material available on record. There is no dispute that this expenditure on account of leave encashment has not been 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.
In the result, appeals of the assessee are partly allowed for statistical purpose.
Order pronounced in the Open court on 14th Oct. 2021.