A.P. State Agro Industries Development ... vs Assessee

This appeal is against the order of Ld. CIT(A)-II, Hyderabad dated 24.09.2013 for A.Y. 2009-2010.

2. Briefly stated, assessee is a public sector undertaking of the Government of Andhra Pradesh in business of trading in agricultural implements, fertilizers and development activities. Assessee filed original return and revised return and assessment was completed under section 143(3) determining the income at Rs.12,66,29,761 making several additions. Assessee preferred appeals before the Ld. CIT(A) and Ld. CIT(A) disposed of the appeal by confirming the additions and giving directions on some issues.

2 ITA.No.1708/Hyd/2013 M/s. A.P. State Agro Industries Development Corpn. Ltd., Hyderabad.

3. Assessee is aggrieved on three issues and raised five grounds out of which, ground Nos. 1 and 3 are general in nature.

4. We have heard the Ld. Counsel and learned D.R.

5. Ground No.2 pertaining to the claim of Rs.1,51,36,282 being amount paid towards leave encashment fund. Assessee stated before the Ld. CIT(A) that this amount has been paid towards group leave encashment fund and has not claimed in the P & L account due to omission. Since the amount was not claimed in the original return and issue is not examined by A.O., Ld. CIT(A) directed to verify the allowability of this amount keeping in view the provisions of section 43B. Assessee has raised this ground for technical reasons that the matter should be examined by the A.O. afresh and Ld. CIT(A) may not have power to remit the issue to A.O.

5.1. Since, Revenue has not come in appeal on the direction of Ld. CIT(A), we do not find any reason to adjudicate on assessee's ground. However, we reiterate that the A.O. should examine the allowability of this amount keeping in view the provisions of the Act as directed by Ld. CIT(A). Ground No.2 is treated as allowed for statistical purposes.

6. Ground No.3 pertain to an amount of Rs.6,17,471 disallowed by A.O. out of the claim of prior period expenses. A.O. vide para 5 has discussed the prior period income and expenditure and disallowed an amount of Rs.17,67,123 claimed towards write-off advance and an amount of Rs.11,32,934 debited towards service charges on the advise of State Government. On the issue of service charges, A.O. 3 ITA.No.1708/Hyd/2013 M/s. A.P. State Agro Industries Development Corpn. Ltd., Hyderabad.

disallowed that assessee has not furnished any evidence to decide crystallization of liability. With reference to write off of Rs.17,67,123 he was of the opinion that the advances written off have not been offered to tax in earlier years, therefore, the conditions laid down under section 36(i)(vii) are not fulfilled. Thus, disallowing the two amounts out of total prior period expenditure of Rs.99,11,891, he arrived at the allowability of prior period expenditure at Rs.70,11,834. Since, assessee had prior period income of Rs.76,29,305 the difference of Rs.6,17,471 was brought to tax, as this adjustment have been made in the appropriation amount and assessee has not offered income. Ld. CIT(A) in the brief order confirmed the addition made by A.O. by stating as under :

"11.3. The submissions made by the appellant do not convey any meaning. On the other hand, the A.O. has correctly reduced prior period expenses of Rs.11,32,934/- on the ground that this liability is not crystallized during the relevant previous year and he also reduced an amount of Rs.17,67,123/- as advances written off during the year as the corresponding income was not offered either in the current year or in the earlier years. Therefore, this amount was disallowed u/s.36(1)(vii). Since the action of the A.O. is in accordance with the law, the disallowance made by the A.O. is confirmed."

7. After considering the rival contentions, we are of the opinion that this issue requires re-examination by A.O. Out of the total claim of prior period expenditure of Rs.99,11,891, A.O. disallowed two amounts, one was written off and other was service charges debited on the advise of the State Government. Why these amounts cannot be allowed has not been discussed fully. If the amounts were written off in the books of accounts, the same are allowable following the principles laid down by Hon'ble Supreme Court in the case of 4 ITA.No.1708/Hyd/2013 M/s. A.P. State Agro Industries Development Corpn. Ltd., Hyderabad.

TRF Limited vs. CIT 323 ITR 397 and so the amount of Rs.17,67,123 is an allowable bad debt. If in case, the amount of Rs.11,32,934 was directed to be provided by the State Government, then, the amount might have crystallized during the year. Since the A.O. and Ld. CIT(A) have not considered the facts of the case properly, we are of the opinion that this require re-examination by A.O. Assessee should be given an opportunity to explain. Accordingly, the issue pertain to this addition is restored to the file of A.O. for re-examination on facts and law. Ground No.3 is considered as allowed for statistical purposes.

8. Ground No.4 pertain to the issue of disallowance of an amount of Rs.7,19,973 under 14A of the Income Tax Act. Assessing Officer noticed that assessee received dividend income of Rs.13,77,032 which is exempt. Assessee has invested an amount of Rs. 1 crore in another public sector undertaking by name M/s. A.P. Oil Seeds Corporation Ltd. Even though assessee claimed that no other administrative expenditure was incurred for earning dividend income, A.O. invoked provisions of section 14A and Rule 8D to disallow amount of Rs.71,973 at 0.5% of average investment made in the investments. Thus, AO worked out disallowance at Rs.71,973. Ld. CIT(A) confirmed the disallowance by stating as under vide para 11.4. :

"11.4. The other issue contested by the appellant refers to disallowance of an amount of Rs.71,973/- u/s.14A. The appellant had invested an amount of Rs. 1 crore long back in M/s. A.P. Oil Seeds Corporation which is again a State Government undertaking, and the appellant received dividend of Rs.13,7,032/- on investments made. Since the dividend is an exempted income, the corresponding expenses have to be disallowed u/s.14A. The appellant 5 ITA.No.1708/Hyd/2013 M/s. A.P. State Agro Industries Development Corpn. Ltd., Hyderabad.

pleaded that the investment was made long back out of its own funds and no expenses were incurred. It is pertinent to mention that the A.O. disallowed 0.5% of average investments under Rule 8D(iii). Since the provisions of Rule 8D, more particularly the third limb of Rule 8D is mandatory irrespective of any expenditure is actually incurred or not in earning the exempt income, the disallowance made by the A.O. of Rs.71,973/- is confirmed."

9. After considering the rival contentions, we do not see any reason to interfere with the order of Ld. CIT(A). Considering that assessee has earned exempt income and in earning that income, there could be some administrative expenditure. Since assessee has not furnished any details of actual expenditure incurred, A.O. invoked the Rules made there under the Act and disallowed only 0.5% of the average investments as provided under Rule 8D(iii). In view of the above facts, we confirm the order of Ld. CIT(A) and dismiss the ground.

10. In the result, appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 02.01.2015.

Sd/- Sd/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated 02nd January, 2015. VBP/- Copy to

1. M/s. A.P. State Agro Industries Development Corpn. Ltd., 504, Hermitage Office Complex, Hill Fort Road, Hyderabad.

2. DCIT, Circle 1(1), Hyderabad.

3. CIT(A)-II, Hyderabad.

4. CIT-I, Hyderabad

5. D.R. ITAT "B" Bench, Hyderabad.