2011 (7) TMI 1171 - AT - Income Tax

Tribunal decision allows deductions under Section 14A and favorable treatment for land acquisition and capital receipts.

The Tribunal partly allowed the assessee's appeal, directing the A.O. to make a reasonable disallowance for expenditure under Section 14A of the I.T. Act ... Disallowance of Expenditure u/s 14A read with Rule 8D - A.O. observed that the assessee earned some amount as dividend from investments in shares. The assessee claimed that it did not incur any expenditure for earning tax-free dividend income - AO disallowed such amount, following the judgement of INCOME-TAX OFFICER, WARD 6 (2) (2), MUMBAI VERSUS DAGA CAPITAL MANAGEMENT (P.) LTD. [2008 (10) TMI 383 - ITAT MUMBAI] - CIT(A), also confirmed such disallowance. HELD THAT:- We find that as per decision of Hon’ble. Bombay High Court in the case of GODREJ AND BOYCE MFG. CO. LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT], Rule 8D is prospective in nature and is applicable for and from assessment year 2008-09, whereas we are concerned with assessment year 2006-07. Considering the above submissions of the ld. counsel and after perusing the orders of the authorities below, we hold that the authorities below were not justified to apply Rule 8D of the Rules for the purpose of making disallowance u/s. 14A as the dividend income shown by the assessee is exempt from tax u/s. 10(34). Be that as it may, we are of the considered view that it will be reasonable to make disallowance @ 1% of the above dividend income earned. We direct the A.O. to calculate the disallowance of expenditure on such exempt income accordingly. Admission of Additional Grounds - Assessee received subsidy from the govt and he forgot to claim deduction regarding the same. Also, he didn't raise this ground before concerned authorities - HELD THAT:- We observe that Hon’ble Supreme Court in the case of JUTE CORPORATION OF INDIA LIMITED VERSUS COMMISSIONER OF INCOME-TAX AND ANOTHER [1990 (9) TMI 6 - SUPREME COURT] has held that the first appellate authority can admit an additional ground when the ground raised was bona fide. We further observe that NATIONAL THERMAL POWER COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX [1996 (12) TMI 7 - SUPREME COURT] while dealing with the power of ITAT in admitting an additional ground held that the Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also. On the basis of the decisions referred, we, therefore, restore the matter back to the A.O. and we direct him to examine the facts of the case and thereafter he should re-adjudicate the issue in accordance with law. - Decision in favour of Assessee. Disallowance on account of claim of deduction of proportionate of leasehold land written off - Assessee made a claim of amortization benefit on expenditure on acquisition of land for mining of raw material or cement production - AO denied, according to decision of ENTERPRISING ENTERPRISES VERSUS DEPUTY COMMISSIONER OF INCOME-TAX [2006 (12) TMI 138 - SC ORDER] - CIT(A) deleted the disallowance made by the A.O HELD THAT:- We find that the assessee is required to pay compensation as determined by the local authority/court to the persons whose rights are infringed because of the mining activity. We also observe that ld. C.I.T.(A) has properly analyzed the facts of the present case and distinguished the facts decided by the Hon’ble Apex Court in the case of Enterprising Enterprises vs. DCIT and then only has come to a conclusion that the compensation was paid for the damaged caused on the infringement of right of the land owner. He has also analyzed that the payments are progressively distributed as they work, as they proceed year by year, going on with their work and the payments are in the nature of incidental expenditure to conduct the mine and the business operations. He, therefore, held that the payment of compensation to persons whose rights are infringed by the mining activity is revenue in nature. We, therefore, find no infirmity in the order of the ld. C.I.T.(A) on this issue and confirmed the same. Sales Tax Subsidy - CIT(A) deleted the addition made by the A.O. on account of sales tax subsidy received by the assessee as revenue income - HELD THAT:- Since the facts of the assessment year under consideration are identical to those of previous assessment years, we respectfully following the decisions of I.T.A.T. in assessee’s own case of 2006 and 2008, uphold the order of the ld. C.I.T.(A) - Revenue Appeal Rejected. Profit on sale of plant and machinery of closed down unit - Assessee had reduced the sale proceeds from the written down value of the block of assets and claimed depreciation on such reduced written down value - A.O. allowed depreciation on the written down value without deducting them from the sale proceeds - CIT(A) decided in favour of assessee HELD THAT:- Section 43(6)(c)(i)(B) specifically requires the reduction of the written down value of the block of assets by the money payable in respect of any asset falling within that block which is sold during the previous year. It is evident that the Ld. C.I.T.(A) has pointed out that the accounting treatment cannot effect the operation of the statutory provisions contained in Section 43(6) and for income-tax purposes, the block of assets concept was followed as per statutory provisions. Considering the totality of the above facts and legal position, we do not find any justification to interfere with the findings of the Ld. C.I.T.(A) - Revenue Appeal rejected. Issues Involved:1. Disallowance of expenditure under section 14A of the I.T. Act.2. Industrial Promotion Assistance received from the State Government as a capital receipt.3. Disallowance of amortization benefit on expenditure on acquisition of land for mining.4. Treatment of sales tax subsidy received by the assessee.5. Treatment of profit on the sale of plant and machinery of a closed-down unit.Issue-Wise Detailed Analysis:1. Disallowance of Expenditure under Section 14A of the I.T. Act:The assessee contested the disallowance of Rs. 71,37,860 attributable to earning dividend income. The A.O. applied Rule 8D, which was not applicable for the assessment year 2006-07, as per the decision of the Hon'ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd. vs. DCIT. The Tribunal held that Rule 8D is prospective and applicable from the assessment year 2008-09. Therefore, it was not justified to apply Rule 8D for the assessment year 2006-07. The Tribunal directed the A.O. to make a reasonable disallowance at 1% of the dividend income earned. The grounds raised by the assessee were partly allowed.2. Industrial Promotion Assistance Received from State Government as a Capital Receipt:The assessee claimed that Rs. 9,49,561 received as Industrial Promotion Assistance from the State Government should be treated as a capital receipt. The claim was not raised before the A.O. or CIT(A). The Tribunal admitted the additional ground based on the Supreme Court's decisions in Jute Corporation of India Ltd. vs. CIT and National Thermal Power Co. Ltd. vs. CIT, which allow admitting new grounds if they are bona fide. The Tribunal restored the matter to the A.O. to examine the facts and re-adjudicate the issue in accordance with the law, allowing the assessee to furnish supporting documents. This ground was allowed for statistical purposes.3. Disallowance of Amortization Benefit on Expenditure on Acquisition of Land for Mining:The A.O. disallowed Rs. 20,55,052 claimed by the assessee for amortization of expenditure on land acquisition for mining, citing the Supreme Court decision in Enterprising Enterprises vs. DCIT. The CIT(A) allowed the claim, distinguishing the facts from the Supreme Court case, noting that the compensation was for damage caused by mining activities and was revenue in nature. The Tribunal upheld the CIT(A)'s decision, agreeing that the payments were incidental expenditures necessary for conducting mining operations. The ground raised by the revenue was dismissed.4. Treatment of Sales Tax Subsidy Received by the Assessee:The A.O. treated Rs. 18,18,46,419 received as sales tax subsidy as revenue income. The CIT(A) deleted the addition, and the Tribunal upheld this decision, noting that similar issues in the assessee's case for previous years (2002-03 to 2005-06) were decided in favor of the assessee by the ITAT. The revenue's appeal on this issue was dismissed.5. Treatment of Profit on Sale of Plant and Machinery of Closed Down Unit:The A.O. treated the accounting profit of Rs. 2,41,44,000 from the sale of depreciable fixed assets as revenue receipt. The CIT(A) directed the A.O. to reduce the sale proceeds from the written down value of the block of assets and allow depreciation on the reduced written down value. The Tribunal upheld the CIT(A)'s decision, emphasizing that the accounting treatment cannot affect the statutory provisions under section 43(6) of the I.T. Act. The revenue's appeal on this issue was dismissed.Conclusion:The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The Tribunal provided detailed reasoning for each issue, ensuring adherence to legal precedents and statutory provisions.