2010 (1) TMI 939 - AT - Income Tax

Remand for fresh decision on bad-debt and Section 43B; Section 80-IA deduction allowed for intra-company steam sales, sludge excluded

ITAT, Mumbai - AT remitted the bad-debt/business-loss claim and the Section 43B disallowance to the AO for fresh decision after affording opportunity to ... Disallowance of Bad debts - Held that:- As this is an alternate legal issue of the assessee that if the bad debts claim is not allowed the same may be allowed as business loss - remit this ground to the file of the Assessing Officer with a direction to decide the issue or the claim of the assessee as business loss in accordance with law after providing reasonable opportunity of being heard. Disallowance under section 43B - the learned representatives of the parties submitted that this issue is covered by decision of CIT v. Pamwi Tissues Ltd. [2008 (2) TMI 400 - BOMBAY HIGH COURT] - Held that:- As in CIT v. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] wherein the judgment of Pamwi Tissues Ltd. (supra) has been reversed - remit this issue back to the file of the AO with a direction to re-decide the issue. Enhancement of income u/s 251(1) by reducing the deduction u/s 80-IA - Held that:- As price charged by the assessee while transferring the manufactured electricity from C.P.P. unit to other unit of the assessee including the electricity tax levied by the State Government on the bill amount at the rate of Re. 0.18 per unit charged by the Tamil Nadu Electricity Board from the consumers on the bill raised was the price ordinarily fetch in the open market, therefore, the CIT(A) was not correct in disallowing claim of assessee under section 80-IA of the Act on this ground Regarding allocation of indirect expenses - Held that:- As for the purpose of deduction under section 80-IA only income derived from industrial undertaking that has to be reckoned in computation as such the income and expenditures which are not directly relatable to that industrial unit cannot but be ignored, in other words, such income and expenditure need not to be considered Regarding miscellaneous income, income from sale of sludge, income from sale of steam - Held that:- The receipt of sale of sludge is the income which is not derived from industrial undertaking. Therefore, deduction under section 80-IA is not allowable. And the steam produced by the assessee is eligible unit is a bye-product and income from sale of steam is the income derived from industrial undertaking, therefore, deduction under section 80-IA is allow-able Issues Involved:1. Liability to be charged interest under section 234D.2. Applicability of section 115JB.3. Disallowance on account of bad debts.4. Disallowance under section 43B.5. Addition on account of unutilized Modvat.6. Rejection of claim to modify the value of the opening stock.7. Enhancement of income under section 251(1) by reducing the deduction under section 80-IA.8. Adjustment of book profits under section 115JB.9. Levy of interest under sections 234A, 234B, 234C, and 234D.10. Deduction from total income for subsidy towards employees' canteen.11. Addition under section 43B for delayed payment of employers and employees contribution to PF and ESIC.12. Exclusion of the value of captive consumption of goods from the total turnover for the purpose of computation of deduction under section 80HHC.Detailed Analysis:1. Liability to be charged interest under section 234D:The assessee contested the liability to be charged interest under section 234D. The tribunal cited a previous ITAT decision (ITA No. 4175/M/2005) where similar grounds were raised and dismissed on merits. Following this precedent, the tribunal admitted the additional ground but dismissed it on merit.2. Applicability of section 115JB:The assessee argued that section 115JB was not applicable as no income tax was payable on the total income computed under the Act. The tribunal, adhering to the previous ITAT decision, admitted the additional ground but dismissed it on merit.3. Disallowance on account of bad debts:The assessee's claim of bad debts totaling Rs. 10,12,714 was disallowed by the Assessing Officer (AO) as the amounts were advances given to parties, not trade debts. The CIT(A) confirmed this disallowance. The tribunal, however, admitted the alternate ground raised by the assessee to treat the disallowed bad debts as a business loss and remitted the issue back to the AO for examination.4. Disallowance under section 43B:The tribunal noted that the issue of disallowance under section 43B (Rs. 13,030) was covered by the Hon'ble Supreme Court's judgment in CIT v. Alom Extrusions Ltd. (2009) 319 ITR 306, and remitted the issue back to the AO for re-examination in light of this judgment.5. Addition on account of unutilized Modvat:The issue of addition of Rs. 1,93,66,791 on account of unutilized Modvat was directed to be re-examined by the AO, following the ITAT decision in Hawkins Cookers Ltd.6. Rejection of claim to modify the value of the opening stock:The tribunal dismissed this ground as infructuous since the AO had rectified the order for the assessment year 2001-02, providing relief to the assessee.7. Enhancement of income under section 251(1) by reducing the deduction under section 80-IA:The CIT(A) reduced the deduction under section 80-IA by Rs. 3,35,37,878 due to the inclusion of electricity tax in the market price and allocation of indirect expenses. The tribunal ruled that electricity tax should be included in the market price and set aside the CIT(A)'s allocation of 25% indirect expenses to the eligible unit. It confirmed the disallowance of deduction for income from sludge sale but allowed the deduction for income from steam sale, following the Madras High Court judgment in CIT v. Tanfac Industries Ltd.8. Adjustment of book profits under section 115JB:The AO added back provisions for doubtful debts and leave encashment salary while computing book profits under section 115JB. The tribunal upheld this adjustment, citing an amendment effective from 1-4-2001.9. Levy of interest under sections 234A, 234B, 234C, and 234D:The tribunal stated that charging interest under these sections is consequential and directed the AO accordingly.10. Deduction from total income for subsidy towards employees' canteen:The AO disallowed the deduction of Rs. 22,88,000 for subsidy towards employees' canteen under section 40A(9). The CIT(A) directed the AO to allow the claim, citing compliance with the Factories Act and previous ITAT decisions. The tribunal upheld the CIT(A)'s order.11. Addition under section 43B for delayed payment of employers and employees contribution to PF and ESIC:The tribunal directed the AO to re-examine this issue in light of the decision made in ground number B of the assessee's appeal.12. Exclusion of the value of captive consumption of goods from the total turnover for the purpose of computation of deduction under section 80HHC:The CIT(A) directed the AO to exclude Rs. 31,43,39,117 from the total turnover for the purpose of section 80HHC deduction, following ITAT decisions in earlier years. The tribunal confirmed the CIT(A)'s order, noting consistency with previous ITAT rulings.Conclusion:The tribunal partly allowed the appeals of both the assessee and the revenue for statistical purposes, remitting several issues back to the AO for re-examination and confirming others based on legal precedents and detailed analysis of the facts.