2012 (5) TMI 504 - AT - Income Tax

Tribunal Decisions on Tax Disputes: Appeals Partly Allowed, Various Issues Remanded

Reliance Industries Ltd. Versus Addl. Commissioner of Income Tax, Range 3 (3),

Reliance Industries Ltd. Versus Addl. Commissioner of Income Tax, Range 3 (3), - [2014] 159 TTJ 349 Issues Involved:1. Deemed payment of sales tax under Section 43B.2. Disallowance of interest on interest-free loans to subsidiaries.3. Addition of interest on income tax refund.4. Disallowance of administrative expenses under Section 14A.5. Deduction under Section 80HHC.6. Disallowance of expenses on spouse travel.7. Disallowance of prior period expenses.8. Computation of capital gains on sale of shares.9. Transfer pricing adjustments.10. Depreciation allowance.11. Disallowance of pre-operative expenses.12. Provision for doubtful debts under Section 115JB.Detailed Analysis:1. Deemed Payment of Sales Tax under Section 43B:The assessee claimed deduction of notional sales tax as a capital receipt, which was deleted by the AO treating it as revenue receipt. The CIT(A) upheld the assessee's claim. The Tribunal followed the Special Bench decision in the assessee's own case, affirming the CIT(A)'s decision that the notional sales tax is a capital receipt not liable to tax. The alternative plea under Section 43B was rejected.2. Disallowance of Interest on Interest-Free Loans to Subsidiaries:The AO disallowed interest on interest-free loans given to subsidiaries, which was confirmed by the CIT(A). The Tribunal, relying on the Bombay High Court decision in Reliance Utilities & Power Ltd., held that since the assessee's own funds exceeded the loans given, no disallowance of interest was justified, and allowed the appeal.3. Addition of Interest on Income Tax Refund:The assessee conceded that the issue was decided against them in previous years. The Tribunal confirmed the CIT(A)'s order, rejecting the assessee's appeal.4. Disallowance of Administrative Expenses under Section 14A:The AO disallowed a significant portion of expenses under Section 14A, which was reduced by the CIT(A) to 1% of the exempt income. The Tribunal upheld the CIT(A)'s decision, rejecting the department's appeal for a higher disallowance and the assessee's appeal for no disallowance.5. Deduction under Section 80HHC:The AO excluded 90% of interest, rent, and miscellaneous income from profits for Section 80HHC deduction and included excise duty and sales tax in total turnover. The CIT(A) partly upheld and partly rejected the AO's method. The Tribunal, following the Supreme Court's decision in ACG Associates Capsules Pvt. Ltd., held that 90% of net interest should be considered. It also upheld the CIT(A)'s decision to exclude excise duty and sales tax from total turnover and to compute deduction under Section 80HHC based on book profits under Section 115JB.6. Disallowance of Expenses on Spouse Travel:The AO disallowed expenses on spouse travel, which was upheld by the CIT(A). The Tribunal confirmed the disallowance, agreeing that the expenses were not for business purposes.7. Disallowance of Prior Period Expenses:The AO disallowed prior period expenses due to lack of evidence, which was upheld by the CIT(A). The Tribunal restored the issue to the AO to allow the expenses in the year they got crystallized.8. Computation of Capital Gains on Sale of Shares:The assessee claimed that 25% of the sale consideration of shares was for a restrictive covenant and not taxable. The AO and CIT(A) rejected this claim. The Tribunal, referencing SEBI regulations and Supreme Court decisions, held that 25% of the consideration was a capital receipt for the restrictive covenant, not taxable in the assessment year.9. Transfer Pricing Adjustments:The AO made adjustments to the charter hire charges and consultancy fees paid to associated enterprises. The CIT(A) partly upheld these adjustments. The Tribunal restored the issue to the AO for fresh determination of ALP, considering special features and costs incurred by the associated enterprise.10. Depreciation Allowance:The AO allowed lower depreciation based on written down value, which was restored by the CIT(A). The Tribunal upheld the CIT(A)'s decision, directing the AO to consider the written down value as of 31/3/2001 and allow depreciation accordingly.11. Disallowance of Pre-Operative Expenses:The AO disallowed pre-operative expenses, treating them as capital expenditure. The CIT(A) allowed the expenses as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, following its earlier orders in the assessee's case.12. Provision for Doubtful Debts under Section 115JB:The AO added provision for doubtful debts to book profits under Section 115JB, which was deleted by the CIT(A). The Tribunal reversed the CIT(A)'s decision, following the retrospective amendment to Section 115JB.Conclusion:The appeals by both the assessee and the department were partly allowed, with several issues being restored to the AO for fresh consideration. The Tribunal provided detailed guidance on the application of legal principles and precedents in determining the various claims and adjustments.