2014 (2) TMI 1023 - AT - Income Tax

Tribunal directs reassessment sans Rule 8D for disallowance, emphasizes adjustments based on tax.

The Tribunal partially allowed the assessee's appeal, directing the Assessing Officer to reexamine the disallowance under section 14A without applying ... Disallowance u/s 14A of the Act r.w. Rule 8D of the Rules – Held that:- The decision in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT [2010 (8) TMI 77 - BOMBAY HIGH COURT] followed – rule 8D is not applicable prior to the assessment year 2008–09 – thus, the order set aside and the matter remitted back to the AO for fresh adjudication – If the assessee has sufficient interest free funds for making the investment in shares of subsidiary company, then no disallowance of interest expenditure should be made - The Assessing Officer is also directed not to apply the provisions of Rule-8D for the assessment year - Decided in favour of Assessee. Addition on account of CENVAT credit in valuation of stock – Held that:- The component of CENVAT has to be added to the closing stock and adjustment has to be made accordingly in the opening stock - The assessee submitted that the adjustment has to be made on the purchases also – the contention of the assessee is accepted for the purpose of valuation of purchase and sale of goods and inventories adjustment on account of tax, duty, cess or fee, actually paid or incurred by the assessee has to be made in view of the provisions of section 145A of the Act – thus, the Assessing Officer is directed to make necessary adjustment and give CENVAT credit on account of purchases also – Decided partly in favour of Assessee. Issues:1. Disallowance under section 14A of the Income Tax Act, 1961.2. Addition on account of CENVAT credit in valuation of stock.Issue 1: Disallowance under section 14A of the Income Tax Act, 1961:The appeal challenged the order passed by the Commissioner (Appeals) regarding the disallowance of Rs. 75,17,781 under section 14A. The assessee, engaged in manufacturing, had investments in equity shares, including in foreign and Indian subsidiaries. The Assessing Officer disallowed Rs. 51,23,052 under rule 8D and a total of Rs. 75,50,781 based on the assessee's estimate. The Commissioner (Appeals) upheld this disallowance. However, it was argued that rule 8D was not applicable for that year based on a High Court decision. Both parties agreed that rule 8D was not applicable. Considering the legal position, the Tribunal set aside the order and directed the Assessing Officer to reexamine the issue in line with the High Court decision. It was emphasized that if the assessee had sufficient interest-free funds for investments, no disallowance should be made. The Tribunal directed not to apply Rule 8D for that assessment year, allowing the ground for statistical purposes.Issue 2: Addition on account of CENVAT credit in valuation of stock:The appeal also addressed the addition on account of CENVAT credit in the valuation of stock. The assessee argued that adjustments should be made not only in closing stock but also in opening stock and purchases, citing relevant court decisions. The Departmental Representative supported the Commissioner's decision of adjusting the opening stock in the current year. The Tribunal acknowledged that CENVAT components must be added to closing stock with corresponding adjustments in opening stock and purchases. It was held that adjustments for tax, duty, or fees actually paid or incurred by the assessee should be made as per section 145A of the Act. The Assessing Officer was directed to make necessary adjustments and give CENVAT credit on purchases as well. Consequently, this ground of the assessee was partly allowed.In conclusion, the assessee's appeal was partly allowed for statistical purposes, and the Tribunal's order was pronounced on 12th February 2014.