2014 (4) TMI 431 - AT - Income Tax

ITAT Decision: Confirms CIT(A) on Some Issues, Sets Aside Others for Further Consideration

DCIT, Circle 1 (1), Baroda Versus Alembic Ltd.

DCIT, Circle 1 (1), Baroda Versus Alembic Ltd. - TMI Issues Involved:1. Deletion of addition on account of disallowance of claim of deduction u/s. 80IA(4) for captive consumption in COGEN Plants.2. Deletion of disallowance u/s. 14A towards interest and other expenses incurred in relation to exempted income.3. Adjustment of wealth-tax liability under clause (c) of the Explanation below section 115JB.4. Allowance of deduction u/s. 80HHC from the book profit u/s. 115JB.5. Allowance of disallowance made by the Assessing Officer u/s. 14A for the purpose of computing book profit u/s. 115JB.6. Addition of provision for doubtful debt for computing the book profits u/s. 115JB.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Disallowance of Claim of Deduction u/s. 80IA(4) for Captive Consumption in COGEN Plants:The Revenue challenged the deletion of an addition of Rs.10,08,27,649/- on account of disallowance of deduction u/s. 80IA(4) for electricity produced for captive consumption in COGEN Plants. The Assessing Officer (A.O.) had disallowed the deduction based on the decision of the ITAT Chennai in the case of Chettinad Cement Corporation Ltd., which held that deduction u/s. 80IA is not available for captive power plants. The CIT(A) deleted the addition, relying on the ITAT's decision in the case of Alembic Ltd., where the deduction was allowed based on the market rate of electricity supplied by Gujarat Electricity Board (GEB). The ITAT confirmed the CIT(A)'s order, noting that the issue was already decided in favor of the assessee in previous years by the ITAT Ahmedabad Bench.2. Deletion of Disallowance u/s. 14A towards Interest and Other Expenses Incurred in Relation to Exempted Income:The Revenue contended the deletion of disallowance of Rs.14,91,000/- u/s. 14A towards interest and other expenses related to exempted income. The A.O. disallowed the amount based on the argument that the assessee had significant borrowings and had not provided details of the source of funds used for acquiring shares. The CIT(A) allowed the appeal, following the decision in the assessee's favor in the preceding year. The ITAT set aside the issue to the A.O. for re-calculation of disallowance, directing the A.O. to consider the assessee's arguments and provide a reasonable opportunity of being heard.3. Adjustment of Wealth-Tax Liability under Clause (c) of the Explanation below Section 115JB:The Revenue appealed against the CIT(A)'s decision to negate the adjustment of wealth-tax liability of Rs.7.50 lacs under clause (c) of the Explanation below section 115JB. The A.O. had added back the wealth-tax provision to the book profit, considering it an unascertained liability. The CIT(A) allowed the appeal based on the ITAT Kolkata Special Bench's decision in Usha Martin Industrial Ltd. The ITAT confirmed the CIT(A)'s order, noting that the issue was already decided in favor of the assessee in previous years by the ITAT Ahmedabad Bench.4. Allowance of Deduction u/s. 80HHC from the Book Profit u/s. 115JB:The Revenue challenged the CIT(A)'s direction to allow the deduction u/s. 80HHC of Rs.12,56,36,909/- from the book profit u/s. 115JB. The A.O. had denied the deduction based on the amendment to section 80HHC, which disallowed deductions for assessment years starting from 1st April 2005. The CIT(A) set aside the issue to the A.O., directing him to recompute the book profit after allowing the deduction of profit u/s. 80HHC. The ITAT, however, confirmed the A.O.'s order, noting that the amendment to section 115JB was effective from 1st April 2005, and the deduction u/s. 80HHC was not allowed.5. Allowance of Disallowance Made by the Assessing Officer u/s. 14A for the Purpose of Computing Book Profit u/s. 115JB:The Revenue appealed against the CIT(A)'s decision to allow the disallowance made by the A.O. u/s. 14A for computing book profit u/s. 115JB. The A.O. had added back the disallowed amount to the book profit as per clause (f) of Explanation 1 of section 115JB. The CIT(A) deleted the addition, and the ITAT confirmed the CIT(A)'s order, noting that the provisions of section 14A could not be imported into while computing book profit u/s. 115JB.6. Addition of Provision for Doubtful Debt for Computing the Book Profits u/s. 115JB:The assessee challenged the addition of provision for doubtful debt of Rs.3,00,51,177/- for computing the book profits u/s. 115JB. The A.O. had added back the provision for doubtful debt, considering it an unascertained liability. The CIT(A) confirmed the addition, citing the amendment to section 115JB, which mandated adding back provisions for diminution in the value of any asset. The ITAT set aside the issue to the A.O., directing him to decide the matter based on the Karnataka High Court's decision in CIT vs. Yokogawa India Ltd., which held that provision for bad debt cannot be added back as it is not an ascertained liability.Conclusion:The ITAT partly allowed the Revenue's appeal and set aside certain issues to the A.O. for re-adjudication, while confirming the CIT(A)'s orders on other issues. The assessee's cross-objection was allowed for statistical purposes.