2014 (6) TMI 437 - AT - Income Tax

Tribunal Ruling: Income Tax Recoverable, Disallowance, Business Income, Administrative Expenses

The Tribunal upheld the addition for the provision for Income Tax recoverable from parties, considering it as part of tariff charges and constituting ... Addition of provision for tax recoverable – Reimbursement of income tax - Held that:- Following M/s ESSAR POWER LTD. Versus ADDITIONAL/ DEPUTY COMMISSIONER OF INCOME TAX, RANGE 5(1), MUMBAI [2012 (12) TMI 670 - ITAT MUMBAI] - the amount paid by the power purchasers by way of tax on the amount of tariff charges received by the assessee can be treated as the income of the assessee - payment of tax received by the assessee is a part of tariff charges as per agreements and it is an income in the hands of the assessee and therefore the said amount is to be included in the income of the assessee – Decided against Assessee. Disallowance made u/s 14A r.w. Rule 8D of the Act – Held that:- Rule 8D cannot be held to be applicable as the same would apply only from AY 2008-09 - The issue of disallowance is only with regard to administrative expenses - rule 8D is not applicable, the formula prescribed under the rule shall also not apply - There has to be some reasonable basis for allocating administrative expenses after looking at the nature of expenses and also the expenses which can be said to be attributable for making the investment which are capable of yielding exempt income – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Deletion of interest income – Income from margin deposits, ICDs on Employees loan treated as income from other sources – Whether interest income is business income or not - Held that:- Following M/s ESSAR POWER LTD. Versus ADDITIONAL/ DEPUTY COMMISSIONER OF INCOME TAX, RANGE 5(1), MUMBAI [2012 (12) TMI 670 - ITAT MUMBAI] - CIT(A) has rightly held that interest from the margin money kept with the bank as well the interest on the loans to the employees is to be assessed as the business income – Decided against Revenue. Deletion of provision for income tax recoverable – Purchase of power – Computation of book profits u/s 115JB of the Act – Held that:- Following M/s ESSAR POWER LTD. Versus ADDITIONAL/ DEPUTY COMMISSIONER OF INCOME TAX, RANGE 5(1), MUMBAI [2012 (12) TMI 670 - ITAT MUMBAI] - There is no dispute that under clause (i) of Explanation 1 to section 115JB of the Act there is a retrospective amendment made by Finance (2) Act, 2009 w.e.f. 1-4-2001, therefore, the book profit has to be recomputed in accordance with the above clause (i) of Explanation 1 to section 115Jb of the Act – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Asseessee. Issues:1. Addition for provision for Income Tax recoverable from parties.2. Disallowance under section 14A read with rule 8D.Analysis:Issue 1:The case involved cross-appeals by the assessee and the department against the order passed for the assessment year 2007-08. The assessee had raised grounds regarding the addition for the provision for Income Tax recoverable from parties. The Tribunal upheld the addition, stating that the tax received by the assessee is part of tariff charges and hence constitutes income. The Tribunal followed its earlier orders and judicial precedents, confirming the addition against the assessee. The grounds raised by the assessee were dismissed based on the consistent legal position established in previous years.Issue 2:Regarding the disallowance under section 14A read with rule 8D, the Tribunal found that rule 8D was not applicable for the assessment year 2007-08. The disallowance was related to administrative expenses, and the Tribunal set aside the disallowance made by the CIT(A). The matter was remitted back to the Assessing Officer to determine a reasonable basis for the disallowance of administrative expenses. The Tribunal allowed the ground raised by the assessee for statistical purposes.In a separate appeal by the department, the issue of interest income earned by the assessee on margin deposits and ICDs on employees' loans was raised. The Tribunal held that the interest income was to be treated as business income, following earlier orders and legal precedents. The department's appeal on this ground was dismissed.The department also challenged the deletion of an addition made on account of provision for income tax recoverable from power purchasers while computing the book profit. The Tribunal set aside this issue to the file of the Assessing Officer for further consideration, following the direction given in previous years. The department's appeal on this ground was partly allowed for statistical purposes.In conclusion, the cross-appeals filed by both the assessee and the department were partly allowed for statistical purposes, with specific directions given for further consideration on certain issues.