2016 (3) TMI 120 - AT - Income Tax

Tribunal allows depreciation, doubtful debts, remands 80IA issue, dismisses reopening grounds, silent on mutuality tax

The Tribunal partially allowed the Assessee's appeals by overturning the disallowance of depreciation and the addition of bad and doubtful debts for ... Reducing the subsidy for the purpose of calculation of depreciation - Held that:- Section 43(6)(c) of the Act, the WDV of an asset can be computed only in the manner provided thereunder namely by adding the actual cost of any asset falling within that block acquired during the previous year or by deducting the money payable in respect of any asset within the block, which is sold, discarded or demolished or destroyed during the previous year together with the amount of scrap value. It has further held that the statute does not contemplate any other category for computing the WDV of a block of assets and that Section 43(6)(c) of the Act does not permit reducing the WDV of the block of assets by the amount of subsidy received in relation to some of the assets forming part of the block of assets. When the statute does not contemplate computation of actual cost of assets after it becomes part of a block of assets, Explanation 10 to Subsection (1) of Section 43 of the Act cannot be made applicable to assets of which the actual cost has been determined and forms part of a block of assets. Before us, Revenue has not brought any contrary binding decision in its support nor has pointed out as to why the ratio of the decision rendered by Hon’ble Gujarat High Court in the case of Banco Products (supra) would not be applicable to the present facts of the case. In such a situation, we are of the view that the ground of assessee deserved to be allowed in favour of assessee. Adjustment of bad and doubtful debts for computing book profit u/s.115JB - Held that:- Assessing Officer was not justified in adding the provision for bad and doubtful debts to the net profits for the purpose of Section 115JB. We thus set aside the addition made by Assessing Officer - Decided in favour of assessee Disallowance u/s deduction u/s.80IA - Held that:- We find that Assessing Officer has summarily dismissed the claim of assessee whereas it is assessee’s contention that it is eligible for claim of deduction u/s.80IA(4). After placing reliance on the aforesaid decision in case of CIT vs. Mitesh Impex reported in (2014 (4) TMI 484 - GUJARAT HIGH COURT ) in the present facts of the case, we are of the view that in the interest of justice, the ground needs to be restored to the file of Assessing Officer to decide the claim of assessee of deduction afresh in accordance with law. Needless to state that AO shall grant adequate opportunity of hearing to the assessee. Assessee is also directed to co-operate by promptly filing all the required details called for by the Assessing Officer. - Decided in favour of assessee for statistical purposes. Issues Involved:1. Validity of reopening of assessment under Section 147 of the Income Tax Act.2. Disallowance of depreciation by reducing subsidy from the cost of assets.3. Addition of bad and doubtful debts for computing book profit under Section 115JB.4. Jurisdiction of the Assessing Officer in issuing notice under Section 148.5. Deduction under Section 80IA.6. Taxability of income on the principle of mutuality.Issue-wise Detailed Analysis:1. Validity of Reopening of Assessment under Section 147:The Assessee contended that the reopening of the assessment under Section 147 was invalid as the reasons recorded by the Assessing Officer (AO) did not directly refer to the escapement of income and were based on audit objections. However, the Assessee did not press this ground, and hence it was dismissed as not pressed.2. Disallowance of Depreciation by Reducing Subsidy from the Cost of Assets:The AO reduced the subsidy received from the Government of Gujarat from the cost of the Effluent Treatment Plant, thereby reducing the depreciation claimed by the Assessee. The CIT(A) upheld the AO's decision, citing the Supreme Court case of Saharanpur Electric Supply Co. Ltd. vs. CIT. The Assessee argued that the subsidy was received in earlier years and should not affect the current year's depreciation. The Tribunal referred to the Gujarat High Court decision in Banco Products (India) Ltd. vs. DCIT, which held that once assets enter the block of assets, their cost cannot be adjusted by subsidy received in earlier years. The Tribunal allowed the Assessee's ground, stating that the AO was incorrect in reducing the subsidy for computing depreciation.3. Addition of Bad and Doubtful Debts for Computing Book Profit under Section 115JB:The AO added the provision for bad and doubtful debts to the net profit for computing book profit under Section 115JB. The CIT(A) upheld this addition, citing Explanation 1(i) to Section 115JB, which was retrospectively effective from 1.4.2001. The Assessee argued that the provision for bad debts is not a provision for liability but for diminution in the value of assets. The Tribunal referred to the Karnataka High Court decision in CIT vs. Yokogwa India Ltd. and the Tribunal's decision in ACIT vs. Vodafone Essar Gujarat Ltd., which held that such provisions should not be added back for computing book profit. The Tribunal allowed the Assessee's ground and set aside the addition made by the AO.4. Jurisdiction of the Assessing Officer in Issuing Notice under Section 148:The Assessee contended that the AO did not have jurisdiction to issue the notice under Section 148 as the jurisdiction was with the Deputy Director of Income Tax (Exemption). The Assessee did not press this ground, and it was dismissed as not pressed.5. Deduction under Section 80IA:The AO denied the Assessee's claim for deduction under Section 80IA, stating that merely mentioning eligibility in the income statement does not prove fulfillment of conditions. The CIT(A) upheld the AO's decision, referring to the Supreme Court decision in Goetze (India) Ltd. vs. CIT. The Assessee argued that appellate authorities have the power to entertain new claims, citing the Gujarat High Court decision in CIT vs. Mitesh Impex. The Tribunal restored the matter to the AO for fresh consideration, directing the AO to examine the Assessee's eligibility for deduction under Section 80IA.6. Taxability of Income on the Principle of Mutuality:The Assessee argued that its income from the operation of the common effluent treatment plant and trans-boundary transportation of solid wastes is not taxable on the principle of mutuality as the receipts are from members only. The Tribunal did not specifically address this issue in the judgment.Conclusion:The Tribunal allowed the Assessee's appeals partly, setting aside the disallowance of depreciation and the addition of bad and doubtful debts for computing book profit. The matter regarding the deduction under Section 80IA was remanded to the AO for fresh consideration. The grounds related to the reopening of assessment and jurisdiction were dismissed as not pressed.