2016 (10) TMI 1271 - AT - Income Tax

Tax Tribunal Partially Allows Appeals, Remands Key Issues for Fresh Computation, Upholds Disallowances and Deductions.

The ITAT partially allowed both the assessee's and Revenue's cross appeals for A.Y. 2004-05. Key outcomes included remanding several issues to the AO for ... Disallowance u/s 14 r.w. Rule 8D - HELD THAT:- It is settled position of law that the provisions of Rule 8D of the I.T. Rules, 1962 are applicable prospectively for and from A.Y. 2008-09 and would not operate for the assessment years prior thereto. In this view of the matter, the learned CIT(A)’s directions to the AO to work out/compute the disallowance under section 14A of the Act by applying Rule 8D of the Rules is erroneous and we therefore delete the same and in the fitness of things, we direct the AO to recompute the disallowance under section 14A of the Act afresh, in accordance with the law prevalent for the year under consideration, after affording the assessee adequate opportunity of being heard and to file details/submissions required in this regard. Grounds I and II of the assessee’s appeal are treated as allowed for statistical purposes. Disallowance of non-compete fee paid to ex- Directors - HELD THAT:- We find that this issue has been held in favour of Revenue and against the assessee in the decisions of the Coordinate Bench of the Tribunal in the assessee’s own case for A.Y. 2003-04 [2016 (8) TMI 1450 - ITAT MUMBAI] - we uphold the orders of the authorities below and against the assessee. Consequently, ground III of assessee’s appeal is disallowed. Setting off of losses while computing deduction under section 80HHC - HELD THAT:- We hold this issue against the assessee, and uphold the orders of the authorities below following, inter alia, the decisions of the Hon'ble Apex Court in the case of CIT vs. Shirke Construction Equipment Ltd. [2007 (5) TMI 194 - SUPREME COURT] and J.K. Industries vs. ACIT [2013 (5) TMI 152 - KARNATAKA HIGH COURT]. Deduction of Miscellaneous income while computing deduction under section 80HHC - HELD THAT:- CIT(A) has rejected the assessee’s claim and confirmed the AO’s action holding that there was no direct nexus between the nature of income clubbed under the head ‘miscellaneous income’ and the export business of the assessee, without considering the breakup of the aforesaid income brought on record by the assessee. Following the decision of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2003-04 [2016 (8) TMI 1450 - ITAT MUMBAI], to which both of us are party, we set aside the finding of the authorities below on this issue and restore this issue to the file of the AO with respect to examination of assessee’s claim of inclusion of ‘miscellaneous income’ and other items while computing the eligible deduction under section 80HHC of the Act. Needless to add, the assessee is to be afforded adequate opportunity of being heard and to file submissions/details in this regard by the AO before adjudicating this issue. Not allowing set off of incentives against the profits (‘DEPB’/ ‘DDB’) - HELD THAT:- Respectfully following the decision of the Hon'ble Apex Court in the case Avani Exports [2015 (4) TMI 193 - SUPREME COURT] and the decision of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2003-04 (supra), to which both of us are party, we hold that the impugned order of the learned CIT(A) on this issue is unsustainable and reverse the same. Accordingly, we hold this issue in favour of the assessee and consequently allow ground No. VII of assessee’s appeal. Addition of unutilized Modvat Credit to closing stock - HELD THAT:- We find that, as submitted by the learned counsel for the assessee, the very same issue was considered and held in favour of the assessee and against Revenue by a Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2001-02 held that this amount as added by the assessing officer is not of unutilised Modvat but it was the amount of deposit made by the appellant with the excise authorities. Therefore, there was no reason for making this disallowance by the assessing officer hence this addition is deleted Deduction under section 80HHC and net interest - HELD THAT:- This issue is well settled by the judicial pronouncements cited as in the case of ACG Associated Capsules (P) Ltd. vs. CIT [2012 (2) TMI 101 - SUPREME COURT], Shri Ram Honda Power Equipments [2007 (1) TMI 86 - HIGH COURT, DELHI] and Lalsons Enterprises [2004 (2) TMI 294 - ITAT DELHI-E] Respectfully following these decisions (supra), we confirm the decision of the learned CIT(A) in holding and directing the AO, that for the purpose of computing the deduction under section 80HHC if the Act, the net interest is to be considered. ‘Book Profits’ under section 115JB - Adjustment for provisions - HELD THAT:- We find, as submitted by the learned D.R., that this issue was considered and adjudicated in favour of the Revenue, by Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2003-04 [2016 (8) TMI 1450 - ITAT MUMBAI] in view of the amendments to the provisions of section 115JB of the Act being operational retrospectively, we are unable to sustain the impugned order of the learned CIT(A) on this issue and therefore set aside/reverse his finding in the matter and restore that of the AO. Consequently, Revenue’s ground No. 4 is allowed. Issues Involved:1. Application of Rule 8D for disallowance under section 14A2. Disallowance of interest on borrowings3. Disallowance of non-compete fees paid to ex-directors4. Disallowance of deduction under section 80HHC5. Setting off losses while computing deduction under section 80HHC6. Deduction of miscellaneous income while computing deduction under section 80HHC7. Not allowing set-off of incentives against the profits (DEPB/DDB)8. Addition of unutilized MODVAT credit to closing stock9. Deduction under section 80HHC and net interest10. Deduction under section 80HHC and treatment of income from services11. 'Book Profits' under section 115JB - Adjustment for provisionsDetailed Analysis:1. Application of Rule 8D for Disallowance under Section 14AThe assessee contended that Rule 8D is applicable only from A.Y. 2008-09 and not for the year under consideration (A.Y. 2004-05). The Tribunal agreed, stating that the CIT(A)'s direction to apply Rule 8D was erroneous. The matter was restored to the AO for recomputation of disallowance under section 14A as per the law applicable for A.Y. 2004-05.2. Disallowance of Interest on BorrowingsThe Tribunal noted that the CIT(A) had erred in confirming the disallowance under section 14A. The issue was remanded back to the AO for fresh computation, taking into account the law applicable for A.Y. 2004-05.3. Disallowance of Non-Compete Fees Paid to Ex-DirectorsThe Tribunal upheld the CIT(A)'s decision to confirm the AO’s disallowance of non-compete fees, citing previous decisions in the assessee’s own case for A.Y. 2002-03 and 2003-04, where the issue was decided against the assessee.4. Disallowance of Deduction under Section 80HHCThe assessee did not press this ground, rendering it infructuous. Consequently, it was dismissed.5. Setting Off Losses While Computing Deduction under Section 80HHCThe Tribunal held this issue against the assessee, following the decisions of the Hon'ble Apex Court in CIT vs. Shirke Construction Equipment Ltd. and the Hon'ble Karnataka High Court in J.K. Industries vs. ACIT.6. Deduction of Miscellaneous Income While Computing Deduction under Section 80HHCThe Tribunal found that the AO had not examined the issue in detail and remanded the matter back for fresh examination. The AO was directed to consider the assessee's submissions and details before adjudicating.7. Not Allowing Set-Off of Incentives Against the Profits (DEPB/DDB)Following the Hon'ble Apex Court's decision in CIT vs. Avani Exports and the Tribunal's decision in the assessee’s own case for A.Y. 2003-04, the Tribunal held in favor of the assessee, reversing the CIT(A)'s order.8. Addition of Unutilized MODVAT Credit to Closing StockThe Tribunal upheld the CIT(A)'s decision to delete the addition made by the AO, citing a previous decision in the assessee’s own case for A.Y. 2001-02, where the issue was decided in favor of the assessee.9. Deduction under Section 80HHC and Net InterestThe Tribunal upheld the CIT(A)'s decision that for computing deduction under section 80HHC, only net interest should be considered, following the decisions of the Hon'ble Apex Court in ACG Associated Capsules (P) Ltd. vs. CIT and other judicial pronouncements.10. Deduction under Section 80HHC and Treatment of Income from ServicesThe Tribunal upheld the CIT(A)'s decision that only 90% of net service income, after adjusting expenses, should be deducted for computing deduction under section 80HHC, following relevant judicial pronouncements.11. 'Book Profits' under Section 115JB - Adjustment for ProvisionsThe Tribunal reversed the CIT(A)'s order and upheld the AO's decision to adjust provisions for doubtful debts and advances and diminution in the value of investments while computing 'Book Profits' under section 115JB, following the Tribunal’s decision in the assessee’s own case for A.Y. 2003-04.ConclusionBoth cross appeals of the assessee and Revenue for A.Y. 2004-05 were partly allowed. The Tribunal provided detailed directions for each issue, ensuring compliance with applicable laws and judicial precedents.