2019 (2) TMI 1747 - AT - Income Tax

Appeal outcome favors assessee with remand for reassessment. Assessing Officer to review claims accurately.

The appeal resulted in a partial allowance for the assessee and dismissal for the Revenue. The tribunal directed the Assessing Officer to reevaluate ... Disallowance u/s 40(a)(ia) - interest and other expenses incurred by the assessee, the assessee did not deduct tax at source while making/crediting the aforesaid payments to payees - HELD THAT:- Assessee may be given the benefit in the shape of allowance of the said expenditure in the year in which the TDS has been deducted on the aforesaid payments. DR has also fairly agreed that the assessee is entitled to the allowance of expenditure in the year in which TDS has been deducted. In view of this, this ground of appeal is dismissed with the observation that the assessee will be at liberty to claim the aforesaid expenditure in the year in which the TDS has been deducted. Benefit of exemption u/s 80IA in respect of income received denied - whether claim received from insurance company was in view of the compensation received on account of loss of assets? - HELD THAT:- Aforesaid loss has already been booked as expenditure in the earlier years, therefore, the amount received as compensation to indemnify the loss is business income of the assessee. We restore this issue for the limited purpose to the AO to verify whether the insurance claim received by the assessee is on account of loss of trading assets and the same has been booked as an expenditure in the earlier years. If it is found so, then to allow the insurance claim to be included into the income for the purpose of benefit u/s 80IA of the Act. This ground is, accordingly, partly allowed in favour of the assessee. Income from sale of forms which admittedly is not related to the manufacturing activity of the assessee and we do not find any reason to interfere in the orders of the lower authorities in denying the aforesaid claim. Incidental expenditure incurred for the purpose of earning of interest income from the banks - Expenditure on certain percentage of bank interest does not seem to be a correct and proper method for the same - HELD THAT:- We are of the view that if investment or deposit is made to the bank, same effort is to be made irrespective of the quantum of the investment i.e. whether it is regarding the deposit of ₹ 1 lac or ₹ 10 Crores, subject to a very few additional formalties. Under the circumstances, we restore this issue to the AO to examine the calculations given by the assessee in respect of expenditure incurred for making deposits with the bank and to decide the issue a fresh having regard to the accounts of the assessee, the manpower and the administrative infrastructure used for the same and also the direct and indirect expenditure being incurred in this respect. Addition into the book profits and thereby assessing the same as per the provisions of Section 115JB - HELD THAT:- Admittedly, the assessee has already booked the aforesaid amount as income in the earlier years and has paid the due taxes; if the same is reduced in the respective year, same will have bearing on the next year. Hence, instead of making adjustment one by one in each of the year, the assessee made the requisite entry in the current year. However, the question of allowability of the aforesaid claim in respect of ‘advance on depreciation’, in our view is required to be looked into by the AO. We, therefore, restore this issue to the file of the AO to examine the nature of the income received and apply the decision of the Hon'ble Supreme Court in the case of ‘NHPC’ or any other case law as may be available at that time. However, if the claim of the assessee is found allowable, then to reduce the income from the book profits of the current year as per our observations made above. Addition on account of unascertained liability - HELD THAT:- There were ascertained liabilities of the assessee to pay the amounts in question, however, the exact quantum was not determined. Therefore, assessee booked the said amounts as liability in the books of account. The assessee has submitted that after the Award of the Arbitrator, the aforesaid amounts had been adjusted in the books of account as paid by the assessee as per the Arbitration Award. We restore this issue to the file of the AO to verify whether the aforesaid liability has been paid/adjusted in the subsequent years, if found correct, then to allow claim of the assessee in the year under consideration. Catchment Area Treatment Expenditure - Revenue or capital expenditure - HELD THAT:- What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee’s trading operations or enabling the management and conduct of the assessee’s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusion test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. Write back of provisions of leave salary and pension as income eligible u/s 80IA - HELD THAT:- We find that the leave salary and pension etc. are the expenditures incurred by the assessee which are directly relating to the running of the business operations. Therefore, ld. CIT(A) has rightly allowed the write back of the provisions for the same as income of the assessee as eligible for deduction u/s 80IA Excess provisions written back for stores - Provisions for stores is relating to the trading assets of the assessee hence, any excess provisions written back will also constitute income of the assessee relating to the business operations of the assessee. Issues Involved:1. Computation of Gross Total Income as per Normal Provisions2. Denial of Deduction under Section 80IA of the Income Tax Act3. Incidental Expenditure Allowed Only at 2% as Against 5% Claimed on Interest Income4. Computation of Income as per Provisions of Section 115JB5. Treatment of Catchment Area Treatment Expenditure as Revenue Expenses6. Treatment of Write Back of Provisions of Leave Salary and Pension as Income Eligible under Section 80IA7. Treatment of Excess Provisions Written Back for StoresIssue-wise Detailed Analysis:1. Computation of Gross Total Income as per Normal ProvisionsThe first issue pertains to the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, due to the assessee's failure to deduct tax at source on interest and other expenses. The tribunal upheld the disallowance but allowed the assessee to claim the expenditure in the year in which TDS is deducted.2. Denial of Deduction under Section 80IA of the Income Tax Act- Interest from Employees and Contractors: The tribunal agreed with the lower authorities that this income is not derived from the manufacturing/generation of electricity activity and thus does not qualify for deduction under Section 80IA.- Machinery Hire Charges and Rent from Staff: Similarly, these incomes were found unrelated to the core activities of the assessee and were rightfully disallowed.- Profit on Sale of Assets: This income was also unrelated to the manufacturing/generation of electricity activity and was correctly disallowed.- Miscellaneous Income: Income from rents, recoveries from employees, and bus receipts were also found unrelated to the core business and were disallowed.- Insurance Claim: The tribunal restored this issue to the AO to verify if the insurance claim was for the loss of trading assets and if it was booked as an expenditure in earlier years. If verified, it should be included in the income for the purpose of Section 80IA benefits.- Sale of Forms: This income was also found unrelated to the manufacturing activity and was rightly disallowed.3. Incidental Expenditure Allowed Only at 2% as Against 5% Claimed on Interest IncomeThe tribunal found that allowing expenditure as a percentage of bank interest is not a correct method. The issue was restored to the AO to examine the actual expenditure incurred for making bank deposits and to decide the issue afresh based on the assessee's accounts, manpower, administrative infrastructure, and direct and indirect expenditures.4. Computation of Income as per Provisions of Section 115JB- Advance Against Depreciation: The tribunal restored this issue to the AO to examine the nature of the income received and apply the decision of the Supreme Court in the NHPC case. If the claim is found allowable, the income should be reduced from the book profits of the current year.- Unascertained Liability: The tribunal restored this issue to the AO to verify if the liabilities were paid or adjusted in subsequent years and to allow the claim if found correct.5. Treatment of Catchment Area Treatment Expenditure as Revenue ExpensesThe tribunal upheld the CIT(A)'s decision to treat Rs. 1.62 Crores on account of Catchment Area Treatment Expenditure as revenue expenses, citing it as vital for continued power generation and not resulting in any tangible or intangible asset.6. Treatment of Write Back of Provisions of Leave Salary and Pension as Income Eligible under Section 80IAThe tribunal agreed with the CIT(A) that the write-back of provisions for leave salary and pension, being directly related to the business operations, should be treated as income eligible for deduction under Section 80IA.7. Treatment of Excess Provisions Written Back for StoresThe tribunal found that provisions for stores relate to trading assets, and any excess provisions written back should be considered income related to the business operations.Conclusion:The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The tribunal provided detailed directions for the AO to verify and reassess certain claims, ensuring compliance with legal precedents and accurate computation of taxable income.