2013 (12) TMI 1708 - AT - Income Tax

Tax Tribunal Decision: Deduction Rules Upheld, Indirect Expenses Disallowed, Fresh Determination Ordered

Lap Finance & Consultancy Pvt. Ltd. Versus Dy. Commissioner of Income Tax, Circle- 11 (2), Pune.

The Tribunal upheld the assessee's stand on the computation of windmill business profits under section 80IA(5) of the Income Tax Act, 1961, directing the ... - Issues Involved:1. Deduction u/s 80IA of the Income Tax Act, 1961.2. Sales tax incentive and its qualification for deduction u/s 80IA.3. Initial assessment year for the purpose of section 80IA(4)(iv).4. Nature of sales tax incentive as capital subsidy.5. Disallowance of indirect expenditure from windmill business profits.6. Disallowance u/s 14A of the Income Tax Act, 1961.7. Disallowance of foreign travel expenditure.Summary:1. Deduction u/s 80IA of the Income Tax Act, 1961:The primary dispute was the interpretation and application of section 80IA(5) of the Act regarding the computation of profits from the windmill business. The Tribunal upheld the assessee's stand, following its own decision in the assessee's case for AY 2006-07 and the judgment of the Hon'ble Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd. vs. ACIT. The CIT(A)'s approach was deemed incorrect for not following judicial discipline. The Tribunal directed the AO to re-compute the deduction following its earlier decision.2. Sales tax incentive and its qualification for deduction u/s 80IA:The AO and CIT(A) concluded that the sales tax incentive received by the assessee did not qualify for deduction u/s 80IA. The CIT(A) noted that the assessee had accepted the AO's finding based on the Supreme Court decision in Liberty India vs. CIT. The Tribunal found no reason to interfere with this conclusion, and the ground was dismissed.3. Initial assessment year for the purpose of section 80IA(4)(iv):The Tribunal did not separately address this issue in detail but upheld the assessee's interpretation of section 80IA(5) as discussed in the first issue.4. Nature of sales tax incentive as capital subsidy:The Tribunal followed its earlier decision in the assessee's case for AY 2006-07, which was based on the precedent set in Rasiklal M. Dhariwal (HUF) vs. DCIT, and dismissed the ground, holding that the sales tax incentive was not a capital subsidy exempt from income tax.5. Disallowance of indirect expenditure from windmill business profits:The AO allocated indirect expenses to the windmill business based on turnover, which the CIT(A) upheld. The Tribunal affirmed the CIT(A)'s direction to re-calculate the disallowance based on the assessee's working, finding no error in the approach of the lower authorities.6. Disallowance u/s 14A of the Income Tax Act, 1961:The AO made a disallowance of Rs. 9,91,140/- invoking section 14A r.w. rule 8D. The Tribunal remanded the matter back to the AO to determine afresh whether the interest expenditure was related to funds used for acquiring shares/mutual funds yielding exempt income. The AO was directed to allow a reasonable opportunity to the assessee before passing an order.7. Disallowance of foreign travel expenditure:The Tribunal followed its decision in the assessee's case for AY 2006-07, directing the AO to restrict the disallowance to 50% of the expenditure claimed.Conclusion:The appeals for AY 2008-09 were partly allowed, and the decisions applied mutatis mutandis to AY 2004-05 and 2005-06. The order was pronounced in the open Court on 30th December, 2013.