2017 (4) TMI 1577 - AT - Income Tax

Tribunal decision on tax disallowance, provisions deduction, CER income, and addition under Section 41(1)

The Tribunal allowed the assessee's appeal on the disallowance under Section 14A and deduction of provisions written back. The issue of taxability of ... Disallowance u/s 14A - HELD THAT:- As decided in Taikisah engineering Ltd [2014 (12) TMI 482 - DELHI HIGH COURT] has held that under sub-section (2) of section 14A Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of incurring no expenditure in relation to exempt income, can he determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e., rule 8D. Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after referring to the accounts, determine the disallowance. AO has failed in his duty to do so. In view of this, we direct the assessing officer to delete the disallowance made under section 14 A of the income tax act. In view of this, we reverse the order of the Ld. CIT (A) on this ground. Ground No. 1 to 4 of the appeal of the assessee are allowed. Deduction of provisions no longer required written back claimed during the assessment proceedings - HELD THAT:- Hon‟ble Delhi High Court in case of CIT versus J parabolic Springs Ltd. [2008 (4) TMI 3 - DELHI HIGH COURT] has held that considering the decision of Honourable supreme court in Goetz (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT] wherein deduction claimed by way of a letter before the Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. In appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal. Therefore, according to us there is no restriction on the powers of the appellate authority to entertain such claim. In view of this we set aside this ground of appeal to the file of the Ld. CIT (A) to examine whether the provisions no longer written back can be charged to income tax in spite of the claim of the assessee that no deduction of such sum has been allowed in the earlier years. In the result ground No. 5 of the appeal of the assessee is allowed with above directions. Admission of the additional ground - whether the income shown by the assessee on sale of carbon credit certificates is “ income‟ chargeable to tax or not? - HELD THAT:- In view of the decision of the Hon‟ble Supreme Court in case of NTPC Ltd .[1996 (12) TMI 7 - SUPREME COURT] wherein the purpose of any assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with the law. It is further held therein that if as a result of a judicial decision given while the appeal is pending before the tribunal if it is found that a non-taxable item is taxed or a permissible deduction is denied, The assessee cannot be prevented from raising that question before the tribunal. The assessee has demonstrated in view of the decision of the Hon‟ble Andhra Pradesh High Court [2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT] that such income cannot be taxed. Therefore the case of the assessee squarely falls within the law laid down by the Hon‟ble Supreme Court. In view of this we admit the additional ground of appeal and remit the issue back to the file of the Ld. assessing officer to decide the issue on merit. Recovery of loan under section 41 (1) - HELD THAT:- CIT (A) has recorded a finding that the recovery of loan cannot be taxed under section 41 (1) because this amount has never been debited in the profit and loss account and never allowed to assesseee as deduction. The Ld. CIT appeal further noted the provision of the law u/s 41(1) of the act and held that the basic requirement for charging an amount to tax is the fact that the same should have been claimed as deduction in the earlier years. We fully agree with the finding of the Ld. CIT appeal in holding that the provisions of section 41 (1) do not apply to the facts of the present transaction and therefore we confirm the finding of the Ld. CIT appeal in deleting the addition under section 41 (1) of the income tax act. In the result ground No. 2 of the appeal of the revenue is dismissed. Charging interest u/s 234C - HELD THAT:- While deciding the appeal of the assessee for the same assessment year, we have already remitted the issue of chargeability of the above income to the file of the Ld. assessing officer and applicability of the provisions of section 234C with respect to chargeability of interest would also depend on the decision of the assessing officer in that ground as it is consequential in nature. In the result we also set aside the appeal of the assessee against chargeability of interest under section 234C of the income tax act back to the file of the Ld. assessing officer to decide the issue on merit after deciding the additional ground raised by the assessee. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Deduction of provisions no longer required written back.3. Taxability of income from sale of Carbon Emission Reduction (CER) certificates.4. Chargeability of interest under Section 234C of the Income Tax Act.5. Addition under Section 41(1) of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The assessee contested the disallowance of Rs. 54,76,618/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D. The AO noted that the assessee had made substantial investments and earned exempt dividend income without disallowing any expenditure. The AO applied Rule 8D to compute the disallowance. The CIT(A) upheld the applicability of Rule 8D but directed the AO to exclude financial charges. The Tribunal held that Rule 8D is applicable from Assessment Year (AY) 2008-09 onwards and not for AY 2006-07. Additionally, the AO failed to record satisfaction regarding the incurrence of expenditure for earning exempt income. Therefore, the Tribunal directed the AO to delete the disallowance, reversing the CIT(A)'s order.2. Deduction of Provisions No Longer Required Written Back:The assessee claimed a deduction of Rs. 1,14,00,000/- for provisions written back, which was not claimed in the original or revised return. The AO and CIT(A) rejected the claim citing the Supreme Court decision in Goetz India Ltd., which mandates filing a revised return for such claims. However, the Tribunal held that appellate authorities have the power to entertain such claims, referring to the Delhi High Court decision in CIT vs. J Parabolic Springs Ltd. The Tribunal remitted the issue back to the CIT(A) to examine the claim on merits.3. Taxability of Income from Sale of Carbon Emission Reduction (CER) Certificates:The assessee raised an additional ground claiming that income from the sale of CER certificates amounting to Rs. 93.85 crores is a capital receipt not liable to tax. The Tribunal admitted the additional ground, citing the Supreme Court decision in NTPC Ltd. vs. CIT, which allows raising legal issues at any stage. The Tribunal remitted the issue back to the AO to decide the taxability of the income from CER certificates on merits.4. Chargeability of Interest under Section 234C of the Income Tax Act:The assessee contested the levy of interest under Section 234C, arguing that income from trading CER certificates is a new source of income and not subject to advance tax provisions. The CIT(A) upheld the AO's decision to charge interest. The Tribunal noted that the issue of chargeability of income from CER certificates had been remitted to the AO. Consequently, the applicability of Section 234C interest would depend on the AO's decision on the taxability of CER income. The Tribunal remitted the issue back to the AO for reconsideration.5. Addition under Section 41(1) of the Income Tax Act:The AO added Rs. 1,05,00,000/- under Section 41(1), considering it as recovery of loan written off earlier. The CIT(A) deleted the addition, stating that the amount was never allowed as a deduction in earlier years and thus does not fall under Section 41(1). The Tribunal upheld the CIT(A)'s decision, agreeing that the basic requirement for invoking Section 41(1) is that the amount should have been allowed as a deduction in earlier years, which was not the case here.Conclusion:The Tribunal allowed the assessee's appeal on disallowance under Section 14A and deduction of provisions written back, remitted the issue of taxability of CER income and related interest under Section 234C back to the AO, and upheld the CIT(A)'s decision on the addition under Section 41(1). The revenue's appeal was dismissed.