2016 (4) TMI 1427 - AT - Income Tax

Tribunal's Decision on Tax Appeals: Partial success for appellant, with specific directions and limitations.

The Bombay Dyeing & Mfg. Co. Ltd. Versus Dy. CIT (H.Q.) -2, Aayakar Bhavan, Mumbai

The tribunal partly allowed the appellant's appeals, providing detailed reasoning and directions for various issues raised. The disallowance of provision ... Disallowing the provisions made in DMT division - assessee has not given details and these expenses pertains to earlier years or subsequent years - HELD THAT:- Assessee stated that this issue is covered against the assessee by the tribunal’s order in assessee’s own case for A.Y. 2003-04 [2015 (7) TMI 910 - ITAT MUMBAI] burden to prove its return, as well as claims preferred thereby, is only on the assessee, and which we find as not discharged to that extent. It may also be clarified here that the assessee had been extended sufficient opportunity to present its case. Needless to add, the assessee is a liberty to make a fresh claim for the subsequent year/s, even as it shall have to be shown by it that expenditure as claimed had arisen for those years, i.e., of payment, each year being independent. We may though clarify that we are not making any observation with regard to the deduction of the said expenditure for those years/s. We decide accordingly, dismissing the assessee’s ground. Disallowance u/s. 14A r.w.r. 8D - assessee stated that these two assessment year are A.Ys. 2004-05 and 2005-06 and Rule 8D is not applicable in these two assessment years - HELD THAT:- As assessee stated that prior to the applicability of Rule 8D of the Rules, the disallowance should be restricted to a reasonable extent, i.e., 1% to 2% in view of the decision of M/s. Godrej Agrovet Ltd [2014 (8) TMI 457 - BOMBAY HIGH COURT] On query form the Bench, the ld. Sr. (DR) also conceded that of reasonable disallowance on this issue can be made and requested for estimation of disallowance of 2%. On this, the ld. Counsel for the assessee very fairly agreed for the same. In view of the above concession given by both the parties, we direct the A.O. to recompute the disallowance by estimating at 2% of the exempt income. The A.O. is directed accordingly. Disallowance of deduction u/s. 80-HHC - Whether CIT(A) erred in holding that in case there is negative profit as per computation under clause (a), (b) and (c) of sub section (3) of section 80HHC, the appellant would not be entitled to deduction as per proviso of the section - HELD THAT:- As computation of the deduction u/s. 80HHC, and which was, at the very outset, again, admitted by the ld. AR to be squarely covered against the assessee by the decision of the Apex Court in the case of Ipca Laboratories Ltd. [2004 (3) TMI 9 - SUPREME COURT] We, accordingly, direct for computation of deduction u/s. 80HHC in terms of the said decision by the said hon’ble apex court. Disallowance of expenses for earning exempt income u/s. 14A while computing income u/s. 115JB - HELD THAT:- As assessee stated that the additions to be restricted to the amount disallowed u/s. 14A of the Act by CIT(A) in the normal provisions because the Rule 8D of the Income Tax Rules will not apply in these two assessment years. In view of the above, we are of the view that the disallowance should be restricted to the extent amount already disallowed u/s. 14A of the Act and not exceeding the same. We order accordingly. Disallowance of provision of expenses - HELD THAT:- We direct the A.O. to verify the fact of taxation of this provision of expenses in earlier year. In case these provisions in expenses have taxed in earlier years, the same when reversed should not be taxed. We direct the A.O. accordingly assessee’s appeals are partly allowed for statistical purposes. Issues involved:1. Disallowance of provision for expenses in AY 2004-05 and AY 2005-06.2. Restriction of disallowance u/s. 14A of the Act.3. Disallowance of deduction u/s. 80-HHC of the Act.4. Disallowance of expenses for earning exempt income u/s. 14A while computing income u/s. 115JB of the Act.5. Disallowance of deduction of eligible profits u/s. 80-HHC of the Act while computing income u/s. 115JB of the Act.6. Taxation of provision of expenses reversed from earlier years.Detailed Analysis:1. The first issue pertains to the disallowance of provision for expenses in AY 2004-05 and AY 2005-06. The appellant contested the disallowance on the grounds of following a mercantile system of accounting and making provisions on an accrual basis. However, the tribunal dismissed the grounds of the appellant citing lack of supporting evidence and failure to prove the accrual of expenses. Consequently, the issue was dismissed for both years.2. The next issue concerns the restriction of disallowance u/s. 14A of the Act. The appellant argued that Rule 8D was not applicable in the assessment years in question and requested a reasonable disallowance. Both parties agreed to a 2% disallowance of exempt income, which the tribunal directed the Assessing Officer to recompute accordingly.3. Moving on to the disallowance of deduction u/s. 80-HHC of the Act, the tribunal referred to previous orders in the appellant's case for AY 2003-04. The issue was found to be covered against the appellant, and the tribunal upheld the CIT(A)'s decision to restrict the disallowance to a specific amount, as conceded by the appellant.4. Regarding the disallowance of expenses for earning exempt income u/s. 14A while computing income u/s. 115JB of the Act, the tribunal directed that the disallowance should not exceed the amount already disallowed u/s. 14A. The appellant's argument to restrict the disallowance was accepted by the tribunal.5. The issue of disallowance of deduction of eligible profits u/s. 80-HHC of the Act while computing income u/s. 115JB was raised, and the tribunal referred to previous orders, setting aside the matter for re-examination by the Assessing Officer in line with the decision of the Apex Court.6. Lastly, the taxation of provision of expenses reversed from earlier years was discussed. The tribunal directed the Assessing Officer to verify whether these provisions had been taxed in earlier years. If taxed, the reversed provisions should not be taxed again. The issue was remitted back to the Assessing Officer for verification.In conclusion, the tribunal partly allowed the appellant's appeals for statistical purposes, providing detailed reasoning and directions for each issue raised.