2019 (8) TMI 1826 - AT - Income Tax

Tribunal Upholds Tax Decisions on Depreciation, Transfer Pricing, and Expenses

Assistant Commissioner of Income Tax, Circle-10 (2), Kolkata Versus M/s. Philips Carbon Black Ltd.

The Tribunal upheld the decisions of the ld. CIT(A) in allowing additional depreciation on energy-saving devices, deleting disallowances under Section 14A ... Disallowance of additional depreciation on energy saving devices - HELD THAT:- We find that there are no additions during the year to the block of assets where the rate of depreciation is at the rate of 80%. The assessee has claimed the depreciation on the opening written down value as on 01/04/2010. Later as quoted the order of the jurisdictional Bench of the ITAT in the case of Damodar Valley Corporation [2016 (7) TMI 747 - ITAT KOLKATA] and upheld the claim of the assessee. We find no infirmity in the same. The submissions of the ld. D/R that this case-law does not refer to a period prior to 01/04/2013, the date on which the amendment has come into effect, is not correct. Hence, we uphold the findings of the ld. CIT(A) and dismiss this ground of the revenue. Disallowance u/s 14A r.w.r. 8D - CIT(A) held that the assessee company has duly discharged the onus by proving that loan funds were utilised for business purpose and not for making any investments - HELD THAT:- We uphold these findings and dismiss this ground of the revenue as the factual findings of the ld. CIT(A) have not been controverted by the ld. D/R as held when no dividend income was earned from the investments during the year, then no disallowance can be made u/s 14A of the Act with reference to cost of such investments - Disallowance made by AO set aside - Decided in favour of assessee. Disallowance of foreign exchange fluctuation loss - HELD THAT:- MTM loss recognized at the year-end with reference to unrealized forward contracts was in the nature of real loss and therefore allowable as deduction from the profits of the business. Disallowance of recruitment expenses - HELD THAT:- In the instant case, the assessee did not want to spread over of this expenditure over a period of five years as in the return field by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permits the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act. Disallowance of delayed contribution of EPF/ESI - HELD THAT:- As the amounts in question have been paid by the assessee before the due date of filing of the return u/s 139(1) of the Act, the ld. CIT(A) rightly followed the decision of the Hon’ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] and deleted the addition. Thus, this ground of the revenue is dismissed. TP Adjustment on account of recharacterisation of equity as loan - HELD THAT:- The term 'income' has to be understood as per the provisions of Section 2(24) of the Act and therefore capital receipts/ transactions will not fall within the ambit of 'income. The Hon'ble Court [2014 (10) TMI 278 - BOMBAY HIGH COURT] thus held that the amount received on issue of share capital including the premium is undoubtedly on capital account. Therefore, absent express legislation, no amount received, accrued or arising on capital account transaction can be subjected to tax as 'income'. The Hon'ble High Court therefore agreed with the assessee's case that capital receipts received by the assessee on issue of equity shares cannot be considered as 'income' and therefore cannot be subject to provisions of Chapter X of the Act. Even though the decision of the Hon'ble Bombay High Court in the context of investment made by foreign holding company in its Indian subsidiary; in my considered view, the ratio decidendi in that decision will equally apply to the appellant's case which is an Indian holding company of its Cyprus subsidiary. Addition to be deleted. Issues Involved:1. Disallowance of additional depreciation on energy saving devices.2. Disallowance under Section 14A of the Income Tax Act.3. Disallowance of foreign exchange fluctuation loss.4. Disallowance of amortization of recruitment expenditure.5. Disallowance under Section 2(24)(x) of the Income Tax Act.6. Transfer Pricing Adjustment on account of recharacterization of equity as loan.Detailed Analysis:1. Disallowance of Additional Depreciation on Energy Saving Devices:The Tribunal upheld the ld. CIT(A)'s decision to allow additional depreciation on energy saving devices. The ld. CIT(A) noted that the plant and machinery generating power were installed and used for less than 180 days in FY 2009-10, and thus, only 50% of the normal depreciation was claimed and allowed. The Tribunal found no infirmity in the ld. CIT(A)'s reliance on the jurisdictional ITAT's decision in Damodar Valley Corporation vs. CIT (160 ITD 78) and dismissed the revenue's ground.2. Disallowance under Section 14A of the Income Tax Act:The Tribunal upheld the ld. CIT(A)'s deletion of disallowance under Section 14A r.w.r. 8D. The ld. CIT(A) relied on precedents such as CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom.) and CIT vs. HDFC Bank (383 ITR 529 (Bom.)), concluding that interest-free funds were used for investments yielding exempt income. The Tribunal noted that the factual findings of the ld. CIT(A) were not controverted by the revenue and upheld the decision.3. Disallowance of Foreign Exchange Fluctuation Loss:The Tribunal upheld the ld. CIT(A)'s decision to allow the foreign exchange fluctuation loss claimed by the assessee, noting that the loss was on revenue account. The ld. CIT(A) had relied on the Tribunal's decision in the assessee's own case for earlier years and found that the loss was incurred in the revenue field. The Tribunal found no reason to interfere with the ld. CIT(A)'s findings.4. Disallowance of Amortization of Recruitment Expenditure:The Tribunal upheld the ld. CIT(A)'s deletion of the disallowance of recruitment expenses, agreeing that the concept of deferred revenue expenditure is not contemplated under the Act. The Tribunal cited the Hon’ble Delhi High Court's decision in CIT vs. Vodafone Essar South Ltd. [2015] 55 taxmann.com 289 (Delhi), which held that revenue expenditure should be allowed in the year it is incurred. The Tribunal found the ld. CIT(A)'s order to be in line with legal precedents and dismissed the revenue's ground.5. Disallowance under Section 2(24)(x) of the Income Tax Act:The Tribunal upheld the ld. CIT(A)'s deletion of the disallowance under Section 2(24)(x), noting that the amounts in question were paid by the assessee before the due date of filing the return under Section 139(1). The Tribunal agreed with the ld. CIT(A)'s reliance on the Hon’ble Supreme Court's decision in CIT vs. Alom Extrusions Ltd. 319 ITR 306 (SC) and dismissed the revenue's ground.6. Transfer Pricing Adjustment on Account of Recharacterization of Equity as Loan:The Tribunal upheld the ld. CIT(A)'s deletion of the transfer pricing adjustment, agreeing that the TPO exceeded his jurisdiction by recharacterizing the investment in equity shares as a loan. The ld. CIT(A) relied on the Hon’ble Bombay High Court's decision in Vodafone India Services Pvt. Ltd. v. Union of India (50 taxmann.com 300) and the CBDT Instruction No. 2/2015, which clarified that premium on share issue is a capital account transaction and not subject to transfer pricing adjustment. The Tribunal found no infirmity in the ld. CIT(A)'s decision and dismissed the revenue's ground.General Grounds:The Tribunal dismissed Ground No. 6 as general in nature.Conclusion:The appeal of the revenue was dismissed in its entirety.