2017 (5) TMI 1794 - AT - Income Tax

Tribunal limits disallowance under Section 14A, excludes capital receipts from tax computation

The Tribunal partially allowed the assessee's appeals by limiting the disallowance under section 14A with Rule 8D to the amount of exempt dividend income ... Disallowance u/s 14A read with Rule 8D - Expenditure incurred to earn exempt income - HELD THAT:- We respectfully follow the decision of the Coordinate Bench of this Tribunal for A.Y. 2010-11 [2017 (3) TMI 1051 - ITAT KOLKATA] and direct the Assessing Officer to restrict the disallowance under section 14A read with Rule 8D to the extent of exempt dividend income. Ground No. 1 of the assessee’s appeal thus is partly allowed. MAT computation - addition made on account of excise duty refund and interest subsidy while computing book profit under section 115JB - HELD THAT:- As relying on assessee own case [2017 (3) TMI 1051 - ITAT KOLKATA] we direct the Assessing Officer to delete the addition made on account of excise duty refund and interest subsidy while computing the book profit of the assessee-company under section 115JB of the Act and allow Ground No. 2 of the assessee’s appeal. Disallowance made under section 14A read with Rule 8D while computing the book profit of the assessee-company under section 115JB - HELD THAT:- As observed that this issue is consequential to the issue involved in Ground No. 1 of the assessee’s appeal for AY 2011-12, which has been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2011-12 on the said issue, we direct the Assessing Officer to restrict the disallowance under section 14A read with Rule 8D to the extent of exempt dividend income. Ground No. 3 of the assessee’s appeal thus is partly allowed. Addition interest subsidy and excise duty refund in computing the income of the assessee under the normal provisions of the Act - HELD THAT:- As decided in own case [2017 (3) TMI 1051 - ITAT KOLKATA] incentives, designed to achieve a public purpose, cannot be construed as production or operational incentives for the benefit of assessees alone. It was further held that making of additional provision in the scheme that the incentives would be available to the eligible industrial units from the date of commencement of commercial production and that these are not to be allowed for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives. Such provisions are intended to ensure that the incentives are made available only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee and therefore not chargeable to tax. - Decided against revenue. Issues Involved:1. Disallowance under section 14A read with Rule 8D.2. Addition of excise duty refund and interest subsidy in computation of book profits under section 115JB.3. Addition of excise duty refund and interest subsidy in computing income under the normal provisions of the Act.Detailed Analysis:1. Disallowance under section 14A read with Rule 8D:The assessee challenged the disallowance of Rs.8,12,886/- under section 14A read with Rule 8D, which was made for exempt dividend income of Rs.9,284/-. The Tribunal noted that a similar issue was decided in the assessee’s favor in AY 2010-11, where it was held that disallowance under section 14A should be restricted to the extent of exempt income. Consequently, the Tribunal directed the Assessing Officer to restrict the disallowance to the extent of exempt dividend income for both AY 2011-12 and AY 2012-13.2. Addition of excise duty refund and interest subsidy in computation of book profits under section 115JB:The assessee contested the addition of Rs.5,59,46,935/- (excise duty refund) and Rs.43,37,773/- (interest subsidy) in the computation of book profits under section 115JB. The Tribunal observed that this issue was covered in favor of the assessee by a previous decision for AY 2010-11, where it was held that such subsidies are capital receipts and should not be included in book profits under section 115JB. Following this precedent, the Tribunal directed the deletion of these additions for both AY 2011-12 and AY 2012-13.3. Addition of excise duty refund and interest subsidy in computing income under the normal provisions of the Act:The Revenue appealed against the deletion of these additions by the CIT(A), arguing that they should be treated as revenue receipts. However, the Tribunal referred to the decision for AY 2010-11, where it was concluded that these subsidies were capital receipts and not chargeable to tax. The Tribunal upheld the CIT(A)’s decision to delete these additions under the normal provisions of the Act for both AY 2011-12 and AY 2012-13.Conclusion:- The Tribunal partly allowed the assessee’s appeals by restricting the disallowance under section 14A read with Rule 8D to the extent of exempt dividend income and deleting the additions of excise duty refund and interest subsidy in the computation of book profits under section 115JB.- The Tribunal dismissed the Revenue’s appeals, upholding the CIT(A)’s decision to treat the excise duty refund and interest subsidy as capital receipts not liable to tax under the normal provisions of the Act.