2020 (1) TMI 1606 - AT - Income Tax

Tax Tribunal Ruling on Depreciation, Interest, DTAA, Bad Debts

IRCON International Limited Versus Dy. C.I.T. Circle 11 (1) New Delhi And (Vice-Versa)

IRCON International Limited Versus Dy. C.I.T. Circle 11 (1) New Delhi And (Vice-Versa) - TMI Issues Involved:1. Disallowance of depreciation on machinery parts.2. Disallowance under Section 14A of the Income-tax Act.3. Addition of interest received on provisional assessment under Section 143(1).4. Disallowance of deduction from income earned from PE in foreign countries under DTAA in computing book profit under Section 115JB.5. Additions on account of provision for bad and doubtful debts, provision for doubtful advances, and provision for loss on account of investment.6. Disallowance of depreciation on sale of fixed assets.7. Disallowance of deduction under Section 80IA.8. Addition on account of provision for maintenance expenditure.9. Addition on account of provision for demobilization expenditure, provision for maintenance, and provision for other expenses.10. Disallowance of foreign exchange fluctuation loss.11. Disallowance of prior period expenses.12. Adjustment in computation of book profit under Section 115JB.13. Proportionate corporate expenses allocated towards DTAA income under Section 14A.Detailed Analysis:1. Disallowance of Depreciation on Machinery Parts:The assessee's claim for depreciation on machinery parts capitalized in earlier years was denied as the machinery spares were not put to use, although capitalized to plant and machinery. The Tribunal upheld the Assessing Officer's decision, referencing similar findings in previous years where depreciation was not allowed unless the machinery spares were actually consumed.2. Disallowance under Section 14A:The Assessing Officer disallowed Rs. 28.04 lakhs under Section 14A, attributing administrative expenses to earning exempt income. The Tribunal found this computation excessive and directed the disallowance to be restricted to Rs. 15 lakhs. For A.Y. 2005-06, the disallowance was similarly restricted to Rs. 12 lakhs.3. Addition of Interest Received on Provisional Assessment:The interest received on provisional assessment under Section 143(1) was considered taxable, based on the Tribunal's earlier decision that such interest creates an enforceable debt and is taxable in the year of receipt. The matter was remanded to the Assessing Officer for verification and adjustment if the interest was subsequently withdrawn under Section 143(3).4. Disallowance of Deduction from Income Earned from PE in Foreign Countries under DTAA:The Tribunal upheld the disallowance of the deduction from income earned in foreign countries under DTAA for computing book profit under Section 115JB, citing that Section 115JA overrides other provisions and no specific provision in the DTAA allows for such exclusion.5. Additions on Account of Provisions:The Tribunal remanded the issue of additions on account of provisions for bad and doubtful debts, doubtful advances, and loss on account of investment to the Assessing Officer for verification, following a similar approach from previous years.6. Disallowance of Depreciation on Sale of Fixed Assets:The Tribunal upheld the disallowance of depreciation on the sale of fixed assets, referencing the Bombay High Court's decision that capital gains should be included in computing book profits under Section 115J.7. Disallowance of Deduction under Section 80IA:The Tribunal directed the Assessing Officer to allow the deduction under Section 80IA, following the co-ordinate bench's findings that the assessee was developing infrastructure facilities and not merely acting as a contractor.8. Addition on Account of Provision for Maintenance Expenditure:The Tribunal upheld the deletion of the addition on account of provision for maintenance expenditure, referencing the co-ordinate bench's findings that the liability had crystallized during the year.9. Addition on Account of Provision for Demobilization Expenditure:The Tribunal upheld the deletion of the addition, finding that the CIT(A) had verified the liabilities and the Revenue could not rebut these findings.10. Disallowance of Foreign Exchange Fluctuation Loss:The Tribunal upheld the deletion of the disallowance, noting that similar losses had been allowed in previous years and the Revenue had accepted these findings.11. Disallowance of Prior Period Expenses:The Tribunal upheld the disallowance of prior period expenses where the assessee failed to furnish evidence that the liabilities had crystallized during the year.12. Adjustment in Computation of Book Profit under Section 115JB:The Tribunal remanded the issue of adjustments in computation of book profit under Section 115JB, including provisions for bad and doubtful advances and income from PE in foreign countries, for verification by the Assessing Officer.13. Proportionate Corporate Expenses Allocated towards DTAA Income:The Tribunal upheld the deletion of the disallowance of proportionate corporate expenses allocated towards DTAA income, noting that similar disallowances had been deleted in previous years and the Revenue had not challenged these deletions.Summary of Judgments:- ITA No. 977/DEL/2010: Partly allowed for statistical purposes.- ITA No. 2220/DEL/2011: Partly allowed for statistical purposes.- ITA No. 1491/DEL/2010: Dismissed.- ITA No. 2449/DEL/2011: Dismissed.The order was pronounced in the open court on 30.01.2020.