2018 (9) TMI 2111 - AT - Income Tax

Tribunal rules in favor of assessee on tax issues, clarifies interest income categorization

The Tribunal ruled in favor of the assessee in a case involving various tax issues. It directed the Assessing Officer to delete the disallowed foreign ... Disallowance of foreign travel expenses claimed - travel expenses of employees to foreign countries -TPO treated the same as international transaction, since the travel was made to the places of Associated Enterprises - HELD THAT:- As assessee has furnished full details relating to foreign travel expenses incurred by the assessee before the TPO. DRP has sustained addition only for the reason that the assessee did not furnish details of the same. We noticed that learned DRP has taken cognizance of details only to the extent of ₹ 16.16 lakhs. During the course of hearing, assessee furnished two sets of statements, one containing full details of travel expenses (which was furnished before the TPO) and another one containing details of ₹ 8.49 lakhs (which is extracted from the above said statement). Since full details have been furnished by the assessee before the TPO and since the entire foreign travel expenses have been incurred by the employees of the assessee for the purpose of business, we are of the view that addition of ₹ 8.49 lakhs sustained by learned DRP is liable to be deleted. Accordingly, we direct the Assessing Officer to delete the addition. Correct Head of income - interest income earned by the assessee from margin money deposits held with bank and interest on income tax refund - assessee offered both the above said income under the head ‘income from business’ but AO assessed them under the head ‘income from other sources’ - HELD THAT:- With regard to interest income earned on margin money deposits, we noticed that the Coordinate Bench of the Tribunal has decided this issue in favour of the assessee relating to A.Ys. 2011-12 & 2010-11 - Consistent with the view taken in assessee’s own case for earlier years, we direct the Assessing Officer to assess interest income earned on margin money deposits under the head ‘income from business’. Interest earned on income tax refund - The same is required to be assessed under the head ‘income from other sources’, as the same does not have nexus to the day to day business carried on by the assessee. Accordingly, we confirm the order passed by the Assessing Officer on this issue. Assessment of income tax recoverable from Gujarat Electricity Board (GUVNL) and Essar Steel Ltd.- computing book profit u/s. 115JB - HELD THAT:- During the course of hearing, the assessee furnished copy of audited financial statement as well as computation of book profit made u/s. 115JB of the Act. We noticed that the assessee has proceeded to compute book profit by adopting figure of “Profit before tax”. In that case, the adjustments, if any, made to the Income tax amount will not have effect on the Book profit, since the figure of “Profit before tax” was adopted to compute book profit u/s 115JB of the Act. In the instant case, we notice that the adjustment of ₹ 22.69 crores has been made by the assessee against the “Provision for tax”, which is appearing after “Profit before tax”. Accordingly, this issue has to be decided in favour of the assessee. Accordingly, we direct the Assessing Officer to delete the addition made by him to the book profit. Disallowance u/s. 14A under normal provisions of the Act as well as for computing book profit u/s. 115JB of the Act - HELD THAT:- As in assessee’s own case in A.Y. 2009-10 [2017 (10) TMI 1624 - ITAT MUMBAI] and the Tribunal, by following the decision of Hon'ble Delhi High Court rendered in the case of Cheminvest Ltd. [2015 (9) TMI 238 - DELHI HIGH COURT] has held that no disallowance u/s. 14A is required as the assessee did not earn any exempt income. Since the facts are identical in this year also, by following the above said decision of Hon’ble Delhi High Court, we direct the Assessing Officer to delete the disallowance u/s. 14A of the Act, while computing total income under normal provisions of the Act. Since the assessee has not earned any exempt income, the question of making any addition to the net profit while computing book profit also does not arise. Issues:1. Disallowance of foreign travel expenses2. Assessment of interest income under different heads3. Treatment of income tax recoverable from specific entities4. Disallowance under section 14A of the Act5. Disallowance of depreciationDisallowance of Foreign Travel Expenses:The appeal was against the disallowance of Rs. 8,49,228 out of foreign travel expenses claimed by the assessee. The Tribunal found that the assessee had furnished full details of the expenses before the Transfer Pricing Officer (TPO), but the Dispute Resolution Panel (DRP) only considered a portion of the expenses. The DRP disallowed the balance amount of Rs. 8.49 lakhs. The Tribunal held that since the entire foreign travel expenses were incurred for business purposes by the employees, the addition sustained by the DRP was unjustified. Therefore, the Tribunal directed the Assessing Officer to delete the addition of Rs. 8.49 lakhs.Assessment of Interest Income:The Tribunal addressed the categorization of interest income earned by the assessee. The interest income from margin money deposits was to be assessed under 'income from business,' following previous decisions in the assessee's favor. However, interest earned on income tax refund was to be assessed under 'income from other sources' as it lacked a direct connection to the business activities.Treatment of Income Tax Recoverable:The issue involved the treatment of income tax recoverable from specific entities. The Assessing Officer added the amount of Rs. 22.69 crores to the total income of the assessee and to the net profit for computing book profit. The Tribunal upheld the additions based on previous decisions against the assessee. However, concerning the book profit computation, the Tribunal directed the Assessing Officer to delete the addition of Rs. 22.69 crores as it did not affect the book profit calculation.Disallowance under Section 14A:Regarding the disallowance under section 14A of the Act, the Tribunal noted that the assessee did not earn any exempt income during the year. Citing previous decisions and following the decision of the Hon'ble Delhi High Court, the Tribunal directed the Assessing Officer to delete the disallowance under section 14A for both normal provisions and book profit computation.Disallowance of Depreciation:The issue of disallowance of depreciation was not pressed by the learned AR during the hearing, leading to the dismissal of this ground as not pressed. As a result, the appeal filed by the assessee was partly allowed by the Tribunal.The judgment was delivered by the Appellate Tribunal ITAT Mumbai, with detailed analysis and decisions provided for each issue raised in the appeal.