2022 (3) TMI 1558 - AT - Income Tax

Tribunal Partially Allows Appeal: Limits Disallowance, Deletes Depreciation Disallowance, Remands VAT and Cess Issues.

M/s. Hyundai Motor India Ltd., Versus The Asst. Commissioner of Income Tax, LTU-2,

M/s. Hyundai Motor India Ltd., Versus The Asst. Commissioner of Income Tax, LTU-2, - TMI Issues Involved:1. Violation of principles of natural justice.2. Disallowance under section 14A of the Act.3. Disallowance of capital subsidy.4. Disallowance of Bonus/Performance reward under section 43B of the Act.5. Tax Treatment of Output VAT Incentive.6. Disallowance of investment allowance under section 32AC of the Act.7. Adjustment for Brand development services.8. Additional grounds regarding Focus Market Scheme and Education Cess and Secondary Education Cess.Detailed Analysis:1. Violation of Principles of Natural Justice:The assessee alleged that the assessment order was finalized with legal defects, including violation of natural justice principles, misapplication of the Act's provisions, and faulty assessment procedures. However, this ground was dismissed as general and not requiring specific adjudication.2. Disallowance under Section 14A of the Act:The assessee contested the disallowance of INR 83,20,451 under section 14A by applying Rule 8D, arguing it exceeded the dividend income of INR 62,847. The Tribunal referred to its previous decisions in the assessee's own case, restricting disallowance to the extent of exempt income. The AO was directed to limit the disallowance to the exempt income earned during the assessment year.3. Disallowance of Capital Subsidy:The assessee received a subsidy from SIPCOT, treated as a capital receipt, and not reduced from the cost of assets. The AO reworked depreciation by reducing the subsidy amount. The Tribunal, following earlier decisions in the assessee's favor, directed the AO to delete the disallowance of depreciation on the capital subsidy.4. Disallowance of Bonus/Performance Reward under Section 43B of the Act:The AO disallowed performance rewards paid to employees under section 43B(c), considering them as bonus or commission not paid before the due date of filing the return. The Tribunal upheld the disallowance, consistent with its earlier decisions, stating that performance incentives paid for services rendered fall under section 36(1)(ii) and are subject to section 43B(c).5. Tax Treatment of Output VAT Incentive:The assessee claimed the VAT incentive received from the Government of Tamil Nadu should be treated as a capital receipt. The Tribunal remanded the issue to the AO for reconsideration, consistent with earlier decisions where similar issues were set aside for fresh adjudication.6. Disallowance of Investment Allowance under Section 32AC of the Act:The assessee claimed investment allowance on total investments, including assets acquired before the specified period. The AO disallowed the allowance for assets acquired before 01.04.2013. The Tribunal upheld the disallowance, stating that the law mandates acquisition and installation of new assets within the specified period (01.04.2013 to 31.03.2015) to qualify for the allowance.7. Adjustment for Brand Development Services:The TPO made an upward adjustment for brand development services. The Tribunal, following earlier decisions in the assessee's favor, directed the AO to delete the transfer pricing adjustment, rejecting the use of Spearman’s Rank Correlation method by the TPO.8. Additional Grounds:- Focus Market Scheme: The assessee argued that the subsidy received under this scheme should be treated as a capital receipt. The Tribunal, consistent with earlier decisions, held that the subsidy is revenue in nature and not capital.- Education Cess and Secondary Education Cess: The Tribunal remanded the issue to the AO for re-examination, following earlier decisions where similar issues were sent back for fresh adjudication.Conclusion:The appeal was partly allowed for statistical purposes, with several issues remanded for reconsideration and others decided based on consistent application of earlier Tribunal decisions. The Tribunal upheld the principles of natural justice and adherence to statutory provisions in its detailed analysis.