2016 (4) TMI 823 - AT - Income Tax

Tribunal rules on depreciation, expenses, and income in favor of assessee

Godrej & Boyce Mfg. Co. Ltd., DCIT-10 (2), Mumbai Versus ACIT-10 (2), Mumbai, Godrej & Boyce Mfg. Co. Ltd., DCIT-10 (2), Mumbai

The Tribunal partly allowed the appeals filed by the assessee while dismissing the appeals of the Assessing Officers. The Tribunal upheld the restriction ... Adhoc disallowance made u/s. 14A of the Act for computing book profits u/s. 115JB of the Act - Held that:- As relying on GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] issue is Decided against assessee Disallowance u/s 14A - Held that:- Assessee had not used borrowed funds to earn exempt income, that the FAA discussed the issue at length and held that there was no evidence to prove that the assessee had not used its own funds for earning exempt income. In these circumstances, we are of the opinion that there is no legal infirmity in the order passed by the FAA as far as interest expenditure is concerned. We further find that FAA had restricted the administrative/managerial disallowance@ 1%. The AO had not given any reason for making the disallowance. Therefore, confirming the order of the FAA, we decide the effective GOA against the AO. Addition u/s 41 - difference between the sales tax liability and the net value paid under a scheme of Govt. of Maharashtra - Held that:- Deferred sales tax liability being the difference between the payment of net present value against the future liability credited by the assessee under the capital reserve account in its books of account was a capital receipt and could not be termed as remission/cessation of liability and, consequently, no benefit would arise to the assessee in terms of section 41(1)(a) - Decided against the AO. Issues Involved:1. Restriction of depreciation claimed by the assessee.2. Adhoc disallowance under section 14A for computing book profits under section 115JB.3. Additional grounds raised by the assessee regarding the non-applicability of section 14A to dividend income.4. Disallowance of managerial/administrative expenses and interest expenditure under section 14A.5. Addition under section 41(1) concerning the difference between sales tax liability and net value paid under a government scheme.Issue-wise Detailed Analysis:1. Restriction of Depreciation Claimed by the Assessee:The primary issue was the restriction of depreciation claimed by the assessee at Rs. 38.98 crores against the Rs. 53.27 crores claimed. The Tribunal referred to its earlier decisions in similar cases (ITA Nos. 4538-39/Mum/11 for AYs 2003-04 and 2004-05). The Tribunal analyzed explanations 2A and 2B to section 43(6) and the amendments brought by the Finance Acts of 1999 and 2000. The Tribunal concluded that the written down value of the transferred assets should be as per the books of account maintained under the Income Tax Act, not the Companies Act. The Tribunal upheld the lower authorities' decision, stating that the amendments were curative and clarificatory in nature, removing any ambiguity. Thus, the effective grounds of appeal (GOA 1-3) were decided against the assessee.2. Adhoc Disallowance under Section 14A for Computing Book Profits under Section 115JB:The assessee raised additional grounds regarding the adhoc disallowance made under section 14A being added back for computing book profits under section 115JB. The AR conceded that this ground should be decided against the assessee, as the Bombay High Court had already ruled against the assessee on this matter. The Tribunal followed the High Court's judgment and decided the additional ground against the assessee.3. Additional Grounds Raised by the Assessee:The assessee filed further additional grounds, stating that the disallowance under section 14A should not apply to dividend income subjected to tax under sections 115-O/115-R. The Tribunal admitted these grounds, considering them legal in nature. The matter was restored to the file of the First Appellate Authority (FAA) for fresh adjudication, with instructions to provide a reasonable opportunity of hearing to the assessee. The additional grounds were decided in favor of the assessee, in part.4. Disallowance of Managerial/Administrative Expenses and Interest Expenditure under Section 14A:For AY 2005-06, the AO had disallowed Rs. 17.42 crores under interest expenditure and Rs. 60.90 lakhs under managerial/administrative expenses. The FAA deleted the interest expenditure disallowance, citing no evidence of borrowed funds being used for investments. The FAA restricted the administrative/managerial expenses disallowance to 1% of the dividend income. The Tribunal upheld the FAA's decision, finding no legal infirmity in the order.5. Addition under Section 41(1) Concerning Sales Tax Liability:For AY 2006-07, the AO added the difference between the sales tax liability and the net value paid under a government scheme to the assessee's income under section 41(1). The FAA deleted this addition, following the Special Bench decision in 'Sulzer India Ltd. v. JCIT,' which held that the deferred sales tax liability treated as a loan could not be taxed under section 41(1). The Tribunal upheld the FAA's decision, agreeing that the surplus accrued from the prepayment of sales tax liability at net present value was a capital receipt and not taxable.Conclusion:The Tribunal's order resulted in the appeals filed by the assessee being partly allowed, while the appeals of the Assessing Officers were dismissed. The Tribunal's decisions were pronounced in the open court on 13th April 2016.