2017 (6) TMI 391 - AT - Income Tax

Tribunal rules in favor of assessee, dismissing disallowance & upholding set off

Adani Agro Private Limited Versus Assistant Commissioner of Income Tax, And Deputy Commissioner of Income Tax, Circle 1, Ahmedabad, And Vice-Versa

Adani Agro Private Limited Versus Assistant Commissioner of Income Tax, And Deputy Commissioner of Income Tax, Circle 1, Ahmedabad, And Vice-Versa - TMI Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Computation of book profit under Section 115JB.3. Set off of speculation loss.Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The assessee challenged the disallowance of Rs. 88,21,450 made by the Assessing Officer (AO) under Section 14A of the Income Tax Act. The AO had rejected the assessee's suo motu disallowance of Rs. 10 lakhs and made a disallowance based on Rule 8D. The AO disallowed Rs. 25,27,200 under Rule 8D(2)(ii) and Rs. 62,94,250 under Rule 8D(2)(iii), totaling Rs. 88,21,450.The Tribunal noted that the assessee had sufficient interest-free funds, and thus, no part of the interest payment could be attributed to tax-exempt investments. It was established that disallowance under Section 14A should be based on net interest, and since there was a net interest credit, no disallowance could be made. The Tribunal referred to various precedents, including the cases of Morgan Stanley Securities India Pvt Ltd Vs ACIT and ACIT Vs Champion Commercial Co Ltd, to support its decision.Regarding the computation under Rule 8D(2)(ii), the Tribunal found that the CIT(A)'s computation, although seemingly incorrect based on the formula, was in line with the correct legal position. The Tribunal highlighted the incongruity in the definition of variable 'A' in Rule 8D(2)(ii) and concluded that interest expenses directly attributable to taxable income should also be excluded from the computation.For Rule 8D(2)(iii), the Tribunal found that the total administrative expenses incurred by the assessee were Rs. 30,22,749, but the disallowance computed under the formula was Rs. 62,94,250, which was unreasonable. The Tribunal accepted the assessee's suo motu disallowance of Rs. 10,00,000 as reasonable and deleted the additional disallowance made by the AO.2. Computation of Book Profit under Section 115JB:The assessee contested the addition of Rs. 88,21,450 as disallowance under Section 14A while computing book profit under Section 115JB. The Tribunal noted that this issue was covered in favor of the assessee by the jurisdictional High Court's judgment in the case of CIT Vs Alembic Ltd. Accordingly, the Tribunal upheld the assessee's plea and directed the AO to grant the resultant relief.3. Set off of Speculation Loss:The AO appealed against the CIT(A)'s decision to partly allow the set off of speculation loss. The AO had disallowed the set off of speculation profits against brought forward speculation losses from the assessment year 2001-02, citing the four-year carry-forward limit under Section 73(4).The Tribunal referred to a coordinate bench decision in the case of Virendra Kumar Jain Vs ACIT, which allowed the set off based on the law as it stood when the loss was incurred, permitting an eight-year carry forward. The Tribunal found that the AO's reliance on the Supreme Court's decision in Reliance Jute Industries Ltd Vs CIT was misplaced, as the correct precedent was the Supreme Court's decision in CIT Vs Shah Sadiq & Sons, which upheld the vested right to carry forward losses.The Tribunal concluded that the CIT(A) had correctly allowed the set off of the speculation loss and dismissed the AO's appeal.Assessment Year 2006-07:For the assessment year 2006-07, the AO's appeal concerning the set off of speculation profits against speculation losses incurred before four years was similarly dismissed. The Tribunal applied its findings from the assessment year 2008-09 to this case as well, upholding the CIT(A)'s order.Conclusion:The Tribunal allowed the assessee's appeal and dismissed the AO's appeals for both assessment years. The pronouncement was made in the open court on May 31, 2017.