2017 (6) TMI 1146 - AT - Income Tax

Tribunal partially allows appellant's appeal, dismisses Revenue's appeal, upholds deductions, directs re-adjudication.

The Tribunal partly allowed the appellant's appeal for statistical purposes and dismissed the Revenue's appeal. The disallowance of deductions under ... Take closing WDV of the assets in the preceding year as the opening of WDV in the present year - Held that:- Respectfully following the decision of Co-ordinate Bench for Asst. Year 2007-08 we are of the considered opinion that this is settled position of law that the closing WDV of the preceding year has to be adopted as opening WDV of the present year and we direct the Assessing Officer to pass necessary order in the light of above discussion after providing reasonable opportunity of being heard to the assessee. Levy of interest under section 234B - Held that:- Interest u/s 234B/234C would not have been charged on the assessee on the increase in total income resulting from retrospective amendment to section 43(6) of the Act. Accordingly, this ground of assessee is allowed. Addition u/s 41 - Held that:- For application of such Section 41 (1) of the Act, therefore, what is primarily required is that there is allowance or deduction made by the assessee in respect of loss, expenditure or trading liability incurred by the assessee. In the present case, as held by the CIT [A] as well as the Tribunal, what the assessee did was only make a provision for a possible expenditure or liability. It was thus neither an allowance nor deduction, in any case, not for any loss, expenditure or trading liability incurred by the assessee. In that view of the matter, the Tribunal correctly held that Section 41 (1) of the Act would not apply. Further, we have noticed that CIT (A) has permitted the Assessing Officer to re-verify whether any deduction towards such provision was allowed in the assessment years 2003-04 to 2007-08. He further provided that if any amount of such provision is found allowed, for the said years to that extent, the provision on written back is to be taxed under Section 41 (1) of the Act. This has also been confirmed by the Tribunal. This is one more ground to convince us not to interfere. No reason to interfere with the order of ld. CIT(A) deleting the addition made u/s 41(1) of the Act towards provisions written back. Accordingly, this ground of Revenue is dismissed. Issues Involved:1. General nature of the order.2. Disallowance of deduction under Section 36(1)(viii).3. Disallowance of grants to unions and federations under Section 36(1)(xii).4. Depreciation on Rail Milk Tankers.5. Disallowance under Section 14A.6. Disallowance of prior period expenditure.7. Non-admission of additional grounds.8. Taxation of interest on project funds.9. Disallowance under Section 40A(9).10. Depreciation on closing WDV.11. Interest under Sections 234B and 234C.12. Credit for TDS.13. Addition under Section 41(1) for provision write-backs.14. Addition under Section 41(1) for prior period income.Detailed Analysis:1. General Nature of the Order:The first ground raised by the appellant was of a general nature and did not require adjudication.2. Disallowance of Deduction under Section 36(1)(viii):The appellant claimed a deduction under Section 36(1)(viii) which was disallowed by the Commissioner of Income Tax (Appeals) [CIT(A)] following the ITAT's order for the assessment year (AY) 2003-04. The Tribunal upheld the disallowance, noting that the appellant did not meet the conditions of Section 36(1)(viii) as the milk production did not amount to manufacture and the appellant did not have the required capital.3. Disallowance of Grants to Unions and Federations under Section 36(1)(xii):The appellant's claim for deduction of grants given to various unions and federations was disallowed. The Tribunal restored the issue back to the Assessing Officer (AO) for re-adjudication, directing verification of whether the grants were from own funds and whether the funds were utilized as per the conditions.4. Depreciation on Rail Milk Tankers:The appellant claimed higher depreciation on Rail Milk Tankers, which was disallowed by the CIT(A). The appellant did not press this ground, and it was dismissed as not pressed.5. Disallowance under Section 14A:The appellant's claim that no disallowance under Section 14A was required was partly accepted. The Tribunal observed that the appellant had sufficient interest-free funds and no nexus was proven between borrowed funds and tax-free investments. The Tribunal reduced the disallowance to Rs. 10 lakhs from Rs. 2,63,25,906.6. Disallowance of Prior Period Expenditure:The appellant conceded a part of the disallowance, and the Tribunal sustained a disallowance of Rs. 1,99,148. For the remaining amount of Rs. 3,03,740, the Tribunal allowed it as prior period expenditure, noting that it was a genuine expenditure incurred in FY 1997-98.7. Non-Admission of Additional Grounds:The Tribunal admitted the additional grounds raised by the appellant regarding the non-admission by the CIT(A).8. Taxation of Interest on Project Funds:The Tribunal followed its earlier decision and held that the interest income from the North Kerala Dairy Project funds was taxable.9. Disallowance under Section 40A(9):The Tribunal upheld the disallowance of Rs. 3,28,745 being the contribution made to the Employees' Recreation Trust, following its earlier decision.10. Depreciation on Closing WDV:The Tribunal directed the AO to allow depreciation on the closing Written Down Value (WDV) of the block of assets for the immediately preceding year, following its earlier decision.11. Interest under Sections 234B and 234C:The Tribunal held that interest under Sections 234B and 234C should not be charged on the increase in total income resulting from retrospective amendment to Section 43(6), following the judgments of the Calcutta and Uttaranchal High Courts.12. Credit for TDS:The Tribunal remitted the issue of TDS credit claimed by the appellant back to the AO for verification, directing that due cognizance be given to the necessary details including the indemnity bond filed by the appellant.13. Addition under Section 41(1) for Provision Write-Backs:The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 34,93,06,747 made under Section 41(1) for provision write-backs, following its earlier decision and the judgment of the Jurisdictional High Court.14. Addition under Section 41(1) for Prior Period Income:The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 8,62,604 made under Section 41(1) for prior period income, following its earlier decision and noting that the amounts pertained to periods when the appellant was not a taxable entity.Conclusion:The Tribunal partly allowed the appellant's appeal for statistical purposes and dismissed the Revenue's appeal.