Tribunal: Mixed Ruling on Tax Disallowances & Deductions

The Tribunal partly allowed the assessee's appeal by directing the disallowance of 2% of dividend income under Section 14A, thus partially sustaining the disallowance under Rule 8D(2)(iii). Additionally, the Tribunal allowed the deduction under Section 80IA for captive consumption, dismissed the revenue's challenge on the deletion of proportionate interest disallowance under Rule 8D(2)(ii), upheld the deletion of disallowance for slow and non-moving stock provision, and treated the expenditure on "Project Disha" and "Project Eagle" as revenue expenditure following relevant case laws. The revenue's appeal was dismissed.

---

---

Issues Involved:
1. Disallowance under Section 14A r.w. Rule 8D(2)(iii)
2. Deduction under Section 80IA for captive consumption
3. Deletion of disallowance of proportionate interest under Section 14A r.w. Rule 8D(2)(ii)
4. Deletion of disallowance for provision for slow and non-moving stock
5. Treatment of expenditure on "Project Disha" and "Project Eagle" as revenue expenditure

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A r.w. Rule 8D(2)(iii):
The assessee earned a dividend income of Rs. 4,45,56,700 and claimed it as exempt under section 10(34) of the Act. The tax auditor quantified the disallowance under section 14A at Rs. 14,973, but the AO calculated it at Rs. 1,04,82,000, with Rs. 40.84 lakhs under Rule 8D(2)(ii) and Rs. 63.98 lakhs under Rule 8D(2)(iii). The CIT(A) deleted the disallowance under Rule 8D(2)(ii) but sustained the disallowance under Rule 8D(2)(iii). The Tribunal, following its earlier decision, directed the AO to disallow 2% of the dividend income under section 14A, thus partly allowing the grounds.

2. Deduction under Section 80IA for captive consumption:
The assessee claimed a deduction of Rs. 71,69,109 under section 80IA for its power generation plant, which was used for captive consumption. The AO disallowed the claim, stating that savings from captive consumption could not be considered as sales. The CIT(A) upheld the AO's decision. However, the Tribunal, referring to various case laws including the assessee's own case for the previous year, directed the AO to allow the deduction under section 80IA, thus allowing the grounds raised by the assessee.

3. Deletion of disallowance of proportionate interest under Section 14A r.w. Rule 8D(2)(ii):
The revenue challenged the deletion of Rs. 40,84,000 disallowance under Rule 8D(2)(ii) by the CIT(A). The Tribunal, considering that the assessee's own funds were more than the investments yielding exempt income, upheld the CIT(A)'s decision following the jurisdictional High Court's rulings, thus dismissing the revenue's ground.

4. Deletion of disallowance for provision for slow and non-moving stock:
The AO disallowed Rs. 59,97,000 for provision for slow and non-moving stock, stating it was unascertainable. The CIT(A) deleted the addition, noting the assessee's consistent accounting method and the nature of the stock. The Tribunal affirmed the CIT(A)'s decision, finding no infirmity in the order and rejecting the revenue's ground.

5. Treatment of expenditure on "Project Disha" and "Project Eagle" as revenue expenditure:
The AO treated the expenditure on "Project Disha" and "Project Eagle" as capital expenditure, allowing only 25% of it. The CIT(A) directed the AO to treat the entire expenditure as revenue, following the Supreme Court's decision in Alembic Chemical Works vs. CIT and other relevant case laws. The Tribunal upheld the CIT(A)'s decision, agreeing that the expenditure was incurred for improving business efficiency without creating any new asset, thus dismissing the revenue's grounds.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the revenue was dismissed. The Tribunal's orders were pronounced in the open court on 8th Nov 2017.

---