2018 (1) TMI 932 - AT - Income Tax

Tribunal allows carry forward of unabsorbed depreciation, remands disallowance issues.

Assistant Commissioner of Income Tax- 16 (1), Mumbai Versus Indusind Media & Communication Ltd. And Vice-Versa

Assistant Commissioner of Income Tax- 16 (1), Mumbai Versus Indusind Media & Communication Ltd. And Vice-Versa - TMI Issues Involved:1. Set-off of brought forward unabsorbed depreciation beyond eight years.2. Disallowance under Section 14A read with Rule 8D.3. Treatment of loan processing fees as capital expenditure.Issue-wise Detailed Analysis:1. Set-off of Brought Forward Unabsorbed Depreciation Beyond Eight Years:The Revenue contested the CIT(A)'s decision allowing the carry forward and set-off of unabsorbed depreciation from AY 1996-97 to AY 2001-02 beyond eight years, citing Section 32(2) as substituted by the Finance Act, 2001. The Revenue argued that the provision was substantive and prospectively applicable from AY 2002-03 onwards. They also contended that reliance on the Gujarat High Court's decision in General Motors (I) Pvt. Ltd. Vs DCIT was misplaced, as the Supreme Court had kept the question of law open while dismissing the SLP filed by the Revenue.The assessee, engaged in the business of cable television and satellite channels, had brought forward unabsorbed depreciation aggregating to Rs. 38,90,30,345/- for AY 1996-97 to AY 2000-2001. The AO denied the set-off based on the lapse of eight years. However, the CIT(A) allowed the set-off, relying on the Gujarat High Court's decision in General Motors India Pvt. Ltd. Vs. DCIT, which held that unabsorbed depreciation available on 1st April 2002 would be governed by the amended Section 32(2) and could be carried forward without any limit.Upon appeal, the Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by the Tribunal's order in the assessee's own case for AY 2009-10 and supported by the Gujarat High Court's judgment and CBDT Circular No. 14 of 2001. The Tribunal dismissed the Revenue's appeal.2. Disallowance Under Section 14A Read with Rule 8D:The assessee challenged the disallowance of Rs. 5,34,72,365/- made under Section 14A read with Rule 8D, both in the normal computation and book profits under Section 115JB. The assessee argued that the investments were mainly in shares of unlisted joint ventures, whose capital gains would be fully taxable, and thus no disallowance was warranted.The AO disallowed the amount, and the CIT(A) upheld the disallowance, noting that the assessee derived exempt income of Rs. 52.02 Lacs and had significant investments. The CIT(A) also observed that the assessee did not refute the findings of the Tax Auditor.The Tribunal, considering the Delhi Tribunal (Special Bench) decision in ACIT Vs. Vireet Investment (P.) Ltd., held that disallowance under Section 14A should not be adjusted while computing book profits under Section 115JB. The Tribunal remanded the quantum disallowance issue back to the AO for reconsideration, directing the assessee to justify its stand.3. Treatment of Loan Processing Fees as Capital Expenditure:The assessee contested the disallowance of Rs. 60 Lacs as capital expenditure, arguing that the loan processing fees should be treated as revenue expenditure. The AO disallowed the claim, relying on the Supreme Court's decision in Goetz India Private Limited.The CIT(A) upheld the disallowance, noting that the loan was used to repay existing unsecured loans utilized for investments, which were capital in nature.The Tribunal remanded the issue back to the AO for re-evaluation, directing the assessee to substantiate its claim. The Tribunal emphasized that the nature and purpose of the loan were crucial in determining its allowability.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes, remanding the issues of disallowance under Section 14A and loan processing fees back to the AO for reconsideration.