2018 (2) TMI 1342 - AT - Income Tax

Challenges in Tax Provisions Upheld, Partially Allowed, and Remanded for Further Consideration

Universal Cables Ltd. Versus DCIT, Circle-6 (1), Kolkata And Vice-Versa

The disallowance of leave encashment provisions under Section 43B(f) for Assessment Years 2010-11 and 2011-12 was upheld but remanded to the AO for ... Exemption of claim for Entry Tax - nature of receipt - revenue or capital receipt - Held that:- The issue is covered against the assessee by the decision of Co-ordinate Bench of this Tribunal in the assessee’s own case for the assessment year 2008-09 and 2009-10 [2015 (5) TMI 650 - ITAT KOLKATA] wherein held the assessee could not establish that how this is equivalent to the Industrial Investment Promotion Assistance, the scheme of Govt. of Madhya Pradesh. We find no infirmity in the order of CIT(A) and the same is confirmed. - Decided against assessee. Disallowance u/s 14A r.w.r. 8D - Held that:- CIT(A) had rightly placed reliance on the Co-ordinate Bench of this Tribunal in the case of REI Agro Limited [2013 (5) TMI 582 - ITAT KOLKATA], wherein it was held that only dividend bearing investments were to be considered for the purpose of making disallowance under rule 8D. Accordingly, we do not find any infirmity in the order of Ld. CIT(A) in this regard. While considering the dividend bearing investments , we further hold that strategic investment also should be excluded as admittedly the same were not made with a view to earn dividend income but rather made for the purpose of protecting the business interests arising out business compulsions and accordingly, to be treated as investment made as a measure of commercial expediency. This strategic investment would accordingly to be outside the ambit of the disallowance u/s 14A of the Act read with Rule 8D of the Rules. Disallowance of balance portion of additional depreciation - plant and machinery were put to use for a period of less than 180 days - during the year under appeal i.e. assessment year 2010-11, the assessee claimed further depreciation (i.e. balance 10% which is 50% of 20%) on this plant and machinery on the plea that it is entitled to get the balance depreciation this year also - Held that:- Decided in assessee’s own case for the assessment year 2007-08 [2015 (8) TMI 407 - ITAT KOLKATA] the benefits conferred on the assessee by way of incentive provision cannot be taken away by adopting an implied meaning to second proviso to section 32(1)(ii) of the Act. Since the second proviso to section 32(1)(ii) does not expressly prohibit the allowance of the balance 50% depreciation in the subsequent year, second proviso to section 32(1)(ii) shall not be interpreted to mean that it impliedly restrict the additional depreciation to be allowed in the subsequent assessment year. The assessee now is entitled for 50% additional depreciation, because in the year in which the machinery was first put to use the assessee claimed only 50% of additional depreciation for the reason that the same was put to use for less than 180 days, in this assessment year for the balance of depreciation. See Birla Corporation Limited Vs. DCIT [2014 (12) TMI 436 - ITAT KOLKATA] - Decided in favour of assessee. Issues Involved:1. Disallowance of leave encashment.2. Taxability of Entry Tax.3. Disallowance under Section 14A read with Rule 8D.4. Disallowance of balance portion of additional depreciation.1. Disallowance of Leave Encashment:Assessment Year 2010-11:The assessee, a company engaged in manufacturing and selling cables, capacitors, and optic fibers, made a provision for leave encashment of Rs. 1,04,69,715/-. The AO disallowed this provision under Section 43B(f) of the Income Tax Act, as it was not paid within the due date for filing the return of income. The CIT(A) upheld this disallowance. The assessee argued that the provision for leave encashment is neither a statutory liability nor a contingent liability and should not be disallowed under Section 43B(f). The matter was remanded to the AO to pass orders based on the outcome of the Supreme Court's decision in the Exide Industries Ltd case.Assessment Year 2011-12:A similar provision for leave encashment of Rs. 34,12,071/- was made and disallowed on the same grounds. The issue was also remanded to the AO for adjudication based on the Supreme Court's decision.2. Taxability of Entry Tax:Assessment Year 2010-11:The AO treated the entry tax exemption of Rs. 1,05,47,005/- availed by the assessee under a scheme by the Madhya Pradesh government as a revenue receipt and taxed it as business income. The CIT(A) upheld this decision. The assessee argued that the exemption should be treated as a capital receipt. The Tribunal, following a previous decision in the assessee's own case for earlier years, dismissed the assessee's appeal, treating the entry tax exemption as a revenue receipt.Assessment Year 2011-12:The AO treated the entry tax exemption of Rs. 1,42,91,630/- as a revenue receipt. The Tribunal dismissed the assessee's appeal, following the same reasoning as for the assessment year 2010-11.3. Disallowance under Section 14A read with Rule 8D:Assessment Year 2010-11:The AO made a disallowance of Rs. 92,10,000/- under Rule 8D, considering the assessee's exempt dividend income. The CIT(A) deleted the disallowance under Rule 8D(2)(ii) as the assessee had sufficient own funds and no borrowed funds were used for investments. The CIT(A) also restricted the disallowance under Rule 8D(2)(iii) to dividend-bearing investments only. The Tribunal upheld the CIT(A)'s decision, noting that strategic investments should be excluded from the disallowance calculation.Assessment Year 2011-12:The AO made a similar disallowance of Rs. 1,05,32,000/-. The CIT(A) provided similar relief as for the previous year. The Tribunal upheld the CIT(A)'s decision, following the same reasoning.4. Disallowance of Balance Portion of Additional Depreciation:Assessment Year 2010-11:The assessee claimed the balance 10% of additional depreciation on plant and machinery installed in the previous year. The AO disallowed this, granting only regular depreciation. The CIT(A) allowed the claim, following the Tribunal's decision in the assessee's own case for earlier years. The Tribunal upheld the CIT(A)'s decision, allowing the balance additional depreciation.Assessment Year 2011-12:The AO disallowed the balance additional depreciation of Rs. 1,29,62,039/-. The CIT(A) allowed the claim, and the Tribunal upheld this decision, following the same reasoning as for the assessment year 2010-11.Conclusion:- I.T.A. No. 1766/Kol/2016 (Assessment Year 2010-11): Partly allowed for statistical purposes.- I.T.A. No. 1767/Kol/2016 (Assessment Year 2011-12): Partly allowed for statistical purposes.- I.T.A. No. 2142/Kol/2016 (Assessment Year 2010-11): Dismissed.- I.T.A. No. 2143/Kol/2016 (Assessment Year 2011-12): Dismissed.Order pronounced in the Court on 14.02.2018.