2018 (6) TMI 743 - AT - Income Tax

Tax Tribunal Rules in Favor of Assessee on Various Issues Including Section 14A Adjustments

D.C.I.T. (OSD), Ci rcle-8, Ahmedabad Versus M/s. Torrent Cable Limited, And Vice-Versa

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross objection. The adjustments made under Section 14A for computing book ... Disallowance u/s 14A while computing the book profit/income u/s. 115JB - MAT - Held that:- As in case of Arvind Ltd. vs. DCIT [2015 (7) TMI 118 - ITAT AHMEDABAD] as held that the AO was not entitled to tinker with book profits contemplated under S.115JB towards disallowance made under s. 14A of the Act - Decided in favor of assessee. Additions made u/s 145A on account of unutilized CENVAT/MODVAT credit - Held that:- CIT(A) has correctly concluded the issue in favour of the assessee also having regard to the fact that effect of provisions of Section 145A would be nil in the case of assessee. We find that the CIT(A) has analyzed the issue objectively - Decided in favor of assessee. Disallowance of commission expenses - Held that:- CIT(A) has objectively dealt with the issue and found that commission is relatable to the sales. It was claimed on behalf of the Assessee that the commission has been paid by account payee cheques. Similar commissions have been paid in the earlier year as well which has been duly accepted. The CIT(A) however has rejected the commission payment of ₹ 8.7 Lakhs on the ground that the liability is only provisional and not ascertained liability - we do not see any reason to interfere with order of CIT(A). Set off and carry forward of unabsorbed depreciation - Held that:- The case shall be dealt in accordance with the provisions of Section 32(2) of the Act as amended by the Finance Act, 2001 and not by the provisions of Section 32(2) of the Act as it stood before the said amendment - thus the issue is decided in favor of assessee following the judgement in case of GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX [2012 (8) TMI 714 - GUJARAT HIGH COURT] - appeal of revenue is dismissed. Additions made on account of reconciliation of interest as per data available in AIR - Held that:- We consider it expedient to set aside the issue back to the file of the AO for re-examination of facts. The assessee shall provide the reconciliation of difference in question and shall support its claim of taxability in one or the other year. The AO shall adjudicate the issue in accordance with law after proper opportunity given to the assessee in this regard - allowed for statistical purpose. Disallowance under s.14A read with Rule 8D - Held that:- There is no warrant for making disallowance in view of long line of judicial precedent. However, we do not see any merit for setting aside the disallowance towards administrative and general expenses pleaded on behalf of the assessee. The presence of administrative involvement qua the investment activity cannot be ruled out in view of the statutory presumption in this regard, under Rule 8D(2)(iii) of the IT Rules. While the assessee gets relief towards disallowance to the extent of ₹ 39,502/- attributable to interest expense, we decline to interfere with the balance disallowance of ₹ 5,68,828/- made under Rule 8D of the IT Rules. Addition towards under valuation of closing stock - Held that:- Having regard to the quantum of stock, the addition merely based on a stock statement filed with bank is not at all justified. Due to smallness of the difference, the bonafides of the assessee is rather implicit. Therefore, we cannot approve a narrow and pedantic approach of the Revenue in this regard. The addition on this score is therefore directed to be deleted. Issues Involved:1. Deletion of addition disallowed under Section 14A while computing book profit under Section 115JB.2. Deletion of addition made under Section 145A.3. Restriction of disallowance of commission expenses.4. Allowance of set off and carry forward of depreciation.5. Validity of the assessment order.6. Reconciliation of interest income from banks.7. Disallowance under Section 14A read with Rule 8D.8. Addition due to undervaluation of closing stock.9. Levy of interest under Sections 234A, 234B, and 234C.10. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:Issue 1: Deletion of Addition Disallowed under Section 14A while Computing Book Profit under Section 115JBThe Tribunal found that this issue is covered in favor of the assessee by the decision of the Special Bench in the case of ACIT vs. Vireet Investment Pvt. Ltd. and other judicial precedents, including the Hon'ble Gujarat High Court's decision in Alembic Ltd. The Tribunal directed the AO to delete the adjustments made under Section 14A while computing book profit under Section 115JB. Thus, ground no.1 of the Revenue’s appeal was dismissed.Issue 2: Deletion of Addition Made under Section 145AThe Tribunal upheld the CIT(A)’s decision to delete the addition of Rs. 2,90,28,909 made by the AO under Section 145A, which pertained to unutilized CENVAT/MODVAT credit. The CIT(A)’s conclusion was in line with the principles laid down by the Hon'ble Gujarat High Court in CIT vs. Bell Granito Ceremica Ltd. and Pr.CIT vs. Oracle Granito Pvt. Ltd. Thus, ground no.2 of the Revenue’s appeal was dismissed.Issue 3: Restriction of Disallowance of Commission ExpensesThe CIT(A) restricted the disallowance of commission expenses to Rs. 8.7 lakhs as against Rs. 35.53 lakhs made by the AO. The Tribunal found that the CIT(A) had objectively dealt with the issue and found the commission relatable to sales, paid by account payee cheques, and accepted in earlier years. The Tribunal saw no reason to interfere with the CIT(A)’s order, thus dismissing ground no.3 of the Revenue’s appeal.Issue 4: Allowance of Set Off and Carry Forward of DepreciationThe Tribunal found that the controversy raised was settled in favor of the assessee by the Hon'ble Gujarat High Court in General Motors (I) Pvt. Ltd. vs. Dy.CIT. The Tribunal upheld the CIT(A)’s decision allowing the set off and carry forward of unabsorbed depreciation, thus dismissing ground no.4 of the Revenue’s appeal.Issue 5: Validity of the Assessment OrderThe assessee’s cross objection challenging the validity of the assessment order was dismissed by the CIT(A) on the grounds that adequate opportunity of hearing was provided. The Tribunal did not find any specific adjudication necessary for this ground.Issue 6: Reconciliation of Interest Income from BanksThe CIT(A) sustained the addition of Rs. 10,66,376 on account of interest income from banks due to differences in amounts as per AIR and the books. The Tribunal set aside this issue back to the AO for re-examination, allowing the assessee to provide reconciliation and supporting claims, thus allowing ground no.2 of the cross objection for statistical purposes.Issue 7: Disallowance under Section 14A Read with Rule 8DThe AO disallowed Rs. 6,08,330 under Rule 8D, which included Rs. 39,502 on account of interest expenses and Rs. 5,68,828 on account of administrative expenses. The Tribunal found merit in the assessee’s plea regarding substantial own funds and disallowed the interest component. However, it upheld the administrative expenses disallowance, thus partly allowing ground no.3 of the cross objection.Issue 8: Addition Due to Undervaluation of Closing StockThe AO added Rs. 7,85,266 due to discrepancies between the closing stock value in the balance sheet and the stock statement given to the bank. The Tribunal found the difference minor considering the total stock value and directed deletion of the addition, thus allowing ground no.4 of the cross objection.Issue 9: Levy of Interest under Sections 234A, 234B, and 234CThe Tribunal found these grounds general and consequential, not requiring separate adjudication.Issue 10: Initiation of Penalty Proceedings under Section 271(1)(c)The Tribunal found these grounds general and consequential, not requiring separate adjudication.Conclusion:The appeal of the Revenue was dismissed, while the cross objection filed by the assessee was partly allowed. This order was pronounced in Open Court on 11/06/2018.