ITAT ruling: Disallowance on dividend-earning scrip, book profit reassessment, sticky loans, depreciation

Assistant Commissioner of Income-tax, Circle-4 (1), Kolkata Versus Jay Shree Tea & Industries Ltd.

Assistant Commissioner of Income-tax, Circle-4 (1), Kolkata Versus Jay Shree Tea & Industries Ltd. - TMI Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act read with Rule 8D.
2. Addition of notional interest on sticky loans.
3. Disallowance of depreciation on assets purchased from NABARD withdrawals.
4. Computation of book profit under Section 115JB of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income-tax Act read with Rule 8D:
The Revenue appealed against the deletion of disallowance under Section 14A read with Rule 8D by the CIT(A). The AO had disallowed Rs. 3,91,07,732/- as interest expenses and Rs. 51,23,700/- as other expenses, totaling Rs. 4,42,31,432/-. The CIT(A) deleted the disallowance following the ITAT's decision in the assessee's own case for AY 2008-09 and the Delhi High Court's decision in CIT Vs. Holcim India Pvt. Ltd. The ITAT noted that the issue was covered in favor of the assessee by earlier decisions, confirming that the assessee had sufficient own funds to make the investments, thus no disallowance under Rule 8D(2)(ii) was warranted. However, regarding Rule 8D(2)(iii), the ITAT directed a disallowance at 0.5% on the dividend-earning scrip, partially allowing the Revenue's appeal.

2. Addition of notional interest on sticky loans:
The AO added Rs. 75,00,000/- as notional interest on a sticky loan of Rs. 5,00,00,000/-, arguing that the assessee followed the mercantile system of accounting. The CIT(A) deleted the addition, citing the ITAT's decision in the assessee's own case. The ITAT upheld this deletion, referencing the jurisdictional High Court's decision that had accepted the non-recognition of interest on sticky loans in similar circumstances.

3. Disallowance of depreciation on assets purchased from NABARD withdrawals:
The AO disallowed 40% of the depreciation claimed on assets purchased from NABARD withdrawals, following the practice from earlier years. The CIT(A) deleted the disallowance based on the ITAT's previous decision in the assessee's favor. The ITAT upheld this deletion, referring to the jurisdictional High Court's decision that confirmed the allowance of depreciation on such assets.

4. Computation of book profit under Section 115JB of the Income-tax Act:
The AO added Rs. 4,43,94,734/- to the book profit under Section 115JB on account of disallowance under Section 14A. The CIT(A) deleted this addition, following the ITAT's earlier decision. The ITAT noted that the disallowance under Section 14A cannot be equated with disallowance under Section 115JB, as the latter is a self-contained code. The ITAT referenced the jurisdictional High Court's decision, which mandated independent computation under clause (f) to Explanation-1 of Section 115JB. The ITAT restored the matter to the AO for recalculating the book profit, allowing the Revenue's appeal for statistical purposes.

Conclusion:
The ITAT's decision resulted in a partial allowance of the Revenue's appeal regarding Rule 8D(2)(iii) disallowance and the computation of book profit under Section 115JB. The appeals concerning notional interest on sticky loans and depreciation on assets purchased from NABARD withdrawals were dismissed, favoring the assessee. The judgment underscored the importance of adhering to established precedents and the specific provisions of tax laws.