2018 (10) TMI 1036 - AT - Income Tax

Tribunal rules in favor of assessee in tax appeals, allows cross objections, and fully grants appeal for specific years.

The Tribunal dismissed all five Revenue appeals, partly allowed the assessee's cross objections for AY 2009-10 and 2011-12, and appeals for AY 2012-13 and ... Addition being undervaluation of closing stock - assessee had followed exclusive method of accounting - applicability of Section 145A - it is a case of the Revenue that the element of excise duty/CENVAT etc. would represent part of the closing stock of the assessee in terms of Section 145A but it is the case of the assessee on the other hand that Section 145A has no application to the facts of the case - Held that:- Referring to case of the assessee that assessee follows exclusive method of accounting for valuation of inventory and therefore, entire exercise would be tax neutral CIT(A) has examined the issue on facts and binding judicial precedents and concluded the issue in favour of the assessee. In the absence of any impact on the profitability of the assessee per se due to method of accounting followed, we do not see any error in the conclusion drawn by the CIT(A). - decided against revenue. Addition u/s 40(a)(ia) on account of non deduction of TDS - reimbursement of expenditure - Held that:- In the absence of any income element in the payment made, the obligation to deduct tax at source on such payment do not arise and consequently, provisions of Section 40(a)(ia) of the Act do not come into play in view of the decision in the case of CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. [2014 (4) TMI 235 - GUJARAT HIGH COURT]. The law that a mere reimbursement does not require to deduction [2014 (4) TMI 235 - GUJARAT HIGH COURT] - decided against revenue Addition towards amortization of lease hold land - claim of the assessee was not accepted by the AO on the ground that there is no provision of claim of the amount written off/amortized against the lease hold land in the Income Tax Act - Held that:- Amortization is an accounting term that refers to the process of allocating the cost of an asset over a period of time and hence it is nothing else than depreciation. The allowability of costs towards amortization of lease hold land is in question. Having heard the rival submissions on the issue, we find that the CIT(A) has rightly appreciated the facts in perspective and concluding the issue in favour of the assessee in the light of decision of Hon’ble Gujarat High Court in the case of DCIT vs. Sun Pharmaceuticals Industries Ltd. [2009 (3) TMI 587 - GUJARAT HIGH COURT]. Denial of deduction u/s 80G - Revenue has denied the deduction on the ground that only one of the division of Adani Engery Ltd. got merged with the assessee company - Held that:- The Adani Energy Ltd. continued to exist as a separate entity. We do not see any rational in such line of reasoning. Where donation has been paid by a division which was demerged from the other company and merged with assessee’s company, there is no warrant to deny the deduction in the hands of the resulting company (assessee). It shall however be open to the AO to verify as to whether the demerged company (Adani Energy Ltd.) has already claimed deduction or not. Where the assessee proves to the satisfaction of the AO that no deduction has been claimed under s.80G of the Act by the demerged company towards the amount in question, the AO shall allow the deduction in the hands of the assessee company after verifying the receipts etc. in accordance with law. Disallowances of preliminary expenses claimed under s.35D - Held that:- In view of the issue being covered in favour of the assessee by the order of the co-ordinate bench for earlier year [2016 (1) TMI 940 - ITAT AHMEDABAD], we find merit in the claim of the aforesaid amount under s.35D of the Act. The assessment order is thus directed to be modified in respect of the aforesaid issue. Eligibility of depreciation of goodwill arising on demerger - Held that:- Where the AO has readjusted the quantum of depreciation in the subsequent assessment year, the assessee is within its legitimate rights to be granted depreciation in AY 2009-10 as per the figures worked by the AO himself. We do not see any perceptible reason for not admitting such claim of the assessee. We also find bonafides in the plea of the assessee for raising new claim on account of depreciation by way of additional ground at this belated stage. The order for the AY 2012-13 was passed on 29.03.2015. By virtue of this order, the assessee came to know about the revision in the claim of depreciation concerning AY 2012-13. By that time, the order of the CIT(A) dated 13.12.2013 was already passed. Therefore, the assessee was incapacitated to put forward such new claim towards depreciation on goodwill amounting to ₹ 5,57,63,315/- for which relevant facts are duly available on record in the light of the decision of Hon’ble Supreme court in the case of Goetze (India) Ltd. vs. CIT [2006 (3) TMI 75 - SUPREME COURT] & NTPC vs. CIT [1996 (12) TMI 7 - SUPREME COURT]. - Decided in favour of assessee. Disallowance in respect of employees’ contribution to Provident Fund - Held that:- In view of the decision of in the case of CIT vs. GSRTC [2014 (1) TMI 502 - GUJARAT HIGH COURT], the issue is decided against the assessee. Addition u/s 14A - Held that:- We find that the CIT(A) has deleted the disallowance of interest expenditure after taking account the interest free capital available at the disposal of the assessee by way of own funds as well as set off available on account of interest income available at the disposal of the assessee. We find that the action of the CIT(A) is on sound footing in tune with binding judicial precedents including the decision in Nirma Credit Capital Pvt. Ltd. (2017 (9) TMI 485 - GUJARAT HIGH COURT). Thus, the action of the CIT(A) cannot be assailed on this score. The CIT(A) on the other hand upheld the disallowance of administrative expenditure as quantified in terms of rule 8D(2)(iii) of the Rules. The assessee has failed to provide any justification for interference with the order of the CIT(A). Issues Involved:1. Applicability of Section 145A for valuation of closing stock.2. Disallowance under Section 40(a)(ia) for non-deduction of TDS.3. Amortization of leasehold land.4. Deduction under Section 80G for donations.5. Disallowance of preliminary expenses under Section 35D.6. Depreciation on goodwill arising from demerger.7. Disallowance under Section 14A read with Rule 8D.8. Disallowance of employee contributions to Provident Fund and ESI.Issue-wise Detailed Analysis:1. Applicability of Section 145A for Valuation of Closing Stock:The Revenue argued that the assessee should include excise duty/CENVAT in the closing stock valuation as per Section 145A. The assessee contended that it followed an exclusive method of accounting, making the exercise tax-neutral. The Tribunal upheld the CIT(A)’s decision, stating no error in the exclusive method of accounting and its revenue-neutral effect. Judicial precedents supported this view, leading to the dismissal of the Revenue’s appeal on this ground.2. Disallowance under Section 40(a)(ia) for Non-Deduction of TDS:The Revenue challenged the deletion of Rs. 2.57 Lakhs disallowed under Section 40(a)(ia) for non-deduction of TDS on a payment to Adani Power Ltd. The Tribunal found the payment to be a reimbursement of actual expenses without an income element, thus not requiring TDS deduction. The CIT(A)’s decision was upheld, and the Revenue’s ground was dismissed.3. Amortization of Leasehold Land:The Revenue disputed the deletion of Rs. 39.77 Lakhs for amortization of leasehold land. The Tribunal agreed with the CIT(A) that amortization, akin to depreciation, is allowable based on the Gujarat High Court’s decision in DCIT vs. Sun Pharmaceuticals Industries Ltd. The Tribunal found no infirmity in the CIT(A)’s reasoning and dismissed the Revenue’s ground.4. Deduction under Section 80G for Donations:The assessee’s cross objection involved the denial of a Rs. 3,71,271 deduction under Section 80G due to the donation receipt being in the name of Adani Energy Ltd., which had merged with the assessee. The Tribunal directed the AO to verify if the demerged company had claimed the deduction. If not, the AO should allow the deduction to the assessee, leading to the ground being allowed for statistical purposes.5. Disallowance of Preliminary Expenses under Section 35D:The assessee contested the disallowance of Rs. 10,28,028 under Section 35D. The Tribunal noted that similar claims in earlier years were decided in favor of the assessee. Following the precedent, the Tribunal allowed the deduction, directing the modification of the assessment order.6. Depreciation on Goodwill Arising from Demerger:The assessee raised an additional ground for depreciation on goodwill arising from demerger, which the AO had recalculated from the appointed date. The Tribunal allowed the additional ground, recognizing the assessee’s right to claim depreciation based on the AO’s own working. The Tribunal found the assessee’s claim bonafide and directed the AO to allow the depreciation accordingly.7. Disallowance under Section 14A Read with Rule 8D:The Tribunal upheld the CIT(A)’s deletion of disallowance of interest expenditure under Rule 8D(2)(ii), finding the CIT(A)’s reasoning sound and supported by judicial precedents. However, the Tribunal upheld the disallowance of administrative expenses under Rule 8D(2)(iii), as the assessee failed to justify interference with the CIT(A)’s order.8. Disallowance of Employee Contributions to Provident Fund and ESI:The Tribunal dismissed the assessee’s ground concerning the disallowance of employee contributions to Provident Fund and ESI, following the jurisdictional High Court’s decision in CIT vs. GSRTC, which ruled against the assessee on this issue.Conclusion:The Tribunal dismissed all five Revenue appeals, partly allowed the assessee’s cross objections for AY 2009-10 and 2011-12, and appeals for AY 2012-13 and 2013-14, and fully allowed the appeal for AY 2010-11.