2019 (2) TMI 278 - AT - Income Tax

Appeal partly allowed with key issues restored for fresh consideration. Emphasis on real income taxation and procedural fairness.

Tata Motors Ltd. Versus Dy. Commissioner of Income Tax, Circle–2 (3), Mumbai

Tata Motors Ltd. Versus Dy. Commissioner of Income Tax, Circle–2 (3), Mumbai - TMI Issues Involved:1. Disallowance under section 14A of the Income Tax Act.2. Disallowance of expenditure incurred for the issue of Foreign Currency Convertible Notes (FCCN).3. Disallowance of provision for warranty expenses.4. Disallowance of write-back provisions for doubtful debt.5. Non-consideration of disallowance of interest on refund under section 244A.6. Disallowance of deduction claimed on account of excise duty paid on vehicles held as stock-in-trade.7. Transfer pricing adjustment on interest received from Associated Enterprises (AE).8. Adjustment made to book profit computed under section 115JB.9. Short grant of TDS credit.Issue-wise Detailed Analysis:1. Disallowance under section 14A of the Income Tax Act:The assessee challenged the disallowance made under section 14A. The Assessing Officer initially applied rule 8D, which was not applicable for the assessment year. The DRP directed the Assessing Officer to compute the disallowance at 5% of the exempt income. The Tribunal, consistent with its earlier decisions in the assessee's own case, directed the Assessing Officer to restrict the disallowance to 1% of the exempt income.2. Disallowance of expenditure incurred for the issue of Foreign Currency Convertible Notes (FCCN):The Assessing Officer disallowed the expenditure considering it as capital in nature. The Tribunal, following its earlier decision in the assessee's own case and the decision of the Hon’ble Rajasthan High Court in Secure Meters Ltd., held that the expenditure is allowable irrespective of the convertible nature of the debentures and deleted the addition.3. Disallowance of provision for warranty expenses:The Assessing Officer disallowed the provision for warranty expenses as the liability had not crystallized during the year. The DRP directed verification based on the Rotork India Pvt. Ltd. case. The Tribunal noted no specific disallowance in the final assessment order and dismissed the issue as academic.4. Disallowance of write-back provisions for doubtful debt:The Assessing Officer disallowed the claim as it was not made through a revised return. The Tribunal restored the issue to the Assessing Officer for verification, emphasizing that real income should be taxed and technical grounds should not prevent genuine claims.5. Non-consideration of disallowance of interest on refund under section 244A:The Assessing Officer rejected the claim due to non-filing of a revised return. The Tribunal directed the Assessing Officer to verify the facts and correctly compute the addition based on the actual interest granted.6. Disallowance of deduction claimed on account of excise duty paid on vehicles held as stock-in-trade:The Assessing Officer disallowed the claim as it was not allowed in earlier years. The Tribunal directed the Assessing Officer to verify the claim in light of the decisions in Berger Paints and Bharat Petroleum Corporation Ltd. and decide accordingly.7. Transfer pricing adjustment on interest received from Associated Enterprises (AE):The Transfer Pricing Officer determined the arm's length price at LIBOR Plus 200 basis points, rejecting the assessee's bench marking. The Tribunal restored the issue for fresh consideration, directing the Assessing Officer to re-examine the bench marking and the applicability of the RBI Master Circular.8. Adjustment made to book profit computed under section 115JB:The Assessing Officer made adjustments in the final assessment order, which were not in the draft assessment order. The Tribunal held that such adjustments are invalid as they were not in conformity with the DRP's directions. Additionally, adjustments for provision of wealth tax and disallowance under section 14A were not permissible under Explanation-1 to section 115JB.9. Short grant of TDS credit:The Tribunal directed the Assessing Officer to verify the facts and grant the actual credit for TDS.Conclusion:The appeal was partly allowed, with several issues restored to the Assessing Officer for fresh consideration and verification. The Tribunal emphasized the need for real income taxation and adherence to procedural fairness.