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

The appeal was partly allowed, with several issues restored to the Assessing Officer for fresh consideration and verification. The Tribunal emphasized the ... Disallowance u/s 14A - Held that:- It is legally accepted position that the provisions of rule 8D is not applicable to the impugned assessment year. Therefore, what is necessary to examine is, whether the disallowance made @ 5% of the exempt income earned during the year is reasonable. Notably, while deciding identical issue in assessee’s own case for assessment year 1999–2000 to 2002–03, [2017 (9) TMI 723 - ITAT MUMBAI] the Tribunal has restricted the disallowance under section 14A of the Act to 1% of the exempt income earned during the year. Thus we direct the Assessing Officer to compute the disallowance under section 14A of the Act @ 1% of the exempt income earned during the previous year. This ground is partly allowed. Disallowance of expenditure incurred for issue of Foreign Currency Convertible Notes (FCCN) - Nature of expenditure - AO has disallowed assessee’s claim on the reasoning that FCCNs issued by the assessee are in the nature of convertible debentures, hence, expenditure related to issue of such debenture is capital in nature - Held that:- As decided in assessee's own case irrespective of the fact whether the debenture issued is convertible or non–convertible, it is in the nature of loan. Therefore, any expenditure incurred in relation to issuance of such debenture is allowable as expenditure. There being no material difference in facts in the impugned assessment year, the aforesaid decision of the Co–ordinate Bench clearly applies to the facts of the present appeal. Therefore, respectfully following the decision of the Co–ordinate Bench referred to above, we delete the addition made by the Assessing Officer. Disallowance of provision for warranty expenses - Held that:- We have considered rival submissions and perused material on record. Notably, no specific disallowance has been made by the Assessing Officer on this account in the final assessment order. Therefore, the issue is of mere academic nature. In view of the aforesaid, we do not intend to delve further into the issue. Accordingly, this ground is dismissed. Disallowance of write back provisions for doubtful debt - AO disallowed assessee’s claim simply on the ground that it was not made by way of a revised return of income - Held that:- in course of assessment proceedings, the assessee did make the claim by placing relevant facts to indicate that write back of provision offered to tax was inadvertently made at a higher figure instead of actual amount accruing as income to the assessee. As per the settled principle of law, real income of the assessee has to be taxed. If by mistake or inadvertence the assessee has offered more than the actual income, assessee’s claim has to be considered on the basis of facts and material brought on record. Therefore, the departmental authorities, in our view, were not justified in rejecting assessee’s claim on technical ground. Accordingly, we restore this issue to the Assessing Officer for verifying assessee’s claim. Disallowance of interest on refund u/s 244A - Held that:- t is the claim of the assessee that on the basis of intimation issued under section 143(1) of the Act the assessee has offered the amount of ₹ 44,89,065, as income instead of ₹ 24,81,284 actually granted to the assessee. We direct the Assessing Officer to verify the facts relating to the claim of the assessee and decide the issue after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Disallowance of deduction of excise duty paid on vehicle held as stock–in–trade as on 31st March 2006 - specific claim of the assessee that since the assessee has actually paid the excise duty on vehicles lying in stock, it is allowable under section 43B - Held that:- AO has disallowed assessee’s claim simply on the reasoning that such claim was not allowed in the earlier assessment years. He has not discussed anything about the applicability of the ratio laid down in the decisions of Berger Paints (2004 (2) TMI 4 - SUPREME COURT) and Bharat Petroleum Corporation Ltd. [2001 (3) TMI 20 - BOMBAY HIGH COURT]. If as per the ratio laid down in the aforesaid decisions, assessee’s claim is allowable, it cannot be disallowed merely for the reason that such deduction was never allowed to the assessee earlier. Therefore, we direct the Assessing Officer to decide the issue following the ratio laid down in the decisions referred to above. Transfer pricing adjustment - rate at which the assessee should have charged interest on the loan advanced to its AE viz. TTUS - Held that:- Various workings furnished by the learned Authorised Representative in the written notes as well as the submissions made justifying the bench marking of the interest charged at LIBOR Plus 15 basis points requires re–consideration keeping in view the fact, whether the rate provided in the RBI Master Circular dated 1st July 2005 can at all be applicable as in case of the assessee it is a loan advanced and not loan availed. Since, the aforesaid aspects have not been properly examined and various workings furnished in the written notes have not been looked into by the departmental authorities, we are inclined to restore the issue to the Assessing Officer for fresh consideration. Adjustment made to book profit computed under section 115JB - Held that:- Any adjustment to the income of the assessee which is not in conformity with the directions of the DRP is invalid and not in strict compliance to the provisions of section 144C(13) of the Act. The very fact that section 144C(13) of the Act mandates the Assessing Officer to complete the assessment without affording any opportunity of being heard to the assessee indicates that while completing the final assessment the Assessing Officer has to implement the directions of the DRP only. If the Assessing Officer does not make any adjustment under section 115JB of the Act in the draft assessment order and only makes such adjustment in the final assessment order, the assessee is deprived of challenging such adjustment before the DRP. Therefore, the right to objection conferred on the assessee under the provisions of section 144C of the Act is taken away which cannot be the intention of the legislature. AO could not have made the adjustment to the book profit computed under section 115JB of the Act in the final assessment order. Adjustment made on account of provision of wealth tax and disallowance under section 14A of the Act could not have been made by the Assessing Officer while computing the book profit under section 115JB of the Act, since such adjustments are not permitted under Explanation–1 to section 115JB of the Act. Short grant of TDS credit - Held that:- We direct the Assessing Officer to verify the facts and grant actual credit for TDS. 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.