2019 (7) TMI 595 - AT - Income Tax

Assessee's Claims Partially Allowed: Amortization, Disallowance, Prior Period Expenditure

Bharat Petroleum Corporation Ltd. Versus Additional Commissioner of Income Tax, Range-2 (1), Mumbai

Bharat Petroleum Corporation Ltd. Versus Additional Commissioner of Income Tax, Range-2 (1), Mumbai - TMI Issues Involved:1. Disallowance of amortization of premium on leasehold land.2. Disallowance under Section 14A of the Income Tax Act.3. Classification of loss on sale of oil bonds as capital loss versus business loss.4. Taxation of interest income from oil bonds as business income.5. Disallowance of prior period expenditure.Issue-wise Detailed Analysis:1. Disallowance of Amortization of Premium on Leasehold Land:The assessee challenged the disallowance of Rs. 1,75,51,156/- being premium on leasehold land, arguing it should be treated as revenue expenditure. The Tribunal referenced a similar case, Bharat Petroleum Corporation Ltd. vs. Additional CIT, where the premium paid for long-term lease was deemed capital in nature and thus not allowable as revenue expenditure. However, the Tribunal allowed the assessee's claim, citing the Bombay High Court judgment in CIT-3 vs. Reliance Industrial Infrastructure Ltd., which held that such expenditures, if paid for carrying on business, should be considered revenue in nature. The Tribunal concluded that the leasehold premium amortized by the assessee corporation was in the nature of rent and thus allowable as revenue expenditure.2. Disallowance under Section 14A:The assessee contested the disallowance made by the AO under Section 14A related to interest on tax-free securities and dividends. The Tribunal noted that the issue was covered by its own previous decision in the assessee's case for AY 2004-05. It was established that if the assessee had substantial interest-free funds, it could be presumed that investments in tax-free income-yielding assets were made from these funds, thus no part of the interest expenditure could be related to such investments. The Tribunal found the AO's estimation of disallowance at 10% of the exempt income whimsical and unsupported by a proper satisfaction process as required by law. Consequently, the Tribunal set aside the disallowance under Section 14A.3. Classification of Loss on Sale of Oil Bonds:The assessee argued that the loss on sale of oil bonds should be treated as a business loss rather than a capital loss. The Tribunal referenced its earlier decisions for AY 2006-07 and 2007-08, where similar grounds were restored to the file of the CIT(A) for verification and decision based on earlier assessments. Following judicial consistency, the Tribunal restored this ground to the CIT(A) with similar directions.4. Taxation of Interest Income from Oil Bonds:The assessee contended that interest income from oil bonds should be taxed as business income. The Tribunal noted that this issue was identical to a ground in the assessee's appeal for AY 2006-07, which had been restored to the CIT(A) for a fresh decision. Following the principle of consistency, the Tribunal restored this ground to the CIT(A) for a fresh decision.5. Disallowance of Prior Period Expenditure:The assessee challenged the disallowance of prior period expenditure. The Tribunal referred to its earlier decision for AY 2002-03, where it was held that if the turnover of the assessee was substantial and the amount of prior period expenses was minimal, such expenses should be allowed. Following this precedent, the Tribunal allowed the ground in favor of the assessee.Conclusion:The Tribunal allowed the grounds raised by the assessee on the issues of amortization of premium on leasehold land, disallowance under Section 14A, and prior period expenditure. The issues related to the classification of loss on sale of oil bonds and taxation of interest income from oil bonds were restored to the CIT(A) for a fresh decision, following judicial consistency. The appeals were partly allowed in terms indicated above.