2020 (6) TMI 369 - AT - Income Tax

Appeal Outcomes: Interest Expenses & Depreciation Allowed, COVID-19 Delay Accepted, Section 80-IA(4) Decision Upheld.

Gujarat State Energy Generation Ltd. Versus ACIT Gandhinagar Circle, Gandhinagar And Jt. Commissioner of Income Tax (OSD) Versus Gujarat State Energy Generation Limited

The Tribunal partially allowed the assessee's appeal and dismissed the Revenue's appeal. Key outcomes included: no disallowance of interest expenses under ... Disallowance u/s 14A read with rule 8D - HELD THAT:- Admittedly the own fund of the assessee exceeds the amount of investment. Accordingly presumption can be drawn that the borrowed fund was not utilised for such investments. Accordingly there cannot be any disallowance of any interest expenses in view of PCIT v. Shreno Ltd.[2018 (12) TMI 1145 - GUJARAT HIGH COURT] held that if the assessee can demonstrate availability of surplus interest free funds for making investment generating tax free income, disallowance under Section 14A of the Act would not be justified. Regarding the disallowance of administrative expenses we find that there was no argument advanced at the time of hearing on such disallowance. Accordingly we confirm the addition towards the administrative expenses. Hence the ground of appeal of the assessee is partly allowed and the ground of appeal of the revenue is dismissed. Disallowance on account of prior period expenses - HELD THAT:- DR at the time of hearing has also not brought anything on record contrary to the argument advanced by the learned AR. Hence respectfully following the principle laid down in the own case of the assessee by this tribunal, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Set off of the unabsorbed depreciation against the income of the current year - HELD THAT:- We find merit in the argument advanced by the assessee. Accordingly we set aside the issue to the file of the AO with direction to allow the set off of the unabsorbed depreciation of the earlier years after considering the appeal of the assessee for the assessment year 2009-10. Hence the ground of appeal of the assessee is allowed for the statistical purposes. Addition for the advance against depreciation - HELD THAT:- It is the case of the assessee that such advances to be adjusted with the power so supplied in the future. We, thus, having regard to the facts and circumstances of the case find no infirmity in the order passed by the Learned C1T(A) in making such direction upon the Ld. AO with the guidelines framed therein in order to grant relief to the assessee if permissible under the law, so as to warrant interference. Hence, we confirm the order passed by the Ld. C1T(A). - Decided against assessee. Disallowance of depreciation on account of change in accounting method - whether the assessee can claim depreciation on the capital spares under the provisions of section 32 of the Act, instead of amortizing the same - HELD THAT:- The assessee can claim the depreciation as per the provisions of section 32 of the Act. The assessee is entitled for the depreciation on the capital spares at the rate of 15% whereas there is no provision under the statute to amortize the capital spares over the period of 14 years. Thus we are of the view that the assessee has changed the accounting policies with respect to the capital spares within the provisions of law. Thus, such change does not contravene any of the provisions of section 32 - Accordingly we hold that there is no infirmity in the action of the assessee for changing its method of depreciation with respect to capital spares. we hold that the order of the learned CIT (A) is not sustainable. Accordingly, we set aside the same and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed. Disallowance while computing the profit u/s 115JB - computation of Income under section 14A r.w.r. 8D - HELD THAT:- We hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT v. Jayshree Tea Industries Ltd. [2014 (11) TMI 1169 - CALCUTTA HIGH COURT] We note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income under the clause (f) to Explanation-1 of Sec. 115JB of the Act subject to the condition that the disallowance shall not exceed the amount of disallowance determined by the authorities below under the provisions of section 14A r.w.r. 8D of Income Tax Rules. Hence, the ground of appeal of the assessee is partly allowed. Deduction under section 80-IA (4) - HELD THAT:- Assessee did not claim the deduction under section 80-IA (4) of the Act, for the reason that there was no positive income. However, in our considered view if there any positive income in the hands of the assessee on account of the disallowances made by the AO in the assessment proceedings then the assessee in our considered view should be entitled for the deduction under section 80-IA(4) of the Act, as per the provisions of law. As such we do not find any infirmity in the direction of the learned CIT (A). Hence the ground of appeal of the revenue is dismissed. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT:- Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited [2020 (5) TMI 359 - ITAT MUMBAI] Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Disallowance of prior period expenses.3. Set off of unabsorbed depreciation.4. Addition for advance against depreciation.5. Disallowance of depreciation on account of change in accounting method.6. Computation of profit under Section 115JB.7. Claim under Section 80-IA(4).Issue-wise Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The assessee contested the partial confirmation of the disallowance of Rs. 87,544 by the CIT(A), while the Revenue appealed against the deletion of Rs. 13,058. The Tribunal noted that the assessee's own funds exceeded the investments, presuming that borrowed funds were not used for such investments. Citing the Gujarat High Court's ruling in PCIT v. Shreno Ltd., the Tribunal held that no disallowance of interest expenses was justified. However, the administrative expense disallowance of Rs. 25,000 was confirmed due to lack of argument against it. The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed.2. Disallowance of prior period expenses:The AO disallowed Rs. 17,59,880 claimed as prior period expenses, which was upheld by the CIT(A) due to lack of substantiation by the assessee. The Tribunal, referencing its own decision in a similar case for the previous year, allowed the assessee's appeal, directing the AO to delete the addition.3. Set off of unabsorbed depreciation:The assessee sought to set off unabsorbed depreciation of Rs. 2,82,96,976 against current year income, pending the outcome of an appeal for the previous year. The Tribunal set aside the issue to the AO, instructing to allow the set off based on the appeal's outcome, thus allowing the assessee's appeal for statistical purposes.4. Addition for advance against depreciation:The assessee's appeal against the addition of Rs. 25,42,00,000 for advance against depreciation was dismissed, following the Tribunal's earlier decision in the assessee's own case for the previous year. The CIT(A)'s direction to verify and adjust the advance against future bills was upheld.5. Disallowance of depreciation on account of change in accounting method:The AO disallowed Rs. 1,69,46,634 due to a change in accounting policy for capital spares. The CIT(A) upheld this, but the Tribunal found the change lawful under Section 32, allowing the depreciation claim and directing the AO to delete the addition.6. Computation of profit under Section 115JB:The AO added Rs. 1,00,602 disallowed under Section 14A to the book profit under Section 115JB, confirmed by the CIT(A). The Tribunal, referencing the Special Bench decision in ACIT v. Vireet Investment Pvt. Ltd., held that disallowances under Section 14A should not affect book profit computation under Section 115JB. It directed an ad-hoc disallowance of 1% of exempt income, ensuring it does not exceed the original disallowance.7. Claim under Section 80-IA(4):The CIT(A) allowed the assessee's claim for deduction under Section 80-IA(4) if the income turned positive due to AO's disallowances. The Revenue's appeal against this was dismissed, as the Tribunal found the CIT(A)'s direction lawful.Conclusion:The assessee's appeal was partly allowed for statistical purposes, while the Revenue's appeal was dismissed. The Tribunal extended the pronouncement period due to COVID-19 disruptions, aligning with judicial precedents and practical considerations.