2020 (11) TMI 345 - HC - Income Tax

Court decision favors assessee on business advances, disallows Section 14A disallowance, permits expense allocation.

The Commissioner of Income-Tax, Bangalore Versus The Addl. Commissioner of Income-Tax Range-11, Bangalore. Versus M/s. Gokaldas Images Pvt. Ltd.,

The Commissioner of Income-Tax, Bangalore Versus The Addl. Commissioner of Income-Tax Range-11, Bangalore. Versus M/s. Gokaldas Images Pvt. Ltd., - [2020] ... Issues Involved:1. Treatment of Rs. 62,84,681 advanced to M/s. Hinduja Realtors Pvt. Ltd.2. Treatment of Rs. 7,00,00,000 advanced to M/s. Hinduja Investments Pvt. Ltd.3. Disallowance under Section 14A and its addition to Book Profits under Section 115JB.4. Allocation of common expenses among units.5. Set-off of EOU profits against non-EOU losses and brought forward depreciation.Issue-wise Detailed Analysis:1. Treatment of Rs. 62,84,681 advanced to M/s. Hinduja Realtors Pvt. Ltd.:The Tribunal held that the amount advanced by the assessee to M/s. Hinduja Realtors Pvt. Ltd., a sister concern, for payment of Municipal Taxes without charging any interest, should be treated as business expenditure. The assessee had an understanding with Hinduja Realtors Pvt. Ltd. for business transactions related to exports to the USA and for the improvement of a new building under a lease agreement. The Commissioner of Income Tax (Appeals) and the Tribunal affirmed that the amount was advanced for business purposes and commercial expediency. The High Court upheld this finding, stating that the concurrent findings of fact do not suffer from any infirmity and thus, answered this issue against the revenue.2. Treatment of Rs. 7,00,00,000 advanced to M/s. Hinduja Investments Pvt. Ltd.:The Commissioner of Income Tax (Appeals) held that the advance of Rs. 7 Crores to Hinduja Investments Pvt. Ltd. for acquiring land for a textile SEZ did not involve any commercial expediency or business transaction as the land was neither acquired nor any SEZ was set up. The Tribunal reversed this finding, noting that the sum was an opening balance as of 01.04.2007, indicating it was accepted in past assessments. However, the Tribunal also noted that the assessee did not provide evidence for the business purpose or commercial expediency of the advance. The High Court found this reversal inappropriate and remitted the matter to the Tribunal for fresh consideration, thus answering this issue for reconsideration.3. Disallowance under Section 14A and its addition to Book Profits under Section 115JB:The Tribunal, relying on the Supreme Court decision in APOLLO TYRES, held that the Assessing Officer cannot tamper with the profits as per the profit and loss account prepared under the Companies Act while determining book profits under Section 115JB, except as provided in Explanation 1 to Section 115JB. Thus, disallowances under Section 14A for normal income computation cannot be read into Section 115JB for MAT computation. The High Court upheld this view, stating there is no express provision in clause (f) of Explanation 1 to Section 115JB to include such disallowances. This issue was answered against the revenue.4. Allocation of common expenses among units:The Commissioner of Income Tax (Appeals) allowed the allocation of expenses related to non-export oriented units, such as legal and professional fees, rates and taxes, insurance, managerial remuneration, and miscellaneous expenses. The Tribunal affirmed this finding, noting that the expenses exclusively pertained to non-export oriented units. The High Court upheld this decision, answering this issue against the revenue.5. Set-off of EOU profits against non-EOU losses and brought forward depreciation:The Tribunal applied the ratio laid down in the YOKOGAWA case, which was upheld by the Supreme Court, allowing the set-off of EOU profits against non-EOU losses and brought forward depreciation. The High Court noted that the revenue did not dispute the applicability of the YOKOGAWA decision to the present case and found the decision in M/S KARLE INTERNATIONAL PVT. LTD. inapplicable as it involved different facts. This issue was answered against the revenue.Conclusion:The High Court quashed the Tribunal's finding regarding the Rs. 7 Crores advanced to M/s. Hinduja Investments Pvt. Ltd. and remitted the matter for fresh consideration. All other issues were decided in favor of the assessee and against the revenue. The appeal was disposed of accordingly.