2021 (4) TMI 1018 - AT - Income Tax

Tax Tribunal Decisions: Appeals allowed, book profit upheld, expenses disallowed deleted, penalties removed

The Tribunal allowed the appeals for the assessment year 2012-13 and partly allowed the appeal for the assessment year 2010-11. The Tribunal upheld the ... Computation of book profits under section 115JB - treatment of income appearing in Form 26AS but not in books - disallowance under section 14A read with Rule 8D - capital versus revenue character of shifting/transportation expenses - unexplained cash credit and evidentiary burden under section 68 - levy of penalty under section 271(1)(c)Computation of book profits under section 115JB - treatment of income appearing in Form 26AS but not in books - Addition to book profits under section 115JB of amount shown in Form 26AS but not recorded in assessee's books. - HELD THAT: - The Tribunal examined the AO's addition of Rs. 9,76,447/- to book profits on the basis that receipts shown in Form 26AS from M/s. Shell India Markets Pvt. Ltd. were not reflected in the assessee's books. The assessee contended the sums were paid directly to the owners' association for maintenance and therefore were not its income and not required to be recorded. The Tribunal held that where books are not prepared in accordance with Part II and III of Schedule VI to the Companies Act, the AO is empowered to adjust net profit by making additions; the decision in M/s. Apollo Tyres relied upon by the assessee was inapplicable because that decision turned on books being in accordance with Schedule VI and approved by the Board. On the facts the Tribunal found the receipts were under-reported and that the AO was entitled to recompute book profits by adding the unreported income. [Paras 3]Addition to book profits on account of income shown in Form 26AS but not in books is sustained.Disallowance under section 14A read with Rule 8D - computation of book profits under section 115JB - Whether disallowance made under section 14A read with Rule 8D is to be added to book profits under section 115JB. - HELD THAT: - The AO had added the disallowance computed under section 14A read with Rule 8D to book profits. The Tribunal considered precedents including the ITAT Special Bench decision in ACIT v. Vireet Investments (P) Ltd. and High Court decisions which held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resort to the computation contemplated under section 14A read with Rule 8D. Applying those authorities, and following its own reasoning in the assessee's assessment year 2010-11, the Tribunal concluded the AO erred in adding the section 14A disallowance to book profits and directed deletion of that adjustment. [Paras 4]Addition of disallowance under section 14A (r.w. Rule 8D) to book profits under section 115JB deleted.Capital versus revenue character of shifting/transportation expenses - Classification of factory shifting/transportation expenses as capital or revenue for assessment year 2012-13. - HELD THAT: - The AO treated transportation expenses incurred in shifting the factory as capital in nature, disallowing the expenditure. The Tribunal, after considering that transportation expenses for shifting assets, files and administrative records do not confer an enduring benefit, held such expenses are revenue in nature and not capital. The Tribunal therefore directed deletion of the addition made by the AO. [Paras 7]Transportation expenses for shifting the factory held to be revenue in nature; addition deleted.Unexplained cash credit and evidentiary burden under section 68 - Whether the amount of Rs. 1,50,000 credited by a director to the company's current account is an unexplained cash credit under section 68. - HELD THAT: - The AO added the amount under section 68 treating it as unexplained cash credit. The assessee produced documentary evidence including the creditor's financial statements and the creditor's income-tax return to establish identity, genuineness and creditworthiness. The Tribunal held that once the assessee discharged the initial burden by adducing such evidence, the burden shifted to Revenue to rebut it. The AO had not made further observations to disprove the evidentiary material and had relied primarily on the form of receipt (cash). In absence of positive findings to the contrary, the Tribunal found the AO erred in making the addition and directed its deletion. [Paras 8]Addition under section 68 in respect of the director's loan deleted.Disallowance under section 14A read with Rule 8D - computation of book profits under section 115JB - Applicability of the conclusion on section 14A disallowance to assessment year 2012-13. - HELD THAT: - The Tribunal applied the ratio and reasoning adopted in the assessee's own case for assessment year 2010-11, following the Special Bench and High Court authorities, and held that the section 14A disallowance computed under Rule 8D should not be added to book profits under section 115JB in assessment year 2012-13 as well. The AO was directed to delete the adjustment. [Paras 9]Section 14A (r.w. Rule 8D) disallowance not to be added to book profits for assessment year 2012-13; addition deleted.Levy of penalty under section 271(1)(c) - unexplained cash credit and evidentiary burden under section 68 - Sustainability of penalty under section 271(1)(c) where the underlying addition under section 68 has been deleted. - HELD THAT: - The Tribunal observed that the addition on which the penalty under section 271(1)(c) was levied had been deleted in the quantum appeal. Since the foundational addition no longer survived, the penalty, being consequential on that addition, could not be sustained. The Tribunal therefore directed deletion of the penalty. [Paras 12]Penalty under section 271(1)(c) deleted as the corresponding addition under section 68 was deleted.Final Conclusion: Appeals disposed: for Assessment Year 2010-11 the appeal is partly allowed - the AO's addition for income shown in Form 26AS to book profits is sustained but the addition of disallowance under section 14A (r.w. Rule 8D) to book profits is deleted. For Assessment Year 2012-13 both appeals are allowed: factory shifting expenses disallowed as capital are restored as revenue (addition deleted), the unexplained cash credit under section 68 is deleted, disallowance under section 14A (r.w. Rule 8D) is not to be added to book profits, and the penalty under section 271(1)(c) is deleted. Issues Involved:1. Addition to book profit under Section 115JB of the Income Tax Act.2. Disallowance of expenditure under Section 14A of the Income Tax Act.3. Factory shifting expenditure.4. Unexplained cash credit under Section 68 of the Income Tax Act.5. Levy of penalty under Section 271(1)(c) of the Income Tax Act.Issue-wise Detailed Analysis:1. Addition to Book Profit under Section 115JB:The primary issue here was the addition of Rs. 9,76,447/- to the book profit computed under Section 115JB due to the difference in income reported in Form 26AS and the books of accounts. The Assessing Officer (AO) added this amount, received from M/s. Shell India Markets Pvt. Ltd., as it was not included in the books of the assessee. The assessee argued that this amount was maintenance paid directly to M/s. Jayant Tech Park Owners Association and not its income. However, the AO did not accept this explanation and held that when credit for TDS is taken, the corresponding income must be offered to tax. The Tribunal upheld the AO's decision, stating that the books of accounts were not prepared in accordance with Part II and III of Schedule VI to the Companies Act, 1956, and thus the AO was justified in recomputing the book profit.2. Disallowance of Expenditure under Section 14A:The AO disallowed Rs. 4,84,571/- under Section 14A by invoking Rule 8D of the Income Tax Rules, 1962, and added this to the book profit computed under Section 115JB. The Tribunal, however, found that the computation under clause (f) of Explanation 1 to Section 115JB(2) should be made without resorting to the computation as contemplated under Section 14A read with Rule 8D. This view was supported by the ITAT Special Bench in the case of ACIT vs. Vireet Investments (P) Ltd., and the decisions of the Hon’ble Madras High Court and Karnataka High Court. Consequently, the AO was directed to delete the adjustment made to the book profit towards disallowance of expenses under Section 14A.3. Factory Shifting Expenditure:For the assessment year 2012-13, the AO added Rs. 1,80,436/- incurred towards shifting the factory, treating it as capital expenditure. The assessee contended that this was revenue expenditure as it did not provide any enduring benefit. The Tribunal agreed with the assessee, stating that transportation expenses for shifting the factory do not give any enduring benefit and thus should not be treated as capital expenditure. The AO was directed to delete this addition.4. Unexplained Cash Credit under Section 68:The AO added Rs. 1,50,000/- as unexplained cash credit under Section 68, which was received from a director, Shri Muthaiyah. The assessee provided evidence, including the financial statements of the director, to prove the identity, genuineness, and creditworthiness of the transaction. The Tribunal found that the AO did not provide sufficient reasons to reject these evidences and held that once the initial burden of proof is discharged by the assessee, the burden shifts to the Revenue. The addition was thus directed to be deleted.5. Levy of Penalty under Section 271(1)(c):The penalty under Section 271(1)(c) was levied in respect of the addition made towards unexplained cash credit of Rs. 1,50,000/-. Since the quantum appeal resulted in the deletion of this addition, the Tribunal held that the penalty could not survive. The AO was directed to delete the penalty levied under Section 271(1)(c).Conclusion:The appeals for the assessment year 2012-13 were allowed, and the appeal for the assessment year 2010-11 was partly allowed. The Tribunal provided detailed reasoning for each issue, ensuring that the AO's decisions were either upheld or reversed based on the merits of the case and relevant legal precedents.