2022 (7) TMI 1086 - AT - Income Tax

Tribunal Grants Assessee's Appeals, Rejects Revenue's Claims

The Tamilnadu Newsprint and Papers Ltd. Versus The ACIT, Corporate Circle -3 (1), Chennai

The Tribunal allowed the appeals filed by the assessee for statistical purposes and dismissed the appeals filed by the Revenue. The Tribunal's decisions ... Disallowance u/s 14A r.w.r. 8D - Suo -motto addition made by assessee - Addition of expenses relatable to exempt income by invoking the provisions of section 14A - HELD THAT:- As noted that the assessee has own interest free funds in the shape of share capital and Reserves & Surplus to the tune of Rs.97068.63 lakhs and non-current investment i.e., investment giving rise to exempt income is only Rs.114.05 lakhs. It means that the assessee has more interest free funds available with it for making investment in instruments giving rise to exempt income. Neither the AO nor the CIT(A) has recorded any finding that the interest bearing funds have been invested in the instruments giving rise to exempt income. Once the AO has not established that the interest bearing funds have gone into these investments which give exempt income, no disallowance can be made in case the assessee has more interest free funds available with it and claims that the investment is out of those funds which give rise to exempt income. The presumption in view of HDFC Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] clearly goes in favour of the assessee. Hence, respectfully following Hon’ble Bombay High Court’s decision, we allow this ground of assessee’s appeal. Receipt of carbon credit - nature of receipt - capital or revenue receipt - HELD THAT:- As this issue is fully covered in favour of assessee and against Revenue by the decision of Hon’ble Madras High Court in the case of Chemplast Sanmar Ltd. [2021 (12) TMI 713 - MADRAS HIGH COURT] wherein the Hon’ble Madras High Court has categorically held that carbon credit is in the nature of capital receipts and it cannot be added to the return of income of the assessee or it cannot be part of profit & loss account and in any case, it is part of profit & loss account, then it can be claimed as deduction. Accordingly, we reverse the orders of lower authorities on this issue and allow this ground of assessee’s appeal. Nature of expenditure - Addition of forex forward premium charges - capital or revenue expenditure - HELD THAT:- As none of the authorities below had adjudicated this issue or gone into the details filed before us by assessee now i.e., page Nos.1 to 3 in Annexure ‘A’. The assessee is directed to file these details before AO and the AO will go into these details and decide this issue accordingly. Hence, this issue of assessee’s appeal is allowed for statistical purposes. Disallowance of expenses relatable to Corporate Social Responsibility (CSR) - HELD THAT:- We noted that this issue stand covered in favour of assessee and against Revenue by the decision of Infosys Technologies Ltd. [2013 (7) TMI 451 - KARNATAKA HIGH COURT] as held that CSR expenditure is our expenditure which facilitates the business hence allowable expenditure under section 37. Issues Involved:1. Disallowance of expenses related to exempt income under Section 14A.2. Disallowance of Carbon Credit receipts.3. Disallowance of forex forward premium charges.4. Disallowance of Corporate Social Responsibility (CSR) expenses.5. Disallowance of commission expenses paid to non-residents without TDS deduction under Section 195.Issue-wise Detailed Analysis:1. Disallowance of Expenses Related to Exempt Income under Section 14A:The primary issue was the disallowance of expenses related to exempt income by invoking Section 14A read with Rule 8D(2)(ii). The assessee argued that it had sufficient interest-free funds to cover its investments, and the interest-bearing funds were not used for investments generating exempt income. The Tribunal found that the assessee had substantial interest-free funds and no evidence was provided by the AO to prove otherwise. Citing the Bombay High Court's decision in CIT vs. HDFC Ltd., the Tribunal ruled in favor of the assessee, allowing the appeal on this ground.2. Disallowance of Carbon Credit Receipts:The issue was whether carbon credit receipts should be considered capital receipts and thus not taxable. The AO and CIT(A) had disallowed the deduction under Section 80IA. The Tribunal referred to the Madras High Court's decision in PCIT vs. Chemplast Sanmar Ltd., which held that carbon credit receipts are capital in nature and not taxable. Consequently, the Tribunal reversed the lower authorities' decisions and allowed the assessee's appeal.3. Disallowance of Forex Forward Premium Charges:The AO had disallowed forex forward premium charges, treating them as capital expenditure under Section 43A. The assessee argued that these were revenue expenses related to hedging foreign currency loans for importing raw materials. The Tribunal noted that the lower authorities did not thoroughly examine the details and remanded the issue back to the AO for a fresh examination, directing the AO to verify the nature of the expenses and decide accordingly.4. Disallowance of Corporate Social Responsibility (CSR) Expenses:The AO disallowed CSR expenses, arguing they were not for business purposes. The CIT(A) allowed the expenses, stating they were incurred for commercial expediency and to maintain a cordial relationship with the community, thus facilitating business operations. The Tribunal upheld the CIT(A)'s decision, referencing the Karnataka High Court's ruling in CIT vs. Infosys Technology Ltd., which allowed CSR expenses as business expenditures under Section 37.5. Disallowance of Commission Expenses Paid to Non-Residents without TDS Deduction under Section 195:The AO disallowed the commission paid to non-residents for not deducting TDS under Section 195. The Tribunal noted that similar disallowances in previous years were deleted by the Tribunal, as the non-residents did not have a PE in India and the services were rendered outside India. Following the precedent, the Tribunal allowed the assessee's appeal, reversing the lower authorities' decisions.Conclusion:The Tribunal allowed the appeals filed by the assessee for statistical purposes and dismissed the appeals filed by the Revenue. The Tribunal's decisions were based on established legal precedents and a thorough examination of the facts, ensuring that the assessee's claims were justly considered.