2023 (4) TMI 334 - AT - Income Tax

Tribunal Partially Allows Appeals, Remands Several Issues for Verification; Dismisses Cross Objection by Assessee.

The ITAT partly allowed both the assessee's and Revenue's appeals for statistical purposes, remanding several issues back to the AO for verification, ... Addition u/s 14A - disallowance of administrative expenditure - CIT-A directed the Assessing Officer to take 0.5% thereby invoking the said rule - submissions made by the Ld. AR that current liabilities and provisions should not be reduced from the opening and closing stock of current assets should have been taken into account by the AO - HELD THAT:- We direct AO to look into the said aspect and verify the same to the extent of the contentions of the revenue that the borrowings were used for the purpose of the business as well as the investment was from assessee’s own fund for earning exempt income. Thus, we remand back this issue to the file of the Assessing Officer for proper verification and the adjudication. Ground no.2 of the assessee’s appeal is partly allowed for statistical purpose. Nature of expenses - repairs and maintenance expenses - AR said that entire expenditure is in the nature of current repairs and no new enduring benefit has come into existence and, therefore, the expenditure not being in the nature of capital expenditure are allowable under the provisions of the Section 31 - HELD THAT:- From the perusal of the documents, it can be seen that these expenditures were not totally on the replacement but replacement of part of machinery/plant which in totality cannot be treated at par with the repairs and maintenance that of entire Plant & Machinery. The pipelines and duel fuel burner system are forming some part of entire plant and machinery and both these parts do not function independently or used independently for the projects of the assessee company. CIT(A) was not right in confirming the addition. In fact, these expenditures are revenue in nature. Ground no.3 of assessee’s appeal is allowed. Disallowance of contribution to Sardar Vallabhbhai Patel Rashtriya Ekta Trust - AR submitted that for an expenditure to be eligible as business expenditure, merely the Trust is registered under Section 80G would not debar the expenditure, provided it satisfies the test of business expenditure - HELD THAT:- It is pertinent to note that the Agro Products of the assessee company are sold under the brand name ‘Sardar’ which is very popular amongst the farming community since more than four decades. It was an apprehension of the assessee that the construction of a statue of Sardar Vallabhbhai Paltel would significantly enhance the value of the brand name under which the assessee carries on its business. This would help enhance sales as well as exports of the company’s agro products and would as a corollary enhance the brand value of other products of the company. Thus, the contention of the Ld. AR that the expenditure was incurred wholly and exclusively for the purpose of business on account of commercial expediency and accordingly is allowable under Section 37 of the Act, appears to be genuine. The funding was for State Government. The decision of Gujarat Narmada Valley Fertilisers Co Ltd. [2013 (5) TMI 759 - GUJARAT HIGH COURT] under identical facts held that, the said expenditures were allowed related to deduction under Section 37 of the Act. - Decided in favour of assessee. Business expenditure incurred for the purpose of setting up of projects which were abandoned - DR submitted that no evidence as to abandoned project relating to the business of the assessee was produced before the Assessing Officer by the assessee - HELD THAT:- Abandoned project was part of the business of manufacturing of chemicals and once the said plant if would have been a possibility, then the business expenditure of the assessee would have been much more. Therefore, the expenditure written off by the assessee has to be considered as business revenue expenditure. Therefore, ground of the assessee’s appeal is allowed. Disallowance of expenditure incurred for obtaining land on lease for a period of 20 years - contentions of the Ld. AR that the expenditure is in nature of expenditure on facilitation of lease land and other expenditure necessary for identification and development of land and is not in the nature of cost of land or premium for acquiring land on lease appears to be not correct - HELD THAT:- As from the perusal of the record it appears that the expenditure is for the purpose of preparation of land and make it suitable for installation of windmill. Therefore it will be appropriate to remand back this issue to the file of the AO for proper verification and adjudication and if the said expenditure appears to be cost of plant and machinery (windmill) and then accordingly the Assessing Officer may allow depreciation in respect of the same. Ground partly allowed for statistical purpose. Book profit u/s 115JB in respect of expenditure disallowable under Rule 8D read with Section 14A(2) - HELD THAT:- This ground is in consonance Vireet Investment [2017 (6) TMI 1124 - ITAT DELHI] and the provisions relating to Section 115JB relating to exempt income we direct the Assessing Officer to verify the same and adjudicate the same as per law. Prior period expenses - cristalisation of expenses - HELD THAT:- CIT(A) has rightly observed that the assessee established that these expenses were crystallised during the current F.Y. and accordingly are eligible for deduction while computing total income of the assessee. There is no need to interfere with the same. Hence, ground no.3 of Revenue’s appeal is dismissed. Issues Involved:1. Disallowance of administrative expenditure under Section 14A read with Rule 8D.2. Disallowance of repairs and maintenance expenses.3. Disallowance of contribution to Sardar Vallabhbhai Patel Rashtriya Ekta Trust.4. Inclusion of interest on income tax refund in total income.5. Disallowance of business expenditure for abandoned projects.6. Disallowance of expenditure for obtaining land on lease.7. Deduction of wage revision on payment basis.8. Adjustment to book profit under Section 115JB.Summary:1. Disallowance of Administrative Expenditure:The Tribunal remanded the issue back to the Assessing Officer (AO) for proper verification and adjudication, directing the AO to consider the contentions regarding the use of borrowings for business purposes and investments from the assessee's own funds for earning exempt income. The Tribunal emphasized the need for proper verification of current liabilities and provisions in the computation of disallowance under Rule 8D.2. Disallowance of Repairs and Maintenance Expenses:The Tribunal allowed the assessee's appeal, holding that the expenditure on replacement of corroded water pipelines and the dual fuel burner system was in the nature of current repairs and did not bring into existence any new asset or enduring benefit. The Tribunal relied on the decision of the Ahmedabad Tribunal in the case of Gujarat Industries Power Co. Ltd. and held that these expenditures were revenue in nature.3. Disallowance of Contribution to Sardar Vallabhbhai Patel Rashtriya Ekta Trust:The Tribunal allowed the assessee's appeal, holding that the contribution to the Trust was incurred wholly and exclusively for the purpose of business on account of commercial expediency. The Tribunal relied on the decision of the Hon'ble Gujarat High Court in the case of Gujarat Narmada Valley Fertilisers Co. Ltd., noting that the expenditure was allowable under Section 37 of the Act.4. Inclusion of Interest on Income Tax Refund in Total Income:The Tribunal dismissed the assessee's appeal on this ground, as the issue was covered against the assessee.5. Disallowance of Business Expenditure for Abandoned Projects:The Tribunal allowed the assessee's appeal, holding that the expenditure incurred for the abandoned project was part of the business of manufacturing chemicals and should be considered as business revenue expenditure.6. Disallowance of Expenditure for Obtaining Land on Lease:The Tribunal remanded the issue back to the AO for proper verification and adjudication, directing the AO to determine if the expenditure was for the purpose of preparation of land for installation of windmill and to allow depreciation if it was considered as the cost of plant and machinery.7. Deduction of Wage Revision on Payment Basis:The Tribunal dismissed the assessee's appeal on this ground, as the ground did not sustain.8. Adjustment to Book Profit under Section 115JB:The Tribunal remanded the issue back to the AO for verification and adjudication in consonance with the decision in Vireet Investment, directing the AO to verify and adjudicate the adjustment to book profit under Section 115JB in respect of expenditure disallowable under Rule 8D read with Section 14A(2).Cross Objection:The Tribunal dismissed the cross objection filed by the assessee as it did not survive due to the filing of a regular appeal.Revenue's Appeal:The Tribunal partly allowed the Revenue's appeal for statistical purposes, dismissing the grounds related to repairs and maintenance, prior period expenses, and obsolete spares, while remanding the ground related to administrative expenditure back to the AO for verification and adjudication.Conclusion:The appeals of the assessee and the Revenue were partly allowed for statistical purposes, and the cross objection of the assessee was dismissed.