2023 (11) TMI 336 - AT - Income Tax

Multiple tax claims allowed including project expenses as revenue expenditure and interest payments to authorities

Gujarat Mineral Development Corporation Ltd. (GMDC) Versus Asst. Commissioner of Income-tax, Circle-4, Ahmedabad

Gujarat Mineral Development Corporation Ltd. (GMDC) Versus Asst. Commissioner of Income-tax, Circle-4, Ahmedabad - TMI Issues Involved:1. Disallowance of project expenses as capital expenditure.2. Disallowance of interest paid to Sales Tax Authorities.3. Disallowance of prior period expenses.4. Disallowance of expenses related to earning exempt income under Section 14A.5. Disallowance of contributions made to Index-B and Government of Gujarat.6. Disallowance of expenses for non-deduction of tax at source under Section 40(a)(ia).7. Treatment of income from projects under construction as income from other sources.8. Rejection of claim of depreciation on leased buses to GSRTC.9. Disallowance of expenditure for excavation of river diversion as capital expenditure.10. Disallowance of depreciation and additional depreciation on Akrimota project.11. Addition of accrued interest on doubtful advance made to GIIC.12. Addition of lease rental charges and accrued interest on lease rental charges from GSRTC.13. Additions to book profits under Section 115JB.Summary:1. Disallowance of Project Expenses as Capital Expenditure:The Tribunal found that the disallowance of project expenses on the grounds that the projects were new and had not commenced was incorrect. It was held that the projects were a continuation of existing business and the expenses were revenue in nature. Therefore, the Tribunal directed the Assessing Officer (AO) to allow the project expenses incurred by the assessee.2. Disallowance of Interest Paid to Sales Tax Authorities:The Tribunal allowed the assessee's claim, holding that the interest paid for late payment of sales tax was compensatory in nature and allowable under Section 37(1) of the Act, following the Supreme Court's decision in Lachmandas Mathuradas Vs. CIT.3. Disallowance of Prior Period Expenses:The issue was restored to the AO to verify which prior period expenses crystallized during the year and to allow those expenses accordingly, following the Tribunal's order in the assessee's case for AY 2005-06.4. Disallowance of Expenses Related to Earning Exempt Income Under Section 14A:The Tribunal deleted the disallowance made under Section 14A, noting that Rule 8D was not applicable for AY 2005-06 and that the assessee had sufficient interest-free funds for making investments.5. Disallowance of Contributions Made to Index-B and Government of Gujarat:The Tribunal upheld the disallowance of contributions to Index-B and Government of Gujarat for Gujarat Gaurav Day and Sharad Utsav, finding them to be in the nature of donations and not incurred for business purposes.6. Disallowance of Expenses for Non-Deduction of Tax at Source Under Section 40(a)(ia):The Tribunal deleted the disallowance, holding that there was no TDS liability on the payment made to ATIRA, which was exempt from tax by CBDT notification.7. Treatment of Income from Projects Under Construction as Income from Other Sources:The Tribunal directed the AO to treat the income from projects under construction as business income, following its decision in the assessee's case for AY 2005-06.8. Rejection of Claim of Depreciation on Leased Buses to GSRTC:The Tribunal allowed the claim of depreciation on leased buses to GSRTC, following the Supreme Court's decision in ICDS Ltd., which recognized the genuineness of lease and buy-back arrangements.9. Disallowance of Expenditure for Excavation of River Diversion as Capital Expenditure:The Tribunal held that the expenditure incurred for diverting the course of the river was revenue in nature and allowable as it facilitated the assessee's mining operations.10. Disallowance of Depreciation and Additional Depreciation on Akrimota Project:The Tribunal allowed the claim of depreciation and additional depreciation on the Akrimota project, holding that the project had commenced operations during the year and the assessee was engaged in manufacturing activities.11. Addition of Accrued Interest on Doubtful Advance Made to GIIC:The Tribunal deleted the addition, holding that the interest on advances to GIIC was not certain of recovery and should not be accounted for on an accrual basis.12. Addition of Lease Rental Charges and Accrued Interest on Lease Rental Charges from GSRTC:The Tribunal directed the deletion of additions made on account of lease rental income and accrued interest on delayed lease rentals from GSRTC, as the recovery was uncertain and the assessee had adopted the cash basis of accounting for such income.13. Additions to Book Profits Under Section 115JB:The Tribunal held that disallowances made under Section 14A and Fringe Benefit Tax (FBT) should not be added back to the book profits for computing tax under Section 115JB, following judicial precedents.Conclusion:The appeals were partly allowed, with directions to the AO to follow the Tribunal's findings and allow or delete the disallowances and additions as per the detailed reasoning provided for each issue.