2023 (1) TMI 1414 - AT - Income Tax

ITAT remands capital gains computation and section 14A disallowance while upholding subsidy as non-taxable capital receipt

ITAT Mumbai ruled on multiple tax issues in an appeal. For long-term capital gains on land conversion from capital asset to stock-in-trade, the matter was ... Computation of long term capital gain on sale of land which was converted from ‘capital asset’ into ‘stock in trade’ - HELD THAT:- As before us, the assessee is seeking only application of part of the ratio of the decision for indexation of the cost of acquisition only and not for the purpose of sale consideration of the capital asset. In our opinion, the assessee cannot choose part of the decision which is in its favour ignoring the other part of the decision of the Hon’ble High Court. Though the provisions of section 45(2) prescribe for taking fair market value of the asset as on the date of such conversion for the purpose of full value of the consideration received or acquiring as a result of transfer of the capital asset and also cost of acquisition to be indexed till the date of such conversion, however, in view of the decision of the Hon’ble Karnataka High Court in the case of CIT vs Rudra Industrial Corporation [2011 (1) TMI 1172 - KARNATAKA HIGH COURT] we feel it appropriate to restore this issue to the file of the Ld.AO for computing the long term capital gain on conversion of capital asset into stock in trade in accordance with law. The ground No.1 of the appeal of the assessee is accordingly allowed for statistical purpose. Addition u/s 14A read with rule 8D to the book profit u/s 115JB in respect of expenditure incurred in relation to exempt income - HELD THAT:- Identical issue has been adjudicated in the assessee’s own case for A.Y. 2012-13 wherein Tribunal has followed the decision of Vireet Investments (P) Ltd [2017 (6) TMI 1124 - ITAT DELHI] clearly held that no disallowance under section 14A of the Act r.w.r 8D of the Rules can be made while computing book profit under section 115JB - Respectfully following the finding of the Tribunal, we restore this issue to the file of the AO with the direction to follow the finding of the Tribunal in earlier and in accorence of law. The ground No.2 of the appeal of the assessee is accordingly allowed for statistical purpose. Short credit of TDS - HELD THAT:- As this claim of TDS is a matter of verification, therefore, we feel it appropriate to restore this issue to the file of the AO for deciding in accordance to law . The ground No.3 is allowed for statistical purpose. Nature of receipt - income added on account of subsidy under Package Scheme of Incentives (PSI), 2007 as capital receipt not chargeable to tax - HELD THAT:- As relying in assessee’s own case for A.Y. 2012-13 [2017 (11) TMI 376 - ITAT MUMBAI] the finding of the Ld. CIT(A) on the issue in dispute in deleting addition on account of subsidy under Package Scheme of Incentives (PSI), 2007 is upheld. Ground No.1 of the appeal is accordingly dismissed. Exclusion of subsidy received under Package Scheme of Incentives (PSI), 2007 while computing book profit u/s 115JB - HELD THAT:- Assessee correctly relied on case of PCIT vs Ankit Metal & Power Ltd [2019 (7) TMI 878 - CALCUTTA HIGH COURT] wherein it is held that interest and power subsidy would have to be excluded while computing book profit under section 115JB. Addition towards revaluation reserve on account of conversion of the amount being ‘fixed asst’ into stock in trade - CIT(A) deleted addition - HELD THAT:- Since the Ld. CIT(A) has followed binding precedent on the issue in dispute, we do not find any error in the order of the Ld.CIT(A) and accordingly, we uphold the same. Ground No.4 of the appeal of the Revenue is accordingly dismissed. Issues Involved:1. Addition of Incremental Long Term Capital Gains on Conversion of Land into Stock-in-Trade2. Addition of Expenditure Incurred in Relation to Exempt Income to Book Profits under Section 115JB3. Short Credit of TDS4. Treatment of Subsidy from Government of Maharashtra under 'The Package Scheme of Incentive (PSI) 2007'5. Exclusion of Sales Tax Subsidy for Computing Book Profit under Section 115JB6. Deletion of Addition on Account of Revaluation Reserve for Revaluation of Land Converted into Stock-in-TradeDetailed Analysis:1. Addition of Incremental Long Term Capital Gains on Conversion of Land into Stock-in-Trade:The assessee contested the addition of incremental long-term capital gains on the conversion of land into stock-in-trade, arguing that the Cost Inflation Index (CII) of the year of sale should be considered instead of the year of conversion. The Revenue argued that the capital gain should be declared in the year of sale as per Section 45(2) of the Income Tax Act. The CIT(A) followed the ITAT's decision for A.Y. 2012-13 and directed to tax the capital gain following the percentage completion method. The ITAT upheld this decision, emphasizing that capital gains should be taxed in the same year as business income using the percentage completion method.2. Addition of Expenditure Incurred in Relation to Exempt Income to Book Profits under Section 115JB:The assessee challenged the addition of Rs. 27,97,935 under Section 14A read with Rule 8D to the book profit under Section 115JB. The CIT(A) did not adjudicate this ground. The ITAT referred to its earlier decision in the assessee's own case for A.Y. 2012-13, following the Special Bench decision in Vireet Investments (P) Ltd., which held that no disallowance under Section 14A can be made while computing book profit under Section 115JB. The ITAT restored the issue to the AO for re-examination as per the Tribunal's earlier findings.3. Short Credit of TDS:The assessee raised the issue of short credit of TDS amounting to Rs. 1,44,21,975, which was not adjudicated by the CIT(A). The ITAT restored this issue to the AO for verification and decision as per law.4. Treatment of Subsidy from Government of Maharashtra under 'The Package Scheme of Incentive (PSI) 2007':The Revenue contested the CIT(A)'s decision to treat the subsidy of Rs. 26,07,02,254 as a capital receipt, arguing there was no obligation on the assessee to apply the subsidy for any particular purpose. The CIT(A) followed the ITAT's earlier decision in the assessee's own case for A.Y. 2012-13, which treated the subsidy as a capital receipt based on its purpose to encourage industrial development. The ITAT upheld this decision, affirming that the subsidy was for setting up or expanding units, thus qualifying as a capital receipt.5. Exclusion of Sales Tax Subsidy for Computing Book Profit under Section 115JB:The Revenue challenged the exclusion of sales tax subsidy from book profits under Section 115JB. The CIT(A) allowed the exclusion based on decisions of coordinate benches and the Hon'ble Rajasthan High Court. The ITAT upheld this decision, referencing the Hon'ble Calcutta High Court's ruling in PCIT vs. Ankit Metal & Power Ltd., which excluded such subsidies from book profits as they were not in the nature of income.6. Deletion of Addition on Account of Revaluation Reserve for Revaluation of Land Converted into Stock-in-Trade:The Revenue appealed against the deletion of Rs. 112,67,62,506 added to book profits due to revaluation reserve created on revaluation of land converted into stock-in-trade. The CIT(A) followed the ITAT's decision for A.Y. 2012-13, which held that revaluation reserve created by debiting P&L account does not reflect profits and thus should not be added to book profits under Section 115JB. The ITAT upheld this decision, emphasizing that the revaluation reserve was not created out of profits and thus should not be included in book profits.Conclusion:The ITAT upheld the CIT(A)'s decisions on most issues, following binding precedents and emphasizing the correct application of legal provisions. The appeals of the assessee were partly allowed, and the appeals of the Revenue were dismissed.