ITAT Mumbai allows assessee's Section 14A methodology, revenue treatment for shelved projects, and Section 80IA wind power deduction

ITAT Mumbai held in favor of the assessee on multiple grounds. The Tribunal allowed the assessee's methodology for computing disallowance under Section 14A, consistent with previous years, despite Rule 8D's introduction. Expenditure on shelved projects was treated as revenue following consistent precedent. Prior period expenses were allowed under mercantile accounting. Discount on Euro Notes write-off was permitted based on coordinate bench decisions. Deduction under Section 80IA for wind power project was allowed, establishing AY 2007-08 as initial year. Additional depreciation claim was accepted. Transfer pricing adjustments were partly allowed, with guarantee fee rate set at 0.5% and weighted average interest rate accepted for inter-company loans.

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Issues involved:

1. Disallowance u/s. 14A of the Act
2. Disallowance of expenditure on Shelved Projects
3. Disallowance of Prior Period Expenditure
4. Disallowance of discount on issue of Euro Notes
5. Reduction in allowance of premium on pre-payment of debentures and its impact on computation of deduction u/s. 80IA of the Act
6. Claim of deduction u/s. 80IA of the Act
7. Duplicate disallowance u/s.80IA of the Act
8. Adjustment made to the book profits computed u/s. 115JB of the Act with respect to disallowance of deduction claimed u/s. 80IA of the Act
9. Disallowance of additional depreciation claimed u/s. 32(1)(iia) of the Act
10. Transfer Pricing Additions- Disregard of Rule 10B(2)
11. TP adjustment towards Guarantee fees
12. TP Adjustments towards imputing interest on loan
13. Erroneous denial of relief granted by DRP
14. Erroneous application of section 133(6) of the Act for the purpose of comparability in Transfer Pricing

Summary:

1. Disallowance u/s. 14A of the Act:
The assessee challenged the disallowance of Rs. 32.60 crores u/s. 14A of the Act. The Tribunal found merit in the assessee's method of computation of disallowance, which was consistent with previous years and accepted by the Tribunal. The Tribunal allowed the assessee's claim, stating that the provisions of Rule 8D, introduced from the Assessment Year 2008-09, do not mandate a different method of computation if the assessee's method has been previously accepted.

2. Disallowance of expenditure on Shelved Projects:
The Tribunal reversed the Assessing Officer's decision to treat the expenditure on shelved projects as capital expenditure, citing consistent decisions in favor of the assessee in previous years. The Tribunal allowed the expenditure as revenue expenditure.

3. Disallowance of Prior Period Expenditure:
The Tribunal upheld the assessee's method of accounting for prior period expenses, which were crystallized during the year. The Tribunal allowed the prior period expenses of Rs. 11.67 crores, following its decision in the assessee's case for previous years.

4. Disallowance of discount on issue of Euro Notes:
The Tribunal allowed the assessee's claim for discount on the issue of Euro Notes, following its decision in the assessee's case for the Assessment Year 2006-07. The Tribunal found that the Assessing Officer's disallowance was not justified as the method of accounting for the discount had been consistently accepted in previous years.

5. Reduction in allowance of premium on pre-payment of debentures and its impact on computation of deduction u/s. 80IA of the Act:
The Tribunal restored the issue to the Assessing Officer with directions to follow the decision for the Assessment Year 2006-07, where the premium on pre-payment of debentures was allowed over the future balance life of the debentures.

6. Claim of deduction u/s. 80IA of the Act:
The Tribunal allowed the assessee's claim for deduction u/s. 80IA on the Supa Wind Power Project 17 MW Unit, following its decision for the Assessment Year 2007-08. The Tribunal noted that once the deduction is allowed in the initial assessment year, it cannot be denied in subsequent years.

7. Duplicate disallowance u/s.80IA of the Act:
The Tribunal restored the issue to the Assessing Officer for re-examination and verification of the facts, agreeing with the assessee that double disallowance cannot be made while computing taxable income.

8. Adjustment made to the book profits computed u/s. 115JB of the Act with respect to disallowance of deduction claimed u/s. 80IA of the Act:
The assessee did not press this ground as appropriate relief had been allowed u/s. 154 of the Act. The Tribunal dismissed this ground as not pressed.

9. Disallowance of additional depreciation claimed u/s. 32(1)(iia) of the Act:
The Tribunal allowed the assessee's claim for additional depreciation, noting that the method of claiming depreciation was similar to that accepted in the Assessment Year 2006-07.

10. Transfer Pricing Additions- Disregard of Rule 10B(2):
The Tribunal decided to address this generic ground while deciding the specific TP adjustments in grounds 11 and 12.

11. TP adjustment towards Guarantee fees:
The Tribunal found the TP adjustment computed by the TPO based on general rates of guarantee fees charged by banks to be untenable. The Tribunal directed the TPO to apply a rate of 0.5% for the ALP of corporate guarantee, following the decision in the case of Strides Shasun Limited.

12. TP Adjustments towards imputing interest on loan:
The Tribunal accepted the assessee's use of weighted average rate of interest for benchmarking the loan transaction, following the decision in Goodyear South Asia Tyres Pvt. Ltd. The Tribunal also directed the use of LIBOR for loans extended from India.

13. Erroneous denial of relief granted by DRP:
The assessee did not press this ground. The Tribunal dismissed it as not pressed.

14. Erroneous application of section 133(6) of the Act for the purpose of comparability in Transfer Pricing:
The Tribunal dismissed this ground as infructuous since grounds 11 and 12 were allowed.

Conclusion:
The appeal of the assessee was partly allowed.

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