2014 (1) TMI 1695 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - Held that - CIT(A) has rightly held that the assessee has not utilized the borrowed money to investment in mutual funds, accordingly, the addition of ₹ 29,198/- made by the Assessing Officer by applying Rule 8D r.w.s. 14A was held not justified. This reasoned finding of CIT(A) need no interference from our side whereby CIT(A) has granted relief to the assessee on this account. - Decided in favour of assessee. Treatment of income on account of sales tax deferral claimed as capital in nature - CIT(A) deleted the addition - Held that - The reasoned findings of the CIT(A) need no interference from our side who has deleted the impugned addition by holding that the same is not the income of the assessee and mere so because was erroneously shown in its return of income by the assessee, therefore, the same was rightly deleted by the CIT(A) to held as it is settled law that merely because the assessee under wrong understanding of law offers amount to tax, the same will not be a reason, to tax the said amount unless it is lawful to tax the same. The impugned amount is not an income of the assessee and was erroneously shown by it in the return of income. We uphold the same. - Decided in favour of assessee. Disallowance of depreciation - reducing the amount of special capital incentive received by the assessee from the Govt. of Maharashtra - CIT(A) delewted the addition - Held that - CIT(A) granted the relief to the assessee by observing that the subsidy was not given for any specific purpose of meeting any portion of cost of the assets, therefore, could not be reduced from W.D.V. Similar view was taken by ITAT in assessee s own case for A.Y. 2002-03 and 2003-04. Accordingly, the CIT(A) was justified in deleting the addition made on account of depreciation. The same needs no interference from our side. We uphold the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Determination of the total income.
2. Deletion of disallowance made by invoking provisions of rule 8D r.w.s 14A of the Act.
3. Treatment of income on account of sales tax deferral scheme.
4. Treatment of subsidy given in the form of Special Capital Incentive for computing depreciation.

Detailed Analysis:

1. Determination of the Total Income:
The first issue addressed whether the CIT(A)-I, Nashik was justified in determining the total income at Rs. 5,25,45,080/- instead of Rs. 5,26,38,351/- as shown in the return of income (ROI). The CIT(A) observed that the Assessing Officer (AO) incorrectly adopted the return of income at Rs. 5,26,38,351/- instead of Rs. 5,25,45,080/-. The Tribunal upheld the CIT(A)'s reasoned factual finding, directing the AO to adopt the return of income at Rs. 5,25,45,080/-.

2. Deletion of Disallowance Made by Invoking Provisions of Rule 8D r.w.s 14A of the Act:
The second issue involved the disallowance of Rs. 29,198/- made by the AO by applying Rule 8D r.w.s. 14A. The assessee contended that the investment in mutual funds amounting to Rs. 40,95,000/- was made out of non-interest bearing funds. The CIT(A) found that the assessee had not incurred any expenditure for earning exempt income of Rs. 30,918/- under section 10(35) of the Act and that the investment was made from profits and interest-free funds available with the firm. The AO failed to establish any nexus between the borrowed funds and the investments in mutual funds. The Tribunal upheld the CIT(A)'s finding that no disallowance could be made under section 14A, as the investment was made from interest-free funds.

3. Treatment of Income on Account of Sales Tax Deferral Scheme:
The third issue concerned the treatment of Rs. 19,56,465/- on account of the sales tax deferral scheme as capital in nature. The CIT(A) noted that the appellant repaid the deferred tax liability at net present value (NPV) of Rs. 20,06,310/- against the liability amount of Rs. 39,62,775/-. The difference of Rs. 19,56,465/- was erroneously treated as revenue receipt. The CIT(A) held that the difference partakes the character of a capital receipt, supported by the Special Bench decision of the ITAT in a similar case. The Tribunal upheld the CIT(A)'s reasoned finding that the amount was a capital receipt and not taxable as income.

4. Treatment of Subsidy Given in the Form of Special Capital Incentive for Computing Depreciation:
The fourth issue involved the disallowance of depreciation amounting to Rs. 1,84,347/- by reducing the amount of special capital incentive received from the Government of Maharashtra. The CIT(A) observed that the subsidy was not given for any specific purpose of meeting any portion of the cost of the assets, and therefore, could not be reduced from the Written Down Value (WDV). The Tribunal upheld the CIT(A)'s decision, referencing a similar view taken by the ITAT in the assessee's own case for previous assessment years.

Conclusion:
The Tribunal dismissed the appeal filed by the revenue, upholding the CIT(A)'s decisions on all the issues. The judgments were pronounced in the open court on January 31, 2014.