2014 (1) TMI 1699 - AT - Income Tax

Disallowance u/s 14A - Held that - As the entire interest expenditure is attributable to business in which the income is assessable to tax such interest expenditure cannot be considered for the purpose of proportionate disallowance as per Rule 8D. In the light of these findings of learned CIT(A) that entire borrowed funds on which interest was paid were used for business purpose and no portion was used for making investment the amount of interest expenditure cannot be considered for proportionate disallowance under Rule 8D. Out of total disallowance made by the Assessing Officer u/s 14A of Rs. 67.75 lac the disallowance of Rs. 66.79 lac is out of interest expenditure and therefore to this extent the disallowance is deleted. The remaining disallowance of Rs. 0.96 lac is on account of other expenditure to the extent of 0.5% of average value of investment this part disallowance of Rs. 0.96 lac is confirmed. - Decided partly in favour of assessee Disallowance of interest claimed u/s 36(1)(iii) - CIT(A) deleted the addition - Held that - Respectfully following the earlier Tribunal order in assessee s own case we decide this issue in favour of the assessee and against the Revenue. addition on account of valuation of closing stock - CIT(A) deleted the addition - Held that - Respectfully following the earlier Tribunal order in assessee s own case we decide this issue in favour of the assessee and against the Revenue. Disallowance of expenses incurred on transmission line and contribution paid to UPPCL - CIT(A) deleted the addition - Held that - The finding given by learned CIT(A) is confirmed as that the assessee has right to use the power line for transmitting power generated in its factory to UPPCL but it would not enjoy ownership right on the asset. He has also given a finding that the ownership on the asset would be with UPPCL in future. He has also given a finding that the assessee acquired right to make use of the asset for facilitating efficient conduct of its business and making it more profitable but without getting any advantage of enduring benefit to itself and therefore the assessee did not acquire any asset. On the basis of these findings it was held by learned CIT(A) that the expenditure was of revenue nature. See L. H. Sugar Factory Pvt. Ltd. (1980 (8) TMI 1 - SUPREME Court) - Decided against revenue Computation of book profit u/s 115JB - Held that - In our considered opinion as per clause (f) of Explanation 1 to section 115JB the amount or expenditure relatable to any income to which section 10 or section 11 or section 12 apply (excluding section 10(38) such expenditure has to be added back. Hence we do not find any force in this contention of learned A.R. of the assessee that the disallowance made by the Assessing Officer u/s 14A cannot be added for computing book profit. However regarding the amount of such disallowance to be added into book profit u/s 115JB we find that since the disallowance u/s 14A has been upheld by us only to the extent of Rs. 0.96 lac for the purpose of computing book profit u/s 115JB also only this much amount should be added on account of disallowance u/s 14A. We hold accordingly. This ground is partly allowed.- Decided partly in favour of assessee

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act
2. Disallowance of interest claimed under section 36(1)(iii) of the Act
3. Valuation of closing stock
4. Expenses incurred on transmission line and contribution to UPPCL
5. Computation of book profit under section 115JB

Issue 1 - Disallowance under section 14A of the Income Tax Act:
The appeal concerned the disallowance of Rs. 67,75,000 made by the Assessing Officer under section 14A of the Act. The CIT(A) deleted part of the disallowance, holding that interest expenditure not directly attributable to earning tax-free income cannot be considered for proportionate disallowance under Rule 8D. The Tribunal upheld the CIT(A)'s decision, partially allowing Ground No. 1 & 2.

Issue 2 - Disallowance of interest claimed under section 36(1)(iii) of the Act:
The AO disallowed Rs. 1,50,62,605 as interest claimed under section 36(1)(iii) due to the assessee not charging interest on funds given as loans to sister concerns/subsidiaries. The CIT(A) deleted the addition, citing a previous Tribunal order in favor of the assessee for other assessment years. The Tribunal upheld the CIT(A)'s decision, rejecting Ground No. 3 & 4.

Issue 3 - Valuation of closing stock:
The disallowance of Rs. 41,63,50,331 on account of valuation of closing stock was challenged. The CIT(A) had deleted the addition, and the Tribunal, following a previous decision in favor of the assessee, rejected the Revenue's appeal on this issue.

Issue 4 - Expenses incurred on transmission line and contribution to UPPCL:
The AO disallowed Rs. 8,48,62,924 as capital expenditure, which the CIT(A) reversed, deeming the expenses as revenue in nature. Citing relevant case laws, the CIT(A) held that the expenditure did not confer any enduring benefit to the assessee. The Tribunal upheld the CIT(A)'s decision, rejecting Ground No. 7.

Issue 5 - Computation of book profit under section 115JB:
The AO disallowed Rs. 67,75,000 under section 14A for computing book profit under section 115JB. The Tribunal held that the disallowance under section 14A should be added back for computing book profit, but only to the extent of Rs. 0.96 lac, as upheld. The Tribunal partly allowed Ground No. 8, resulting in a partial allowance of the Revenue's appeal.

Overall, the Tribunal upheld the CIT(A)'s decisions on various issues, considering the facts, legal provisions, and precedents cited in each case.