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2012 (1) TMI 252 - AT - Income Tax


Issues Involved:
1. Taxability of surplus arising on prepayment of deferred sales tax.
2. Allocation of administrative expenses for deduction under Section 80M.
3. Computation of deduction under Section 80HHC.
4. Treatment of premium paid on prepayment of debentures.
5. Disallowance under Section 43B for late payment of Provident Fund contributions.
6. Disallowance of commission paid to an associated enterprise.
7. Computation of deduction under Section 80HHC without reducing the deduction under Section 80IB.

Detailed Analysis:

1. Taxability of Surplus Arising on Prepayment of Deferred Sales Tax
The assessee treated the surplus arising from the prepayment of deferred sales tax as a capital receipt not liable to tax. The Assessing Officer (AO) considered it taxable under Section 41(1). The Tribunal referenced its earlier decision in the assessee's case for AY 2004-05 and the Special Bench decision in Sulzer India Ltd. vs JCIT, which held that such surplus is a capital receipt and not taxable under Section 41(1). The Tribunal upheld this view and directed the AO to delete the disallowance, allowing the assessee's appeal on this ground.

2. Allocation of Administrative Expenses for Deduction Under Section 80M
The AO allocated 10% of the gross dividend income as indirect expenses, which was reduced to 5% by the CIT(A). The Tribunal referenced the ITAT Mumbai decision in Godrej Agrovet Ltd. vs ACIT, which held that only actual expenses incurred should be considered for Section 80M deductions, not an ad-hoc estimation. The Tribunal directed the deletion of the disallowance, allowing the assessee's appeal on this ground.

3. Computation of Deduction Under Section 80HHC
The AO excluded certain incomes from "profits of the business" for Section 80HHC deduction purposes. The CIT(A) granted relief on some items, but the Tribunal noted discrepancies and directed the AO to re-examine the interest income to determine if it related to overdue payments from customers. The Tribunal upheld the CIT(A)'s decision on sales tax refunds and scrap sales based on previous Tribunal decisions and the Bombay High Court ruling in CIT vs. Dresser Rand India Pvt. Ltd. The Tribunal partially allowed the assessee's appeal and the revenue's appeal on this issue.

4. Treatment of Premium Paid on Prepayment of Debentures
The assessee claimed the premium paid on prepayment of debentures as a revenue expenditure. The AO and CIT(A) treated it as a capital expenditure. The Tribunal referenced the Supreme Court's decision in CIT vs. Madras Auto Service (P) Ltd., which held that such expenditure, if it avoids recurring revenue expenditure, should be treated as revenue expenditure. The Tribunal allowed the assessee's appeal, treating the premium as revenue expenditure deductible in the year of payment.

5. Disallowance Under Section 43B for Late Payment of Provident Fund Contributions
The AO disallowed the late payment of Provident Fund contributions. The Tribunal referenced the Supreme Court's decision in Alom Extrusions Ltd., which held that the deletion of the second proviso to Section 43B should be applied retrospectively. Since the payments were made before the due date for filing the return, the Tribunal directed the deletion of the disallowance, allowing the assessee's appeal.

6. Disallowance of Commission Paid to an Associated Enterprise
The AO disallowed the commission paid to an associated enterprise, considering it non-arm's length. The CIT(A) noted that the TPO had accepted similar transactions in earlier years and in AY 2004-05. The Tribunal upheld the CIT(A)'s decision, finding the commission justified and deleting the disallowance, dismissing the revenue's appeal on this ground.

7. Computation of Deduction Under Section 80HHC Without Reducing the Deduction Under Section 80IB
The AO reduced the Section 80IB deduction from the profits before computing the Section 80HHC deduction. The CIT(A) and Tribunal followed the Bombay High Court's decision in Associated Capsules Pvt. Ltd. vs. DCIT, which held that Section 80IA(9) affects the allowability, not the computation of deductions. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

Conclusion
The Tribunal's order provided relief to the assessee on several grounds, particularly regarding the taxability of surplus on prepayment of deferred sales tax, allocation of administrative expenses under Section 80M, and treatment of premium on prepayment of debentures. The Tribunal also directed the AO to re-examine certain issues related to Section 80HHC deductions. The revenue's appeal was partially allowed, and the assessee's cross-objection was dismissed.

 

 

 

 

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