2016 (11) TMI 1389 - AT - Income Tax

Addition u/s 41(1) - urplus arising on prepayment of deferred sales tax loan at NPV - Held that - There is also no dispute to the assertions made by the learned representative for the assessee that the sales tax deferred scheme under the Package Scheme of 1983 and the Package Scheme of incentive 1985 notified by Government of Maharashtra which was considered in the case of Sulzer India Ltd. 40, 41, 81, 896/- is deductible in the instant assessment year and the stand of the Assessing Officer in this context is legally misplaced. - Decided in favour of assessee

Issues Involved:
1. Addition of ?255.685 crores on account of sales tax deferment.
2. Classification of interest income from Oil Coordination Committee.
3. Disallowance of ?40,36,741/- for payments to MRPL Education Trust and MRPL Janaseva Trust.
4. Allowance of higher depreciation based on the opening WDV of assets.
5. Levy of interest under sections 234B and 234C.
6. Disallowance of ?40,41,81,196/- on account of Provision for Customs Duty.

Issue-wise Detailed Analysis:

1. Addition of ?255.685 Crores on Account of Sales Tax Deferment:
The Revenue contended that the CIT(A) erred in deleting the addition of ?255.685 crores being the discount given by Karnataka Government as loan payable by the assessee from the sales tax collected by it, invoking Sec. 41(1) of the Act. The assessee argued that the surplus arising from pre-payment of the deferred sales tax loan at NPV was a capital receipt and not taxable. The CIT(A) relied on the decision in the case of Associated Capsules (P.) Ltd., which was upheld by the Hon'ble Bombay High Court in Sulzer India Ltd., determining that such surplus is not taxable under Sec. 41(1). The Tribunal affirmed the CIT(A)'s decision, holding that the surplus is a capital receipt and not a remission or cessation of a trading liability.

2. Classification of Interest Income from Oil Coordination Committee:
The Revenue claimed that the CIT(A) erred in treating the interest received from the Oil Coordination Committee as 'business income' instead of 'income from other sources'. However, the Tribunal found that this ground did not arise from the orders of the authorities below, as the interest income in question was not from the Oil Coordination Committee. Thus, the Tribunal dismissed this ground as misconceived.

3. Disallowance of ?40,36,741/- for Payments to MRPL Education Trust and MRPL Janaseva Trust:
The Assessing Officer disallowed payments to MRPL Education Trust and MRPL Janaseva Trust under Sec. 40A(9) of the Act. The CIT(A) deleted the disallowance, following the precedent in the assessee's own case for earlier years. The Tribunal upheld the CIT(A)'s decision, noting that the payments were not for the 'setting-up' or 'formation' of the trusts but for covering periodic deficits, thus not attracting Sec. 40A(9).

4. Allowance of Higher Depreciation Based on the Opening WDV of Assets:
The Assessing Officer recalculated depreciation by reworking the WDV of assets, considering depreciation allowed in earlier years. The CIT(A) reversed this, noting that the earlier order thrusting depreciation on the assessee was reversed. The Tribunal upheld the CIT(A)'s direction to allow depreciation based on the opening WDV without reducing the depreciation thrust upon the assessee in the earlier year.

5. Levy of Interest Under Sections 234B and 234C:
The Revenue challenged the CIT(A)'s decision that interest under sections 234B and 234C is not chargeable when income is taxable under Sec. 115JB. The CIT(A) relied on judgments from the Hon'ble Karnataka High Court and Hon'ble Madras High Court. The Tribunal noted that at the relevant time, the prevailing legal position did not require advance tax payment on MAT, as per the Hon'ble Karnataka High Court's judgment in Kwality Biscuits Ltd. The Tribunal upheld the CIT(A)'s decision, noting that the later Supreme Court judgment in Rolta India Ltd. does not affect the bona fide belief held by the assessee at the relevant time.

6. Disallowance of ?40,41,81,196/- on Account of Provision for Customs Duty:
The assessee challenged the disallowance of ?40,41,81,196/- for Customs duty provision. The CIT(A) held that Sec. 43B was not applicable as the liability did not arise during the year. The Tribunal disagreed, noting that the Customs duty liability arose when the goods were imported, and the fulfilment of export obligations amounted to payment under Sec. 43B. The Tribunal allowed the deduction, noting that the accounting treatment was tax-neutral and the disallowance would result in double taxation.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection, affirming the CIT(A)'s decisions on all grounds. The Tribunal's order was pronounced on 23rd November 2016.

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