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2017 (3) TMI 1565 - AT - Income TaxDisallowance u/s 14A - Held that - It is not in dispute that Rule 8D of the Rules cannot be applied for Asst. years prior to Asst. Year 2008-09. We find that the ld CIT(A) had directed the ld AO to disallow 1% of exempted income u/s 14A of the Act which was agreed upon by the ld DR before us. Hence the ground taken by the revenue before us does not survive. We find that the assessee though did not offer any disallowance suo moto in the return of income u/s 14A of the Act, came forward with petty disallowance of ₹ 2,48,600/- during the course of assessment proceedings which was further improved to ₹ 60,39,896/- based on some rational workings. Admittedly the said workings have not been examined by the lower authorities. Hence in the interest of justice and fair play, we direct the ld AO to examine the workings given by the assessee before the ld CIT(A) and decide the issue afresh in accordance with law. Commission to non-whole time Directors disallowed under section 40(a)(ia)- Held that - Respectfully following the view taken by jurisdictional Tribunal in the case of Jahangir Biri Factory Pvt. Ltd. (2009 (3) TMI 215 - ITAT CALCUTTA-C ), we allow the claim of assessee. We also find that the subject mentioned payments have been brought within the ambit of section 194J of the Act only with effect from 1.7.2012 and hence the same cannot be made applicable for earlier years. Relinquishment of a right to operate the Hotel Searock - whether could be construed as relinquishment of a capital asset so as to fall within the ambit of capital gain or business income - Held that - We hold that right to operate the Hotel under Operating Licence Agreement dated 3.5.1986 wherein the assessee has been given unfettered powers to operate the Hotel in any manner in which it finds suitable. This right , in our considered opinion, is a capital asset within the meaning of section 2(14) of the Act. Hence relinquishment of such right would only result in transfer u/s 2(47) of the Act and hence the resultant gain thereon would only fall under the ambit of capital gain . Since the assessee has been using the said right from 1986 onwards, the resultant gain would only be Long Term Capital Gain. Moreover, the assessee had entered into a Settlement Agreement dated 11.5.2005 in order to give quietus to various disputes among the assessee and ELEL with the assistance of an Arbitrator and the said Arbitrator had duly passed an Award wherein the assessee was made to relinquish its right to operate the hotel by receiving a consideration of ₹ 32.42 crores and both the parties unconditionally withdrawing their respective cases filed before the Hon ble Bombay High Court. Hence we hold that that the consideration received by the assessee pursuant to this Settlement Agreement in the sum of ₹ 32.42 crores for relinquishing its capital asset (i.e. right to operate the hotel) is to be taxed only as Long Term Capital Gain. Deduction u/s 80IA of the Act in respect of two captive power undertakings at Bhadrachalam factory, Andhra Pradesh - Held that - We find that whether the deduction u/s 80IA of the Act is eligible to an assessee engaged in generation of power which has been consumed in its entirety by the other business units of the assessee is settled by the decision of the Hon ble Calcutta High Court in assessee s own case in favour of the assessee by laying emphasis on the word generation of power which is contemplated in provisions of section 80IA of the Act. Hence this aspect of the issue is decided in favour of the assessee. With regard to the market value issue, we find that the Hon ble High Court had set aside. Respectfully following the same, we deem it fit and proper to set aside this aspect of the issue (i.e. determination of market value alone) to the file of the ld AO to decide the same in the light of directions of the Hon ble Calcutta High Court in assessee s own case. Accordingly, the Ground raised by the revenue is partly allowed for statistical purposes.
Issues Involved:
1. Disallowance of Staff Welfare Expenses under Section 40A(9) of the Income Tax Act. 2. Disallowance under Section 14A of the Income Tax Act. 3. Disallowance of Commission to Non-Whole Time Directors under Section 40(a)(ia) of the Income Tax Act. 4. Treatment of Receipt from Elel Hotel and Investments Ltd for Relinquishment of Rights to Operate Hotel Searock. 5. Disallowance of Deduction under Section 80IA of the Income Tax Act in Respect of Captive Power. Detailed Analysis: 1. Disallowance of Staff Welfare Expenses under Section 40A(9) of the Income Tax Act The Assessing Officer (AO) disallowed ?9,66,249/- of staff welfare expenses under Section 40A(9) of the Act, which were not covered under Section 36(1)(iv) and (v). The Commissioner of Income Tax (Appeals) [CIT(A)] allowed ?4,20,000/- related to educational institutions but confirmed the remaining disallowance. The Tribunal found that similar expenses had been allowed in the assessee's own case for the Assessment Year (AY) 2007-08, and directed the AO to reconsider the disallowance in light of the Tribunal's earlier order. Thus, the ground was allowed for statistical purposes. 2. Disallowance under Section 14A of the Income Tax Act The AO disallowed ?17,84,00,000/- under Section 14A read with Rule 8D, while the assessee had offered ?2,48,600/- for disallowance. The CIT(A) reduced the disallowance to 1% of the exempt income, amounting to ?1,58,51,175/-. The Tribunal noted that Rule 8D was not applicable for AYs prior to 2008-09 and directed the AO to examine the assessee's workings, which calculated the disallowance at ?60,39,896/-. Thus, the ground was allowed for statistical purposes for the assessee and dismissed for the revenue. 3. Disallowance of Commission to Non-Whole Time Directors under Section 40(a)(ia) of the Income Tax Act The AO disallowed ?24,00,000/- paid as commission to non-whole time directors under Section 40(a)(ia) for non-deduction of TDS under Sections 194H and 194J. The CIT(A) upheld the disallowance. The Tribunal noted that the issue was covered in favor of the assessee in its own case for AY 2007-08, where such payments were not considered under Sections 194H or 194J. The Tribunal allowed the ground in favor of the assessee. 4. Treatment of Receipt from Elel Hotel and Investments Ltd for Relinquishment of Rights to Operate Hotel Searock The AO treated ?32,41,96,977/- received from Elel Hotel and Investments Ltd as business income, while the assessee treated it as Long Term Capital Gain (LTCG). The CIT(A) held that the right to operate the hotel was a capital asset, and its relinquishment resulted in LTCG. The Tribunal upheld the CIT(A)'s decision, noting that the right to operate the hotel was a capital asset under Section 2(14) and its relinquishment resulted in LTCG under Section 2(47). 5. Disallowance of Deduction under Section 80IA of the Income Tax Act in Respect of Captive Power The AO disallowed the deduction under Section 80IA for captive power undertakings, arguing that the power was not sold to outsiders and questioning the market value applied. The CIT(A) allowed the deduction, following earlier Tribunal decisions. The Tribunal upheld the CIT(A)'s decision on eligibility for deduction but set aside the market value determination to the AO, directing it to be done in line with the Calcutta High Court's decision, which required considering the market rate at which electricity could be sold to distribution licensees. Conclusion The Tribunal allowed the appeal of the assessee for statistical purposes and partly allowed the appeal of the revenue for statistical purposes, directing further examination and application of earlier Tribunal and High Court decisions.
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