2017 (6) TMI 1173 - AT - Income Tax

Disallowance of deduction u/s. 80IB - proof of manufacturing activity - Held that - The assessee stood eligible towards claim of deduction u/s. 80IB as the activity of bottling of LPG gas carried out by the assessee corporation is a manufacturing activity. See Bharat Petroleum Corporation Ltd. Vs. CIT-Mumbai City (2013 (5) TMI 956 - BOMBAY HIGH COURT) Disallowance u/s. 14A - Held that - Adhoc disallowance made by the A.O u/s 14A cannot be approved. We thus set aside the orders of the lower authorities and delete the disallowance made in the hands of the assessee u/s 14A. The Ground of appeal No. 2 and 3 raised by the assessee before us are thus allowed Disallowance of deposits with Government Agencies/Local Authorities - Held that - The issue as regards allowability of the deposits placed by the assessee with Government agencies/local authorities as a revenue expenditure, is squarely covered by the aforesaid order of the Tribunal passed in the assessee s own case for A.Y. 2002-03 as the Tribunal referring to the CBDT circular No. 420 (F. No. 204110183 IT (A-ii), dated 04.06.1985 hold that deposits which are perennial in nature are allowed as revenue expenditure and tax as income in the year in which they are refundable. We thus finding no reason to take a different view, thus set aside the disallowance Disallowance of amortization of premium on leasehold land - Held that - The revenue in the assessment framed in the hands of the assessee corporation for A.Y. 2014-15 had allowed the registration and stamp duty charges of ₹ 2,47,98,757/- as a revenue expenditure, as claimed by the assessee corporation in its revised return of income for A.Y. 2014-15, by relying on the judgment of the Hon ble High Court of Bombay in the case of CIT-3 Vs. Reliance Industrial Infrastructure Ltd.(2015 (8) TMI 1215 - BOMBAY HIGH COURT) as observed that the period of lease for which the property has been taken, cannot be regarded as a decisive test to determine the nature of the expenditure. In any case, it is not disputed before us that the stamp duty amount has been paid on the lease deed for the purposes of carrying on assessee s business. Once the aforesaid position is accepted then the amount of stamp duty paid for has to be allowed as revenue nature. Thus addition to be deleted. Assessment of interest received from the bonds issued by the Oil Coordination Committee (OCC) - Profits and gains of business or Income from other sources - Held that - The adjudication of the issue raised before us, though for the very first time, is necessary in order to correctly assess the tax liability of the assessee, therefore, in the backdrop the fact that no objection had been raised by the Ld. D.R as regards the same, thus admit the same. As legal issue had not been considered by the CIT(A) while disposing of the appeal of the assessee before us, therefore in all fairness restore the matter to the file of the CIT(A) with a direction to adjudicate the same as relying on Mangalore Refineries and Petro Chemicals Ltd. 2016 (10) TMI 94 - BOMBAY HIGH COURT Additional depreciation u/s. 32(1)(iia) disallowed - assessee had claimed Additional Depreciation u/s. 32(iia) based on the fact that the assessee is engaged in the business of manufacturing and the subject assets are being used for the bottling of LPG so as to market the product manufactured - Held that - whether the activity of bottling LPG gas amounts to production or manufacturing, or not, is no more res integra in light of the judgment of the Hon ble Jurisdictional High Court in the case Bharat Petroleum Corporation Ltd. Vs. CIT-Mumbai City (2013 (5) TMI 956 - BOMBAY HIGH COURT), wherein the Hon ble High Court had in unequivocal terms held that bottling LPG gas is a manufacturing activity. We thus are of the considered view that now when the very perception of the department that the activity of bottling LPG gas does not amount to manufacturing or production activity, does no more survive, therefore the disallowance of the assesses claim towards additional depreciation by holding to the contrary, thus cannot be sustained. We thus set aside the order of the CIT(A) and restore the matter to the file of the A.O, with a direction to allow the claim of the assessee towards additional directions u/s. 32(1)(iia).

Issues Involved:

1. Disallowance of deduction under Section 80IB for LPG Plants.
2. Disallowance under Section 14A.
3. Disallowance of deposits placed with Government/Local Agencies.
4. Disallowance of amortization of premium on leasehold land.
5. Reopening of assessment under Section 147.
6. Head of income for interest on oil bonds.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80IB for LPG Plants:

The primary issue was whether the activity of bottling LPG gas qualifies as "manufacturing or production" for the purposes of Section 80IB. The CIT(A) upheld the A.O.'s view that bottling LPG does not constitute manufacturing, relying on past decisions. However, the Tribunal found that this issue had already been settled in favor of the assessee by the Hon'ble Bombay High Court in multiple cases, including Bharat Petroleum Corporation Ltd. Vs. CIT, where it was held that bottling LPG gas is a manufacturing activity. Thus, the Tribunal allowed the assessee's claim for deduction under Section 80IB, setting aside the CIT(A)'s order.

2. Disallowance under Section 14A:

The A.O. had disallowed expenses under Section 14A related to exempt income, estimating 10% of the exempt income as the disallowance. The CIT(A) directed the A.O. to recompute the disallowance using a reasonable method. The Tribunal noted that the assessee had substantial interest-free funds and, following the Bombay High Court's decision in Reliance Utilities and Power Ltd., held that investments in tax-free securities were presumed to be made from these funds. Therefore, the Tribunal deleted the disallowance under Section 14A, as the A.O.'s estimation lacked a proper basis and satisfaction as required by law.

3. Disallowance of Deposits Placed with Government/Local Agencies:

The CIT(A) sustained the disallowance of ?28,67,365/- out of ?10 crores disallowed by the A.O. as deposits with government agencies/local authorities. The Tribunal found that the issue was covered by the CBDT Circular No. 420, which treats perennial deposits as revenue expenditure, deductible in the year they are refunded. Thus, the Tribunal allowed the assessee's claim, setting aside the CIT(A)'s order.

4. Disallowance of Amortization of Premium on Leasehold Land:

The A.O. disallowed the amortization of premium on leasehold land, treating it as a capital expenditure. The CIT(A) upheld this view. The Tribunal, however, found that similar claims had been allowed in the assessee's case for other years, and the Bombay High Court in Reliance Industrial Infrastructure Ltd. had held that such payments are revenue in nature when made for business purposes. The Tribunal allowed the amortization claim as a revenue expenditure.

5. Reopening of Assessment under Section 147:

The A.O. reopened the assessment to disallow additional depreciation claimed under Section 32(1)(iia), arguing that bottling LPG gas is not manufacturing. The Tribunal found that the Bombay High Court had already settled that bottling LPG gas is a manufacturing activity. Consequently, the Tribunal directed the A.O. to allow the additional depreciation, rendering the grounds challenging the reopening of assessment as infructuous.

6. Head of Income for Interest on Oil Bonds:

The interest income from oil bonds, shown under "Profits and Gains of Business" by the assessee, was assessed under "Income from Other Sources" by the A.O. The Tribunal noted that this issue had been settled in favor of the assessee by the ITAT and the Bombay High Court in Mangalore Refineries and Petro Chemicals Ltd., where such interest was held to be assessable under "Profits and Gains of Business." The Tribunal restored the matter to the CIT(A) for re-adjudication in light of this settled position.

Conclusion:

The Tribunal allowed the appeals of the assessee on most grounds, setting aside the orders of the lower authorities and directing them to follow the settled legal positions. The issues related to reopening of assessment and head of income for interest on oil bonds were restored to the CIT(A) for re-adjudication. The appeals were thus allowed in terms of the Tribunal's detailed observations and directions.

← Previous Next →