2011 (4) TMI 179 - AT - Income Tax

Addition - Deduction of payment of service tax u/s 43B - Change of method of depreciation - Prior period expense - Held that - amount of service tax deducted by bank in respect of past services are allowable as expenditure for the current year u/s 43B. Regarding adjustment u/s 115JB - Investment income was part of book profit therefore, disallowance under section 14A and addition of Rs.1,30,000/- to the book profit cannot be made. Regarding disallwance u/s 14A - Rule 8D - It is pertinent to note that in the impugned order, the Learned Commissioner of Income Tax(Appeals) directed the Assessing Officer to re-work out the disallowance, as per Rule 8D, following the decision of Tribunal in assessee s own case for the assessment year 2002-03 - Appeal of the assessee is partly allowed

Issues Involved:
1. Depreciation method (WDV vs. SLM)
2. Deletion of prior period expenses
3. Deletion of additions to book profit under section 115JB
4. Deduction under section 80IA
5. Disallowance under section 14A
6. Disallowance of prior period expenses
7. Levy of interest under section 234B and recovery of interest under section 244A

Issue-wise Detailed Analysis:

1. Depreciation Method (WDV vs. SLM)
The Revenue contended that the CIT(A) erred in allowing the assessee to claim depreciation as per the Written Down Value (WDV) method after initially opting for the Straight Line Method (SLM) before the due date of filing the return. The CIT(A) followed the ITAT's decision in the assessee's own case for the assessment year 2002-03, which allowed the change in depreciation method through a valid revised return. The ITAT upheld the CIT(A)'s decision, rejecting the Revenue's grounds.

2. Deletion of Prior Period Expenses
The CIT(A) allowed the deduction of certain prior period expenses, which the Revenue challenged. The CIT(A) justified the allowance by stating that the liabilities for these expenses crystallized in the relevant assessment year. The ITAT agreed with the CIT(A)'s reasoning and upheld the deletion of these expenses, rejecting the Revenue's appeal.

3. Deletion of Additions to Book Profit under Section 115JB
The Revenue challenged the CIT(A)'s deletion of additions to book profit on account of disallowance under section 14A, interest on investment in bonds, and prior period expenses. The CIT(A) relied on the Supreme Court's decision in Apollo Tyres, which restricts adjustments to book profit only to items specified in the Explanation to section 115JB. The ITAT upheld the CIT(A)'s decision, noting that the Revenue failed to demonstrate any error in the CIT(A)'s interpretation.

4. Deduction under Section 80IA
The assessee contended that the CIT(A) erred in directing the AO to discuss the allowability of deduction under section 80IA and consider the decision in CIT vs. Eltek SGP Ltd. The CIT(A) held that there was no positive income to claim the deduction in the relevant year but directed the AO to reassess if the situation changed. The ITAT found no infirmity in the CIT(A)'s directions and rejected the assessee's ground.

5. Disallowance under Section 14A
The CIT(A) directed the AO to recompute the disallowance under section 14A as per Rule 8D, following the Tribunal's decision in the assessee's own case for the assessment year 2002-03. The assessee argued that Rule 8D applies prospectively from the assessment year 2008-09, as held by the Bombay High Court in Godrej Boyce Manufacturing Co. Ltd. The ITAT set aside the CIT(A)'s order and directed the AO to rework the disallowance based on reasonable basis under section 14A(1), considering the Bombay High Court's judgment.

6. Disallowance of Prior Period Expenses
The CIT(A) confirmed the disallowance of certain prior period expenses, including wealth tax payment, interest on public deposits, and payment to PWC for carbon credit assignment. The ITAT upheld the CIT(A)'s decision, noting that the expenses were not crystallized in the relevant assessment year and wealth tax is not allowable under section 40(a)(iia).

7. Levy of Interest under Section 234B and Recovery of Interest under Section 244A
The assessee challenged the levy of interest under section 234B and recovery under section 244A. The ITAT noted that the levy of interest under section 234B is mandatory, and the AO should allow consequential relief. No specific argument was raised regarding section 244A, so the ITAT declined to interfere.

Conclusion
The appeal filed by the Revenue was dismissed, and the appeal of the assessee was partly allowed for statistical purposes. The ITAT upheld the CIT(A)'s decisions on most issues, except for the disallowance under section 14A, which was remanded to the AO for reassessment based on the Bombay High Court's judgment.

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