2012 (12) TMI 248 - AT - Income Tax

Deduction u/s 80IA - interest from investments/ deposits - other income - held that - the interest income has been earned from holding FDs and other term deposits from the surplus generated by the assessee in the earlier year therefore may not be the income earning or derived from the business of the assessee of generating power. - Decided against the assessee. MAT - The credit for minimum alternate tax availed by the assessee therefore could only be at best adjusted by the Assessing Officer was the sole issue insofar as there is no loss of revenue for the impugned Assessment Year when the assessee was required to pay only the minimum alternate tax. This credit has to be carry forward requires consideration by adjudication of the issue by the Hon ble High Court. - Decided against the assessee. Disallowance on account of periphery development expenses - Held that - The assessee s business for incurring periphery development expenses for development of the area as defined by the Collector of the area in which charge the assessee carries out the work. Therefore, it was nobody s case that the expenses have not been incurred as the amount has been paid to the Government authorities. - Expenditure are being incurred and claimed as business expenditure therefore cannot be disallowed insofar as the claim of the assessee of Rs.5 lakhs paid to the Collector, Bolangir is properly documented. - However, the sum of Rs.20,000 paid as donation to Jharsuguda District Kick Boxing Association, Belpahar Rs. 5,000.00, Organising Committee, Lakhanpur Block Football Championship Rs. 5,000.00, Binapani Yubak Sangha Rs.3,000. Tiger Club, Belpahar Rs.5,000 and V.S.S.Club, Belpahar Rs.2,000, all related to incurring of expenses which may or may not have been called for to be incurred by the assessee as per the requirement of peripheral development committee. Therefore, this amount of Rs.20,000 not relating to periphery development expenses are directed to be sustained as disallowable business expenditure as the assessee has not been able to establish the nexus for periphery development expenses in these cases. Disallowance on account of donation Held that - Assessee submitted a letter addressed by the Chief Minister acknowledging receipt of Rs. 20 lakhs as donation to the Chief Minister s Relief Funds settles the issue that the assessee is entitled for 100% under the provisions of Section 80G - granting for continuous approval u/s.80G(2)(3HF) of the I.T.Act,1961 was issued by the CIT, Bhubaneswar on 26.2.2003 which has been placed on record - CIT(A) disallowed the claim for want of commercial expediency for incurring these expenses when he restored the issue to the file of the Assessing Officer to allow the claim u/s.80G on the basis of production of receipts which has now been produced. Approval was on 26.2.2003 for the impugned Assessment Year when the 80G claim was made for the Assessment Year 2004-05 - Assessing Officer directed to grant 100% deduction in accordance with the certificate granted by the CIT and acknowledge receipt of the Chief Minister

Summary

Issues Involved:
1. Validity of the Assessing Officer's order.
2. Classification of other receipts as business income.
3. Expenditure incurred against other receipts.
4. Profit on sale of fixed assets.
5. Disallowance of periphery development expenses.
6. Disallowance of donations.

Issue-wise Detailed Analysis:

1. Validity of the Assessing Officer's Order:
The assessee argued that the Assessing Officer's order was void ab initio, against natural justice, and legally untenable. However, the Tribunal did not specifically address the validity of the order in its judgment, implying that the procedural aspects were not found to be significantly flawed to merit a detailed discussion.

2. Classification of Other Receipts as Business Income:
The assessee contended that other receipts, including interest, rent, electricity charges, sundry receipts, sale of scraps, and profit on sale of surplus stock, were inextricably linked to its business of power generation and should be treated as business income eligible for deduction under Section 80IA. The Tribunal noted that while the interest income from investments was not derived from the business of power generation, other receipts such as interest from employees, rent, electricity charges, sundry receipts, and sale of scraps had a direct nexus with the business operations. The Tribunal upheld the Assessing Officer's decision to exclude interest income from investments from the deduction but allowed the inclusion of other receipts as business income.

3. Expenditure Incurred Against Other Receipts:
The assessee argued that even if the receipts were to be excluded from the computation of power profits, the related expenditures should be accounted for. The Tribunal acknowledged that the expenditures incurred against these receipts were allowed as business expenses. The Tribunal emphasized that only net receipts should be considered for exclusion under Section 80IA, not the gross receipts.

4. Profit on Sale of Fixed Assets:
The assessee contended that profit on the sale of fixed assets should not be included in the computation of normal income under the head "business and profession." The Tribunal agreed with the assessee, stating that the profit on the sale of fixed assets, being part of the block of assets for depreciation purposes, should not be considered for computing normal business income.

5. Disallowance of Periphery Development Expenses:
The assessee claimed that periphery development expenses were incurred wholly and exclusively for business purposes. The Tribunal partially agreed, allowing the expenditure of Rs. 5,00,000 paid to the Collector of Bolangir for the development of Rajendra Park, as it was properly documented and related to business operations. However, the Tribunal disallowed Rs. 20,000 paid to various local associations, as the nexus to business operations was not established.

6. Disallowance of Donations:
The assessee argued that donations were made for business purposes and should be allowed as business expenses. The Tribunal upheld the disallowance of Rs. 20,00,000 donated to the Chief Minister's Relief Fund as a business expense, citing the lack of commercial expediency. However, the Tribunal directed the Assessing Officer to allow the donation under Section 80G, as the necessary approval was obtained. The Tribunal disallowed the remaining Rs. 20,000 donated to other organizations, as the required 80G certificates were not provided.

Conclusion:
The Tribunal partly allowed the appeal, granting relief on certain issues while upholding the Assessing Officer's decisions on others. The Tribunal's detailed analysis ensured that the legal principles and factual circumstances were thoroughly considered, providing a balanced judgment.