2013 (8) TMI 810 - AT - Income Tax

Capital expenditure or Revenue expenditure - Expenditure on acquiring fire fighting equipments and on safety measures - CIT allowed expenditure as Revenue expenditure - Held that - even if the expenses are incurred in respect of fire fighting equipments in the present year and in A.Y. 2006-07, it is to be seen as to whether the same is in respect of acquiring new equipments or in acquiring some parts of the existing equipments - No evidence available for previous year - Matter remitted back - Decided in favour of Revenue. Disallowance u/s 14(A) - Held that - no such disallowance is called for when the own interest free funds is far in excess of investment in tax free securities and the A.O. could not prove any nexus between interest bearing borrowed funds and such investment in tax free securities - However, in previous year disallowance was made therefore - Decided in favour of Revenue. Deduction u/s 80IA(4) - Held that - assessee is entitled to deduction u/s 80IA(4) of the Income-tax Act 1961 irrespective of whether the product is sold in the market or is used by the assessee itself. This was also held that market value of such own consumption should be considered for working out profits and gains for the purpose of allowing deduction u/s 80IA of the Act. So, this goes to show that the assessee is eligible for deduction u/s 80IA for the power used for own plant as captive consumption - A.O. has compared the rate by which various power supplying companies are purchasing power from the power generating companies whereas the assessee has adopted the price at which electric supplying companies are supplying power to the power consumers - where two views are possible, the view favourable to the assessee should be followed - if own power production was not there, the assessee was required to pay for such power at the same rate at which power is sold by GEB. Hence, because of own power production, the assessee has that much saving in power cost which is the income of power plant - Following decision of CIT vs. Ahmedabad Manufacturing Calico Printing Co. Ltd. 1986 (3) TMI 46 - GUJARAT High Court - Decided against Revenue. CIT(A) has directed the AO to verify the claim of the assessee that the claim made by the assessee for deduction in respect of LTC was disallowed in earlier year and only to the extent, the liability created by the assessee but disallowed in the assessment only, the writing back of liability can be excluded from income. The matter is restored back by Ld. CIT(A) to the file of A.O. for a decision after verifying the facts.

Issues Involved:
1. Classification of fire fighting equipment expenditure as revenue or capital expenditure.
2. Disallowance of expenses under Section 14A related to exempt income.
3. Taxability of accrued income in the relevant assessment year.
4. Deduction under Section 80IA(4) for captive consumption of power.
5. Corporate debt restructuring expense treatment.
6. Allowance of excess provisions for LTC written back.
7. Adjustment of book profit under Section 115JB for gratuity provision and disallowed expenses under Section 14A.

Detailed Analysis:

1. Classification of Fire Fighting Equipment Expenditure:
The Revenue contested the allowance of Rs. 74.70 lacs on acquiring fire fighting equipment as revenue expenditure. The CIT(A) had allowed this based on similar treatment in the previous year (A.Y. 2006-07). The Tribunal noted the necessity to determine whether the expenditure was for acquiring new equipment or parts of existing equipment. The Tribunal remanded the issue back to the CIT(A) for fresh decision after examining the first Tribunal order on the matter and comparing facts.

2. Disallowance of Expenses under Section 14A:
The Revenue challenged the deletion of Rs. 1,89,50,647 disallowed under Section 14A for interest and other expenses related to exempt income. The CIT(A) had accepted the assessee's claim that own funds exceeded investments in tax-free securities. The Tribunal upheld the CIT(A)'s decision, noting that no nexus was proven between interest-bearing funds and tax-free investments. However, it confirmed a disallowance of Rs. 5 lacs for other expenses, consistent with previous years (A.Y. 2004-05 and 2005-06).

3. Taxability of Accrued Income:
The Revenue disputed the deletion of Rs. 16.31 lacs (corrected to Rs. 1631 lacs) accrued income credited in the subsequent year. The CIT(A) held that the subsidy accrued in the next financial year when the notification was passed and was accounted for in A.Y. 2008-09. The Tribunal upheld this decision, noting that the practice was consistent with past years and accepted by the department.

4. Deduction under Section 80IA(4):
The Revenue contested the CIT(A)'s decision to allow deduction under Section 80IA(4) for power used for own plant. The Tribunal noted that the Hon'ble Gujarat High Court had established the eligibility of such deductions. The Tribunal favored the assessee's method of using the market value of power supplied by GEB for calculating profits, rejecting the Revenue's comparison to the purchase price of power by companies.

5. Corporate Debt Restructuring Expense:
The Revenue challenged the allowance of Rs. 2.57 crores for financial consultants over six years. The CIT(A) had allowed this based on a Tribunal decision for A.Y. 2004-05. The Tribunal upheld the CIT(A)'s decision, noting the consistency with the earlier Tribunal ruling.

6. Allowance of Excess Provisions for LTC Written Back:
The Revenue contested the allowance of Rs. 21,49,80,841 written back as excess provisions for LTC. The CIT(A) directed the AO to verify the claim and exclude from income the liability disallowed in earlier years. The Tribunal upheld this decision, noting the need for verification by the AO.

7. Adjustment of Book Profit under Section 115JB:
The Revenue challenged the deletion of adjustments for gratuity provision and disallowed expenses under Section 14A. The CIT(A) had equated gratuity provision with leave encashment, which the Tribunal upheld based on previous Tribunal orders. For Section 14A disallowance, the Tribunal confirmed an addition of Rs. 5 lacs, consistent with the decision for normal income computation.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, confirming certain disallowances and remanding specific issues for further examination, while dismissing the assessee's cross-objection. The decisions were based on consistency with past rulings and detailed examination of facts and legal principles.

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