2013 (10) TMI 1020 - AT - Income Tax

Disallowance u/s. 14A to be adjusted in MAT income computed u/s. 115JB Held that - Reliance has been placed upon the judgment in the case of Reliance Petro Products Pvt. Ltd vs. ACIT 2013 (10) TMI 1001 - ITAT AHMEDABAD ., wherein the decision of the Apex Court has been followed in the case of Apollo Tyres Ltd. Vs. CIT 2002 (5) TMI 5 - SUPREME Court - The Coordinate bench decided the identical issue in case of Reliance Petro Products Pvt. Ltd. in favour of the assessee by following the decision of the Hon. High Court in case of Apollo Tyres Ltd. Respectfully, following the decision of Apex Court on this issue, upheld the order of the CIT (Appeals) and dismissed the appeal of the revenue Addition is deleted Decided against the Revenue.

Issues Involved:
1. Disallowance of deduction under section 80IA for captive power plant and co-generation plant.
2. Addition of irrecoverable balances written off.
3. Disallowance of claim of depreciation.
4. Prior period expenditure and disallowance under section 14A.
5. Adjustment to book profit under section 115JB.

Detailed Analysis:

1. Disallowance of Deduction under Section 80IA:
The primary issue revolves around the disallowance of the deduction under section 80IA for the captive power plant and co-generation plant. The Assessing Officer (AO) disallowed the deduction for the new power plant, citing consistent denial since A.Y. 2001-02, upheld by ITAT, Ahmedabad. For the captive power plant, the AO found the profit rate of 35.70% excessively high and recalculated the deduction by reducing the rate of credit for electricity and profit percentage, ultimately restricting the deduction to Rs. 6,57,79,416/-. Similarly, for the co-generation plant, the AO applied the same methodology, resulting in a disallowance of Rs. 20,44,35,651/-.

The CIT(A) directed the AO to modify the assessment order based on the ITAT decision for A.Y. 2006-07. The Tribunal set aside the issue to the AO for de novo consideration in light of the Gujarat High Court decision in the case of Gujarat Alkalies & Chemicals.

2. Addition of Irrecoverable Balances Written Off:
The AO added Rs. 89,000/- for irrecoverable balances written off, considering it capital expenditure. The CIT(A) confirmed the addition, referencing the ITAT's decision for A.Y. 2006-07, where a similar addition was dismissed. The Tribunal upheld the CIT(A)'s decision, confirming the addition.

3. Disallowance of Claim of Depreciation:
The AO disallowed the claim of depreciation of Rs. 94,94,341/- by enhancing depreciation for A.Y. 2001-02, a year in which the appellant had opted not to claim any depreciation. The CIT(A) confirmed the disallowance based on the ITAT's decision for A.Y. 2006-07. The Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal.

4. Prior Period Expenditure and Disallowance under Section 14A:
The AO added Rs. 1,18,06,240/- for prior period expenditure and Rs. 3,25,92,000/- under section 14A. The CIT(A) directed the AO to follow the ITAT order for A.Y. 2006-07. The Tribunal set aside the issue to the AO for de novo consideration, following the ITAT's decision for A.Y. 2006-07.

5. Adjustment to Book Profit under Section 115JB:
The AO adjusted the book profit under section 115JB by adding the disallowance under section 14A. The CIT(A) deleted the addition, following the ITAT's decision in the case of Reliance Petro Products Pvt. Ltd., which was based on the Supreme Court decision in Apollo Tyres Ltd. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

Conclusion:
The Tribunal set aside the issues related to the disallowance of deduction under section 80IA and prior period expenditure for de novo consideration by the AO. The additions for irrecoverable balances written off and disallowance of depreciation were upheld. The adjustment to book profit under section 115JB was deleted, favoring the assessee. Both appeals were partly allowed.

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