2014 (9) TMI 131 - AT - Income Tax

Deduction on sales tax entitlement from windmill Sales Tax Entitlement as Capital Receipt or Revenue Receipt - Held that - Following the decision in M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat 2014 (1) TMI 234 - ITAT AHMEDABAD - The scheme was framed as a part of Government s initiative to encourage modernization of existing industries in underdeveloped areas - The main purpose of the scheme was to accelerate the industrial development and to disperse industries to under-developed areas as well as to provide additional employment - The scheme was primarily concerned with the modernization of the existing industries - It was not a scheme either for development of new industries in specified areas, or for mere expansion of the existing production capacities of the industries - The main purpose of the resolution was to modernize industries, which ordinarily would come at a considerable cost, particularly when such industries were located in under-developed areas - The industries will find it difficult without Government s incentive to undertake large-scale modernization with the use of modern technology.the benefit, though computed in terms of the Sales Tax liability in the hands of the recipient, the same was not mean to give any benefit on day-to-day functioning of the business, or for making the industry more profitable - The principle aim of the scheme was to cover the capital outlay already made by the assessee in undertaking special modernization of its existing industry the matter is remitted back for fresh adjudication Decided in favour of assessee. Deduction u/s 80IA - Profits from electricity generation from wind mill Held that - Following the decision in M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat 2014 (1) TMI 234 - ITAT AHMEDABAD - in all the appeals under consideration the initial year chosen by the assessee for claiming deduction is after 1-4-2000 when the amended provision of section 80IA was applicable - it is a non- obstante clause which overrides the other provisions of the Act and it is for the purpose of determining the quantum of deduction under section 80IA, for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year to be computed as if the eligible business is the only source of income - the fiction created is that the eligible business is the only source of income and the deduction would be allowed from the initial assessment year or any subsequent assessment year - losses incurred by the assessee were already set off and adjusted against the profits of the earlier years. The Tribunal has not erred in holding that there was no rectification possible u/s 80-I for reasons somewhat different from those which prevailed with the Tribunal - There was no carry forward of allowable deductions under the head depreciation or development rebate which needed to be absorbed against the income of the current year re-computation of income for the purpose of computing permissible deduction u/s 80-I for the new industrial undertaking was not required in the present case - the assessee has not suffered any loss in the year - no brought forward loss or depreciation could be reduced for determining the amount in which the deduction is to be allowed u/s. 80IA of the Act Decided in favour of assessee. Various expenses u/s 14A disallowed Held that - The assessee received exempt dividend income - The AO was of the opinion that expenditure incurred for earning the exempt dividend income was not allowable to the assessee and the assessee has not disallowed any expenditure towards the earning of the exempted dividend income, he by invoking the provisions of Section 14A computed expenditure attributable to the earning of exempt dividend income under Rule 8D of the Income-tax Rules and made disallowance for interest expenditure and administrative expenses relying upon Commissioner of Income Tax II Versus Hitachi Home And Life Solutions (I) Ltd. 2013 (7) TMI 359 - GUJARAT HIGH COURT - no disallowance towards interest expenditure incurred for earning exempt income can be made - disallowance u/s. 14A read with Rule 8D cannot exceed the exempt dividend income - the disallowance of administrative expenses is restricted to being the exempt dividend income earned by the assessee Decided partly in favour of assessee. Disallowance u/s 40A(2)(a) Held that - The AO found that the assessee has purchased tea from outside parties at an average rate of 103.56/kg, whereas tea was purchased from related parties at an average rate of 127.67/kg - the AO added the difference amount paid by the assessee to related parties to the income of the assessee relying upon M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat 2014 (1) TMI 234 - ITAT AHMEDABAD - Decided against Revenue. Amount paid to sister concern disallowed u/s 40A(2)(b) Held that - Following the decision in M/s. Jivraj Tea & Industries Ltd. Versus The ACIT, Central Circle-2, Surat 2014 (1) TMI 234 - ITAT AHMEDABAD - by comparing weekly average the CIT(A) found that the average price of the assessee from its associate concerns were lower than the average price of purchase from others - no material was brought on record by the Revenue to rebut the contention of the assessee that the tea which the assessee purchased from its sister concerns were in turn purchased by those sister concerns in auction from un-related parties and the price at which similar concerns sold those tea to the assessee were merely 2% higher than the auctioned price and the difference of 2% also includes actual expenses which sister concerns had to incur in the transactions - the disallowance was made on a wrong footing - the disallowance u/s 40(A)(2)(b) of the Act in its entirety Decided in favour of assessee.

Summary

Issues Involved:

1. Disallowance of deduction of Rs. 69,16,667/- being Sales Tax Entitlement from windmill at Ahmednagar, Maharashtra.
2. Deduction u/s 80IA for profits from electricity generation from windmills at Ahmednagar, Maharashtra, Jodha, Rajasthan, and Chitradurga, Karnataka.
3. Disallowance out of various expenses u/s 14A of the Act, amounting to Rs. 1,62,460/-.
4. Disallowance u/s 40A(2)(a) of the Act of Rs. 7,58,17,023/-.
5. Disallowance u/s 40A(2)(b) of Rs. 6,52,49,095/- paid to sister concerns.
6. Disallowance u/s 40A(2)(b) of Rs. 73,23,884/- on sale to sister concerns.
7. Disallowance of Compensation expenses paid of Rs. 18,41,122/- on the ground of non-deduction of TDS u/s 40(a)(ia) of the Act.
8. Exclusion of the amount received on sale of Sales Tax Entitlements of Rs. 20,70,833/- from the profit derived from the eligible unit being windmill at Satara, Maharashtra.
9. Deduction u/s 80IA for profits from electricity generation from windmills at Bhogat, Gujarat, and Satara, Maharashtra.

Detailed Analysis:

1. Disallowance of Deduction of Rs. 69,16,667/-:

The Tribunal restored the issue back to the Assessing Officer (AO) for fresh adjudication, following the precedent set in the assessee's own case for AY 2007-08. The Tribunal emphasized the need to consider the scheme of sales tax entitlement from the Government of Maharashtra and the decision of the Hon'ble Gujarat High Court in the case of Birla VXL Ltd.

2. Deduction u/s 80IA for Profits from Electricity Generation:

The Tribunal allowed the assessee's appeal, following the precedent set in AY 2007-08. It was held that the initial assessment year should be the year when the assessee first claimed the deduction u/s 80IA, not the year of installation. The Tribunal relied on the decision of the Hon'ble Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd. and rejected the application of the Special Bench decision in Goldmine Shares & Finance Pvt. Ltd.

3. Disallowance u/s 14A:

The Tribunal restricted the disallowance of administrative expenses to Rs. 900/-, being the exempt dividend income earned by the assessee. The decision was based on the principle that disallowance u/s 14A read with Rule 8D cannot exceed the exempt dividend income.

4. Disallowance u/s 40A(2)(a):

The Tribunal upheld the CIT(A)'s decision to delete the addition, following the precedent set in the assessee's own case for AY 2006-07. The Tribunal noted that no specific error was pointed out in the CIT(A)'s order, and no material was brought on record to show that the Tribunal's order for AY 2006-07 was varied in appeal.

5. Disallowance u/s 40A(2)(b):

The Tribunal deleted the disallowance of Rs. 6,52,49,095/-, following the precedent set in AY 2006-07. The Tribunal found that the Revenue failed to discharge the onus of proving that the fair market value of the tea purchased from sister concerns was lower than the purchase price. The Tribunal emphasized that no material was brought on record to rebut the assessee's contention regarding the auction price and the actual expenses incurred by sister concerns.

6. Disallowance u/s 40A(2)(b) on Sale to Sister Concerns:

The Tribunal confirmed the CIT(A)'s decision to delete the addition, noting that the provisions of section 40A(2)(a)/40A(2)(b) deal with deductions for expenditure and not receipts. The Tribunal held that the addition of notional income was made without any authority of law.

7. Disallowance of Compensation Expenses:

The Tribunal restored the matter back to the AO for fresh adjudication, taking into consideration the additional evidence filed by the assessee. The Tribunal relied on the Agra Bench of the Tribunal's decision in Rajeev Kumar Agarwal, which held that the second proviso to section 40(a)(ia) is retrospective in effect.

8. Exclusion of Sales Tax Entitlements:

The Tribunal restored the issue back to the AO for fresh adjudication, following the precedent set in the case of the sister concern of the assessee for AY 2007-08. The Tribunal emphasized the need to consider the scheme of sales tax entitlement from the Government of Maharashtra and the decision of the Hon'ble Gujarat High Court in Birla VXL Ltd.

9. Deduction u/s 80IA for Profits from Electricity Generation:

The Tribunal allowed the assessee's appeal, following the precedent set in the case of the sister concern for AY 2007-08. The Tribunal reiterated that the initial assessment year should be the year when the assessee first claimed the deduction u/s 80IA, not the year of installation.

Conclusion:

The appeals of the assessee were partly allowed, and the appeals of the Revenue were dismissed, with directions for fresh adjudication on specific issues as per the precedents and legal principles established in previous cases.