2015 (10) TMI 2053 - AT - Income Tax

Disallowance made u/s 14A - Held that - The decision rendered by Hon‟ble Bombay High Court in the case of HDFC Bank (2014 (8) TMI 119 - BOMBAY HIGH COURT) shall apply to the facts of the instant case. Accordingly, consistent with the view taken by the co-ordinate bench in the assessee‟s own case in the earlier years, we hold that the interest disallowance made by the tax authorities is not called for. Accordingly, we set aside the order of ld.CIT(A) in respect of interest disallowance and direct the AO to delete the same. - Decided in favour of assessee. Disallowance of administrative expenses relating to exempted income - Held that - We notice that the Ld CIT(A) has worked out the same as per Rule 8D(iii) of IT Rules, even though he accepted the fact that Rule 8D shall not apply to the year under consideration. However, we notice that the assessing officer has worked out the disallowance at ₹ 10.00 lakhs by considering the explanations of the assessee. Since the disallowance of administrative expenses is to be worked out on a reasonable basis as per the decision of Godrej & Boyce Mfg. Co. Ltd (2010 (8) TMI 77 - BOMBAY HIGH COURT) and since major part of investments has been brought forward from the earlier years, in our view, the disallowance made by AO does not call for interference. Accordingly, we set aside the order of Ld CIT(A) on this issue and sustain the disallowance of ₹ 10.00 lakhs made by the AO. - Decided against assessee. Disallowance of foreign travel expenses - Held that - This issue has been decided against the issue by the Tribunal in the assessee s own case, vide its order for AY-2004-05 - Decided against assessee. Assessment of rental income of house property and service charges as income from house property - Held that - This issue has been decided in the assessee s own case CIT(A) confirmed the assessment of proper rental income as income from house property and recovery of service charges as income from other sources. The CIT(A) accordingly, directed the AO to allow the deduction of the expenses incurred for earning the income from service charges as directed earlier by the Tribunal in the assessment year 1990-91. So following the same, the CIT(A) has sustained the assessment of rental income as income from property and the income from service charges under the head income from other sources and directed the AO to grant deduction of expenses incurred for earning from service charges. This view is consistent to the view taken by the Tribunal for the earlier years. This ground is rejected- Decided in favour of assessee. Disallowance of deduction pertaining to IFFCO arbitration Claim - Held that - There is no dispute that the arbitration award was given in the month of July, 2004 and hence the said award relate to the assessment year under consideration. It is a fact that the assessee has challenged the arbitration award by filing appeal before the Hon ble High Court. However, the Hon‟ble Gujarat High Court has held in Navijan Roller Flour and Pulse Mills Ltd Vs. Dy. CIT 2009 (3) TMI 132 - GUJARAT HIGH COURT that the liability accrues at the earliest point of time and the fact that the award was challenged in appeal cannot be a ground for holding that the liability had not been incurred. Accordingly by following the Hon‟ble Gujarat High Court (referred supra), we direct the AO to allow deduction of the arbitration award. The assessee has also raised an additional ground praying that the interest accrued thereon up to 31.3.2005 should also be allowed. However, we prefer to restore this matter to the file of the AO with the direction to examine the arbitration order and take appropriate decision in accordance with the law, after affording necessary opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes. Addition u/s 92CA made in respect of purchase from its Associated Enterprises - Held that - There is no difference in the methodology adopted by AE and non-AE for determining the price. The difference has occurred due to following financial year basis‟ for AE, where as the non-AEs have followed calendar year basis. Since the assessee is following a particular pattern for its AEs year after year, we find merits in the contentions of the Ld A.R that the temporary price difference occurring due to fluctuations in TC/RC charges should be ignored. These submissions brings out the exact reason for the price difference and in our view, the said reasons are reasonable and need to be factored in, i.e., adjustments should be permitted, in which case it would result that the payments made to AE was at ALP. Further, it is not the case that the assessee was paying higher purchase price to its AE year after year in the months of Jan to March. In subsequent years, the assessee has gained by paying lower purchase prices. In view of the foregoing, we are of the view that the assessee should be considered as having paid the purchase price to its AE at ALP only and hence there is no necessity to make adjustments. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the addition. - Decided in favour of assessee. Addition u/s 92CA in respect of Corporate Guarantee fee - Held that - Rate of 0.50% is consistently followed in many of the cases by the Tribunal. In fact, in the case of Everest Kanto Cylinder Ltd, 2015 (5) TMI 395 - BOMBAY HIGH COURT has determined the rate at 0.50% and the same has not been disturbed by the Hon ble Bombay High Court. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to compute the addition by adopting the rate of 0.50%. Eligibility of the assessee to claim deduction u/s 80IA allowed to assessee. Since the assessee is eligible to claim deduction u/s 80IA of the Act in respect of Co-generation Plat 2, he was justified in holding that the assessee could exercise option u/s 80IA(2) of the Act. State electricity board rates has to be taken as market value for computing deduction u/s 80IA of the Act. Hence, we do not find any infirmity in the decision of Ld CIT(A) on this issue to compute deduction u/s 80IA by applying supplier/UPSEB market rate.

Summary

Issues Involved:
1. Disallowance made u/s 14A of the Act.
2. Disallowance of foreign travel expenses.
3. Assessment of rental income and service charges.
4. Disallowance of deduction pertaining to IFFCO arbitration claim.
5. Addition u/s 92CA in respect of purchases from Associated Enterprises.
6. Addition u/s 92CA in respect of Corporate Guarantee fee.
7. Deduction allowed u/s 80IA for various power units.
8. Exemption u/s 10(23G) on gross interest received from DHIL.

Detailed Analysis:

1. Disallowance Made u/s 14A of the Act:
The Assessing Officer (AO) disallowed Rs. 27.93 crores as interest attributable to investments in shares, tax-free bonds, GOI stock, and mutual funds, asserting that borrowed funds were used for these investments. The Commissioner of Income Tax (Appeals) [CIT(A)] enhanced this disallowance to Rs. 28.15 crores and also disallowed Rs. 11.00 crores towards administrative expenses. The Tribunal found that the assessee had sufficient own funds and cited the Bombay High Court decision in HDFC Bank Ltd (366 ITR 505) to hold that no disallowance was required. The Tribunal directed the AO to delete the interest disallowance and sustained the administrative expense disallowance at Rs. 10.00 lakhs.

2. Disallowance of Foreign Travel Expenses:
The AO disallowed Rs. 2,12,010/- incurred for the wife of the Chairman, whole-time Director, and Executives on foreign tours. The CIT(A) confirmed this disallowance, and the Tribunal upheld it, following its earlier decision in the assessee's own case for AY 2004-05.

3. Assessment of Rental Income and Service Charges:
The AO assessed rental receipts as 'Income from house property' and service charges as 'Income from other sources,' which the CIT(A) confirmed. The Tribunal upheld this decision, consistent with its earlier rulings, and directed the AO to allow admissible deductions under respective heads.

4. Disallowance of Deduction Pertaining to IFFCO Arbitration Claim:
The AO disallowed Rs. 7,19,01,340/- claimed as a provision for arbitration with IFFCO, stating the dispute was not finally settled. The CIT(A) upheld this view. The Tribunal, referencing the Gujarat High Court decision in Navijan Roller Flour and Pulse Mills Ltd (315 ITR 190), directed the AO to allow the deduction, noting that the arbitration award crystallized the liability. The Tribunal restored the matter of interest payable to IFFCO to the AO for examination.

5. Addition u/s 92CA in Respect of Purchases from Associated Enterprises:
The AO/TPO added Rs. 6.03 crores, asserting that the assessee paid higher prices to its AE due to lower TC/RC charges. The CIT(A) confirmed this addition. The Tribunal found that the long-term contract with AE, which followed a financial year basis for TC/RC charges, justified the price difference. The Tribunal directed the AO to delete the addition, recognizing the consistent practice and bona fides of the assessee.

6. Addition u/s 92CA in Respect of Corporate Guarantee Fee:
The AO added Rs. 9.70 crores, adopting a 1.75% fee rate based on a US bank's charges. The CIT(A) confirmed this. The Tribunal modified the addition, directing the AO to adopt a 0.50% rate, consistent with other Tribunal decisions and the Bombay High Court ruling in CIT Vs. M/s Everest Kento Cylinders Ltd.

7. Deduction Allowed u/s 80IA for Various Power Units:
The AO rejected the deduction claims for Renu power units, Co-Generation Plant-1, Co-Generation Plant-2, and Birla Copper Power Plant units. The CIT(A) allowed these claims. The Tribunal upheld the CIT(A)'s decisions, referencing its earlier rulings in the assessee's favor for similar issues in previous years.

8. Exemption u/s 10(23G) on Gross Interest Received from DHIL:
The AO allowed exemption on net interest, while the CIT(A) allowed it on gross interest. The Tribunal upheld the CIT(A)'s decision, consistent with the Bombay High Court's ruling in the assessee's own case for AY 2003-04, recognizing no connection between the interest paid and received transactions.

Conclusion:
The Tribunal partly allowed the assessee's appeal and dismissed the revenue's appeal, providing detailed justifications for each decision based on prior rulings and consistent practices.