2018 (6) TMI 1541 - AT - Income Tax

Disallowance of Interest in respect of advances to companies/other concern - addition being estimated interest @ 15% to various parties - Held that - We find that the Tribunal consistently set aside the issue to follow the precedent laid down by Hon ble Supreme Court in the case of S.A. Builders 2006 (12) TMI 82 - SUPREME COURT . On same reasoning, we set aside this issue to the file of the AO. This issue is allowed for statistical purposes. Addition of valuation of closing of finished goods - Held that - This issue has to be allowed in favour of assessee by giving direction in regard to alternative claim that the addition to closing stock of finished goods made by the AO should be given consequential effect to the opening stock of next year also. Taxing interest on Government securities - Held that - We find that the Tribunal has consistently confirmed the orders of the lower authorities in bringing the interest on Government securities, respectfully following the same, we confirm the order of CIT(A) and this issue of assessee s appeal is dismissed. Inclusion import duty to the income of the assessee - Held that - As the facts circumstances are exactly identical in this year, respectfully following the Tribunal s order in earlier years, we direct the AO to exclude the import duty entitlements from the total income of the assessee. This issue of the assessee s appeal is accordingly allowed. Disallowance on Pooja expenses - Held that - Tribunal in the assessee s own the A.Y. 1997-98 and 2003-04 has decided a similar issue in favour of the assessee. Disallowing the claim of payment made to relatives of deceased employees - Held that - Respectfully following the Tribunal s order in earlier years, we direct the AO to allow the claim of payment made to relatives of deceased employees. This issue of the assessee s appeal is accordingly allowed. Disallowing expenses relatable to exempt income - Held that - We find that the Tribunal in earlier years also remanded the matter back to the file of the AO with directions to decide a reasonable disallowance by following the decision in the case of Godrej & Boyce Manufacturing Company Limited Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT . Accordingly, we also direct the AO to decide the issue in terms of the directions of Tribunal in 1999-2000. Accordingly, this issue is remanded back to the file of the AO. Not excluding the CFC grant received in pursuant to the Montreal Protocol for phasing out production of refrigerant gases - Held that - Grant received by the assessee from Multilateral Fund set up under Montreal Protocol signed by various countries to protect environment is in public interest to protect environment from Ozone Depleting Substance (ODS) and this grant has nothing to do with setting up of industry or its economics or profitability and hence this is capital receipt not liable to tax in India. Accordingly, we allow this issue of assessee s appeal.

Summary

Issues Involved:
1. Disallowance of Interest on Advances
2. Valuation of Closing Stock
3. Disallowance of Stamp Duty Payable on Amalgamation
4. Disallowance of Capital Expenditure on Scientific Research
5. Taxation of Interest on Government Securities
6. Exclusion of Import Duty Benefit from Income
7. Disallowance of Pooja Expenses
8. Disallowance of Payment to Relatives of Deceased Employees
9. Disallowance of Expenses Relatable to Exempt Income
10. Taxability of CFC Grant
11. Quantification and Carry Forward of Unabsorbed Business Losses and Depreciation

Issue-wise Detailed Analysis:

1. Disallowance of Interest on Advances:
The assessee challenged the disallowance of interest amounting to ?2,53,07,139/- on advances to various parties. The Tribunal noted that similar issues had been remanded back to the Assessing Officer (AO) in previous years following the precedent set by the Supreme Court in S.A. Builders (288 ITR 1). The Tribunal decided to remit this issue back to the AO for fresh adjudication, consistent with earlier years' decisions.

2. Valuation of Closing Stock:
The assessee contested the addition of ?25,00,000/- on account of valuation of closing stock of finished goods. The Tribunal directed the AO to give consequential effect to the opening stock of the next year, following the Tribunal's order for the assessment year 2003-04. This issue was allowed in favor of the assessee.

3. Disallowance of Stamp Duty Payable on Amalgamation:
The assessee did not press this issue, and it was dismissed accordingly.

4. Disallowance of Capital Expenditure on Scientific Research:
Similarly, the assessee did not press this issue, and it was dismissed.

5. Taxation of Interest on Government Securities:
The assessee challenged the taxation of ?15,840/- as interest on Government Securities. The Tribunal upheld the lower authorities' decisions, noting that similar issues had been consistently decided against the assessee in earlier years. This issue was dismissed.

6. Exclusion of Import Duty Benefit from Income:
The assessee sought exclusion of estimated import duty benefit of ?422.93 lakhs from income. The Tribunal directed the AO to exclude the import duty entitlements from the total income, following the Tribunal's order for the assessment year 1998-99. This issue was allowed.

7. Disallowance of Pooja Expenses:
The assessee contested the disallowance of ?2,30,445/- for pooja expenses. The Tribunal allowed the claim, following its decision in the assessee's own case for the assessment year 1998-99. The AO was directed to delete the addition.

8. Disallowance of Payment to Relatives of Deceased Employees:
The assessee challenged the disallowance of ?57,684/- paid to relatives of deceased employees. The Tribunal directed the AO to allow the claim, following earlier years' decisions. This issue was allowed.

9. Disallowance of Expenses Relatable to Exempt Income:
The assessee contested the estimation and disallowance of ?53,70,804/- set off against dividend income. The Tribunal remanded the matter back to the AO to decide a reasonable disallowance, following the Bombay High Court's decision in Godrej & Boyce Manufacturing Co. Ltd. The issue was remanded for fresh adjudication.

10. Taxability of CFC Grant:
The assessee argued that the CFC grant of ?17,48,87,557/- received under the Montreal Protocol should be treated as a capital receipt and not taxable. The Tribunal agreed, noting that the grant was for phasing out the production of refrigerant gases and was not intended to reduce production costs. The grant was deemed a capital receipt and not liable to tax. This issue was allowed.

11. Quantification and Carry Forward of Unabsorbed Business Losses and Depreciation:
The assessee did not press this issue, and it was dismissed.

Conclusion:
The appeal was partly allowed with several issues remanded back to the AO for fresh adjudication, while others were decided in favor of the assessee or dismissed as not pressed.