2018 (11) TMI 1611 - AT - Income Tax

Interest payment on income tax dues against the interest income as against the income tax refunds - HELD THAT - There is no dispute between the parties about the two sums involved on interest income on refunds and interest expenditure on income tax. The sole question herein is that of netting of these two figures only. CIT(Appeals) has placed a very strong reliance on this tribunal s order in Bank of America case 2011 (4) TMI 920 - ITAT MUMBAI for denying, the netting in issue. We find in this factual back drop that the impugned issue is no more res integra as hon ble Bombay high court decision in the said assessee s case hold such a netting to be allowable in DIT (International Taxation) vs. Bank of America. CIT- DR failed to revert all these clinching intervening legal developments on the impugned netting aspect. His only case is there lordships never intended to make the said decision as a precedent. We find no merit in the instant plea as Revenue s very substantial question of law raised in its tax appeal stands rejected. We therefore direct the assessing officer to finalize the assessee s netting computation qua its interest as taxes paid to the department as against interest income of tax refunds as per law. This first substantive ground raised in assessee s appeal is taken as accepted in taxpayer s favour. Addition u/s 14A read with Rule 8D(2)(iii) administrative expenditure - HELD THAT - The assessee has filed a detailed compilation chart of all the issues raised along with its written submissions therein. We have already narrated the same in foregoing paragraphs. There is no rebuttal at all to above clinching finding of the co-ordinate bench decision, in preceding assessment year. All of its contentions are therefore found to be repetitive of its arguments raised in assessment year 2008-09 which already stand rejected. We thus find no substance in assessee s instant substantive ground therefore. Coming to assessee s legal argument in view of Maxopp investments Ltd. 2011 (11) TMI 267 - DELHI HIGH COURT it transpires that their lordships had decided proportionate interest disallowance issue in relation to exempt income rather than indirect expenditure in the nature of overheads therein. It has already come on record that the Assessing Officer has not accepted assessee s books computing its suo moto disallowance of proportionate interest expenditure. He disallowed its administrative expenditure only under the third limb of Rule 8D . We therefore adopt above co-ordinate bench detailed reasoning mutatis mutandis to confirm administrative expenditure disallowance . The assessee failed qua its second substantive ground as well. Claim of ESOPs to be wholly and exclusively incurred for the purpose of its business - HELD THAT - Hon ble Gujrat high court decision in CIT vs. Mitesh Impex 2014 (4) TMI 484 - GUJARAT HIGH COURT has taken into account NTPC and Goetz (India) Ltd. vs. CIT 2006 (3) TMI 75 - SUPREME COURT to hold that if a claim which is available in law is not raised either inadvertently or an account of erroneous plea of complex legal position, such a relief cannot be shut up for all the times to come merely because it is raised for the first time in appellate proceedings in absence of a revised return filed before the Assessing Officer. We therefore accept assessee s instant additional ground in principle and leave it open for the Assessing Officer to verify all the relevant facts as per law after affording adequate opportunity of hearing in consequential proceedings. This third substantive ground is accepted for statistical purposes. Entitled for the educations secondary higher education cess as overhead deduction u/s 37 - HELD THAT - M/s Chambal Fertilizers Ltd. vs. DCIT 2018 (10) TMI 589 - RAJASTHAN HIGH COURT takes into account CBDT circular dated 18.05.1967 for holding such cess(es) to be allowable as deduction. Their lordships hold that section 40a(ii) applies only on taxes such than earn cess(es). We therefore reject the Revenue s contentions supporting the impugned disallowance . The assessee s instant substantive ground is accepted. The Assessing Officer is direction to verify all the relevant facts and allow the impugned cess (es) as deduction u/s 37 of the Act. Carbon credit receipts - revenue or capital receipts - HELD THAT - Instant issue is no more res integra as per PCIT vs. M/s L.H. Sugar Factory Pvt. Ltd. 2016 (9) TMI 152 - ALLAHABAD HIGH COURT as well as various other judicial precedents quoted in the CIT(A) order (supra) make it clear that such receipts as to be treated capital head only. Coupled with this, the legislature has inserted section 115BBG in the Act vide Finance Act, 2017 w.e.f 01.04.2018. We make it clear that this appeal pertains to assessment year 2009-10 only. This is not the Revenue s case that the above stated legislative amendments carries any retrospective effect. Disallowing commission and directors sitting fee on account of non-deduction of TDS - Addition invoking section 40a(ia) - HELD THAT - This issue is covered in assessee s favour from preceding assessment years. The Revenue fails to dispute that its very grievance in preceding assessment year 2008-09 (supra) stood declined before this tribunal as well. We therefore adopt judicial consistency to affirm the CIT(Appeals) finding under challenge. The Revenue s instant second substantive ground is rejected. Section 80IA deduction claim allowed - we direct the AO compute the profit eligible for deduction u/s 80IA on the basis of the aforesaid finding given by the Tribunal for A.Y. 2002-03. Deduction u/s 80IC on said unit situated at Haridwar has transferred the goods and services to the business carried on by the assessee and therefore no business is carried on by the impugned undertaking - Deduction has been claimed on notional profit which has never been included in the credit side of the Profit Loss account - HELD THAT - Eligibility of the claim is concerned, this issue is duly covered by the decision of this Tribunal for A.Y 2007-08 in Assessee's own case in which this Tribunal income need not be separately credited to the Profit Loss account when the income derived from the eligible undertaking has to be computed. The revenue authorities should only ensure whether income from the eligible undertaking is included in the gross total income of the Assessee or not as the basic condition for allowing of deduction u/s 80lC is that the Assessee is eligible for deduction if the gross total income includes any profit and gain derived by the eligible undertaking. We, therefore, restore this issue to the file of the CIT(A) with the direction that CIT(A) shall re-decide this issue after giving due opportunity to the Assessee of being heard and give a clear-cut finding whether the income derived by the Assessee from the said eligible undertaking stands included in the gross total income of the Assessee

Summary

Issues Involved:
1. Adjustment of interest payment on income tax dues against interest income on tax refunds.
2. Disallowance under Section 14A read with Rule 8D for administrative expenditure.
3. Claim of ESOPs as revenue expenditure.
4. Deduction of secondary and higher education cess under Section 37.
5. Treatment of receipts from the sale of carbon credits.
6. Disallowance of commission and directors' sitting fees due to non-deduction of TDS.
7. Section 80IA deduction for eligible captive undertakings.
8. Section 80IC deduction for eligible undertakings.

Issue-wise Analysis:

1. Adjustment of Interest Payment on Income Tax Dues Against Interest Income on Tax Refunds:
The assessee argued that interest payments on income tax dues should be netted against interest income on tax refunds, citing a Mumbai Tribunal decision. The CIT(A) denied this adjustment, relying on a Pune Tribunal decision and subsequent overruling of the Mumbai Tribunal decision. However, the Appellate Tribunal found that the Bombay High Court allowed such netting in the case of DIT (International Taxation) vs. Bank of America NT & SA. The Tribunal directed the assessing officer to allow the netting of interest payments against interest income on tax refunds.

2. Disallowance Under Section 14A Read with Rule 8D for Administrative Expenditure:
The assessee challenged the disallowance of administrative expenses under Section 14A read with Rule 8D. The CIT(A) upheld the disallowance, following the precedent set in the previous assessment year. The Tribunal noted that the assessee had derived exempt income and that the CIT(A) had followed judicial consistency. The Tribunal confirmed the disallowance, referencing the co-ordinate bench's detailed reasoning in the preceding assessment year.

3. Claim of ESOPs as Revenue Expenditure:
The assessee claimed ESOPs as revenue expenditure, citing the Tribunal's Special Bench decision in Biocon Ltd. vs. DCIT. The Tribunal accepted the claim in principle, referencing the Gujarat High Court decision in CIT vs. Mitesh Impex, which allowed claims not raised earlier due to complex legal positions. The Tribunal directed the Assessing Officer to verify the relevant facts and allow the ESOP deduction as per law.

4. Deduction of Secondary and Higher Education Cess Under Section 37:
The assessee claimed deduction for education cess under Section 37. The Tribunal referenced the Rajasthan High Court decision in M/s Chambal Fertilizers Ltd. vs. DCIT, which allowed such cess as a deduction, stating that Section 40a(ii) applies only to taxes, not cess. The Tribunal directed the Assessing Officer to allow the deduction for education cess.

5. Treatment of Receipts from the Sale of Carbon Credits:
The Revenue contested the CIT(A)'s treatment of carbon credit receipts as capital receipts. The Tribunal upheld the CIT(A)'s decision, referencing judicial precedents and noting that the legislative amendment introducing Section 115BBG was prospective and not applicable to the assessment year in question.

6. Disallowance of Commission and Directors' Sitting Fees Due to Non-Deduction of TDS:
The Revenue challenged the CIT(A)'s decision to reverse the disallowance of commission and directors' sitting fees due to non-deduction of TDS. The Tribunal noted that this issue had been decided in the assessee's favor in previous assessment years and upheld the CIT(A)'s decision.

7. Section 80IA Deduction for Eligible Captive Undertakings:
The Revenue contested the CIT(A)'s decision to allow Section 80IA deductions for the assessee's captive undertakings. The Tribunal referenced its decision in the immediate preceding assessment year, which upheld similar findings and directed the Assessing Officer to finalize the necessary computation. The Tribunal adopted the same reasoning and declined the Revenue's appeal.

8. Section 80IC Deduction for Eligible Undertakings:
The Revenue challenged the CIT(A)'s decision to allow Section 80IC deductions for the assessee's eligible undertakings. The Tribunal referenced its decision in the preceding assessment year, which upheld the CIT(A)'s findings and directed the Assessing Officer to verify if the income from the eligible undertaking was included in the gross total income. The Tribunal confirmed the CIT(A)'s decision and declined the Revenue's appeal.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's cross-appeal was dismissed. The Tribunal directed the Assessing Officer to verify and finalize the necessary computations and deductions as per law.