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2014 (9) TMI 1186 - AT - Income TaxDisallowance of the Commission to non-whole time whole time Directors and sitting fees u/s 40(a)(ia) - HELD THAT - As decided in assessee's own case 2011 (11) TMI 478 - ITAT, KOLKATA commission paid was held as incentive in addition to salary, bonus and other perquisites, thus out of preview of Sec 194H/194H, thus allowing the claim of assessee - Decided in favor of assessee. Claim of deduction u/s 80IA - various captive power undertakings located in the district of Bhadrachalam and Kovai - AO was of the view that while computing the transfer price, additional demand charges has to be excluded - HELD THAT - Assessee has computed the profit for claiming deduction by taking tariff rate @ ₹ 4.45/unit as per the policy of APSEB. This rate of APSEB contains fixed charges which are not directly relatable to the captive plant. CIT(A) reduced this rate by deleting the surcharge and additional duty and worked out the unit rate @ ₹ 4.368. The Tribunal, therefore, confirmed the market rate/unit on the basis of the policy of APSEB as reduced by the surcharge, additional duty. Thus in view of the decision of this Tribunal for A.Y 2002-03, the Assessee, in our opinion, is entitled for deduction u/s 80IA in respect of the captive power undertaking but for the purpose of ascertaining the profit, market value should be taken in respect of the two power undertakings generating electricity. AO reduced the additional demand charges but the CIT(A) allowed the relief to the Assessee holding that determination of the market value/based on the State Government electricity power tariff inclusive of additional demand charges has been specifically decided by CIT(A) and Tribunal for the A.Y 2002-03 and the Assessee has strictly followed the same. CIT(A) decided this issue in favour of the Assessee. We noted that the Tribunal in its order for A.Y 2002-03 has accepted the rate per unit as worked out by CIT(A). CIT(A) reduced the tariff rate by surcharge and additional duty. Respectfully following the aforesaid decision of this Tribunal, 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. Computation u/s 80IA of profit from power undertakings - HELD THAT - The cost of the electricity duty payable to the State Government has accrued during the year and has to be allowed as deduction while computing the profit of the eligible undertaking. This issue, in our opinion, had neither arisen during the A.Y 2002-03 nor has been decided by the CIT(A) or by the Tribunal. The AO has simply disallowed the deduction u/s 80IA. Therefore, on this issue we set aside the order of CIT(A) and restore the order of the AO and direct the AO to reduce the profit eligible for deduction in respect of the power undertaking Bhadrachalam, power undertaking - II, Bhadrachalam and power undertaking - I, Kovai. The State Electricity Duty which has been debited by the Assessee to the Profit Loss account be reduced for computing the profit eligible for deduction in respect of each unit. Whether the steam generated is power or not? - deduction u/s 80IA - HELD THAT - We noted that the AO has disallowed deduction on the basis that both units are functionally integrated as a single unit as far as generation of the steam and electricity, CIT(A) instead of giving a factual finding and looking into the budgetary speech of the Hon'ble Finance Minister, decided the issue merely on the basis of the arguments of the Assessee which were not taken before the AO. We, therefore, in the interest of justice and fair play to both the parties set aside the order of CIT(A) on this issue and restore this issue to the file of CIT(A) with the direction that CIT(A) shall re-adjudicate this issue on merits after considering the nature of the plant established by the Assessee and the budgetary speech of the Hon'ble Finance Minister which gives the intention of bringing Sec. 801 A(4) in the statute Set off of brought forward notional loss accumulated prior to the initial year of the claim - HELD THAT - We noted that this issue is duly covered in favour of the Assessee by the decision of Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. v. CIT 2010 (3) TMI 860 - MADRAS HIGH COURT . Also see SHRI ANIL H LAD 2014 (3) TMI 808 - KARNATAKA HIGH COURT , we confirm the order of CIT(A) on this issue. Deduction u/s 80IC in respect of the undertaking at Haridwar, Uttaranchal - AO did not allow the deduction holding that the Assessee had not carried out any business through this impugned undertaking and 100% goods or products are being used by the designated division of the Assessee - Assessee has not included in the credit side of the Profit Loss account any profit while deduction has been claimed on the notional profit - CIT(A) deleted the disallowance - HELD THAT - As relying on assessee's own case said unit is eligible for deduction u/s 80IC. So far as the issue that no profit has been credited in the Profit Loss account, we noted that CIT(A) has even though decided in favour of the Assessee that the Assessee is eligible for deduction u/s 80IC but has not given any finding whether the income generated from this undertaking stands included in the gross total income of the Assessee. The 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 80IC 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 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. Disallowance in respect of interest payment on income tax dues - Assessee has claimed set off of interest payment on income tax dues against interest earned on the income tax refund - AO did not allow the same - CIT(A) also dismissed the ground taken by the Assessee - HELD THAT - In the result, it is to be held that the assessee is assessable in respect of the gross interest received from the income tax department and not merely on the net interest remaining after set off of the interest paid to the income tax department. see Dy. CIT v. Sandvik Asia Ltd. 2011 (6) TMI 563 - ITAT, PUNE Disallowance u/s 14A - HELD THAT - Assessee himself has disallowed a part of the expenditure being the proportionate management expenses for earning of the dividend. The Ld. AR also did not dispute the working made by the AO under Rule 8D. In view of our aforesaid discussion, we confirm the order of CIT(A). Thus, this ground stands dismissed. In the result, the appeal filed by the Assessee stands dismissed.
Issues Involved:
1. Disallowance of commission and sitting fees to non-whole time directors under Section 40(a)(ia). 2. Claim for deduction under Section 80IA. 3. Claim for deduction under Section 80IC. 4. Adjustment of interest payment on income tax dues against interest income on income tax refunds. 5. Disallowance of proportionate management expenses under Section 14A. Issue-Wise Detailed Analysis: 1. Disallowance of Commission and Sitting Fees to Non-Whole Time Directors under Section 40(a)(ia) The Revenue's appeal contested the deletion of disallowance of commission (Rs. 31,72,677) and sitting fees (Rs. 13,20,000) paid to non-whole time directors. The Assessing Officer (AO) had disallowed these payments under Section 40(a)(ia) due to non-deduction of TDS, asserting that such payments fall under Section 194J. The CIT(A) deleted the disallowance, following the Tribunal's decision in the assessee's case for AY 2007-08, which held that such payments do not constitute managerial, technical, or consultancy services under Section 194J nor commission under Section 194H. The Tribunal upheld CIT(A)'s decision, affirming that the payments were not subject to TDS under Section 194J, thereby dismissing the Revenue's ground. 2. Claim for Deduction under Section 80IA The Revenue challenged the CIT(A)'s decision allowing the assessee's claim for deduction under Section 80IA amounting to Rs. 69,57,61,000 for various captive power undertakings. The AO had recalculated the profits of these undertakings by excluding additional demand charges and electricity duty. The CIT(A) allowed the deduction, referencing earlier decisions in the assessee's favor for AY 2002-03 to AY 2007-08. The Tribunal upheld CIT(A)'s decision, reiterating that the market value for computing profits should include additional demand charges as per the APSEB tariff rate. However, the Tribunal directed the AO to reduce the profit by the electricity duty payable to the State Government, which was not considered in earlier decisions. 3. Claim for Deduction under Section 80IC The Revenue contested the CIT(A)'s decision allowing the assessee's claim for deduction under Section 80IC amounting to Rs. 21,32,47,171 for the undertaking at Haridwar. The AO had disallowed the deduction, arguing that the undertaking did not carry out any business and that the profits were notional. The CIT(A) allowed the deduction, following the Tribunal's decision in the assessee's case for AY 2007-08, which held that captive undertakings are eligible for deduction under Section 80IC. The Tribunal upheld CIT(A)'s decision but remanded the issue to verify whether the income from the eligible undertaking was included in the gross total income. 4. Adjustment of Interest Payment on Income Tax Dues against Interest Income on Income Tax Refunds The assessee's appeal contested the CIT(A)'s decision disallowing the adjustment of interest payment on income tax dues (Rs. 2,33,98,296) against interest income on income tax refunds (Rs. 17,31,96,921). The Tribunal dismissed the assessee's ground, following the Third Member decision in Sandvik Asia Ltd., which held that interest paid to the Income Tax Department cannot be deducted while computing business income, and the assessee is assessable on the gross interest received. 5. Disallowance of Proportionate Management Expenses under Section 14A The assessee's appeal contested the disallowance of Rs. 13,12,82,700 under Section 14A, arguing that the disallowance was arbitrarily upheld by CIT(A). The AO applied Rule 8D to compute the disallowance, expressing dissatisfaction with the assessee's claim that no direct expenditure was incurred for earning exempt income. The Tribunal upheld the AO's application of Rule 8D, noting that the AO had recorded reasons for not being satisfied with the assessee's claim. The Tribunal found that the assessee failed to provide a satisfactory basis for the apportionment of expenses, thereby confirming the disallowance under Section 14A. Conclusion: The Tribunal dismissed the Revenue's appeal on the disallowance of commission and sitting fees and upheld the CIT(A)'s decision on the deduction under Section 80IA, with a directive to adjust for electricity duty. The Tribunal upheld the CIT(A)'s decision on the deduction under Section 80IC but remanded the issue for verification of income inclusion. The Tribunal dismissed the assessee's appeal on the adjustment of interest payment and the disallowance under Section 14A, confirming the AO's application of Rule 8D. The appeals were partly allowed for statistical purposes and dismissed in other respects.
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