2019 (5) TMI 1664 - AT - Income Tax

Addition of advance against depreciation - HELD THAT - Issue to be answered in favour of the respondent-assessee in view of our order and judgment dated 28.02.2018 in the assessee's case in 2018 (4) TMI 47 - PUNJAB AND HARYANA HIGH COURT Nature of expenditure - Addition on repair of capital assets - addition treating the expenses incurred as capital expenditure as it will give enduring benefit to the assessee - CIT-A deleted the addition - HELD THAT - We find that the ld. Departmental Representative simply relied on the order of the Assessing Officer. He could not point out any specific error in the order of the CIT(A). In the circumstances, we find no good reason to interfere with the order of CIT(A) which is hereby confirmed and the ground of appeal of the revenue is dismissed. Disallowance u/s 14A - non recording of satisfaction - HELD THAT - We find that the AO has not recorded the satisfaction envisaged by the statute before invoking the computation provided for under Rule 8D - We also find that in assessee s own case for the previous year also, the Tribunal has deleted the addition made by the AO on this account. Disallowance of provisions in computing book profit u/s 115 JB - provision made for gratuity, leave encashment, post retirement medical benefits, LTC, Baggage allowance and Matching Contribution on Leave Encashment - as alleged the assessee has failed to establish these provisions to be of ascertained in nature - HELD THAT - Issue to be answered in favour of the respondent-assessee in view of our order and judgment 2018 (4) TMI 47 - PUNJAB AND HARYANA HIGH COURT Addition of depreciation on land unclassified and leasehold land while computing book profit for MAT u/s 115JB - HELD THAT - The issue is covered in favour of the assessee and against the revenue by the decision of the Tribunal in the case of the assessee itself for assessment year 2009-10 2015 (9) TMI 222 - ITAT DELHI Deduction u/s 80-IA on other income - whether hire charges and miscellaneous income earned in the course of business are eligible for deduction u/s 80IA? - HELD THAT - We find that the AAR in the case of National Fertilizers Limited 2004 (10) TMI 588 - AUTHORITY FOR ADVANCE RULINGS, NEW DELHI held that the expenses incurred to earn these other incomes should be excluded from the debit side of the profit and loss account for computing the deduction u/s 80-I. It is well settled that interest can be assessed under the head 'Income from other sources only if it cannot be brought within one or the other of the specific heads of charge. We find it difficult to comprehend how the interest receipts by the assessee can be treated as receipts which flow to him de hors the business which is carried on by him. In our view, the interest payable to him certainly partakes of the same character as the receipts for the payment of which he was otherwise entitled under the contract and which payment has been delayed as a result of certain disputes between the parties. It cannot be separated from the other amounts granted to the assessee under the awards and treated as 'Income from other sources - See NIRMA INDUSTRIES LIMITED VERSUS Dy. CIT 2006 (2) TMI 92 - GUJARAT HIGH COURT Disallowance made while computing the deduction allowable u/s 80-IA of the Act is not justified. Hence, we set aside the orders of the lower authorities and direct the Assessing Officer to recompute the deduction allowable to the assessee u/s 80-IA of the Act without excluding other income . Thus, this ground of appeal of the assessee is allowed. Addition on account of income tax on perquisite while computing book profit u/s 115JB - tax on perquisite in respect of accommodation provided to its employees - HELD THAT - Issue decided in favour of assessee as relying on RASHTRIYA CHEMICALS FERTILIZERS LIMITED 2018 (3) TMI 1564 - ITAT MUMBAI as held taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not below the line items since the same are expressively disallowed u/s 40(a)(v) and the same do not constitute Income Tax for the assessee in terms of Explanation-2. Without there being any corresponding amendment in the definition of Income Tax as provided in Explanation-2 to Section 115JB, Fringe Benefit Tax was not required to be added back while arriving at Book Profits u/s. 115JB. - Decided in favour of assessee. MAT - Addition on account of wealth tax liability while computing the book profit u/s 115JB - HELD THAT - As u/s 115JB of the Act, wealth tax is not covered under Explanation 1 of Sub-section (2)(a) of Section 115JB. Thus, it does not affect the book profit and will not be added to calculate tax liability under MAT. For this reliance was placed on the decision of Hon ble Bombay High Court in the case of CIT Vs Reliance Industries Ltd. 2019 (1) TMI 887 - BOMBAY HIGH COURT wherein held made a vague attempt to bring this item in clause (c) noted above. Clause (c) would include the amount set aside for provisions made for meeting liabilities other than ascertained liabilities. For applicability of this clause, therefore, fundamental facts would have to be brought on record which in the present case, the Revenue has not done. In fact, the entire thrust of the Revenue's argument at the outset appears to be on clause (a) which refers to the income tax which according to the Revenue would also include wealth tax. This question, therefore, is not required to be entertained - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition on account of advance against depreciation.
2. Deletion of disallowance of prior period expenses.
3. Deletion of addition on repair of capital assets.
4. Deletion of addition by invoking provisions of Section 14A.
5. Deletion of addition while computing book profit for MAT u/s 115JB.
6. Disallowance of deduction u/s 80IA.
7. Addition of income tax on perquisite borne by the assessee.
8. Addition of wealth tax liability while computing book profit u/s 115JB.

Detailed Analysis:

1. Deletion of Addition on Account of Advance Against Depreciation:
The Revenue contested the deletion of ?107,97,42,000/- by the Commissioner of Income Tax (Appeals). The Assessing Officer added this amount back to the income, arguing it was not for normal income computation. However, the Commissioner of Income Tax (Appeals) and the Hon’ble Supreme Court, in the assessee's own case, held that advance against depreciation is income received in advance subject to future adjustment and should not be added back under normal provisions or Section 115JB. The ITAT upheld this view, referencing the Hon’ble Punjab & Haryana High Court's decision in favor of the assessee.

2. Deletion of Disallowance of Prior Period Expenses:
The Assessing Officer disallowed ?3,89,59,508/- as prior period expenses. The Commissioner of Income Tax (Appeals) deleted this disallowance, noting that the interest income related to these expenses was wrongly accounted for in the previous year and was rectified in the current year. The ITAT found no error in the Commissioner’s decision and upheld the deletion.

3. Deletion of Addition on Repair of Capital Assets:
The Assessing Officer treated ?10,53,30,844/- spent on repairs as capital expenditure. The Commissioner of Income Tax (Appeals) deleted this addition, stating that the repairs were necessary for maintaining the operational capacity of old projects and did not increase the asset's capacity. The ITAT upheld this decision, finding no specific error in the Commissioner’s order.

4. Deletion of Addition by Invoking Provisions of Section 14A:
The Assessing Officer added ?78,70,22,900/- under Section 14A, claiming it was related to exempt income. The Commissioner of Income Tax (Appeals) vacated this disallowance, noting that the investments were made from interest-free funds provided by the government and internal accruals. The ITAT upheld this decision, referencing the Tribunal’s prior ruling in the assessee’s favor for similar issues in earlier years.

5. Deletion of Addition While Computing Book Profit for MAT u/s 115JB:
The Assessing Officer added ?51,74,19,109/- for provisions related to gratuity, leave encashment, and other benefits, claiming they were unascertained liabilities. The Commissioner of Income Tax (Appeals) deleted this addition, referencing judicial rulings that these provisions, based on actuarial valuation, were ascertained liabilities. The ITAT upheld this decision, citing the Hon’ble Punjab & Haryana High Court’s ruling in favor of the assessee.

6. Disallowance of Deduction u/s 80IA:
The Assessing Officer disallowed ?4,46,54,883/- of other income from the deduction claimed u/s 80IA, arguing it was not derived from the business of power generation. The Commissioner of Income Tax (Appeals) upheld this disallowance. The ITAT, however, reversed this decision, citing judicial precedents that such incomes, being incidental to the business, should be included in the deduction computation.

7. Addition of Income Tax on Perquisite Borne by the Assessee:
The Assessing Officer added ?95,02,478/- to the book profit, arguing that income tax paid on perquisites should be included. The Commissioner of Income Tax (Appeals) upheld this addition. The ITAT reversed this decision, referencing the Tribunal’s ruling in Rashtriya Chemicals & Fertilizers Ltd. that such taxes do not constitute income tax for the assessee and should not be added back.

8. Addition of Wealth Tax Liability While Computing Book Profit u/s 115JB:
The Assessing Officer added ?69,11,134/- on account of wealth tax liability. The Commissioner of Income Tax (Appeals) upheld this addition. The ITAT reversed this decision, following the Hon’ble Bombay High Court’s ruling that wealth tax is not included in the adjustments for computing book profit under Section 115JB.

Conclusion:
The ITAT dismissed the Revenue’s appeal and allowed the assessee’s appeal, providing relief on all contested issues.