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2019 (2) TMI 1705 - AT - Income TaxDisallowance on account of prior period expenses under the provisions of normal as well as MAT computation of income - AO made disallowance on the ground that prior period expenses cannot be allowed as a deduction against the current year income - HELD THAT - Regarding the normal computation of income, a specific query was raised from the Bench to the Ld. AR, to substantiate his claim that the prior period expenses were added in the computation of income. But the Ld. AR failed to substantiate his claim by any documentary evidence. However, the Ld. AR, before us, pleaded that the matter could be remanded back to the AO for the limited purpose of verifying whether the assessee has made disallowance of prior period expenses in the computation of income. DR, did not raise any objection if the matter is restored to the AO for verification as discussed above. Thus in the interest of Justice and fair play we are inclined to restore the impugned issue to the file of AO to verify whether the assessee has made the disallowance of prior period expenses amounting to ₹ 2.32 lacs under normal computation of income and accordingly adjudicate the issue afresh as per the provisions of Law. Computation of income under the provisions of MAT - We note that the assessee has to take the profit as shown in its financial statement prepared as per the prescribed schedule under the Companies Act and make the addition and subtraction only of those items specified u/s 115JB. As such, there is no mention under the provision of MAT for making any adjustment on account of prior period expenses. On a specific query from the bench to the Ld. DR, regarding the claim of prior period expenses while computing book profit under section 115JB of the Act. The Ld. DR, has not advanced any argument on this aspect. Therefore, we are not inclined to concur with the view of the Ld. CIT(A). Accordingly, we reverse the order of the authorities below and direct the AO to delete the addition made by him while computing book profit u/s 115JB of the Act Increase in the amount of profit on account of MODVAT credit - HELD THAT - There is no ambiguity that the assessee has been following the exclusive method of accounting. Thus, we can safely conclude that though the assessee is following the exclusive method of accounting which is contrary to the provisions of section 145A of the Act, but the effect of the same will remain NIL. Thus, there cannot be any fault of the assessee merely on the reasoning that the assessee has not valued its closing stock as per the provisions of section 145A of the Act in the given facts circumstances. In view of the above, we do not concur with the view of the Ld. CIT(A) and accordingly reverse the same. The AO accordingly is directed to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed. Denial of deduction u/s 80IA(4) - AO was of the view that the assessee was not eligible for deduction in respect of its power generation unit - HELD THAT - Deduction u/s 80IA(4) is available to the appellant in respect ,of electricity generated by it for captive consumption, subject to fulfillment of other conditions u/s 80IA. In Section 80IA(8) of the Act what is required to be ascertained is the market value of the goods transferred by the eligible business, when such transfer is by eligible business to another non eligible business of the same assessee and the consideration recorded in the accounts of the eligible business does not correspond to market value of such goods. Disallowances u/s 14A while computing book profit u/s 115JB - AO was of the view that the expenditure incurred in relation to the exempted income needs to be disallowed as per the clause f of explanation 1 to section 115JB - HELD THAT - It is settled law that the amount of disallowance made by the AO u/s 14A of the Act cannot be imported while determining the profit u/s 115JB of the Act. In this regard, we rely on the judgment cited by the ld AR for the assessee in the case of Alembic Ltd. 2017 (1) TMI 513 - GUJARAT HIGH COURT - Also in the case of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act Disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. 2014 (11) TMI 1169 - CALCUTTA HIGH COURT Determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently - there is no mechanism given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the disallowance. Therefore in the given facts circumstances, we feel that adhoc disallowance will service the justice to the Revenue and assessee. We, therefore, are directing for the ad-hoc disallowance to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the assessee is partly allowed. Lease rent paid in respect of capital asset - HELD THAT - As decided in own case 2016 (10) TMI 1281 - GUJARAT HIGH COURT once the expenditure is held to be in revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred. - Decided in favour of assessee. Addition on account of replacement of re-membrane cells - HELD THAT - As decided in own case 2016 (8) TMI 1462 - GUJARAT HIGH COURT attempt to contend that life of membrane would be spread over from 3 to 5 years or that the amount involved for replacement of membrane is huge and, therefore, the departure on the part of the Revenue could be said as justified, in our view, cannot be countenance for two reasons. One is that the amount involved would not make difference for chargability of the tax but the nature of expenditure would be relevant for the chargability of tax. It hardly matters whether the amount is more or less. Further, on the aspect of life of the membrane, nothing is referred to by the A.O. nor by C.I.T. (Appeals) that earlier, such aspect, namely, life of the membrane spread over from 3 to 5 years was not considered or it had missed or otherwise. - Decided against revenue Depreciation claim of the assessee at the rate of 60% on Chlorine tonners - HELD THAT - As decided in own case 2014 (2) TMI 77 - GUJARAT HIGH COURT Gas cylinders including valves and regulators were entitled to depreciation at the rate of 60% - Any vessel that contains such gas and is used either for transportation or storage would satisfy the requirement of being a gas cylinder - Chlorine toners used by the assessee are essentially and in substance nothing but gas cylinders - CIT(A) has rightly treated them as gas cylinders and accordingly allowed depreciation at the rate of 60% - Certificate of the experts also indicated that the same was a gas cylinder - Decided against revenue Additional depreciation on the computers installed in the factory premises - HELD THAT - As decided in own case 2014 (2) TMI 77 - GUJARAT HIGH COURT There cannot be universal preposition of law that computers are used only in offices and not for manufacturing activities - There may be number of ways in which installation of a computer may enhance and improve the efficiency - There is nothing on record to suggest that the computers were part of the plant and machinery - CIT(Appeals) and the Tribunal treating the same as simplicitor computers and granting depreciation at the rate prescribed under the law calls for no interference Decided against Revenue.
Issues Involved:
1. Disallowance of ?2.32 lacs on account of prior period expenses. 2. Addition of ?5,31,03,250/- on account of unutilized MODVAT credit. 3. Denial of deduction claimed under section 80IA(4) of the Act for ?47,91,81,000/-. 4. Addition of disallowances made under section 14A of the Act while computing book profit under section 115JB. 5. Deletion of addition of ?14.51 lacs on account of lease rent. 6. Deletion of addition of ?9,57,77,910/- on account of replacement of re-membrane cells. 7. Deletion of addition of ?1,09,93,340/- on account of depreciation claimed on chlorine tonners. 8. Deletion of addition of ?7,20,949/- on account of additional depreciation on computers. 9. Deletion of addition of prior period expenses while determining book profit under section 115JB. Issue-wise Detailed Analysis: 1. Disallowance of ?2.32 lacs on account of prior period expenses: The assessee claimed prior period expenses of ?2.32 lacs, which were disallowed by the AO under both normal and MAT provisions. The CIT(A) confirmed this disallowance. The Tribunal restored the issue to the AO for verification of whether the assessee had already disallowed these expenses in the computation of income. The Tribunal also noted that there is no provision under section 115JB for making adjustments on account of prior period expenses and directed the AO to delete the addition while computing book profit under section 115JB. 2. Addition of ?5,31,03,250/- on account of unutilized MODVAT credit: The AO added the unutilized MODVAT credit to the closing stock, resulting in an increase in total income. The CIT(A) directed the AO to verify whether the inclusive method of accounting would impact the net profit. The Tribunal noted that the assessee consistently followed the exclusive method of accounting and that any adjustment would be tax-neutral. Consequently, the Tribunal directed the AO to delete the addition. 3. Denial of deduction claimed under section 80IA(4) of the Act for ?47,91,81,000/-: The AO disallowed the deduction under section 80IA(4) for the power generation unit, arguing that the power was used for captive consumption and that the sale price was inflated. The CIT(A) confirmed the AO's view. The Tribunal, however, followed the jurisdictional High Court's decision in the assessee's favor, allowing the deduction under section 80IA(4). 4. Addition of disallowances made under section 14A of the Act while computing book profit under section 115JB: The AO added the disallowance made under section 14A while computing book profit under section 115JB. The CIT(A) confirmed this addition. The Tribunal, relying on the Special Bench decision in ACIT vs. Vireet Investment Pvt. Ltd., held that disallowances under section 14A cannot be imported into section 115JB computations. However, the Tribunal directed an ad-hoc disallowance of 1% of the exempted income as per clause (f) to Explanation-1 of section 115JB. 5. Deletion of addition of ?14.51 lacs on account of lease rent: The AO disallowed the lease rent as capital expenditure, which was deleted by the CIT(A) based on the Gujarat High Court's decision in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, following the High Court's ruling that the lease rent is deductible as revenue expenditure. 6. Deletion of addition of ?9,57,77,910/- on account of replacement of re-membrane cells: The AO treated the replacement cost as capital expenditure, allowing only depreciation. The CIT(A) allowed it as revenue expenditure, following earlier decisions in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, referencing the Gujarat High Court's ruling that such expenditure is revenue in nature. 7. Deletion of addition of ?1,09,93,340/- on account of depreciation claimed on chlorine tonners: The AO allowed depreciation at 15%, while the assessee claimed 60%. The CIT(A) allowed the higher rate, following the High Court's decision that chlorine tonners qualify for higher depreciation as gas cylinders. The Tribunal upheld the CIT(A)'s decision. 8. Deletion of addition of ?7,20,949/- on account of additional depreciation on computers: The AO disallowed additional depreciation on computers, treating them as office equipment. The CIT(A) allowed the depreciation, following earlier decisions and the High Court's ruling that computers used in manufacturing processes qualify for additional depreciation. The Tribunal upheld the CIT(A)'s decision. 9. Deletion of addition of prior period expenses while determining book profit under section 115JB: This issue was already adjudicated along with the assessee's appeal, where the Tribunal directed the deletion of the addition while computing book profit under section 115JB. Conclusion: The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The Tribunal's decisions were largely based on consistency with prior rulings and higher judicial authorities' decisions.
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