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2019 (3) TMI 1687 - AT - Income TaxDisallowance of CSR expenses - allowable expenditure u/s 37(1) - HELD THAT - I.T.A.T. holding the CSR expenses to be in the nature of business expenses and Explanation-2 to section 37 of the Act as being prospective in nature and the Ld. DR not having brought our notice any divergent view of the I.T.A.T. nor any distinguishing facts the decision rendered in the above two cases will squarely apply to the present case also following which we hold that the CSR expenditure incurred by the assessee amounting to 16, 03, 01, 431/- were allowable for the impugned year. The disallowance so made is therefore directed to be deleted. Taxability of interest of income tax refund u/s 244A - HELD THAT - Contention of the appellant that the tax on income is a pass through item and hence interest received by him u/s 244A of the Income Tax Act is not his income cannot be accepted. The act of the A.O. is upheld and this ground of the appeal is dismissed. Determining Minimum Alternate Tax (MAT)payable as per the provisions of section 115JB - HELD THAT - Admittedly the addition of interest on income tax refund of 2.16 crores received by the assessee to the Book Profits of the assessee for the purposes of MAT u/s 115JB of the Act has been made on consideration of the factual matrix that the same was not included in it. This fact has been demonstrated by assessee as being incorrect which has not been controverted by the Revenue. Further even we have noted that interest on income tax refund received by the assessee was reflected as other income in its Profit and Loss account as part of Schedule 2.22 in para 14 above. We hold that the addition to the Book Profits of the assessee of the Income Tax Refund was wrongly made and direct deletion of the same. The order of the Ld.CIT(A) in this regard is therefore set aside. Allowance of deduction u/s 80IA on scrap sales - AO denied the claim of deduction u/s 80IA on the said income by holding that the income was not derived from the manufacturing activity of the Industrial undertaking - CIT(A) allowed the claim on finding that the assessee had clearly brought out the nature of scrap generated and the linkages to the manufacturing activity - HELD THAT - The fact the scrap sold related to unserviceable/damaged spares retrieved from the plant is not disputed. That the cost of new spares replaced in place of the damaged spares was being charged fully to the Profit and Loss account has also not been controverted by the Revenue. The scrap sold therefore we agree with the Ld.CIT(A) resulted in reduction in the cost of new spares purchased and thus higher manufacturing profits to the assessee. And merely because the scrap sale was shown separately it did not tantamount to a new source of income. The real and ultimate impact of the scrap sold was reduction in cost of spares purchased during the year. Therefore we agree with the CIT(A) that the profits commensurate with the scrap sold was directly earned from the manufacturing activity of the assessee and the assessee was entitled to claim deduction u/s 80IA of the Act on the same. Disallowance of deduction u/s 80IA on sundry creditors written back and insurance claim received from repairs - A.O. had disallowed the said claim holding that the income was not derived from the manufacturing activity of the industrial undertaking - HELD THAT - We restore the issue of claim of deduction u/s 80IA of the Act on sundry creditors written back and insurance claim received back to the A.O to adjudicate the same in accordance with the direction given by the ITAT in the case of the assessee in A.Y 2008-09. Addition of interest received from bank and interest from employees to the book profit of the assessee for the purpose of Minimum Alternate tax (MAT) as per the provisions of section 115JB - HELD THAT - Since it is an admitted fact that the impugned incomes were disclosed in the Profit Loss Account it is but obvious they form part of the book profit of the assessee also. The addition made by the A.O. therefore is nothing but a double addition and the same is therefore directed to be deleted. Ground No.III raised by the assessee is allowed. Eligible for deduction u/s 80IA - HELD THAT - The factual findings of the Ld.CIT(A) that both the recoveries were received on account of damages/expenses incurred by the assessee on its projects, which had been debited to the profit and loss account of the assessee, has not been controverted by the Revenue. We therefore find no infirmity in the conclusion of the LD.CIT(A), based on these facts, that the recoveries were directly related with the running of projects /plants of the assessee and are therefore eligible for deduction u/s 80IA
Issues Involved:
1. Disallowance of CSR expenses. 2. Taxability of interest on income tax refund. 3. Income set off against expenditure during construction period. 4. Computation of deduction under section 80IA. 5. Addition to book profit under section 115JB. 6. Deduction under section 80IA on scrap sales. 7. Deduction under section 80IA on sundry creditors written back and insurance claim received. 8. Deduction under section 80IA on recovery from JP Power Ventures and Karcham Wangtoo. Detailed Analysis: 1. Disallowance of CSR Expenses: The assessee incurred CSR expenses of ?16,03,01,431/-, which were disallowed by the A.O. and upheld by the CIT(A) on the grounds that Explanation 2 to Section 37, disallowing CSR expenses, was retrospective. The Tribunal, however, referred to decisions in National Seeds Corporation Ltd. and Jindal Power Limited, holding that CSR expenses are business expenses and Explanation 2 is prospective. Thus, the disallowance was deleted, and the ground was allowed. 2. Taxability of Interest on Income Tax Refund: The assessee received ?2,16,05,340/- as interest on an income tax refund, which was not offered for taxation. The A.O. added this amount to the income, which was upheld by the CIT(A) as the applicable CERC regulation did not consider tax a pass-through item. The Tribunal found no merit in the assessee's contention and upheld the addition. 3. Income Set Off Against Expenditure During Construction Period: Grounds related to income set off against expenditure during the construction period were not pressed by the assessee and were dismissed as not pressed. 4. Computation of Deduction under Section 80IA: a) Interest from Staff: Not pressed and dismissed. b) Miscellaneous Income: The Tribunal upheld the CIT(A)'s decision that income from scrap sales is eligible for deduction under section 80IA as it is directly linked to the manufacturing process. 5. Addition to Book Profit under Section 115JB: The A.O. added interest on income tax refund to the book profit, assuming it was not included. The Tribunal found that the interest was included in the profit and loss account and directed deletion of the addition, allowing the ground. 6. Deduction under Section 80IA on Scrap Sales: The A.O. denied deduction on scrap sales, but the CIT(A) allowed it, finding that the scrap was generated from the manufacturing process. The Tribunal upheld the CIT(A)'s decision, noting that the scrap sales reduced the cost of new spares, thus increasing manufacturing profits. 7. Deduction under Section 80IA on Sundry Creditors Written Back and Insurance Claim Received: The CIT(A) disallowed the deduction, stating the assessee failed to establish the receipts were related to business transactions. The Tribunal restored the issue to the A.O. for verification, following the direction given in the assessee's case for A.Y. 2008-09. 8. Deduction under Section 80IA on Recovery from JP Power Ventures and Karcham Wangtoo: The A.O. denied the deduction, but the CIT(A) allowed it, finding the recoveries were related to business undertakings. The Tribunal upheld the CIT(A)'s decision, noting the recoveries were directly related to the running of the projects/plants. Conclusion: The Tribunal allowed the assessee's appeal partly, dismissing some grounds as not pressed and upholding the CIT(A)'s decisions on others. The Revenue's appeal was dismissed, affirming the CIT(A)'s allowance of deductions under section 80IA for scrap sales and recoveries from JP Power Ventures and Karcham Wangtoo.
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