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2015 (12) TMI 1825 - AT - Income TaxUnutilised modvat credit - HELD THAT - As decided in own case 2015 (11) TMI 1799 - ITAT MUMBAI the assessee had, in valuing their stock, uniformly adopted the net method , viz. , valuing the raw materials at the purchase price minus the Modvat credit. This method was also adopted while valuing the unconsumed raw materials and the work in progress at the end of the year. The Assessing Officer took the view that the Modvat credit should be treated as an income or advantage in the nature of income and added back the Modvat credit. The Appellate Tribunal held that the Modvat credit could not be added back to the income of the assessee, that merely because the Modvat credit was an irreversible credit available to manufacturers upon purchase of dutypaid raw material, that would not amount to income which was liable to be taxed under the Act income was not generated to the extent of the Modvat credit on unconsumed raw material ;(ii) that it was not permissible for the Assessing Officer to adopt the gross method for valuation of raw materials at the time of purchase and the net method for valuation of stock on hand. Addition made on account of catalyst - revenue or capital expenditure - AR's submission that the capitalization was done by the assessee only because of the prescription of the ICAI with regard to the change of the accounting standard - HELD THAT - The objection by the revenue that the assessee should have claimed it in the earlier years, or the basis for claiming this during the year under consideration is because the assessee started making profit for the first time after amalgamation etc. , is not sustainable. Even the assessee's counsel submitted before us that this was not the first year of profit making. Even before the amalgamation the company made the profit. It is true that after amalgamation also the assessee had positive income. We have to accept the assessee's contention that it was not the motive to reduce tax, but it was because of the change in the method accounting standard prescribed by the ICAI is a reason to be accepted in the absence of any evidence to the contrary. Disallowanceu/s. 14A - HELD THAT - While deciding the appeal for the AY. 2007-08 we have restored back the issue of disallowance to be made u/s. 14A to the file of the AO. Following the same, AO is directed to decide the issue afresh after affording a reasonable opportunity of hearing to the assessee. Additional Ground No. 1 and 2 also deal with the disallowance made u/s. 14A of the Act. Following out order for AY07-08 we are remitting back the issue to the file of AO Disallowance u/s. 40(a)(ia) towards provisions made for expenses at the year end - HELD THAT - We find that the AO had invoked the provisions of section 40(a)(ia), though he has also discussed the principles of contingent liability, while making the disallowance. We find that FAA has passed a nonspeaking order and just endorsed the views of the AO but he was also of the opinion that provisions of section 40(a)(ia) were applicable. It is found that assessee had specifically mentioned during the assessment proceedings, that it had not received the bills under various heads, that provisions of tax deducting at source were not applicable for the provisions made. We find that similar issue had arisen in the case of Mahindra Mahindra Ltd. 2013 (9) TMI 522 - ITAT, MUMBAI . In that matter it was held that TDS provisions were not applicable for the provisions made at the year end. Disallowance u/s. 43B(f), being provision made for leave salary - HELD THAT - As decided in own case 2014 (10) TMI 154 - ITAT MUMBAI as it has been decided in assessee s own case for the earlier assessment year, following the decision in Srikakollu Subba Rao And Co. And Others Versus Union Of India And Others 1988 (3) TMI 46 - ANDHRA PRADESH HIGH COURT in order to apply the provisions of Sec. 43B not only should be the liability to pay the tax or duty be incurred in the accounting year but also should be statutorily payable in the accounting year - the provision for leave salary is not a statutory liability but only a contractual liability which is payable only if the employees resigns or retired from the services Decided in favour of assessee. Disallowance of Employee Stock Option Scheme(ESOP) - HELD THAT - We find that the Special Bench of the Tribunal in the case of Biocon Limited 2013 (8) TMI 629 - ITAT BANGALORE has decided the issue of ESPO in favour of the assessee. Disallowance of depreciation on goodwill on acquisition of Madura garments Division - HELD THAT - As decided in own case 2013 (11) TMI 1241 - ITAT MUMBAI we direct the AO to allow the claim of depreciation on Goodwill. Sale of certified emission reduction (CER) - revenue or capital receipt - HELD THAT - Tribunal has factually found that carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns . We agree with this factual analysis as the assessee is carrying on the business of power generation. The carbon credit is not even directly linked with power generation. On the sale of excess carbon credits the income was received and hence as correctly held by the Tribunal it is capital receipt and it cannot be business receipt or income. Treatment of interest subsidy under TUFS - HELD THAT - We find that, while deciding the appeal for 95-96 the Tribunal had dealt with the sales tax/Vat subsidy. It had no occasion to deal with the interest subsidy received under the TUFS. We find that neither the AO nor the FAA had any occasion to decide the nature of the interest subsidy of TUFS while passing the assessment order or deciding the appeal for the year under consideration. We are of the opinion that in the interest of justice the matter should be restored back to the File of FAA for fresh adjudication
Issues Involved:
1. Deletion of unutilized MODVAT credit. 2. Treatment of catalyst expenditure as capital or revenue. 3. Disallowance under Section 14A. 4. Disallowance under Section 40(a)(ia). 5. Disallowance under Section 43B(f) for leave salary provision. 6. Reduction of deduction under Section 80IA due to allocation of Head Office expenses. 7. Disallowance of Employee Stock Option Scheme (ESOP) expenses. 8. Depreciation on goodwill from acquisition. 9. Taxability of income from sale of Certified Emission Reductions (CERs). 10. Treatment of interest subsidy under Technology Upgradation Fund Scheme (TUFS). Detailed Analysis: 1. Deletion of unutilized MODVAT credit: The Tribunal decided against the Assessing Officer (AO) regarding the deletion of unutilized MODVAT credit, following previous judgments including the case of Indo Nippon Chemicals Co. Ltd. (261 ITR 275). The Tribunal emphasized that the MODVAT credit should not be treated as income, as it is consistent with accepted accounting principles. 2. Treatment of catalyst expenditure as capital or revenue: The AO treated the expenditure on catalysts as capital, but the First Appellate Authority (FAA) and the Tribunal ruled it as revenue expenditure. The Tribunal referenced the Lucknow Tribunal's decision in Hindalco Industries and the Supreme Court's judgment in Kedarnath Jute Mfg. Co. Ltd. v. CIT (82 ITR 363), which stated that book entries are not decisive for taxability. 3. Disallowance under Section 14A: The issue of disallowance under Section 14A was remitted back to the AO for fresh adjudication, following the Tribunal's decision for the Assessment Year (AY) 2007-08. 4. Disallowance under Section 40(a)(ia): The Tribunal ruled in favor of the assessee, referencing previous decisions where it was held that TDS provisions were not applicable for provisions made at the year-end if bills were not received. 5. Disallowance under Section 43B(f) for leave salary provision: The Tribunal decided in favor of the assessee, following previous judgments that Section 43B(f) does not apply to contractual liabilities such as leave salary provisions, referencing the case of Bharat Earth Movers (245 ITR 428). 6. Reduction of deduction under Section 80IA due to allocation of Head Office expenses: The Tribunal ruled in favor of the assessee, stating that Head Office expenses should not be allocated to the profits of eligible units under Section 80IA, following decisions in Grasim Industries and Procter & Gamble Hygiene & Health Care Ltd. 7. Disallowance of Employee Stock Option Scheme (ESOP) expenses: The Tribunal allowed the deduction for ESOP expenses, referencing the Special Bench decision in Biocon Limited (144 ITS 215), which held that ESOP discounts are employee costs deductible during the vesting period. 8. Depreciation on goodwill from acquisition: The Tribunal allowed the claim for depreciation on goodwill from the acquisition of Madura Garments Division, following its earlier decision for AY 2000-01. 9. Taxability of income from sale of Certified Emission Reductions (CERs): The Tribunal ruled that income from the sale of CERs is a capital receipt and not taxable, following the Andhra Pradesh High Court's decision in My Home Power Ltd. (365 ITR 82). 10. Treatment of interest subsidy under Technology Upgradation Fund Scheme (TUFS): The issue was remitted back to the FAA for fresh adjudication, as neither the AO nor the FAA had previously considered the nature of the interest subsidy under TUFS. Conclusion: The appeal filed by the AO was dismissed, the assessee's appeal was partly allowed, and the cross-objection of the assessee was allowed for statistical purposes. The judgment was pronounced in the open court on December 9, 2015.
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