2015 (2) TMI 1330 - AT - Income Tax

Interest income taxed under the head Income from other sources - adjusting it against the interest expenditure capitalized to Incidental Expenditure during Construction (EDCP) account - HELD THAT - As relying on own case 2013 (9) TMI 688 - ITAT MUMBAI for the sake of consistency, we restore the issue to the file of the AO with a direction to examine the nexus between interest paid on borrowed funds and decide the issue in terms of the above reproduced directions given by the Tribunal for earlier assessment year. Disallowance of expenditure u/s. 14A - HELD THAT - Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT has held that Rule 8D cannot be applied retrospectively but is applicable from assessment year 2008-09. For the assessment years prior to A.Y. 2008-09, the disallowance under section 14A can be made by the AO on some reasonable basis, if, the AO is not satisfied with the correctness of the working made by the assessee in this respect. We therefore direct that the AO will consider the working given by the assessee and if he will be satisfied in that respect, no further disallowance will be required to be made. However, if the AO will not be satisfied with the working given by the assessee, then the disallowance be made on some reasonable basis after giving the assessee due opportunity of representing its case in this respect. Subject to our above observations, the order of the Ld. CIT(A) on this issue is upheld. Denial of deduction u/s. 80IB on the Technology Up-gradation Fund TUF subsidy received - HELD THAT - As relying on own case 2013 (9) TMI 688 - ITAT MUMBAI , we deem it proper to set aside this particular issue to the file of the AO with the direction to examine whether the reimbursement of interest cost is reimbursement of revenue expenditure debited to the P L Account of that eligible unit to that extent either in this year or in any earlier years. If it is so then due to reimbursement the expenditure incurred by the assessee is reduced, to the extent the profit of the industrial undertaking will increase. Therefore, to examine the interest claim out of the unit and its reimbursement by way of subsidy, the matter is restored to the file of the AO. He is directed to keep in mind the decision of the Hon'ble Gauhati High Court in the case of Mehalaya Steels Ltd. 2010 (9) TMI 679 - GAUHATI HIGH COURT and allow the deduction under section 80IB accordingly if the nexus is established. Computation of disallowance made u/s. 14A for computing book profit u/s. 115JB - HELD THAT - In view of the observations made above in the case of Godrej Consumer Products Ltd. 2013 (11) TMI 1245 - ITAT MUMBAI it is held that the expenditure found disallowable under section 14A can be added back while computing book profits under section 115 JB of the Act. Since in the case in hand, we have restored the issue of disallowance u/s 14A of the Act to the file of the A.O., hence, it is held that whatsoever expenditure would be found by the AO as disallowable under section 14A, the same can be added back while computing book profit under section 115JB in the case of the assessee. Levy of interest u/s 234B - HELD THAT - As decided in M/S CHARBHUJA INDUSTRIES PVT. LTD. 2014 (1) TMI 1623 - ITAT MUMBAI no advance tax was payable on MAT computed u/s 115JB and accordingly, the interest u/s 234B and 234C cannot be levied for non-deposit of advance tax on MAT for the year under consideration. Hence, we delete the levy of interest u/s 234B and 234C in this case Entire TUF subsidy received - ground raised for the first time before us only - HELD THAT - As decided in own case 2013 (9) TMI 688 - ITAT MUMBAI since this issue was not examined by the AO at all, we admit the additional ground and restore the matter to the file of the AO to examine the claim afresh keeping in mind the principles laid down by the Hon'ble Supreme Court on the issue of subsidy and also other case laws.

Issues Involved:
1. Classification of interest income.
2. Disallowance of expenditure under Section 14A.
3. Deduction under Section 80IB on Technology Up-gradation Fund (TUF) subsidy.
4. Disallowance of provision for doubtful debts.
5. Computation of disallowance under Section 14A for computing book profit under Section 115JB.
6. Levy of interest under Section 234B.
7. Disallowance of provision for leave encashment.
8. Classification of TUF subsidy as capital receipt.

Detailed Analysis:

1. Classification of Interest Income:
The assessee contested the taxing of Rs. 14,73,35,367/- as 'Income from other sources' instead of adjusting it against interest expenditure capitalized to the Incidental Expenditure during Construction (EDCP) account. The Tribunal restored the issue to the Assessing Officer (AO) to examine the nexus between the interest income and the borrowings, following its earlier decision in the assessee's case for A.Y. 2006-07.

2. Disallowance of Expenditure under Section 14A:
The AO computed a disallowance of Rs. 33,00,675/- under Section 14A read with Rule 8D, whereas the assessee had disallowed Rs. 1,48,421/- suo moto. The CIT(A) directed the AO to recompute the disallowance on a reasonable basis as per the Bombay High Court decision in "Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT". The Tribunal upheld this direction, emphasizing that Rule 8D is not applicable retrospectively before A.Y. 2008-09.

3. Deduction under Section 80IB on TUF Subsidy:
The AO excluded the TUF subsidy of Rs. 6,09,82,038/- from the deduction under Section 80IB, treating it as incentive profit. The Tribunal restored the issue to the AO to examine the nexus of the subsidy with the interest cost, following its earlier decision in the assessee's case for A.Y. 2006-07.

4. Disallowance of Provision for Doubtful Debts:
The assessee did not press these grounds, and they were dismissed accordingly.

5. Computation of Disallowance under Section 14A for Computing Book Profit under Section 115JB:
The Tribunal, following its decision in "M/s. Godrej Consumer Products Limited", held that the expenditure disallowable under Section 14A should be added back while computing book profit under Section 115JB. The AO was directed to add back the disallowable expenditure under Section 14A while computing book profit.

6. Levy of Interest under Section 234B:
The Tribunal deleted the interest levied under Sections 234B and 234C, agreeing with the assessee's reliance on the Supreme Court decision in "CIT Vs Kwality Biscuits Ltd." and the Tribunal's decision in "Charbhuja Industries Pvt. Ltd. vs. ACIT", which held that no advance tax was payable on MAT computed under Section 115JB.

7. Disallowance of Provision for Leave Encashment:
The Tribunal restored the issue to the AO for fresh adjudication in light of the pending Supreme Court decision in "Exide Industries Ltd.", following its earlier decision in the assessee's case for A.Y. 2006-07.

8. Classification of TUF Subsidy as Capital Receipt:
The Tribunal restored the issue to the AO to examine the claim afresh, considering the principles laid down by the Supreme Court on the issue of subsidy, following its earlier decision in the assessee's case for A.Y. 2006-07.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes, and the appeal of the Revenue was dismissed. The Tribunal emphasized consistency with earlier decisions and directed the AO to re-examine several issues.

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