2017 (9) TMI 1888 - AT - Income Tax

Remission or cessation of liability u/s.41(1) - discount received on pre-payment of deferred Sales Tax Loan - HELD THAT - CIT(A) heavily relied on the Special Bench decision in the case of Sulzer India Ltd 2010 (11) TMI 728 - ITAT MUMBAI . Further he demonstrated that the said decision of the Special Bench of the Tribunal was subsequently confirmed by the jurisdictional High Court of Bombay in the case of CIT Vs. Sulzer India Ltd. r 2014 (12) TMI 267 - BOMBAY HIGH COURT - no contrary judgment was cited by the Revenue - decision of CIT-A confirmed - Decided against revenue. Disallowance u/s 14A - CIT- A confirmed allocating notionally the expenditure for earning Exempt income - assessee said he has excess interest free funds which should be presumed to have been invested in the exempt income in which case there is no need for disallowance of interest u/s.14A r.w. Rule 8D and relied on the decision of HDFC Bank 2016 (3) TMI 755 - BOMBAY HIGH COURT - HELD THAT - It is in the interest of justice for both the parties that the issues relating to disallowance of expenditure u/s.14A r.w. Rule 8D(2) of the I.T. Rules 1962 should be remanded to the file of the AO for fresh adjudication applying the said ratios of the judgments. AO shall grant reasonable opportunity to the assessee at the time of re-adjudication of the issues. Ground allowed for statistical purposes. Disallowance of share issue expenses - HELD THAT - We find this issue has already been adjudicated by the Tribunal against the assessee in the own case for A.Y. 2006-07 2012 (8) TMI 230 - ITAT PUNE While deciding Tribunal relied on the decision of Hon ble Supreme Court in the case of Brook Bond India Ltd. 1997 (2) TMI 11 - SUPREME COURT . Disallowance of income - difference between receipts as per online ITS data and receipt as per books - HELD THAT - We find there is merit in the counsel s submission that the AO should examine each and every item of income/receipt which figures in the Form 26AS but not accounted as income of the assessee in the year under consideration. He should examine each and every such item and pass a speaking order after granting reasonable opportunity of being heard to the assessee in accordance with the set principles of natural justice. Accordingly this part of the ground is allowed for statistical purposes. Disallowance of carbon credit expenses - assessee submitted that the Tribunal may consider reducing the sale price of the windmill to the extent of said 5 lakhs as the liability is on the assessee to incur the said amount - HELD THAT - This argument is raised for the first time with an implication on the W.D.V. of the asset in the hands of the buyer of the asset. After hearing both the sides we find it relevant to remand this issue to the file of the AO for fresh adjudication considering the aforesaid new argument raised by the Ld. Counsel for the assessee. Ground raised by the assessee is accordingly allowed for statistical purposes. Claim of deduction u/s.80IA(4) - Assessee demonstrated that the said claim of the assessee may now becomes infructuous in the light of the likely deletion of various additions of course if approved by the Tribunal or if no additions are repeated by the AO as a result of remand proceedings if any as directed by the Tribunal in this composite order - HELD THAT - We are of the considered opinion that it is certain that some of the additions are likely to be deleted or reduced in the remand proceedings as ordered above. The cited decisions would help the assessee. For example - we have now statistically allowed the issue relating to disallowance u/s.14A r.w. Rule 8D of the I.T. Rules 1962. There are certain other additions which are remanded for fresh adjudication by the AO. In a way this ground becomes consequential to the findings of the AO in the remand proceedings. Therefore we are of the opinion that for the time being this ground should be dismissed as infructuous. However we direct the AO to consider the claim of the assessee in case of positive profits if any at the end of the remand proceedings. Disallowance of IPO expenditure - HELD THAT - As relying on Nimbus Communication 2011 (12) TMI 696 - BOMBAY HIGH COURT IPO expenditure incurred in connection with issue of share. The initial public offer constitutes an allowable Revenue expenditure. Disallowance of claim u/s.80IA(4) - As per assesseeAO has notionally brought forward the losses of earlier years which was already set off against the profits of the earlier years by invoking the provisions of section 80IA(5) of the Act - HELD THAT - As such treatment is not appreciated by the Tribunal in the case of Serum International Ltd. 2013 (1) TMI 688 - ITAT PUNE and said decision of the Tribunal is in tune with the subsequent circular issued by the CBDT vide Circular No.01/2016 dated 01-05-2016. Considering the same the CIT(A) granted relief to the assessee which is fair and reasonable. - Decided against revenue.

Summary

Issues Involved:
1. Taxability of discount received on pre-payment of deferred sales tax loan.
2. Disallowance of expenditure for earning exempt income under Section 14A read with Rule 8D.
3. Disallowance of share issue expenses under Section 35D.
4. Disallowance of income based on discrepancies between ITS data and books of accounts.
5. Disallowance of carbon credit expenses.
6. Deduction under Section 80IA(4).
7. Disallowance of IPO expenses.
8. Interpretation of Section 80IA(5) regarding the initial assessment year for claiming deductions.

Detailed Analysis:

1. Taxability of Discount on Pre-Payment of Deferred Sales Tax Loan:
The Revenue challenged the CIT(A)'s decision that a discount of ?91,27,101 received on pre-payment of a deferred sales tax loan should not be treated as a remission or cessation of liability under Section 41(1). The Tribunal upheld the CIT(A)'s decision, noting reliance on previous Tribunal orders and the jurisdictional High Court's decision in CIT Vs. Sulzer India Ltd. (369 ITR 0717). No contrary judgment was provided by the Revenue, leading to the dismissal of the Revenue's appeal.

2. Disallowance of Expenditure for Earning Exempt Income (Section 14A r.w. Rule 8D):
For A.Y. 2007-08, the Assessee contested the disallowance of ?4,92,227 under Section 14A. The Tribunal remanded the issue to the AO for fresh adjudication, emphasizing the need to apply the latest judicial pronouncements, including the Bombay High Court's decision in HDFC Bank (383 ITR 529). Similar directions were given for subsequent years (A.Y. 2008-09, 2009-10, 2010-11, and 2011-12).

3. Disallowance of Share Issue Expenses (Section 35D):
The Assessee's claim for share issue expenses of ?18,94,491 was disallowed based on the Tribunal's earlier decision in A.Y. 2006-07, which relied on the Supreme Court's ruling in Brook Bond India Ltd. (225 ITR 798). The Tribunal dismissed the Assessee's appeal on this ground.

4. Disallowance of Income Based on ITS Data:
For A.Y. 2009-10, the Assessee challenged the addition of ?79,610 based on discrepancies between ITS data and book receipts. The Tribunal remanded the issue to the AO, instructing a detailed examination of each item and adherence to principles of natural justice.

5. Disallowance of Carbon Credit Expenses:
For A.Y. 2010-11, the Assessee argued that ?5,00,000 incurred as part of a contractual obligation in selling a windmill should be allowed as an expenditure. The Tribunal remanded the issue to the AO for fresh adjudication, considering the new argument raised.

6. Deduction Under Section 80IA(4):
For A.Y. 2010-11, the Assessee claimed a deduction of ?65,67,937 under Section 80IA(4). The Tribunal noted that this claim might become infructuous due to potential deletions of additions in remand proceedings. The AO was directed to consider the claim if positive profits were determined after remand proceedings.

7. Disallowance of IPO Expenses:
For A.Y. 2011-12, the Revenue contested the deletion of disallowance of IPO expenses of ?37,29,058. The Tribunal upheld the CIT(A)'s decision, which followed the Bombay High Court's ruling in Nimbus Communication, treating IPO expenses as allowable revenue expenditure.

8. Interpretation of Section 80IA(5):
The Revenue challenged the CIT(A)'s interpretation that the initial assessment year for claiming deductions under Section 80IA(4) should be the first year in which the deduction is claimed, not when the eligible business commenced. The Tribunal upheld the CIT(A)'s decision, aligning with the Tribunal's earlier decision in Serum International Ltd. and CBDT Circular No.01/2016.

Conclusion:
All the appeals filed by the Assessee were partly allowed for statistical purposes, and the appeals of the Revenue were dismissed. The Tribunal issued detailed remand instructions for fresh adjudication by the AO on several issues, emphasizing adherence to judicial precedents and principles of natural justice.