2018 (4) TMI 1829 - AT - Income Tax

Disallowance under Peripheral Development Expenses - Allowable business expenses or not? - CIT(Appeals) in partly sustaining the Expenditure incurred through Corporate Office of the assessee - HELD THAT - As decided in own case 2018 (4) TMI 1754 - ITAT CUTTACK AR referred to the nature of the expenditure incurred through the corporate office at Bhubaneswar and further substantiated that the assessee has evidence to prove the claim - claim of the assessee in respect of incurring of expenditure at peripheral areas as per the order of the Govt. is not disputed and the reasons recorded by the lower authorities in respect of sustenance of the addition to the cannot be overlooked - we remit this issue to the file of AO to verify the nature of expenditure incurred on the peripheral areas and decide the same on merits. This ground of appeal is allowed for statistical purposes. Disallowance of Interest on disputed Govt. duty (Electricity Duty and water charges) - HELD THAT - We find that the issue under consideration is covered by the order of the Tribunal in assessee s own case for the assessment year 2006-07 2007-08 2012 (12) TMI 632 - ITAT CUTTACK issue decided in favour of the assessee - we allow the claim of the assessee on account of interest on disputed Govt. duty (Electricity duty and water charges) and this ground of assessee is allowed. Disallowance u/s. 14A r.w.r. 8D - As per AO Disallowance made suomoto by the assessee is very less compared to the administrative and employee cost devoted to earn the exempt income - HELD THAT - AO while computing the disallowance under clause (iii) of Rule 8D has computed 0.5% of the average investments held by the assessee company in whole, which includes the investments in equity shares and long-term debt funds as well, income from which has not been claimed as exempt by the assessee AO could not make distinction between the equity shares and debt funds and calculated the disallowance, we are of the opinion this disputed issue has to be re-examined and apply the provisions of Section 14A r.w.rule 8D. Accordingly relying on H.T. MEDIA LIMITED 2017 (8) TMI 962 - DELHI HIGH COURT we restore this disputed issue to the file of the AO to re-examine and verify and apply the above provisions. This issue is allowed for statistical purposes. Additions Under Trial Operation expenses - as per AO the said expenditure incurred by the assessee till commercial production starts, could not be claimed as revenue expenditure and has to be capitalized - CIT(A) sustained the disallowance made by the AO holding that since trial run expenditure is pre-commercial production expenditure, the AO was correct in not allowing the same as revenue expenditure - HELD THAT - AO as well as the Ld. CIT(A) have not controverted the fact that the Captive Power Plant of the assessee company has been duly commissioned in the year under consideration for commencing commercial production and we support our view with the decision of Pr. CIT Vs. Larsen Toubro Ltd. 2017 (11) TMI 1607 - BOMBAY HIGH COURT wherein held once plant commences operation and even if product is substantial and not marketable, the business can said to have been set up. Mere breakdown of machinery or technical snags that may have developed after the trial run which had interrupted the continuation of further production for a period of time cannot be held ground to deprive the assessee of the benefit of depreciation claimed. We find the trial operation expenses incurred in the same year of sale. We respectfully follow the judicial decisions and direct the AO to treat the expenditure incurred by the assessee company on such trial operation as revenue expenditure and allow the claim and this ground of appeal is allowed. Disallowance under Prior period adjustments - addition made as said expenses are not related to the year under consideration - CIT(A) sustained the disallowance holding that no evidence was filed in order to prove that the prior period expenses have crystallized during the year under consideration - HELD THAT - As decided in own case 2018 (4) TMI 1754 - ITAT CUTTACK remit this disputed issue to the file of AO to examine the claims and grant the set off of prior period income against the prior period expenses and passed the order on merits and the ground of appeal is allowed for statistical purposes. Disallowance of amounts written off in respect of Claims, receivables, advances, shortages etc - as per AO no supporting documents and evidences in this regard were filed by the assessee - CIT(A) has sustained the disallowance holding that the assessee could not claim the written off of the advances when they were not a part of income of earlier years - HELD THAT - It is not in dispute that the amount of said advances has been given during the course of business and for business purpose only, which has become irrecoverable. Ld. AR drew our attention to paper book and submitted that the assessee has filed all the details before both the authorities below. Since the said amount has been utilized for business purpose and has to be allowed either as a business expenditure u/s 37(1) of the Act, or as a business loss while computing the profits and gains u/s 28 of the Act, considering the submissions of ld. AR of the assessee, we are of the opinion that the issue requires further examination by the AO - thus allow this ground of appeal for statistical purposes. Disallowance of Provision for Leave Encashment' u/s.43B(f) - AO alleging that the same is allowable only if the said expenditure has actually been paid by the assessee - CIT(A) has sustained the disallowance made by the AO holding that the decision in the case of Excide Industries Ltd. v. Union of India 2007 (6) TMI 175 - CALCUTTA HIGH COURT has been stayed by the Apex Court - HELD THAT - As decided in own case 2018 (4) TMI 1754 - ITAT CUTTACK we set aside the order of the CIT(A) and remit the matter to the file of the Assessing officer to re-adjudicate the issue in the light of the Hon ble Supreme Court decision. Hence, this ground is allowed for statistical purposes. Disallowance u/s.43B Under 'Electricity Duty' water Charges - HELD THAT - As decided in own case 2018 (4) TMI 1754 - ITAT CUTTACK disallowance u/s.43B has to be primarily when such electricity duty has been claimed as expenditure in the impugned assessment year. The assessee could not override the Hon ble High Court directions. The expenditure remained unpaid for both the years in spite of these directions, therefore, was rightly brought to tax by the ld AO u/s.43B, we uphold the confirmation thereof by the ld CIT(A). This ground for both years stands dismissed Treatment of capital gain income as business income - CIT(A) has affirmed the action of the AO by stating that frequent transactions entered into in stocks / shares / mutual funds by the assessee as well as the substantial amount involved in these transactions, reflects that the income earned from these transactions should be taxed as business income of the assessee - HELD THAT - Object of the assessee is manufacturing and assessee being a public sector company has enough funds and made investment in the mutual funds and on redemption the income is offered under the capital gain and the main object being the business and the maximum income is established through the direct business operations and not from the financial transaction. The investment has been made with the mutual funds/liquid funds/ closed ended funds and encashment on redemption/maturity. Further, the total profit earned by the assessee company by way of capital gains is only about 4% of the total income of the assessee company, which clearly shows that the assessee company is engaged in the business of mining, manufacturing, generation and production of aluminium and not dealing in mutual funds / liquid funds. As relying on Ramniwas Ramjivan Kasat 2017 (6) TMI 351 - GUJARAT HIGH COURT we direct the AO to treat the income as capital gains and not as business income and this ground of appeal of assessee is allowed. Disallowance of loss on valuation of non-moving store and spares - AO has made the disallowance stating that the loss claimed on account of diminution in the value of non-moving stores and spares should be restricted to 25% of the original cost, instead of 95% as claimed by the assessee - HELD THAT - As decided in own case 2005 (11) TMI 483 - ITAT CUTTACK we set aside the order of the CIT(A) on this ground and direct the AO to allow the claim of loss on account of value of non-moving stores and spares. TDS u/s 195 - Payment to non residents - HELD THAT - Amounts have been paid towards purchase of raw material, etc. on principal to principal basis and the assessee has procured the goods from the non-resident seller at its own cost after making payments on CIF basis. The raw material is sold by the non-resident seller in foreign soil, hence, no income accrues to the non-resident seller in the Indian territory. The Revenue has not controverted this finding of CIT(A) by bring any material on record nor it is apparent that income in respect of transactions arises in favour of the non-resident sellers in the Indian territory or that the income of such nonresidents in respect of transactions is assessable under Indian Income tax Law. The CIT(A) while considering the disputed issue has relied on the decision of GE India Technology Cen (P) Ltd. 2010 (9) TMI 7 - SUPREME COURT and observed that if the payment is made to a non-resident, which is not a taxable income in India, then no tax is required to be deducted u/s.195 of the Act and deleted the addition. In view of the above, we do not see any reason to interfere in the order of CIT(A), who has passed a reasoned order . Addition made on account of provision for provisional salary claimed by the assessee u/s.37 - AO stated that in case of the assessee the liability has not been actually arisen and it is merely anticipated and disallowed the same - HELD THAT - We found that the ld. DR could not controvert with any new findings of the CIT(A) except relying on the order of AO and on perusal of the CIT(A) s order we found that the assessee has produced the bills and supporting documents. The CIT(A) having considered these facts and also claim made by the assessee has passed a reasoned decision treating as ascertained liabilities and directed the AO to delete the addition. TDS u/s 194J - training expenses - Addition u/s 40(a)(ia) - CIT(A) while considering the disputed issue he has observed that there is ambiguity on applicability of provisions of the TDS. AND the entire training expenses cannot be for technical services and therefore cannot be construed that TDS should be done as per the Section 194J - HELD THAT - AO had not segregated exactly which amount requires TDS. There is also ambiguity regarding under what provisions of the section the TDS are to be done. The entire training expenses cannot be for technical services and therefore cannot be construed that TDS should be done as per the Section 194J -the expenses claimed by the appellant should not be disallowed and provisions of section 40(a)(ia) should not be attracted. The AO is directed to delete the same correctly.

Summary

Issues Involved:
1. Disallowance under "Peripheral Development Expenses"
2. Disallowance of Interest on disputed Govt. duty (Electricity Duty and water charges)
3. Disallowance u/s. 14A
4. Additions Under Trial Operation expenses
5. Disallowance under "Prior period adjustments"
6. Disallowance of amounts written off in respect of Claims, receivables, advances, shortages etc.
7. Disallowance u/s.40(a)(i) of the Act
8. Disallowance of Provision for Leave Encashment u/s.43B(f) of the Act
9. Disallowance U/s.43B of the Act - Under 'Electricity Duty' & water Charges
10. Disallowance of claim of Addl. Depreciation u/s.32(i)(iia) of the Act
11. Treatment of Long term Capital Gains and Short term Capital Gains as "Income from Business"
12. Levy of Interest u/s. 234A, 234B, 234C and 234D of the Act

Detailed Analysis:

1. Disallowance under "Peripheral Development Expenses":
The Tribunal found that the expenses incurred by the assessee were not covered under the Government of Odisha notifications and thus could not be categorized as peripheral development expenses. The Tribunal remitted the issue back to the AO for verification of the nature of the expenditure incurred at the corporate office.

2. Disallowance of Interest on disputed Govt. duty (Electricity Duty and water charges):
The Tribunal noted that the issue was covered by its earlier decisions in the assessee’s own case and directed the AO to allow the claim of the assessee on account of interest on disputed Government duty.

3. Disallowance u/s. 14A:
The Tribunal found that the AO had not recorded any dissatisfaction with the assessee’s claim regarding administrative expenses. It restored the issue to the AO for re-examination and to apply the provisions of Section 14A r.w. Rule 8D.

4. Additions Under Trial Operation expenses:
The Tribunal directed the AO to treat the expenditure incurred by the assessee on trial operations as revenue expenditure, following the judicial precedents and the facts of the case.

5. Disallowance under "Prior period adjustments":
The Tribunal remitted the issue to the AO to verify the claims and to grant the set-off of prior period income against the prior period expenses, following the judicial precedents.

6. Disallowance of amounts written off in respect of Claims, receivables, advances, shortages etc.:
The Tribunal restored the issue to the AO for further examination, noting that the amounts were given for business purposes and had become irrecoverable.

7. Disallowance u/s.40(a)(i) of the Act:
The Tribunal dismissed this ground as it was not pressed by the assessee.

8. Disallowance of Provision for Leave Encashment u/s.43B(f) of the Act:
The Tribunal restored the issue to the AO to examine and allow the claim of the assessee, following the judicial precedents.

9. Disallowance U/s.43B of the Act - Under 'Electricity Duty' & water Charges:
The Tribunal upheld the order of the CIT(A) and dismissed the ground of appeal of the assessee, following the decision in the assessee’s own case for earlier years.

10. Disallowance of claim of Addl. Depreciation u/s.32(i)(iia) of the Act:
The Tribunal dismissed this ground as it was not pressed by the assessee.

11. Treatment of Long term Capital Gains and Short term Capital Gains as "Income from Business":
The Tribunal directed the AO to treat the income as capital gains and not as business income, following the judicial precedents and the facts of the case.

12. Levy of Interest u/s. 234A, 234B, 234C and 234D of the Act:
The Tribunal allowed this ground of appeal, noting that the return of income was filed as per the CBDT Instruction.

Separate Judgments:
The Tribunal delivered a common order for all the appeals and cross objections, addressing each issue comprehensively and remitting certain issues back to the AO for further verification and examination.