2018 (1) TMI 1649 - AT - Income Tax

Disallowance on account of loss on foreign exchange fluctuation - nature of loss suffered - HELD THAT - As relying on assessee s own case for assessment year 2008-09 present situation is that the revenue authorities have not examined the nature of loss suffered by the assessee and how a provision was made. Whether it was a foreign derivative transaction or transaction in respect of forward exchange contract pertaining to hedge the loss in respect of carbon credit has not been clearly emerged from the facts of the case. We therefore deem it proper to restore this issue to the file of the AO so that he can make necessary enquiry and if it was a foreign exchange loss connected to the carbon credit then naturally the same should not be allowed - thus we restore this issue to the file of the Assessing Officer with the same direction as above. Hence this ground of revenue is allowed for statistical purposes. Deduction under section 80IA Computation - depreciation on common assets - 40% depreciation on common fixed assets be not reduced from eligible profit claimed u/s. 80IA of the Act - HELD THAT - We find that similar addition was made by the Assessing officer in the assessment year 2008-09 and the CIT(A) has confirmed the same. On appeal by the assessee the assessee did not press this ground before the Tribunal. Therefore this addition was sustained. Since the facts of the present year is similar to that in the year 2008-09 we reverse the order of the CIT(A) and restore that of the Assessing officer. Hence this ground of revenue is allowed. Disallowance u/s 14A - Assessee s counsel is making a plea that investments made by the assessee company in the present case were strategic investments - HELD THAT - We set aside the order of the CIT(A) and remit the matter back to the file of the Assessing Officer who shall examine the pattern of holdings in the group companies and decide the issue accordingly. This ground of the revenue is allowed for statistical purposes. Deduction under the head pooja festival expenses under the head Charity Donation expenses - AO observed that these expenses are not relatable to business purposes of the assessee thus disallowed - HELD THAT - We find that the CIT(A) after considering the CBDT circulars held that the expenses under the head charity donation do not relates to business of the assessee whereas he has allowed deduction for the pooja and festivals. We see no reason to interfere with the order of the CIT(A) which is hereby confirmed. Disallowance of share capital expenses - HELD THAT - Assessee is listed with BSE NSE and SEBI and the expenses relate to annual custodian fees listing fees compliance certificate fees printing of annual reports charges publication of quarterly half-yearly and annual results as per the requirements of SEBI and other misc professional fees relating to the work which are recurring in nature. CIT(A) has deleted the addition after properly appreciating the facts of the case. Hence we confirm his order and reject the ground of appeal of the revenue. Disallowance on account of Social Welfare expenses which have not been incurred wholly and exclusively for the purpose of business - CIT-A allowed the deduction - HELD THAT - CIT(A) has referred to the amendment made in Finance Act (No.2) 2014 w.e.f. 1.4.2015 in Section 37 wherein it is declared that for the purposes of sub-section(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. CIT(A) has held that there was no such embargo for the preceding years - CIT(A) held that the disallowance cannot be sustained. In the instant case it is submitted that CSR expenses are incurred for the welfare of local community and thereby improve corporate image of the companies incurring such expenditure. We are of the considered opinion that the CIT(A) has rightly considered the decision and deleted the addition made. Disallowance u/s.40A(3) - CIT-A has allowed the deduction which are below the prescribed limit u/s.40A(3) - HELD THAT - Before us no plausible explanation was submitted by the ld D.R. to controvert the above findings of the CIT(A). Hence we uphold the order of the CIT(A) and dismiss the ground of appeal of the revenue.

Summary

Issues Involved:

1. Deduction under Section 80IA for profit on sale of fly ash bricks.
2. Disallowance of loss on foreign exchange fluctuation.
3. Depreciation on common fixed assets for Section 80IA deduction.
4. Disallowance under Section 14A.
5. Disallowance of Pooja and festival expenses.
6. Disallowance of share capital expenses.
7. Disallowance of social welfare expenses.
8. Disallowance under Section 40A(3).

Issue-wise Detailed Analysis:

1. Deduction under Section 80IA for Profit on Sale of Fly Ash Bricks:
The Assessing Officer (AO) observed that the assessee included the sale of fly ash bricks in the total sales of the power division and claimed a deduction under Section 80IA. The AO reduced the profit from the sale of fly ash bricks, arguing it should not be considered for the deduction. The CIT(A) allowed the assessee's claim, but the Tribunal reversed this decision, restoring the AO's addition.

2. Disallowance of Loss on Foreign Exchange Fluctuation:
The AO disallowed the loss on foreign exchange fluctuation, arguing it was a provision and not an actual loss. The CIT(A) deleted the addition based on a previous year's decision. The Tribunal restored the issue to the AO for further examination, following the precedent set in the assessee's case for the assessment year 2008-09.

3. Depreciation on Common Fixed Assets for Section 80IA Deduction:
The AO disallowed depreciation on common assets from the eligible profit under Section 80IA. The CIT(A) deleted this disallowance, but the Tribunal reversed the CIT(A)'s decision, restoring the AO's addition, citing consistency with the previous year's treatment.

4. Disallowance under Section 14A:
The AO disallowed interest expenditure under Section 14A related to investments in shares. The CIT(A) deleted the disallowance. The Tribunal remitted the issue back to the AO for re-examination, directing the AO to consider the pattern of holdings in group companies, following the precedent in M/s. Alok Ferro Alloys Ltd.

5. Disallowance of Pooja and Festival Expenses:
The AO disallowed expenses under the heads "Pooja & Festival" and "Charity & Donation," deeming them non-business related. The CIT(A) allowed partial relief, considering them business expenses. The Tribunal upheld the CIT(A)'s decision, confirming the allowance of ?6,54,900/- as business expenditure.

6. Disallowance of Share Capital Expenses:
The AO disallowed expenses related to share capital, arguing no fresh capital was raised. The CIT(A) deleted the addition, recognizing the expenses as recurring and necessary for compliance with listing requirements. The Tribunal confirmed the CIT(A)'s decision, acknowledging the recurring nature of these expenses.

7. Disallowance of Social Welfare Expenses:
The AO disallowed social welfare expenses, arguing they were not wholly and exclusively for business purposes. The CIT(A) deleted the disallowance, relying on judicial precedents and the fact that the expenses were incurred before the amendment in Section 37. The Tribunal upheld the CIT(A)'s decision, recognizing the expenses as business-related.

8. Disallowance under Section 40A(3):
The AO disallowed payments made in violation of Section 40A(3). The CIT(A) provided partial relief, recognizing some expenses as below the prescribed limit. The Tribunal upheld the CIT(A)'s decision, confirming the deletion of the addition for expenses below the limit.

Conclusion:
The Tribunal allowed the revenue's appeal for statistical purposes in the first case and partly allowed the appeal in the second case, providing detailed directions for re-examination and confirming the CIT(A)'s decisions where applicable. The judgments emphasize consistency with previous years' treatments and adherence to judicial precedents.