2019 (12) TMI 1562 - AT - Income Tax

Notional interest on Annuity advance to subsidiary - assessee claimed that the advance had been made to the four companies for protecting and holding strategic interest in those companies and in various business initiatives - HELD THAT - As noticed that the issue of the notional interest on the annuity advance to subsidiaries is now squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case for various Assessment Years and as it is noticed that the learned CIT(A) has followed judicial discipline in following the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case for the earlier Assessment Years referred to supra, as also on the ground that the Revenue has not been able to dislodge the findings on the learned CIT(A), we find no reason to interfere in the order of the learned CIT(A) on this issue. Consequently, this issue is held in favour of the assessee and against the Revenue. Disallowance u/s.14A r.w. Rule 8D(2)(iii) - CIT(A) had followed the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case and had directed the Assessing Officer to determine and restrict the disallowance u/s.14A to 0.5% on the average investment as provided under Clause-(iii) of Rule 8D(2) - HELD THAT - As decided in own case 2016 (1) TMI 1028 - ITAT CHENNAI a part of the expenditure incurred in the manpower and infrastructure facilities diverted for earning exempted income has to be disallowed. As rightly submitted by the learned DR, the Assessing Officer has computed 0.5% of the average investment as expenditure by applying third limb of Rule 8D. Rule 8D(2)(iii) provides for disallowance of an amount equal to 0.5% of the average value of investment, income from which does not form part of the total income, shall be disallowed. Accordingly, the orders of the lower authorities are modified and the Assessing Officer is directed to disallow 0.5% of the average value of investment, the income from which does not form part of the total income - Decided against revenue. Depreciation of Franchise rights - claim disallowed by AO on the ground that, in the case of the assessee, the franchise has been suspended and the assessee had not been taking part in the tournament - HELD THAT - As decided in own case 2016 (1) TMI 1028 - ITAT CHENNAI assessee has claimed only 18.89 crores as depreciation and the Assessing Officer has given an enhanced depreciation of an additional amount of ₹ 12.92 lakhs resulting a depreciation of ₹ 31.81 crores. Similarly, for the assessment year 2015-16, the assessee had claimed 14.17 lakhs, whereas the Assessing Officer has granted ₹ 32.05 crores. Thus, the Assessing Officer has in fact granted the assessee higher depreciation than what has been claimed by the assessee. A perusal of the order of the learned CIT(A) shows that the learned CIT(A) has followed judicial discipline in following the decision of the Co-ordinate Bench it has been held that the Assessing Officer is directed to allow depreciation on the entire cost of ₹ 364 crores - as it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case issue is decided against the Revenue and in favour of the assessee. Nature of receipts - Sales Tax subsidy as capital receipts - HELD THAT - CIT(A) has categorically considered the fact that if the object of the subsidy is to enable the assessee to run a business more profitably, then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy is to enable the assessee to set up a new unit or to expand its existing unit, then the receipt of the subsidy was on capital account - CIT(A) has also considered the principles laid down by the Hon ble Supreme Court in the case of Commissioner of Income-Tax vs. Ponni Sugars and Chemicals Limited . 2008 (9) TMI 14 - SUPREME COURT - CIT(A) has also recognized the fact that the subsidy was granted to the assessee as incentive to invest in backward areas and consequently the said subsidy granted by the Government in fact was capital receipt. It is also noticed that the learned CIT(A) has recognized with the fact that the Cement Manufacturing Plant at Parli, Beed District in the state of Maharashtra comes under the Industrial Promotion Policy of the Government of Maharashtra and the Package Scheme of Incentives 2007 invited by the Directorate of Industries, Government of Maharashtra and consequently the assessee has made a fixed capital investment of nearly 152 crores as on 31.03.2011. It is after recognizing this that the learned CIT(A) has granted the assessee the benefit of treating the said subsidy as a capital receipt. Foreign currency monetary item transaction - HELD THAT - The amortization has been done by applying the notification issued by the MCA Circular dated 29.11.2011 but in the Memorandum of total income the amortized sum was added back and the entire expenses claimed. Thus, it is not the issue as to the assessee having amortized the deferred revenue expenditure but this is in fact a forex loss incurred by the assessee on account of a loan taken for the general purpose. This is admittedly to be allowed on the revenue filed in line to the decision in the case of Commissioner of Income Tax vs. Woodward Governor India (P) Limited 2009 (4) TMI 4 - SUPREME COURT . It must also be mentioned here that the Assessing Officer in the assessment order has not disturbed the claim of the assessee on the ground that the loss was capital. The Assessing Officer is disallowing the claim only on the ground that the MCA Circular are not binding on the department. As no error in the accounts of the assessee nor has any facts has been brought out to show that the forex loan taken by the assessee was for the capital asset. This being so, as also on the fact that the revenue has not been able to dislodge the findings of the facts as arrived by the learned CIT(A) in his order, we find no reason to interfere in the order of the learned CIT(A) and the same stands upheld. In the result, the issue is held in favour of the assessee. Depreciation of UPS restricted to 60% - HELD THAT - The issue as to whether the UPS is liable to be considered as part of the computer system and therefore entitled for rate of 60% being the rate eligible for computers admittedly is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the case of Indian Overseas Bank Limited 2014 (2) TMI 930 - ITAT CHENNAI AND Case of Datacraft India Limited, Mumbai 2010 (7) TMI 642 - ITAT, MUMBAI - UPS forms part of the computer system and therefore was entitled for depreciation at 60% being the rate of depreciation for computers. Deduction u/s.80IA - adjustment of the rate in respect of the electricity consumed under the captive consumption - HELD THAT - As deduction u/s.80IA is the deduction from the total income of the assessee the profits and gains of an eligible undertakings. The Hon ble Gujarat High Court in GUJARAT ALKALIES AND CHEMICALSLTD 2016 (10) TMI 1111 - GUJARAT HIGH COURT has categorically admitted that the deduction u/s.80IA is permissible for captive consumption and even the rate at which the deduction is to be computed. Consequently, the issue is held in favour of the assessee and against the Revenue. Disallowance u/s.14A r.w.rule 8D while comuting book profit u/s.115JB - HELD THAT - CIT-A followed the principles laid down by the Co-ordinate Bench of this Tribunal in the assessee s own case and restricted the disallowance to 0.5% of the average investment to be considered for disallowance under both the regular provisions and also in computing the book profits u/s.115JB of the Income Tax Act, 1961. As it is noticed that the learned CIT(A) has followed the principles laid down in the case of Assistant Commissioner of Income Tax Vs. Vireet Investment Private Limited 2017 (6) TMI 1124 - ITAT DELHI , we find no error in the order of the learned CIT(A) which calls for any interference. In the result, the issue is held in favour of the assessee and against the Revenue. Disallowance u/s.37 as business expenditure for the payment made to National Council for Cement Building Materials - As submitted assessee had to contribute to the National Council for Cement and Building Materials NCCBM which was a Government of India organization - HELD THAT - As it is noticed the payments have been made by the assessee to NCCBM which is an Apex body functioning under the Government of India and doing significant study and research in cement related field, obviously, the results from the said study would be in the interest of the assessee s business. This being so, in view of the decision of the Hon ble Supreme Court in the case of Venkata Satyanarayana Rice Mill Contractors 1996 (10) TMI 2 - SUPREME COURT as also complying the principles laid down in the case of Chemicals and Plastics India Limited 2007 (2) TMI 194 - MADRAS HIGH COURT we are of the view that the expenditure is a business expenditure and allowable u/s.37 of the Income Tax Act, 1961. This being so and also on account of the fact that the Revenue has not been able to dislodge the findings as arrived by the learned CIT(A) on this issue, we find no reason to interfere in the order of the CIT(A) on this issue. Consequently, the said issue is held in favour of the assessee

Summary

Issues Involved:
1. Notional interest on annuity advance to subsidiary
2. Disallowance under Section 14A read with Rule 8D(2)(iii)
3. Depreciation of franchise rights
4. Sales tax subsidy as capital receipts
5. Foreign currency monetary item transaction
6. Depreciation of UPS
7. Deduction under Section 80IA for electricity consumed under captive consumption
8. Disallowance under Section 14A read with Rule 8D while computing book profit under Section 115JB
9. Disallowance under Section 37 for payment to National Council for Cement & Building Materials

Issue-wise Detailed Analysis:

1. Notional Interest on Annuity Advance to Subsidiary:
The assessee did not charge interest on advances to four subsidiaries, claiming commercial expediency. The Assessing Officer (AO) did not accept this and added notional interest. The Tribunal noted that similar issues were previously decided in favor of the assessee, referencing the Supreme Court's judgment in S.A. Builders Limited. The Tribunal upheld the CIT(A)'s decision to delete the addition, holding the issue in favor of the assessee.

2. Disallowance under Section 14A read with Rule 8D(2)(iii):
The AO made a disallowance under Section 14A for exempt dividend income. The CIT(A) directed the AO to restrict the disallowance to 0.5% of the average investment, following previous Tribunal decisions in the assessee's case. The Tribunal upheld the CIT(A)'s order, holding the issue in favor of the assessee.

3. Depreciation of Franchise Rights:
The assessee claimed depreciation on the franchise rights of 'IPL-Chennai Super Kings'. The AO disallowed this, citing the franchise's suspension. The Tribunal referenced earlier decisions allowing depreciation on the entire cost of ?364 crores, not just the amount paid annually. The Tribunal upheld the CIT(A)'s decision, holding the issue in favor of the assessee.

4. Sales Tax Subsidy as Capital Receipts:
The AO treated sales tax incentives as income, while the assessee claimed them as capital receipts. The CIT(A) and Tribunal held that the subsidies, aimed at promoting investment in backward areas, were capital receipts, referencing the Supreme Court's decision in Ponni Sugars and Chemicals Limited. The issue was held in favor of the assessee.

5. Foreign Currency Monetary Item Transaction:
The AO treated forex losses as capital expenditure, while the assessee claimed them as revenue expenditure. The CIT(A) directed the AO to allow the forex loss as revenue expenditure, following the Supreme Court's decision in Woodward Governor India (P) Limited. The Tribunal upheld the CIT(A)'s order, holding the issue in favor of the assessee.

6. Depreciation of UPS:
The AO granted depreciation on UPS at lower rates, treating it as 'Plant & Machinery'. The CIT(A) followed Tribunal decisions granting 60% depreciation, treating UPS as part of the computer system. The Tribunal upheld the CIT(A)'s decision, holding the issue in favor of the assessee.

7. Deduction under Section 80IA for Electricity Consumed under Captive Consumption:
The AO reworked the deduction under Section 80IA, adopting rates prescribed by TNERC and APERC. The CIT(A) and Tribunal held that the market rate should be used for captive consumption, following previous Tribunal decisions and High Court rulings. The issue was held in favor of the assessee.

8. Disallowance under Section 14A read with Rule 8D while Computing Book Profit under Section 115JB:
The AO included disallowance under Section 14A while computing MAT under Section 115JB. The CIT(A) restricted the disallowance to 0.5% of the average investment, following previous Tribunal decisions. The Tribunal upheld the CIT(A)'s order, holding the issue in favor of the assessee.

9. Disallowance under Section 37 for Payment to National Council for Cement & Building Materials:
The AO disallowed contributions to NCCBM. The CIT(A) allowed the expenditure under Section 37, citing the Supreme Court's decision in Venkata Satyanarayana Rice Mill Contractors. The Tribunal upheld the CIT(A)'s decision, holding the issue in favor of the assessee.

Conclusion:
All issues were decided in favor of the assessee, and the Revenue's appeals were dismissed. The Tribunal consistently upheld the CIT(A)'s decisions, referencing previous Tribunal rulings and Supreme Court judgments to support their conclusions.