2021 (9) TMI 1340 - AT - Income Tax

Rectification of mistake u/s 154 - Addition of towards allocation of interest expenses towards dividend income, under the head business income - HELD THAT - Since, the assessee has also raised additional ground No. 2, towards allocation of interest expenses towards dividend income which is not academics as noted by the Tribunal. We are of the view that once it is held that the investment giving rise to dividend income were made out of interest free funds, the disallowance of interest expenditure while computing profits and gains of business was not justified. Hence, we are of the view that this interest expenditure need to be allowed. We direct the Assessing Officer accordingly. This mistake is rectified. Treatment of sales Tax incentive and fertilizer subsidy as income eligible for claiming of deduction under section 80IB - HELD THAT - We noted that the facts relating to the issue whether the sales tax incentives or fertilizers subsidy is capital receipt or revenue receipt, the adjudication by Tribunal is not there. Even, the facts are not dealt with by the Tribunal in its order. Hence, without commenting on the facts, we recall the order of the Tribunal on this issue and direct the registry to fix this appeal.

Summary

Issues:
1. Mistake in adding back interest expenses towards dividend income under business income.
2. Disallowance under section 80M/Section 14A.
3. Disallowance of deduction under section 80(IB) for fertilizer unit.
4. Treatment of sales tax incentives and fertilizer subsidy as capital receipts.

Analysis:

1. The first issue addressed in the judgment concerns the mistake made by the Assessing Officer in adding back a sum towards interest expenses incurred for earning dividend income, affecting the profit and gains of the business. The Tribunal rectified this error by considering that the interest expenditure should be allowed if the investments generating dividend income were made from interest-free funds, thereby deciding in favor of the assessee.

2. The second issue involves the disallowance under section 80M/Section 14A, where the Tribunal directed the Assessing Officer to rework the disallowance concerning indirect expenses. The Tribunal found merit in the contention that no expenses were incurred for earning dividend income, as evidenced by the audited accounts, leading to a decision in favor of the assessee based on previous rulings for similar cases.

3. The third issue pertains to the disallowance of deduction under section 80(IB) for the fertilizer unit. The assessee argued that the sales tax incentives and fertilizer subsidy should be treated as capital receipts and not taxed. The Tribunal noted that this issue was not adequately addressed in its order and decided to recall the matter for further adjudication, instructing the registry to fix the appeal.

4. The final issue discussed in the judgment concerns the treatment of sales tax incentives and fertilizer subsidy as capital receipts. The Tribunal acknowledged that there was no adjudication on this matter and decided to recall the order for proper consideration, without commenting on the facts presented. The Tribunal allowed the assessee's application, indicating a favorable outcome for the assessee in these matters.

In conclusion, the judgment addressed various mistakes and issues raised by the assessee, providing detailed analysis and decisions on each point, ultimately favoring the assessee in rectifying errors and ensuring proper consideration of relevant tax implications.