2016 (11) TMI 1721 - AT - Income Tax

Exclusion of subsidy from the deduction claimed u/s. 80IA - assessee has received subsidy from the State Government in respect of the Capital Assets acquired on or before 31.03.2003 - very purpose of sanction of capital subsidy was to meet the project cost to set up Solid Waste Disposal Project and complete the project - HELD THAT - As relying on case MEGHALAYA STEELS LTD 2016 (3) TMI 375 - SUPREME COURT the subsidy received from the State Government is nothing but the recoupment of the cost and hence eligible for the deduction u/s. 80IA of the Act. Common Grievance No. 1 is accordingly allowed. Exclusion of interest income from the deduction claimed u/s. 80IA - HELD THAT - A perusal of the financial statements vis- -vis the computation of income shows that the only head of income shown in the return is profits and gains of business or profession .A.O. has also proceeded by computing the assessed income taking the figure from profits and gains of business or profession . This means that the A.O. has admittedly accepted the miscellaneous income under head profits and gains of business . As explained that the appellant-company had set aside the amount for expenditures to be incurred for inherent cost relating to the maintenance of the pits. Therefore, the interest income has a direct nexus with the business activity of the assessee, therefore eligible for deduction u/s. 80IA. As in the case of Empire Pumps Pvt. Ltd. 2014 (11) TMI 563 - GUJARAT HIGH COURT held that interest income is held to be eligible for deduction u/s. 80IA. Disallowance of provision for Pit Covering Expenses - assessee explained that the liability to incur expenditure on pit covering arises as soon as the pits were dug and the pits are required to be covered after each pit is completely filled as per guidelines issued by GPCB - A.O. denied the contention of the assessee on the ground that the pit is closed immediately and, therefore, the difference between the provision and the amount actually spent could not be explained properly - HELD THAT - We direct the A.O. to allow the provision for pit covering expenses in totality. Computation of book profit u/s. 115JB - Hon ble Supreme Court in the case of Appollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT held that while determining the book profits u/s.115J, the Assessing Officer could not recompute the profits in the profit and loss account by excluding provisions made for arrears of depreciation . Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the Companies Act, which obligate the company to maintain its account in a manner provided by that Act and the same to be scrutinized and certified by statutory auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the recruitments of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon a fresh enquiry in regard to the entries made in the books of account of the company. Disallowance of Post Closure Expenses - HELD THAT - As in the light of the stipulation of Gujarat Pollution Control Board and the Scientific Working we direct the A.O. to allow the post closure expenses. Common grievance is allowed. Disallowance of deduction u/s. 80IA on account of land and pit construction expenses - HELD THAT - As the company is in the new line of business, there is no established practice of determining exact expenses incurred on the process of treatment of solid waste. Accordingly, in the beginning year, the company has estimated expenses in relation to the treatment of Solid Waste Management by applying available best parameters and accordingly charged of the expenses to Profit and Loss account of the respective years. Gradually, the company developed scientific method of estimation of expenses and accordingly the company has revised its working to arrive with the exact expenses. As the revised computation is scientific. We further find that the expenditures claimed in the earlier years were allowed by the revenue. Therefore, write back of the same has a direct nexus with the business activity of the assessee. Hence, the assessee is eligible for the deduction u/s. 80IA of the Act. Ground no. 1 is accordingly allowed.

Summary

Issues Involved:
1. Exclusion of subsidy received towards the consumption of Pit and Land Expenses from the deduction claimed u/s. 80IA.
2. Exclusion of other income and miscellaneous income from the deduction claimed u/s. 80IA.
3. Disallowance of provision for Pit Covering Expenses.
4. Disallowance of Post Closure Expenses.
5. Levy of interest u/s. 234D of the Act.
6. Additional issues raised by the assessee regarding deduction u/s. 80IA on account of land and pit construction expenses.
7. Non-adjudication of ground relating to the computation of accumulated profits.
8. Deletion of subsidy from book profit for the computation u/s. 115JB of the Act.
9. Deletion of penalty levied u/s. 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Exclusion of Subsidy from Deduction Claimed u/s. 80IA:
The assessee received a capital subsidy from the State Government for setting up a Solid Waste Disposal Project. The subsidy was allocated to building, plant and machinery, and consumption cost of pit construction. The lower authorities denied the deduction on the grounds that the subsidy was specifically for land/building and plant & machinery. However, the Tribunal, referencing the Supreme Court's decision in Meghalaya Steels Ltd., held that the subsidy is a recoupment of cost and thus eligible for deduction u/s. 80IA. The Tribunal allowed the grievance, stating a direct nexus between the subsidy and the business.

2. Exclusion of Interest Income from Deduction Claimed u/s. 80IA:
The assessee claimed deduction on interest and miscellaneous income, which was denied by the revenue authorities. The Tribunal noted that the interest income had a direct nexus with the business activity. Citing the Jurisdictional High Court's decision in Empire Pumps Pvt. Ltd., the Tribunal held that the interest income is eligible for deduction u/s. 80IA. However, since no details were provided for the miscellaneous income, it was directed to be excluded from the deduction. The grievance was partly allowed.

3. Disallowance of Provision for Pit Covering Expenses:
The A.O. disallowed the excess provision for pit covering expenses, treating it as an unascertained liability. The Tribunal, referencing judicial decisions, directed the A.O. to allow the provision for pit covering expenses in totality. It was noted that the expenditure was a liability as soon as the pits were dug, thus deductible under the mercantile system of accounting.

4. Disallowance of Post Closure Expenses:
The assessee made a provision for various post-closure care expenses, which was collected from members and offered to tax. The Tribunal, considering the stipulations of the Gujarat Pollution Control Board and the scientific computation provided, directed the A.O. to allow the post-closure expenses. The grievance was allowed.

5. Levy of Interest u/s. 234D of the Act:
The Tribunal noted that the levy of interest u/s. 234D is mandatory and consequential. The A.O. was directed to charge interest in light of the Supreme Court's ratio.

6. Additional Issue - Disallowance of Deduction u/s. 80IA on Account of Land and Pit Construction Expenses:
The assessee revised the capacity of Phase-I, leading to a write-back of previously charged expenses. The Tribunal found the revised computation scientific and noted that the expenditures claimed in earlier years were allowed by the revenue. Thus, the write-back had a direct nexus with the business activity, making the assessee eligible for deduction u/s. 80IA. The ground was allowed.

7. Non-adjudication of Ground Relating to Computation of Accumulated Profits:
The Tribunal restored the issue to the files of the CIT(A) for adjudication, directing the CIT(A) to decide the grievance after giving a reasonable opportunity of being heard. The ground was allowed for statistical purposes.

8. Deletion of Subsidy from Book Profit for Computation u/s. 115JB of the Act:
The revenue's appeal against the deletion of subsidy from book profit was dismissed, as the Tribunal had already decided an identical issue in favor of the assessee for A.Y. 2003-04.

9. Deletion of Penalty Levied u/s. 271(1)(c) of the Act:
The revenue's appeals against the deletion of penalty were dismissed. The Tribunal noted that the quantum additions had been deleted, applying the principle "Sublato fundamento cadit opus" (removal of the foundation causes the superstructure to fall).

Conclusion:
The Tribunal allowed several of the assessee's grievances related to the deduction u/s. 80IA, provision for pit covering expenses, and post-closure expenses. It directed the CIT(A) to adjudicate on the computation of accumulated profits and upheld the deletion of penalties and adjustments made by the revenue. The Tribunal's decisions were based on established legal principles and judicial precedents.