2020 (1) TMI 1606 - AT - Income Tax

Disallowance of depreciation on the machinery parts capitalized in the earlier years - HELD THAT - AO himself has allowed the claim in respect of machinery spares consumed during the year. Therefore, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground No. 1 with its sub ground is, accordingly, dismissed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - We have to state that Rule 8D of the Rules has been held to be applicable from Assessment Year 2008- 09. Therefore, for the year under consideration, there is no formula to compute the disallowance. However, at the same time, we are of the view that reasonable expenditure should be disallowed for earning exempt income. Though AO has attributed the administrative expenses on the ratio of the tax free income to total receipts and computed the disallowance at ₹ 28.04 lakhs, but we are of the opinion that such computation is on the higher side. We, therefore, direct the Assessing Officer to restrict the disallowance to ₹ 15 lakhs which should meet the ends of justice. The assessee will get relief of ₹ 13.04 lakhs. Accordingly, Ground No. 2 with sub grounds is partly allowed. Interest received on provisional assessment u/s 143(1) - HELD THAT - As decided in own case 2019 (11) TMI 270 - ITAT DELHI we restore the issue in dispute to the file of the Ld. Assessing Officer for verifying that the interest granted under section 143 (1) in relation to previous year corresponding to assessment year under consideration, but same has been subsequently withdrawn under section 143(3) of the Act passed in financial year 2003-04 and decide the issue in accordance with law after providing adequate opportunity of being heard to the assessee. Disallowance of deduction from income earned from PE in foreign countries and not chargeable to tax under DTAA in computing the book profit for the purpose of section 115JB of the Act - HELD THAT - Hon'ble Supreme Court in the case of Apollo Tyres Limited 2002 (5) TMI 5 - SUPREME COURT have held that the Book Profit as computed from the books of accounts maintained in accordance with the Companies Act is sacrosanct and it can be adjusted only for making increases and reductions as specifically provided in the Explanation to the said section. It has been categorically held that apart from the adjustment as provided in the Explanation, no adjustments can be made to the book profit as per the Companies Act. The exclusion of income under the DTAA is nowhere provided in the said Explanation. If it were the intention of the legislature to provide reduction in respect of the income under the DTAA, it would have been specifically provided of another clause below the said Explanation to the sectional 115JA. Therefore, find merit in the view of the AO that the appellant is not entitled to claim reduction in respect of the income covered by DTAA order of the AO on this ground is accordingly upheld'. Additions made while computing book profit u/s 115JB on account of provision for bad and doubtful debts, provision for doubtful advances and provision for loss on account of investment - HELD THAT - As decided in own case 2019 (11) TMI 270 - ITAT DELHI If the provision debited by assessee is indeed deducted from the total debts and only the net balance shown in the balance-sheet then by virtue of decision in the case of Yokogawa India Ltd. 2011 (8) TMI 766 - KARNATAKA HIGH COURT there cannot be any addition of such amount under section 115JB of the Act. However, as mentioned by us, this aspect is not clear. Hence we are of the opinion that the issue regarding provision for doubtful debts requires a fresh look by the Assessing Officer. We, therefore, set aside the order of authorities below in so far as this aspect is concerned, and remit the matter back to the file of Assessing Office for consideration afresh in accordance with law. Disallowance while computing book profit as per section 115JB on sale of fixed asset - HELD THAT - As decided in own case 2019 (11) TMI 270 - ITAT DELHI as decided in Veekaylal Investment Company Private Limited 2001 (2) TMI 117 - BOMBAY HIGH COURT while computing the book profit under the companies Act, the assessee has to include capital gains for computing the book profit under section 115J. Deduction u/s 80IA - HELD THAT - The claim of deduction came up for adjudication for the first time in Assessment Year 2000-01 wherein as held appellant is entitled to claim deduction 80IA, which was wrongly denied - thus taking into the facts of the present case., we are the considered view that appellant is entitled to claim deduction 80IA, which was wrongly denied. Addition on account of provision for maintenance expenditure - HELD THAT - CIT(A) has verified that the liability on account of maintenance expenses arisen in the year under consideration. Thus we do not find any error in the order of the Ld. CIT(A) in deleting the disallowance. Disallowance on account of provision of demobilization expenditure, provision for maintenance and provision for other expenses - HELD THAT - We find that the Ld. CIT(A) has sustained the disallowance due to failure on the part of assessee in substantiating whether the liability arose during the year under consideration and also failure to submit necessary documentary evidence in support of the claim. Before us also, no evidences have been furnished by the assessee to substantiate the claim whether the expenses crystallised during the year. In our opinion, the order of the Ld. CIT(A) on the issue in dispute is well reasoned and we do not find any infirmity in the same. Disallowance on account of foreign exchange fluctuation loss - HELD THAT - As loss should also be allowed as deductible expenditure in the year in which the same accrues or arises. It was brought to the notice of the ld. CIT(A) that similar forex loss has been allowed in Assessment Year 1998-99 and 2000-01. On the basis of this, the ld. CIT(A) correctly deleted the disallowance made by the Assessing Officer.

Summary

Issues Involved:
1. Disallowance of depreciation on machinery parts.
2. Disallowance under Section 14A of the Income-tax Act.
3. Addition of interest received on provisional assessment under Section 143(1).
4. Disallowance of deduction from income earned from PE in foreign countries under DTAA in computing book profit under Section 115JB.
5. Additions on account of provision for bad and doubtful debts, provision for doubtful advances, and provision for loss on account of investment.
6. Disallowance of depreciation on sale of fixed assets.
7. Disallowance of deduction under Section 80IA.
8. Addition on account of provision for maintenance expenditure.
9. Addition on account of provision for demobilization expenditure, provision for maintenance, and provision for other expenses.
10. Disallowance of foreign exchange fluctuation loss.
11. Disallowance of prior period expenses.
12. Adjustment in computation of book profit under Section 115JB.
13. Proportionate corporate expenses allocated towards DTAA income under Section 14A.

Detailed Analysis:

1. Disallowance of Depreciation on Machinery Parts:
The assessee's claim for depreciation on machinery parts capitalized in earlier years was denied as the machinery spares were not put to use, although capitalized to plant and machinery. The Tribunal upheld the Assessing Officer's decision, referencing similar findings in previous years where depreciation was not allowed unless the machinery spares were actually consumed.

2. Disallowance under Section 14A:
The Assessing Officer disallowed ?28.04 lakhs under Section 14A, attributing administrative expenses to earning exempt income. The Tribunal found this computation excessive and directed the disallowance to be restricted to ?15 lakhs. For A.Y. 2005-06, the disallowance was similarly restricted to ?12 lakhs.

3. Addition of Interest Received on Provisional Assessment:
The interest received on provisional assessment under Section 143(1) was considered taxable, based on the Tribunal's earlier decision that such interest creates an enforceable debt and is taxable in the year of receipt. The matter was remanded to the Assessing Officer for verification and adjustment if the interest was subsequently withdrawn under Section 143(3).

4. Disallowance of Deduction from Income Earned from PE in Foreign Countries under DTAA:
The Tribunal upheld the disallowance of the deduction from income earned in foreign countries under DTAA for computing book profit under Section 115JB, citing that Section 115JA overrides other provisions and no specific provision in the DTAA allows for such exclusion.

5. Additions on Account of Provisions:
The Tribunal remanded the issue of additions on account of provisions for bad and doubtful debts, doubtful advances, and loss on account of investment to the Assessing Officer for verification, following a similar approach from previous years.

6. Disallowance of Depreciation on Sale of Fixed Assets:
The Tribunal upheld the disallowance of depreciation on the sale of fixed assets, referencing the Bombay High Court's decision that capital gains should be included in computing book profits under Section 115J.

7. Disallowance of Deduction under Section 80IA:
The Tribunal directed the Assessing Officer to allow the deduction under Section 80IA, following the co-ordinate bench's findings that the assessee was developing infrastructure facilities and not merely acting as a contractor.

8. Addition on Account of Provision for Maintenance Expenditure:
The Tribunal upheld the deletion of the addition on account of provision for maintenance expenditure, referencing the co-ordinate bench's findings that the liability had crystallized during the year.

9. Addition on Account of Provision for Demobilization Expenditure:
The Tribunal upheld the deletion of the addition, finding that the CIT(A) had verified the liabilities and the Revenue could not rebut these findings.

10. Disallowance of Foreign Exchange Fluctuation Loss:
The Tribunal upheld the deletion of the disallowance, noting that similar losses had been allowed in previous years and the Revenue had accepted these findings.

11. Disallowance of Prior Period Expenses:
The Tribunal upheld the disallowance of prior period expenses where the assessee failed to furnish evidence that the liabilities had crystallized during the year.

12. Adjustment in Computation of Book Profit under Section 115JB:
The Tribunal remanded the issue of adjustments in computation of book profit under Section 115JB, including provisions for bad and doubtful advances and income from PE in foreign countries, for verification by the Assessing Officer.

13. Proportionate Corporate Expenses Allocated towards DTAA Income:
The Tribunal upheld the deletion of the disallowance of proportionate corporate expenses allocated towards DTAA income, noting that similar disallowances had been deleted in previous years and the Revenue had not challenged these deletions.

Summary of Judgments:
- ITA No. 977/DEL/2010: Partly allowed for statistical purposes.
- ITA No. 2220/DEL/2011: Partly allowed for statistical purposes.
- ITA No. 1491/DEL/2010: Dismissed.
- ITA No. 2449/DEL/2011: Dismissed.

The order was pronounced in the open court on 30.01.2020.