2017 (10) TMI 1624 - AT - Income Tax

Reference to dispute resolution panel u/s 144C - time limit for passing the order u/s. 144C(13) r.w.s. 143(3) - time limit mandated as per section 153(6) - HELD THAT - The time limit prescribed in section 144C(13) refers to the time limit upon receipt of the directions of the DRP within which the A.O. has to pass the order. Thus as per section 144C(13), when such an assessment is done upon the receipt of direction from the ld. Dispute Resolution Panel, the time limit of one month is mandatory. In the present case, as discussed hereinabove, the order passed by the Assessing Officer is not upon the receipt of the directions issued by the ld. Dispute Resolution Panel, but upon the receipt of an order by the Hon ble High Court, wherein the direction of the ld. Dispute Resolution Panel has been modified. Hence, the Assessing Officer has to pass the order under direction of ld. Dispute Resolution Panel upon which the Hon ble High Court has passed as order. Hence, this is clearly a case wherein the provisions of section 153(6) come into play. As already found hereinabove, the assessment order passed by the Assessing Officer is well within the time limit mandated as per section 153(6) of the Act. Hence, the additional ground raised by the assessee stands dismissed. Disallowances of interest expenditure u/s. 36(1)(1) - HELD THAT - Interest mentioned in item number (i) and (ii) loan given to employees and margin deposits are covered in favour of the assessee by the decision of the tribunal in assessee's own case mentioned above. DR did not dispute this proposition. Accordingly, we hold that respectfully following the precedent in assessee's own case, these interest incomes mentioned in item number (i) and (ii) above should be treated as income from business. Interest on ICDs and interest on fixed deposits, assessee fairly conceded that these should be treated as income from other sources. Accordingly, we uphold the order's of the authorities below, confirming the treatment of this interest income as income from other sources. Addition for the provision of income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd while computing normal income under the Act as well as computing book profit u/s. 115 JB - HELD THAT - The issue as regards the addition under the normal provisions of the Act is covered against the assessee by the tribunal's order in assessee's own case as mentioned in the chart above. Accordingly, under the normal provisions of the Act, we confirm the addition for the provisions made in this regard. Addition while computing the book profit u/s. 115 JB of the Act is concerned, the same is covered in favour of the assessee by the decision of ITAT in assessee's own case. Hence, we set aside the order of the authorities below on this issue and hold that no addition in this regard is sustainable while computing book profit u/s. 115 JB of the Act. Disallowance u/s. 14A r.w.r. 8D - disallowance on account of exempt income - HELD THAT - Disallowance u/s. 14A is required when the assessee has not earned any exempt income. We may gainfully refer to the decision of Hon ble jurisdictional High Court in the case of a Ballarpur Industries Ltd. 2016 (10) TMI 1039 - BOMBAY HIGH COURT -Hence, respectfully following the precedent, we set aside the orders of the authority below and hold that since the assessee has not earned any exempt income, no disallowance u/s. 14A is required. Disallowance of interest expenditure claimed - HELD THAT - Section 36(1)(iii) provides for allowance of amount of interest paid in respect of capital borrowed for the purpose of the business or profession. Thus, for allowance of interest expenditure u/s. 36(1)(iii) firstly, the capital should be borrowed and secondly, it should be for the purpose of business or profession. As the facts of this case detailed herein above clearly indicate that at the time of the said borrowal of fund of Rs.50 crores, the assessee already had given an advance free of interest of Rs.60 crores to VPCL towards equity share capital. As a matter of fact, the assessee gave further advances towards equity and equity shares were allotted only on 29.09.2008 which is more than three months from the said date of borrowal. Hence, it is crystal clear that as on the date of borrowal and upto 3 months thereafter, no equity shares had been allotted and the lender company was indebted to assessee for a sum of Rs.60 crores. Hence, it is clearly evident that this is not a case of capital borrowed but the assessee s own money given free of interest for advance for equity shares coming back as interest bearing inter corporate deposit. Hence, the assessee clearly fails the test of the amount having been borrowed, for allowance of interest under section 36(1)(iii). Whether the amount borrowed was used for business purposes? - AO has gone on to mention that the assessee has unnecessarily burdened the business by inter corporate deposit obtained from VPCL. We further note that before ld. Dispute Resolution Panel also the assessee has not produced necessary details or evidence showing that the borrowed funds have been utilized for the purpose of business. This aspect has been clearly mentioned in the direction of the ld. Dispute Resolution Panel wherein it has been categorically stated that the assessee had not shown any evidence in this regard. Before us also the assessee had not submitted any detail to counter this clear finding of the authorities below that there was absence of necessary evidence to show that the amount borrowed was used for the purpose of business. Assessee had submitted that the matter may be remitted to the Assessing Officer to enable the assessee to prove this aspect. In our considered opinion, at this stage, there is no cogency in this submission. The assessee has not produced any detail of the utilization of the said borrowed amount for business purpose, despite adverse comments by AO and DRP at any stage even upto the level of ITAT. Hence, there is no point of remitting the matter again. Accordingly, we uphold the order of the authorities below holding that the payment of interest claimed on account of ICD from VPCL is not allowable as per the provisions of section 36(1)(iii). Appeal by the assessee stands partly allowed.

Summary

Issues Involved:

1. Assessment of income under normal provisions and book profit under section 115JB.
2. Classification of interest income under "income from other sources" versus business income.
3. Addition of provision for income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd.
4. Disallowance of depreciation on major overhauling expenditure.
5. Disallowance under section 14A read with Rule 8D.
6. Disallowance of interest expenditure under section 36(1)(iii).
7. Initiation of penalty proceedings under section 271(1)(c).
8. Additional ground regarding the assessment order being time-barred.

Detailed Analysis:

1. Assessment of Income and Book Profit:
The Assessing Officer (A.O.) assessed the income of the appellant at Rs. 12,31,49,020/- under normal provisions and the book profit under section 115JB at Rs. 32,21,56,445/-. The appellant contested this assessment.

2. Classification of Interest Income:
The A.O. classified Rs. 3,89,65,319/- as "income from other sources" rather than business income. The tribunal found that interest on loans given to employees and margin deposits should be treated as business income, while interest on ICDs and fixed deposits should be classified as income from other sources, following precedents in the appellant's own case.

3. Addition of Provision for Income Tax Recoverable:
The A.O. added Rs. 3,65,00,326/- for the provision of income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd. while computing normal income and book profit under section 115JB. The tribunal upheld the addition under normal provisions but ruled in favor of the appellant for book profit computation, citing previous tribunal decisions.

4. Disallowance of Depreciation:
The A.O. disallowed Rs. 43,39,710/- in depreciation claimed on major overhauling expenditure capitalized in A.Y. 2003-04. The appellant did not press this ground, and it was dismissed.

5. Disallowance under Section 14A:
The A.O. disallowed Rs. 6,53,14,500/- under section 14A read with Rule 8D. The tribunal ruled that no disallowance was required as the appellant did not earn any exempt income, referencing decisions from the Delhi High Court and jurisdictional High Court.

6. Disallowance of Interest Expenditure:
The A.O. disallowed Rs. 3,04,65,754/- in interest expenditure claimed under section 36(1)(iii), arguing that the borrowed funds were not used for business purposes but for investing in equity shares of VPCL. The tribunal upheld this disallowance, noting the lack of evidence showing the borrowed funds were used for business purposes and rejecting the appellant's request to remit the matter back to the A.O.

7. Initiation of Penalty Proceedings:
The A.O. initiated penalty proceedings under section 271(1)(c). The tribunal did not specifically address this issue in the judgment.

8. Additional Ground - Time-barred Assessment Order:
The appellant argued that the assessment order dated 16.01.2015 was time-barred. The tribunal examined the timeline and found that the order was passed within the permissible time limit under section 153(6), considering the directions from the Hon'ble High Court. The additional ground was dismissed.

Conclusion:
The tribunal provided a mixed verdict, partially allowing the appeal. It upheld the A.O.'s classification of certain interest incomes and disallowance of interest expenditure under section 36(1)(iii), while ruling in favor of the appellant on the disallowance under section 14A and the addition for book profit computation under section 115JB. The additional ground regarding the time-barred assessment order was dismissed.