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2017 (3) TMI 1937 - AT - Income TaxAddition of MAT credit entitlement when computing the book profits u/s 115JB - submission that the assessee was entitled to the credit of the MAT against the current year s tax liability - HELD THAT - A perusal of the profit and loss account and computation of under Section 115JB clearly shows that the assessee is adding back the net amount debited to the profit and loss account. The same is what is expected of the assessee under the provisions of section 115JB. This view also finds support from the decision of the coordinate bench of this Tribunal, in the case the JK Paper limited 2016 (10) TMI 1393 - ITAT AHMEDABAD . In the circumstances the addition as made by the Assessing Officer and as confirmed by the CIT (A) stands allowed. In the result Ground No. 2 of the Appeal stands allowed. Disallowance u/s 14A read with Rule 8D - mandation of recording satisfaction - HELD THAT - As perusal of the assessment order clearly shows that the Assessing Officer has not recorded the satisfaction u/s 14A(2) regarding the incurrence of expenditure. In the circumstances respectfully following the decision of the coordinate bench of this Tribunal in the case of the Sesa Goa Ltd. 2013 (9) TMI 233 - ITAT PANAJI Further as it is noticed that the assessee has substantial own funds far in excess of the investments which has generated the exempt income. Consequently, in view of the decision of HDFC Bank Limited 2014 (8) TMI 119 - BOMBAY HIGH COURT as also the decision in the case of SBI DHFL 2015 (11) TMI 399 - BOMBAY HIGH COURT we are of the view that no disallowance of interest under Section 14A is called for in the hands of the assessee. Consequently the disallowance as made by the Assessing Officer by invoking of the provisions of section 14A read with rule 8D stands deleted. In the result Ground No. 2 of the cross objection stands allowed. Disallowance of the dimunition in the value of the fertilizers bonds u/s 37 - It was a submission that the assessee had been claiming the loss in respect of the dimunition in the values of the fertilizer bonds every year and the differential actual loss was claimed in the year of sale of the fertilizer bonds - HELD THAT - Admittedly the assessee has not shown these bonds as investments in its books of accounts. They are shown as current assets. The bonds have been received by the assessee admittedly in the course of its business. It is noticed that the learned CIT(A) has directed the AO to allow the real loss as and when the bonds are sold. The assessee has not been able to show as to how the said direction given by the learned CIT(A) is erroneous. This being so the finding of the learned CIT(A) on this issue stands confirmed. Nature of expenses - expenditure on the revamping of the plant and the machinery - AO had treated the expenditure as capital in nature - HELD THAT - A perusal of the assessment order shows that the Assessing Officer has held that the expenditure in respect of the revamping of the Ammonia and Urea plant has provided enduring benefit to the assessee and led to a major revamping in the Ammonia and Urea plants. Consequently he has denied the assessee s claim of the same as revenue expenditure and held that the assessee could capitalise the same. This being so the Assessing Officer is directed the grant the assessee the depreciation in respect of the said capitalised amount. In the result Ground stands partly allowed. Short TDS credit - HELD THAT - Assessee has claimed that there is a short credit of TDS, the issue is restored to the file of the Assessing Officer for re-adjudication after granting assessee adequate opportunity to produce all such evidences in respect of the claim of the short credit of TDS. Disallowance of the interest expenditure u/s 36(1)(iii) - HELD THAT - Admittedly the assessee has adequate non-interest bearing own funds far an excess of the gross of the advances made to the subsidiary and the gross of the investments in the shares. This being so we respectfully following the decision of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT Wherein it has been held if there were funds available both interest-free and overdraft and / or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments , the Assessing Officer is directed to delete the disallowance of interest. In the result Ground of the Cross objection stands allowed. Expenditure incurred towards feasibility study report u/s 37(1) - AO had held that the expenditure was a capital expenditure - HELD THAT - Admittedly when the assessee filed its returns the assessee did have the bonafide belief that it was going to proceed with the business expansion and diversification. However it has been admitted by the assessee that due to the market condition it was not feasible to proceed with business expansion and diversification and consequently the project has been dropped. As it is noticed that the assessee has dropped its intention of proceeding with the project of expansion and diversification the expenditure incurred on the feasibility study in respect of the Greenfield Urea Fertilizer Project cannot be treated as the revenue expenditure. Consequently the finding of the Assessing Officer and the learned CIT(A) in holding the said expenditure as the capital expenditure stands confirmed. Decided against assessee. Disallowing the set off of loss arising out of the sale of the preference shares in sister concerns - HELD THAT - Admittedly a perusal of the assessment order nature of business shows that the Assessing Officer has not recognised assessee as being in the business of purchase of sale in the shares. A perusal of the balance sheet and Profit Loss account of the assessee for the relevant assessment year as also earlier assessment year show that these preferential shares in respect of the sister concerns namely Zuari has been shown by the assessee only as investments. Further there is nothing on record to show that the assessee is in the business of purchase and sale of the preferential shares to hold that the explanation to section 73 of the Act was to apply to treat the loss as speculation loss. As following the decision of Shri Gautamship Breaking Industries Limited 2010 (12) TMI 1213 - ITAT AHMEDABAD AO is directed to allow the set off of loss on the sale of the preferential shares in sister concerns against long term capital gains as disclosed by the assessee. In the result ground of the assessee s appeal stands allowed. Addition u/s 41(1) on account of cessation liability - submission that there were certain trade liability which was being carried forward for substantial number of year - HELD THAT - Admittedly these are trade creditors. The assessee does not have liberty to write off the creditors until and unless the creditors themselves write off the amount. In any case these are not liabilities which can be treated as being barred by limitation on account of the efflux of time leading to the expiry of period of limitation. As long as the liabilities are shown in the books the period of limitation does not expire. In the circumstances respectfully following the principle laid down by Bhogilal Ramjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT , CIT vs. Jain Exports Pvt. Ltd. 2013 (5) TMI 690 - DELHI HIGH COURT , CIT Vs Nitin Garg 2012 (5) TMI 30 - GUJARAT HIGH COURT and CIT vs. Hotel Excelisior Ltd. 2010 (12) TMI 1080 - ITAT DELHI , the addition as made by the Assessing Officer and as confirmed by the learned CIT(A) on account of the cessation of liability under Section 41(1) stands deleted Disallowance on expenses claimed on account of participation in social activities around factory and on account of gifts to business associates under section 37(1) - HELD THAT - Admittedly the assessee has not been able to place before us the details of the persons to whom the gifts have been given. In fact even the Assessing Officer has disallowed the same only on the ground that the assessee has failed to submit the details as to whom the gifts were given. This being so the finding of the learned CIT(A) and that the Assessing Officer in respect of the disallowances stands confirmed.
Issues Involved:
1. Reopening of assessment under Section 147. 2. Addition of MAT credit entitlement under Section 115JB. 3. Disallowance under Section 14A read with Rule 8D. 4. Disallowance of diminution in value of fertilizer bonds under Section 37. 5. Treatment of expenditure on revamping plant and machinery. 6. Short credit of TDS. 7. Disallowance of interest expenditure under Section 36(1)(iii). 8. Treatment of loss on sale of preference shares. 9. Disallowance of feasibility study expenditure. 10. Cessation of liability under Section 41(1). 11. Disallowance of expenses on social activities and gifts under Section 37(1). 12. Penalty proceedings under Section 27(1)(c). Detailed Analysis: 1. Reopening of Assessment under Section 147: The assessee's ground against the reopening of the assessment under Section 147 was not pressed during the hearing, leading to its dismissal as withdrawn. 2. Addition of MAT Credit Entitlement under Section 115JB: The issue revolved around the addition of ?1.95 crores representing MAT credit entitlement when computing book profits under Section 115JB. The Tribunal noted that the assessee had added back the net amount debited to the profit and loss account, which is expected under Section 115JB. This view was supported by a decision from the Ahmedabad bench in the case of JK Paper Limited. Consequently, the addition made by the Assessing Officer and confirmed by the CIT(A) was allowed, and the ground was decided in favor of the assessee. 3. Disallowance under Section 14A read with Rule 8D: The Tribunal observed that the Assessing Officer had not recorded satisfaction under Section 14A(2) regarding the incurrence of expenditure. The assessee had substantial non-interest-bearing funds exceeding the investments generating exempt income. Following precedents from the Tribunal and the Bombay High Court, the disallowance made by invoking Section 14A read with Rule 8D was deleted. 4. Disallowance of Diminution in Value of Fertilizer Bonds under Section 37: The fertilizer bonds were received by the assessee in lieu of subsidy and were shown as current assets. The CIT(A) directed the Assessing Officer to allow the real loss as and when the bonds are sold. The Tribunal confirmed this finding, noting that the bonds were received in the course of business and not as investments. 5. Treatment of Expenditure on Revamping Plant and Machinery: The expenditure of ?1,32,90,807/- on revamping the plant and machinery was treated as capital expenditure by the Assessing Officer. The Tribunal directed that the assessee be granted depreciation on this capitalized amount, partially allowing the ground. 6. Short Credit of TDS: The issue of short credit of TDS was restored to the file of the Assessing Officer for re-adjudication after granting the assessee an opportunity to produce evidence supporting the claim. 7. Disallowance of Interest Expenditure under Section 36(1)(iii): The assessee had adequate non-interest-bearing funds far exceeding the interest-free loans given to its sister concerns. Following the Bombay High Court's decision in Reliance Utilities and Power Ltd., the Tribunal directed the deletion of the disallowance of interest. 8. Treatment of Loss on Sale of Preference Shares: The preference shares of Zuari Maroc Phosphates Limited were held as investments, not as trading stock. The Tribunal, following the decision in Shri Gautam Ship Breaking Industries Ltd., directed the Assessing Officer to allow the set-off of the loss against long-term capital gains, rejecting the application of Explanation to Section 73. 9. Disallowance of Feasibility Study Expenditure: The expenditure on the feasibility study for a Greenfield Urea Fertilizer Project, which was later abandoned, was treated as capital expenditure by the Assessing Officer. The Tribunal upheld this treatment, noting that the project was not executed. 10. Cessation of Liability under Section 41(1): The Tribunal held that trade liabilities cannot be written off unilaterally by the assessee. As long as the liabilities are shown in the books, the period of limitation does not expire. Following the Gujarat and Delhi High Courts' principles, the addition under Section 41(1) was deleted. 11. Disallowance of Expenses on Social Activities and Gifts under Section 37(1): The assessee failed to provide details of the persons to whom gifts were given. The Tribunal confirmed the disallowance of these expenses, as the assessee could not substantiate the claims. 12. Penalty Proceedings under Section 27(1)(c): The ground regarding penalty proceedings under Section 27(1)(c) was dismissed as premature. Conclusion: The appeals and cross-objections were partly allowed, with several issues being restored to the Assessing Officer for re-adjudication. The Tribunal's decisions were based on detailed analysis and adherence to legal precedents, ensuring fair adjudication of the matters involved.
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