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2023 (1) TMI 1324 - AT - Income TaxDisallowance of interest expenditure - Assessee during the year the assessee has incurred capital work-in-progress - Why proportionate interest expenditure should not be attributed to work-in-progress till the time assets was put to use? - HELD THAT - Working capital and cash credit loans are tied up in the current assets of the company. Anyway, the alleged amount of investment in capital work-in-progress is far less than the interest free funds available with the assessee. Therefore, in absence of any nexus, it cannot be stated that interest bearing funds have been used by the assessee for acquiring the capital work-in-progress. In view of this, we do not find any reason to confirm the disallowance - presumption would always be available in favour of the assessee that non-interest bearing funds have been used for the purpose of acquisition of capital work-in-progress. The above view is also supported by the decision of the Hon'ble Bombay High Court in case of Reliance Utilities and Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT as well as the decision of Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT Accordingly, ground no.1 of the appeal is allowed. Disallowance u/s 14A read with Rule 8D - assessee has earned exempt income and has also offered SUO Moto disallowance - AO Found that disallowance offered by the assessee is on ad hoc basis and without any mathematical working - CIT (A) after considering the explanation of the assessee rejected that no interest of disallowance can be made under Section 14A - HELD THAT - We find that when non-interest bearing funds are much higher than the amount invested which yielded exempt income, there is no question of making any disallowance under Rule 8D2 (1) and 8D (2)(iii) of the Act. Such claim of the assessee before us is only with respect to the interest disallowance under Rule 8D of the Rules, Assessee succeeds on this issue. Disallowance u/s 14A imputed under the computation of book profit , we find that issue is squarely covered in favour of the assessee by the decision of Sobha Developers vs. Dy. Commissioner of Income Tax 2021 (1) TMI 378 - KARNATAKA HIGH COURT Even otherwise, we find that assessee has already complied with Provision of Section 115JB of the Act, explanation 1 clause (f) of the Act in form no 29B. There is no finding of the learned Assessing Officer that provision of Explanation 1(f) of Section 115JB of the Act is not properly applied by the assessee. Unless that fact is recorded along with the fact that disallowance under Section 14A of the Act is identical to the disallowance under that clause, the order of the learned lower authorities cannot be sustained. Accordingly, ground no.8 of the appeal is allowed. Write back of the provisions for doubtful debts - CIT (A) confirmed the addition to the normal computation and further, for computation of book profit under Section 115JB - HELD THAT - At the time when the provision was created, the assessee has disallowed the same in all the assessment year which is substantiated by filing the computation of total income for all these years. The learned Assessing Officer in the remand report also agreed with the above finding of the fact. The above provision for doubtful debts has been written back during this year. Naturally, this amount has not been claimed as deduction in the year in which the provision has been made. Therefore, naturally, same would be not taxable in the present assessment year when such provisions were written back. Accordingly, we find that learned lower authorities are not correct in making the addition of the above amount. Accordingly, the learned Assessing Officer is directed to delete the addition in the computation of normal taxable income. Ground no.9 of the appeal is allowed. Addition being MAT credit added to the book profit - claim of the assessee is that the amount of income tax paid or payable required to be added to the book profit is always under a MAT credit - HELD THAT - We find that identical view has been taken by the coordinate Bench in case of ACIT vs. JK paper Ltd. 2016 (10) TMI 1393 - ITAT AHMEDABAD order covers the issue in favour of the assessee. We also find that whenever a provision of current tax is required to be made in the profit and loss account it has to be net of MAT credit available to the assessee. Accordingly, the separate adjustment of MAT credit cannot be made and added to the book profit. Accordingly, the adjustment made by the learned Assessing Officer and confirmed by the learned CIT (A) is not correct. Ground of the appeal is allowed. Addition of provision for wealth tax to the book profit u/s 115JB - HELD THAT - We find that this issue is squarely covered in favour of the assessee by the decision of Reliance Industries Ltd. 2019 (1) TMI 887 - BOMBAY HIGH COURT as held that in plain terms, the clause (a) reference to amount of income tax paid or payable or the provision made thereof. The legislator is advisably included wealth tax in the clause 40 (a) (iia) but not u/s 115 JB of the Act. Therefore, by no interpretation process the wealth tax can be included in clause (a) of explanation 1 to section 115JB of the Act. We find that the addition deserves to be deleted. Ground of the appeal is allowed. Disallowance of excise duty debited to the profit and loss account - AO held that above sum is the double deduction of excise duty expenses. According to him, the assessee claim deduction firstly, from sales in credit side of profit and loss account by showing net sales and consequently, by debiting the excise duty expenses in the profit and loss accoun t - HELD THAT - On careful consideration of note no.18 to the annual accounts which shows that excise duty on sales amounting to ₹1,322 lac has been reduced from sales in profit and loss account and excise duty on increased and decreased in stock amounting to ₹29.32 lacs has been considered as in the profit and loss account. Assessee has also shown that difference of excise duty was arising out of duty included in opening stock as well as closing stock and has also demonstrated that whatever is not paid before due date of filing of return of income, it is offered for disallowance. We find that addition is not correctly made for the reason that it is not double deduction as stated by the learned Assessing Officer. Accordingly, ground of the appeal is allowed. Disallowance of interest expenditure on account of interest attributable to the loans to subsidiary companies - HELD THAT - We find that in the case of the assessee in earlier the about disallowance has been deleted for the reason that assessee has higher interest free advances available then the amount of loan advanced to the sister concern. Therefore, the presumption would be available in favour of the assessee that the amount of loan advance to subsidiary companies without charging interest is out of interest-free funds available with the assessee . Above fact also remains prevalent in this year. It was not shown by the learned departmental authorities that assessee has diverted its interest-bearing funds for giving advance to its subsidiaries free of interest. Thus direct the learned law authorities to delete the disallowance. Disallowance of prior period expenditure - AO held that assessee following mercantile system of accounting cannot book the expenses in the like manner therefore he held that only those expenses which approved for the current year is allowable - HELD THAT - The ld.AR merely relied upon the order of co-ordinate bench which is on different facts. In view of this, we are of the view that ld.CIT(A) has exceeded his jurisdiction in directing the AO to verify and allow the claim of the expenses in the preceding assessment year. Therefore, Ground No. 1 2 of the appeal of the AO are allowed.
Issues Involved:
1. Disallowance of interest attributable to Capital Work-in-Progress (CWIP). 2. Disallowance under Section 14A read with Rule 8D. 3. Deduction of provision for doubtful debts written back. 4. Addition of MAT credit to book profits under Section 115JB. 5. Addition of provision for wealth tax to book profits under Section 115JB. 6. Disallowance of excise duty debited to profit and loss account. 7. Disallowance of interest paid attributable to loans to subsidiaries. 8. Deduction of prior period expenses. 9. Deduction of education cess. Detailed Analysis: 1. Disallowance of Interest Attributable to CWIP: The assessee, Excel Industries Ltd., contested the disallowance of interest amounting to Rs. 41,38,397/- by treating it as attributable to CWIP. The assessee argued that the capital expenditure was funded out of internal accruals and not borrowed funds, which was supported by their balance sheet showing sufficient interest-free funds. The Tribunal found merit in the assessee's argument, noting that the interest-free funds exceeded the CWIP amount, and thus, no nexus was established between borrowed funds and CWIP. The Tribunal allowed the appeal on this ground, dismissing the alternative submissions as infructuous. 2. Disallowance under Section 14A read with Rule 8D: The assessee's disallowance under Section 14A was contested. The Tribunal noted that the assessee had sufficient non-interest-bearing funds to cover the investments yielding exempt income. Therefore, no disallowance of interest expenditure was warranted under Rule 8D(2)(ii). The Tribunal upheld the CIT(A)'s direction to exclude investments that did not yield exempt income while computing disallowance under Rule 8D(2)(iii). The Tribunal also ruled that disallowance under Section 14A should not be added to book profits under Section 115JB, following precedents set by higher courts. 3. Deduction of Provision for Doubtful Debts Written Back: The assessee argued that the provision for doubtful debts written back should not be taxable as it was not claimed as a deduction in earlier years. The Tribunal agreed, noting that the provision was added back in the computation of total income in earlier years. Hence, the write-back should not be taxed again. The Tribunal directed the deletion of this addition from both the normal computation and the book profit computation under Section 115JB. 4. Addition of MAT Credit to Book Profits under Section 115JB: The assessee contested the addition of MAT credit to the book profits. The Tribunal found that MAT credit should be netted off against the provision for current tax in the profit and loss account. The Tribunal followed the decision of coordinate benches and higher courts, directing the deletion of the MAT credit addition to book profits. 5. Addition of Provision for Wealth Tax to Book Profits under Section 115JB: The Tribunal ruled that the provision for wealth tax should not be added to book profits under Section 115JB, as wealth tax is distinct from income tax. The Tribunal followed the decisions of higher courts, directing the deletion of this addition. 6. Disallowance of Excise Duty Debited to Profit and Loss Account: The assessee argued that the excise duty debited was not a double deduction and was accounted for correctly. The Tribunal agreed, noting that the excise duty on sales was reduced from sales in the profit and loss account, and the differential duty was an allowable expenditure if paid before the due date of filing the return. The Tribunal directed the deletion of this disallowance. 7. Disallowance of Interest Paid Attributable to Loans to Subsidiaries: The assessee argued that the loans to subsidiaries were made from interest-free funds, and thus, no disallowance of interest was warranted. The Tribunal found that the assessee had sufficient interest-free funds to cover the loans to subsidiaries, following the decision in the assessee's own case in earlier years. The Tribunal directed the deletion of this disallowance. 8. Deduction of Prior Period Expenses: The Tribunal noted that the CIT(A) exceeded his jurisdiction by directing the AO to verify and allow prior period expenses in the years they pertain to. The Tribunal held that such directions cannot be given as they disturb the assessments of earlier years. The Tribunal allowed the AO's appeal on this ground and dismissed the assessee's additional ground seeking deduction of prior period expenses in the year they are debited. 9. Deduction of Education Cess: The assessee's ground for deduction of education cess was not pressed and was dismissed in light of the retrospective amendment by the Finance Act 2022. Conclusion: The Tribunal provided a detailed and comprehensive analysis, allowing the assessee's appeals on most grounds while dismissing the AO's appeals on disallowance under Section 14A and prior period expenses. The Tribunal's decisions were based on established legal precedents and a thorough examination of the facts and financial statements.
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