2016 (5) TMI 1259 - AT - Income Tax

Addition of interest income as per CASS - assessee failed to include a sum of ₹ 1.50 lakh as interest income in its total income as shown in the CASS - Held that - Assessee was following the mercantile system of accounting but the real income should be liable to tax irrespective method of accounting system followed by assessee. Unless the assessee actually charged the interest or interest in real terms accrued to the assessee, it cannot be brought to tax merely on the ground that the assessee follows mercantile system of accounting. - Decided in favour of assessee. Addition of the expense including the interest disallowed u/s. 14A r.w.s 8D of the IT Rules in computing the book profit u/s. 115JB - Held that - No addition to the book profit shall be made on account of alleged expenditure incurred to earn exempt income while computing income u/s115JB of the Act. See Quippo Telecom Infrastructure Ltd. case 2011 (2) TMI 1400 - ITAT DELHI - Decided in favour of assessee. Non reducing the lower of loss brought forward or unabsorbed depreciation as per books of account while computing the book profit u/s 115JB - Held that - As per the provision of law, assessee is entitled to claim the deduction for lower of the amount either loss brought forward or unabsorbed depreciation. We accordingly direct the AO to allow the loss brought forward or unabsorbed depreciation whichever is less as per books of account of the assessee in terms of clause (iii) u/s 115JB of the Act. This ground is allowed in favour of assessee Charging interest u/s 234B/C - Held that - Additions have been made to the total income of assessee as a result of retrospective amendment in the Statute and assessee paid the tax. But there will be no interest on the aforesaid addition made u/s 234B and 234C in view of the aforesaid judgment of jurisdictional High Court in the case of Emami Ltd. (2011 (6) TMI 163 - CALCUTTA HIGH COURT ). Accordingly we reverse the orders of Authorities Below and delete the addition made by AO.- Decided in favour of assessee. Addition to the book profit u/s.115JB being Provision for NP and Provision for Dimunition in value of investments - Held that - We find that the diminution in the value of investment is not permanent in nature. The value of investment made in the shares and securities keep on changing depending upon the market rate. Therefore, there can be a case for a particular year that there will be diminution in the value investment but in the next year but there will be appreciation in the value of investment. So we should not consider the diminution and appreciation in the value of investment unless it is not permanent in nature. In this connection, we find that the Institute of Chartered Accountant of India in terms of its Accounting Standard 13 has recommended to identify the loss in the books on account of diminution in the value of investment until and unless it is permanent in nature. The action taken by Authorities Below in connection the diminution in the value of investment is correct and within the ambit of law. Hence, we confirm the order of lower authorities with regard to addition made by Authorities Below under clause (i) to the Explanation of Sec. 115B of the Act as far as Investment is concern. This ground of assessee s appeal is partly allowed.

Issues Involved:

1. Disallowance under Section 14A read with Rule 8D.
2. Addition of interest income as per CASS.
3. Addition of expenses including interest disallowed under Section 14A read with Rule 8D in computing book profit under Section 115JB.
4. Reduction of lower of loss brought forward or unabsorbed depreciation in computing book profit under Section 115JB.
5. Charging of interest under Section 234B and 234C.
6. Addition to book profit under Section 115JB for provision for NPA and diminution in the value of investments.

Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:

The first issue concerns the disallowance made under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. The assessee, a company engaged in trading shares and securities and granting loans and advances, earned dividend income and long-term capital gains. The Assessing Officer (AO) applied Rule 8D and disallowed ?1,29,11,487, which included demat charges, interest expenses, and other expenses. The assessee argued that similar disallowances in previous years were based on the proportionate dividend income to gross business receipts. The Tribunal found that the AO's application of Rule 8D was consistent with previous decisions and upheld the disallowance proportionate to the gross income, allowing the ground for statistical purposes.

2. Addition of interest income as per CASS:

The second issue involves the addition of ?1.50 lakh as interest income based on CASS (Computer Assisted Scrutiny Selection). The AO observed that the assessee did not include this amount in its total income. The assessee argued that the interest was not actually received and hence should not be taxed. The Tribunal, relying on the principle of real income, held that hypothetical income should not be taxed and reversed the orders of the lower authorities, allowing the ground in favor of the assessee.

3. Addition of expenses including interest disallowed under Section 14A read with Rule 8D in computing book profit under Section 115JB:

The third issue pertains to the addition of disallowed expenses under Section 14A read with Rule 8D while computing book profit under Section 115JB. The AO disallowed ?1,29,11,487, which was confirmed by the CIT(A). The Tribunal referred to the Delhi Tribunal's decision in Quippo Telecom Infrastructure Ltd., which held that Section 14A disallowances should not be added back while computing book profit under Section 115JB. The Tribunal reversed the lower authorities' orders and allowed the ground in favor of the assessee.

4. Reduction of lower of loss brought forward or unabsorbed depreciation in computing book profit under Section 115JB:

The fourth issue concerns the reduction of the lower of loss brought forward or unabsorbed depreciation while computing book profit under Section 115JB. The Tribunal directed the AO to allow the deduction as per the provisions of the law, allowing the ground in favor of the assessee.

5. Charging of interest under Section 234B and 234C:

The fifth issue involves the charging of interest under Sections 234B and 234C. The Tribunal referred to the jurisdictional High Court's decision in Emami Ltd. v. CIT, which held that interest under these sections should not be charged if the liability to pay advance tax did not exist on the last date for payment. The Tribunal reversed the lower authorities' orders and deleted the interest charged, allowing the ground in favor of the assessee.

6. Addition to book profit under Section 115JB for provision for NPA and diminution in the value of investments:

The final issue pertains to the addition to book profit under Section 115JB for provisions for NPA and diminution in the value of investments. The assessee argued that these were actual write-offs and should not be added back. The Tribunal, relying on the Karnataka High Court's decision in CIT v. Yokogawa India Ltd., held that actual write-offs should not be added back. However, it upheld the addition for diminution in the value of investments, as it was not permanent in nature. The ground was partly allowed.

Conclusion:

The appeal was partly allowed, with the Tribunal providing relief on several grounds while upholding certain additions. The detailed analysis of each issue reflects the application of legal principles and precedents to the facts of the case.

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