2017 (12) TMI 1410 - AT - Income Tax

Deduction u/s. 80IA - Held that - We find that in assessment years 2006-07 and 2007-08 similar disallowance was made by the Assessing Officer. The matter travelled up to the Tribunal. The Co-ordinate Bench of the Tribunal in assessment year 2006-07 granted relief to the assessee by holding that the assessee is eligible for claim of deduction u/s. 80IA in respect of profits derived from development of infrastructure facility for Sardar Sarovar Narmada Nigam Limited. In assessment year 2007-08 the Tribunal followed the order of Co-ordinate Bench and granted the benefit of deduction u/s. 80IA. Both sides in present appeal are unanimous in admitting that the facts in assessment year under appeal are identical. Therefore, we find no reason to take a different view. - Decided in favour of assessee Disallowance u/s. 14A r.w.r. 8D - Held that - In the instant case we find that own funds of the assessee are much more than the investments made. Rule 8D(2)(ii) seeks to make disallowance, where the assessee has incurred expenditure by way of interest, since, own funds of the assessee are sufficient to cover the investments, no disallowance under Rule 8D(2)(ii) is warranted. As regards disallowance under Rule 8D(2)(iii) i.e. an amount equal to 1/2% of the average value of investment is concerned, we find that as against closing balance of investment of ₹ 347 crores the Assessing Officer has taken into consideration ₹ 151 crores after excluding the investments on which the assessee has not earned any tax free income. The ld. AR contended that while computing the figure of ₹ 151 crores, the Assessing Officer has included some investment on which the assessee has not earned any tax free income. After considering the submissions of assessee we are of considered view that the issue can be remitted to Assessing Officer for limited purpose of verification whether any investment on which tax free income has not been received has been included while computing the closing balance of investment at ₹ 1,51,66,97,307/-. Disallowance of repairs and maintenance expenditure - Held that - Expenditure incurred by assessee for renovation of building is capital in nature, as it provides new advantage/benefit to the assessee for years to come. The ld. AR has not been able to controvert the findings of Commissioner of Income Tax (Appeals). The ld. AR has also failed to substantiate that the expenditure held to be capital is in fact revenue in nature. Disallowance of interest expenditure u/s. 36(1)(iii) - Held that - The Hon ble Bombay High Court in the case of Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT) has held that where both interest free funds and interest bearing funds are available and the interest free funds are more than the investment made, the presumption is that the investments are made out of interest free funds available with the assessee. Thus, in view of undisputed fact that own funds of assessee are sufficient to cover the loan advanced to sister concern, no disallowance u/s. 36(1)(iii) is called for Disallowance of commission - Held that - In the instant case not only that the assessee has placed copy of letter of appointment which is in the form of MOU for engaging the services of M/s. Rex Poly Extrusion Limited as Consultant but has also given the details of contracts secured through M/s. Rex Poly Extrusion Limited. The assessee has also filed confirmation from M/s. Rex Poly Extrusion Limited indicating that the commission has been received through banking channels after deduction of TDS. The Department has not disputed that the assessee has not received contracts of the companies/organizations which are purportedly secured through M/s. Rex Poly Extrusion Limited. It is also an undisputed fact that in the subsequent assessment year the Assessing Officer has allowed payment of commission to M/s. Rex Poly Extrusion Limited. Thus as t the assessee has been able to establish that the services were rendered by the M/s. Rex Poly Extrusion Limited and thus, the payment of commission is justified Reimbursement of medical expenses to the employees liable for Fringe Benefit Tax - Held that - This issue has been considered by the Co-ordinate Bench of the Tribunal in assessee s own case and has decided against the assessee. We find that the Coordinate Bench of the Tribunal in assessee s own appeal for assessment year 2007-08 after considering CBDT Circular No. 8 of 2005 has decided the issue against the assessee

Summary

Issues Involved:

1. Disallowance of deduction u/s 80IA for infrastructure facility.
2. Disallowance u/s 14A.
3. Disallowance of expenditure on Repairs & Maintenance.
4. Disallowance of Interest u/s 36(1)(iii).
5. Disallowance of Commission paid to M/s. Rex Poly Extrusion Ltd.
6. Fringe Benefit Tax on reimbursement of medical expenses.
7. Disallowance of commission payment to Non-Executive Directors without TDS.

Detailed Analysis:

1. Disallowance of Deduction u/s 80IA:
The assessee claimed a deduction of ?21,98,82,046/- u/s 80IA for developing infrastructure for Sardar Sarovar Narmada Nigam Limited. The Tribunal noted that similar disallowances were made in previous assessment years (2006-07 and 2007-08), but the Tribunal had allowed the deductions. Both parties agreed that the facts were identical for the current assessment year. Consequently, the Tribunal followed its previous decisions and allowed the deduction.

2. Disallowance u/s 14A:
The assessee contended that disallowance u/s 14A of ?2,40,31,932/- was unwarranted as it had sufficient interest-free funds. The Tribunal observed that the assessee's own funds (?662 crores) exceeded the investments (?347 crores), aligning with the principle established by the Hon’ble Jurisdictional High Court in Commissioner of Income Tax Vs. HDFC Bank Ltd. Thus, no disallowance under Rule 8D(2)(ii) was warranted. However, for disallowance under Rule 8D(2)(iii), the Tribunal remitted the issue back to the Assessing Officer for verification of investments that did not yield tax-free income.

3. Disallowance of Repairs & Maintenance Expenditure:
The assessee claimed ?46,21,003/- as revenue expenditure for repairs and maintenance. The Assessing Officer and the Commissioner of Income Tax (Appeals) treated it as capital expenditure, citing that it involved significant renovations and new constructions. The Tribunal upheld this view, referencing the Supreme Court's decision in Commissioner of Income Tax Vs. Saravana Spinning Mills (P) Ltd., which states that expenditure aimed at creating new assets or advantages is capital in nature.

4. Disallowance of Interest u/s 36(1)(iii):
The assessee advanced an interest-free loan of ?11,82,450/- to a sister concern, claiming it was from its own funds. The Tribunal noted that the assessee’s own funds were sufficient to cover the loan, following the precedent set by the Bombay High Court in Commissioner of Income Tax Vs. Reliance Utilities & Power Ltd. Hence, the disallowance of ?97,110/- was not justified.

5. Disallowance of Commission to M/s. Rex Poly Extrusion Ltd.:
The assessee paid ?3.48 crores as commission to M/s. Rex Poly Extrusion Ltd. The authorities disallowed it, questioning the services rendered and the rationale behind the commission. The Tribunal, however, found that the assessee provided sufficient evidence, including a letter of appointment and confirmation from the recipient. It noted that similar payments were allowed in the subsequent assessment year. Therefore, the disallowance was unjustified.

6. Fringe Benefit Tax on Medical Reimbursement:
The Tribunal acknowledged that the issue of Fringe Benefit Tax on medical reimbursements had been decided against the assessee in the previous year. The Tribunal upheld the disallowance, referencing the CBDT Circular No. 8 of 2005 and the Tribunal’s earlier decision.

7. Disallowance of Commission to Non-Executive Directors without TDS:
The Department appealed against the deletion of disallowance of ?63,70,000/- paid as commission to Non-Executive Directors without TDS. The Tribunal referred to its earlier decision in the assessee’s case for the assessment year 2007-08, where it was held that such payments did not require TDS under section 194J. Consequently, the Tribunal dismissed the Department’s appeal.

Conclusion:
The assessee's appeal was partly allowed, granting relief on several grounds, including deductions u/s 80IA, disallowance u/s 14A, and commission payments. The Department's appeal was dismissed, upholding the Tribunal's previous decisions on similar issues.