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2018 (7) TMI 1811 - AT - Income TaxDisallowance of expenses made on a/c of license fee/royalty paid to Sh. Ashok Chaturvedi, pertaining to Jammu Unit - Held that - Since, the entire basis for adverse inference by the Assessing Officer as well as of ld. CIT (A) is upon the assessment order and first appellate order given in the Assessment Year 2006-07, which the Tribunal has reversed by holding that assessee has rightly shown the payment of licence fee/royalty under the corporate unit; therefore, respectfully, following the precedence of the earlier year, we also give the same direction that the licence fee, royalty payment of ₹ 6 crore has rightly been shown under the Corporate Division and accordingly, the finding of the ld. CIT(A) is reversed Disallowance u/s. 14A r.w.r. 8D - Held that - In so far as disallowance of interest expenditure is concern, the same has rightly been deleted by the ld. CIT (A) after due verification of the records that none of the investments have been made out of borrowed funds and has been made by assessee s own fund. In view of such a clear cut finding, no disallowance of interest can be made. With regard to other disallowance on account of administrative cost, we find that assessee has given a categorical explanation that no expenditure can be said to be attributable especially when all the investments were made in much earlier years and there is only one dividend cheque received during the year. In the absence of any recording of mandatory satisfaction as per Section 14A (2) r.w.s. Rule 8D (1) Assessing Officer cannot mechanically apply Rule 8D for the purpose of disallowance. Accordingly, disallowance made u/s.14 by Assessing Officer is hereby deleted. Addition as Excise duty refund (Self Cenvat Credit) treating it to be the Revenue receipt - holding this receipt as eligible for deduction u/s. 80IB - Held that - We find that in the case of Balaji Alloys 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT , on same Govt. Notification has held that excise refund receipt in pursuance of new Industrial policy of the government is a capital receipt. Once that is so, then the entire receipt itself cannot be treated as part of taxable receipt and the entire question of allowing and disallowing the deduction u/s.80IB becomes purely academic. This judgment of Hon ble Jammu & Kashmir High Court has also been approved and affirmed by the Hon ble Supreme Court in the case of CIT vs. Shree Balaji Alloys 2016 (4) TMI 1161 - SUPREME COURT Decided in favor of assessee.
Issues Involved:
1. Sustenance of disallowance of expenses of ?6,00,00,000/- made on account of license fee/royalty paid to an individual, pertaining to Jammu Unit. 2. Sustenance of disallowance to the extent of ?24,13,116/- under Section 14A read with Rule 8D (challenged by assessee) and deletion of such addition to the extent of ?82,66,124/- (challenged by Revenue). 3. Sustenance of ?2,80,82,949/- as Excise duty refund (Self Cenvat Credit) treating it to be the Revenue receipt (challenged by assessee), but holding this receipt as eligible for deduction under Section 80IB (challenged by Revenue). 4. Holding the assessee as not entitled to exclusion of Excise Duty Refund (Self Cenvat Credit) of ?2,80,82,949/- for determination of total income under Section 115JB. Detailed Analysis: 1. Disallowance of Expenses on Account of License Fee/Royalty: The Tribunal found that the issue of whether the royalty expenses pertain to the Jammu unit was previously decided in favor of the assessee for the Assessment Year 2006-07. It was observed that the technical know-how obtained by the assessee was not utilized at the Jammu unit due to unforeseen reasons and was sublet to an outside party. The Tribunal held that the royalty payment of ?6 crore was rightly shown under the Corporate Division, reversing the CIT(A)'s finding. The decision was based on the precedent set in the earlier assessment years, where the Tribunal had already ruled in favor of the assessee. 2. Disallowance under Section 14A read with Rule 8D: The Tribunal noted that the CIT(A) had deleted the disallowance of interest expenditure after verifying that the investments were made from the assessee's own funds and not borrowed funds. The Tribunal upheld this finding, emphasizing that no disallowance of interest could be made. However, regarding the administrative cost disallowance, the Tribunal found that the Assessing Officer had failed to record the mandatory satisfaction as per Section 14A(2) and (3) read with Rule 8D(1). Consequently, the disallowance made under Section 14A was deleted. The Tribunal decided this issue in favor of the assessee and against the Revenue, noting that the facts and circumstances were similar to those in the earlier assessment years. 3. Excise Duty Refund (Self Cenvat Credit) as Revenue Receipt: The Tribunal observed that the issue of excise duty refund had been previously decided in favor of the assessee, where it was held as a capital receipt not subject to tax. The CIT(A) had followed the decision of the Hon'ble Jammu & Kashmir High Court in the case of Shree Balaji Alloys, where it was held that the excise duty refund is a capital subsidy. This decision was affirmed by the Hon'ble Supreme Court. The Tribunal upheld the CIT(A)'s finding that the excise duty refund is a capital receipt and not taxable. Consequently, the appeal of the Revenue on this ground was dismissed. 4. Exclusion of Excise Duty Refund under Section 115JB: The Tribunal held that since the excise duty refund is a capital receipt, it should not be included in the book profit for the purpose of Section 115JB. The Tribunal referred to the decision of the ITAT Mumbai Bench in the case of JSW Steel Ltd., where it was held that a capital receipt cannot be part of the book profit. The Tribunal concluded that the excise duty refund, being capital in nature, cannot be included in the book profit, and thus, the assessee was entitled to exclude such refund for the determination of total income under Section 115JB. The Tribunal allowed the assessee's appeal on this ground and dismissed the Revenue's appeal. Conclusion: The Tribunal decided the issues in favor of the assessee, allowing the exclusion of royalty payment under the Corporate Division, deleting the disallowance under Section 14A, treating the excise duty refund as a capital receipt, and excluding it from the book profit under Section 115JB. The appeals of the Revenue were dismissed, and the assessee's appeals were allowed, following the precedents set in the earlier assessment years. The decision was pronounced in the open court on 26th July 2018.
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