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2019 (10) TMI 124 - AT - Income TaxDisallowance of interest on disputed Govt. duty (Electricity Duty and water charges - HELD THAT - As decided in own case 2018 (6) TMI 1662 - ITAT CUTTACK we direct the AO to allow assessee s claim of interest insofar as assessee is also offering interest on the amount deposited in the bank account. When interest on such deposit is brought to tax, there is no reason for disallowing interest payable to Government for non-payment of such duty in Government account. The reasoning given by the AO for disallowing interest on non/delayed payment of water charges are that it was a contingent liability. We found that Tribunal in assessee s own case in earlier years had allowed this claim under similar circumstances and held that interest on unpaid electricity duty and water charges is fully allowable u/s.37 of the Act and provisions of Section 44A of the Act for disallowance is not attracted. It is pertinent to mention here that the ITAT Cuttack Bench in the case of NALCO in the combined order has held that interest on disputed Electricity Duty are allowable u/s.37 of the Act and further the interest on Electricity Duty, even if a statutory liability, the same do not fall under the ambit of Section 43B of the Act and therefore, even if such interest is not paid the same is not to be disallowed under section 43B. Following the reasoning given hereinabove with regard to the interest on delayed payment of electricity bill, we direct the AO to allow interest on the water bill. Disallowance of provision for leave encashment u/s.43B - HELD THAT - As decided in own case 2018 (6) TMI 1662 - ITAT CUTTACK wherein the Tribunal has restored the issue to the file of AO to examine and allow the claim of the assessee. Disallowance u/s.14A r.w.Rule 8D - HELD THAT - Assessing Officer has considered average total investment appearing on the first day and last day of the financial year, which in our opinion is not justified. These investments may also include such investments from which no exempt income would have been earned by the assessee. As is clear from the Rule itself, the average of only such investments have to be taken into account, which yielded the income not forming part of the total income. AO was required to work out the average of such investment, the income from which did not form part of the total income instead of total value of investment. For this view, our stand is fortified by the decision of ACIT vs. Vireet Investment (P) Ltd., 2017 (6) TMI 1124 - ITAT DELHI . None of the parties before us, however, have laid any details to examine as to which of the investments have yielded such income which did not form part of the total income. We, therefore, restore the matter back to the file of the Assessing Officer for calculating the disallowance u/s. 14A read with Rule 8D afresh, in the light of observations made in the body of this order above. Accordingly, ground No.4 is allowed for statistical purposes. Treatment of Short Term Capital Gains - not accepting Loss under Long Term Capital Gains and treating the same as Business income - HELD THAT - As decided in own case 2018 (6) TMI 1662 - ITAT CUTTACK we direct the AO to accept the loss under long term capital gains and treat the income under the capital gains instead of business income. Additional Depreciation u/s.32(i)(iia) - AO disallowed the same on account of the fact that the assessee could not produce the particulars/details of actual cost during the course of assessment proceedings - HELD THAT - CIT(A) has already remitted the issue to the file of AO to allow the claim of the assessee after verification of necessary details. Therefore, any order/direction by us, at this stage, on this issue, would be futile exercise. However, a reasonable order is expected from the AO on the above observations of CIT(A). Disallowance of the loss claimed on account of re-valuation of non-moving stores and spares - HELD THAT - As decided in own case 2018 (6) TMI 1662 - ITAT CUTTACK in favour of the assessee and against the Revenue relying on the decision of the Tribunal in assessee s own case for the earlier assessment years. We follow the same reasoning given in the aforesaid appeal and we do not see any reason to interfere with the order of the CIT(A), who has passed a reasoned.
Issues Involved:
1. Disallowance of Interest on Disputed Government Duty (Electricity Duty and Water Charges) 2. Disallowance of Provision for Leave Encashment under Section 43B(f) of the Income Tax Act 3. Disallowance under Section 14A of the Income Tax Act 4. Treatment of Short Term Capital Gains and Long Term Capital Gains as Business Income 5. Additional Depreciation under Section 32(1)(iia) of the Income Tax Act 6. Disallowance of Loss on Revaluation of Non-Moving Stores and Spares Issue-Wise Detailed Analysis: 1. Disallowance of Interest on Disputed Government Duty (Electricity Duty and Water Charges): The Assessing Officer (AO) disallowed the interest on disputed government duties, considering them unascertained liabilities and not allowable as business expenditure. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, stating that the amount was a provision calculated on disputed enhanced electricity duty without any demand raised by authorities. However, the Income Tax Appellate Tribunal (ITAT) referred to its previous decisions in similar cases, where such interest liabilities were allowed under Section 37 of the Income Tax Act, recognizing them as statutory liabilities. Consequently, the ITAT directed the AO to delete the disallowance, allowing the assessee's appeal on this ground. 2. Disallowance of Provision for Leave Encashment under Section 43B(f) of the Income Tax Act: The AO added back the provision for leave encashment to the income under Section 43B, relying on a precedent from the Kolkata High Court. The CIT(A) upheld this decision. The ITAT, referring to its earlier decisions, restored the issue to the AO for re-examination, directing the AO to examine and allow the claim of the assessee based on the Supreme Court's decision. This ground was allowed for statistical purposes. 3. Disallowance under Section 14A of the Income Tax Act: The AO made a disallowance under Section 14A read with Rule 8D, which was confirmed by the CIT(A). The ITAT noted that the AO had not complied with the mandatory requirements of Section 14A(2) read with Rule 8D(1)(a). The ITAT restored the issue to the AO for re-examination and verification, directing the AO to calculate the disallowance afresh, considering only those investments that yielded exempt income. This ground was allowed for statistical purposes. 4. Treatment of Short Term Capital Gains and Long Term Capital Gains as Business Income: The AO treated the gains from mutual funds and securities as business income, a decision upheld by the CIT(A). The ITAT, referring to its previous decisions, directed the AO to treat the income as capital gains, not business income. The ITAT emphasized that the assessee's primary business was manufacturing, and the investments in mutual funds were not part of business activities. This ground was allowed in favor of the assessee. 5. Additional Depreciation under Section 32(1)(iia) of the Income Tax Act: The AO disallowed the claim for additional depreciation due to the lack of particulars/details of actual cost. The CIT(A) remitted the issue to the AO for verification of the necessary details. The ITAT found the CIT(A)'s direction reasonable and expected a fair order from the AO upon verification. This ground was disposed of accordingly. 6. Disallowance of Loss on Revaluation of Non-Moving Stores and Spares: The AO disallowed the loss claimed on revaluation of non-moving stores and spares, questioning the method adopted for valuation. The CIT(A) deleted the addition, following its earlier orders. The ITAT upheld the CIT(A)'s decision, referring to its previous decisions in the assessee's own case, which allowed such claims. The appeal of the Revenue on this ground was dismissed. Conclusion: The ITAT allowed the assessee's appeal partly for statistical purposes, dismissed the Revenue's appeal, and dismissed the cross-objection filed by the assessee as infructuous. The order was pronounced in the open court on 23/09/2019.
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