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2021 (1) TMI 732 - AT - Income TaxDisallowance u/s. 14A by applying rule 8D - Suo moto addtion made by assessee - No recording of satisfaction by AO - HELD THAT - AO has not recorded any satisfaction before rejecting the suo moto disallowance made by the assessee and Ld. CIT(A) also clearly accepted this fact that no satisfaction was recorded. We notice from the record that no satisfaction was recorded even in the earlier Assessment Year 2008-09 and 2009-10 2017 (8) TMI 405 - ITAT MUMBAI and based on the above facts on record, Coordinate Bench of ITAT has deleted the disallowance made u/s. 14A - Thus delete the addition made u/s. 14A by observing that there is no satisfaction recorded by the AO as per the findings of Ld. CIT(A). - Decided in favour of assessee. Disallowance u/s. 40A(9) for reimbursement of school expenses - AO rejected the submissions made by assessee and observed that the expenses reimbursed by the assessee are relating to educational institution, which is a separate tax entity and the business of the assessee is not relating to carrying out business of the school thus the provisions of section 40A(9) are clearly attracted in this case - HELD THAT - We notice that the Coordinate Bench of ITAT in assessee's own case for Assessment Year 2003-04 to 2009-10 2017 (8) TMI 405 - ITAT MUMBAI has already allowed the reimbursement of expenses to the educational institution. Therefore, respectfully following the decision of Coordinate Bench of ITAT which is applicable mutatis mutandis in the present case, we are inclined to dismiss the ground raised by the revenue. Claim of depreciation - Allowance of depreciation for earlier years, when such depreciation was not actually allowed in those years - HELD THAT - As decided in own case 2016 (5) TMI 1386 - ITAT MUMBAI it is not open for the Assessing Officer to assume the allowance of depreciation for earlier years, when such depreciation was not actually allowed in those years, because, the situation could have been different, if he would have reopened the assessment of those earlier years. Without amending the assessments of those years, the assumed written down value could not be considered to work out the depreciation of the current year. - Decided against revenue. VAT subsidy - CIT(A) observed that assessee is making this claim first time during the appellate proceedings and this was not in the return of income or had not claimed during the assessment proceedings, assessee had shown it as income in its return of income - DR submitted that this issue may be remitted back to the AO for factual verification and documents and AO may be given opportunity to verify the claim of the assessee - HELD THAT - CIT(A) observed that subsidy given by the government is after the commencement of the business and to promote the business and not to set up the business. The creation of the infrastructure is of the State Govt. and assessee cannot take advantage of such objectives of the State Govt. - sales tax subsidy received by the assessee from the Govt. of Madhya Pradesh is after setting up of the new industry and the subsidy received by the assessee is revenue nature and it is liable to tax We notice that this issue was analyzed and adjudicated by Ld. CIT(A) after verifying the relevant documents submitted by the assessee before him and moreover, the proceedings before Ld. CIT(A) is only extension of assessment, it is otherwise known as extended assessment proceedings, therefore Ld. CIT(A) has applied his mind and came to the conclusion with his own reasoning and rejected the submission /contention of the assessee. Therefore, there is no necessity to remit this issue back to the AO for further verification. Sales Tax exemption scheme by the Maharashtra Govt . - CIT(A) observed that for the reasons discussed while adjudicating the issue of VAT subsidy received from Madhya state government and the entry tax exemption received from the Madhya Pradesh state government the sales tax exemption received from the Maharashtra state government is also treated as revenue receipts liable to be taxed - HELD THAT - We notice that this issue was analyzed and adjudicated by Ld. CIT(A) after verifying the relevant documents submitted by the assessee before him and moreover, the proceedings before Ld. CIT(A) is only extension of assessment, it is otherwise known as extended assessment proceedings, therefore Ld. CIT(A) has applied his mind and came to the conclusion with his own reasoning and rejected the submission/contention of the assessee. Therefore, there is no necessity to remit this issue back to the AO for further verification. Entry Tax Exemption - HELD THAT - We notice that assessee was awarded a certificate of eligibility for exemption of entry tax considering the fact that assessee has made investments in the Units established in the State of Madhya Pradesh and the Industrial Development Scheme clearly states that the incentive awarded only because, the assessee has made the investments and also the Scheme of incentive clearly based on the range of the investment made by the respective industries. As held in the various decisions, it is not relevant what mechanism was adopted by the State Govt. to award the incentive, but for what purpose this incentive were awarded whether these were awarded to benefit the units to function profitably or in order to bring capital inside the State in order to improve the industrial development in the State. As per the scheme, it is clear that incentives were awarded only because of new industrial units were commenced after 2004 - Thus we are inclined to allow the ground raised by the assessee. Sale of Carbon Credit - assessee treated the above receipt as capital receipt with the submission that if the absence of any element or profit or gain, income from sale of carbon credit should be treated as capital receipt and should be excluded in computing the total income both under the normal provisions of the Act as well as in computing book profit under section 115JB - HELD THAT - In Dodson Lindblom Hydro Power Ltd. Bom HC 2019 (4) TMI 1034 - BOMBAY HIGH COURT which are similar to the facts of the present case, wherein the Hon'ble Jurisdictional High Court held that the sale of carbon credit is to be considered as capital receipt, therefore not liable to tax. The same reasoning was followed by Hon'ble Allahabad and Rajasthan High Court. Therefore, considering the consistent view of the different High Courts in the country, we see no reason to take a different stand since the different High Courts has decided this issue in favour of the assessee. Respectfully following the aforesaid decisions of various High Courts which are applicable mutatis mutandis in the present case, we are inclined to allow the ground raised by the assessee. MAT computation - exclusion of VAT subsidy, sales tax exemption, entry tax exemption and income from sale of carbon credit while computing income u/s. 115JB - HELD THAT - We notice that since we have already decided that the subsidies are in the nature of capital receipt and also by following the decision of Ankit Metal Power 2019 (7) TMI 878 - CALCUTTA HIGH COURT , we direct the AO not to consider these receipts in calculating the book profit as that these incentives/receipts are capital receipt and does not fall within the definition of income under section 2(24) of the Act and also receipts are not in the character of income. Therefore, it cannot form part of the book profit u/s. 115JB of the Act.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Disallowance under Section 40A(9) for reimbursement of school expenses. 3. Claim of depreciation. 4. VAT subsidy. 5. Sales tax exemption. 6. Entry tax exemption. 7. Income from the sale of carbon credits. 8. Exclusion of VAT subsidy, sales tax exemption, entry tax exemption, and income from the sale of carbon credits while computing income under Section 115JB. 9. Additional grounds raised by the assessee during appellate proceedings. 10. Mine development expenses and lease expenditure. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee and revenue both appealed against the disallowance under Section 14A. The AO made a disallowance of ?11,22,21,330/-. The CIT(A) found that the AO did not record any dissatisfaction with the assessee's suo moto disallowance and deleted the interest disallowance under Rule 8D(2)(ii). However, the CIT(A) restricted the disallowance under Rule 8D(2)(iii) to the exempt income earned. ITAT upheld that the AO did not record the necessary satisfaction and directed the AO to delete the addition under Section 14A read with Rule 8D. 2. Disallowance under Section 40A(9) for reimbursement of school expenses: The AO disallowed the reimbursement of school expenses, treating it as a contribution disallowable under Section 40A(9). The CIT(A), following the ITAT's decision in the assessee's own case for earlier years, allowed the expenses. ITAT upheld the CIT(A)’s decision, dismissing the revenue’s appeal. 3. Claim of depreciation: The AO disallowed depreciation claims based on the assumption that depreciation should have been claimed in earlier years. The CIT(A), following ITAT’s decision in the assessee's own case for earlier years, allowed the claim. ITAT upheld the CIT(A)’s decision, dismissing the revenue’s appeal. 4. VAT subsidy: The assessee claimed VAT subsidy as a capital receipt. The CIT(A) treated it as revenue, relying on certain case laws. ITAT, following decisions in similar cases, held that the subsidy was capital in nature and allowed the assessee's claim. 5. Sales tax exemption: The assessee claimed sales tax exemption as a capital receipt. The CIT(A) treated it as revenue. ITAT, following decisions in similar cases, held that the exemption was capital in nature and allowed the assessee's claim. 6. Entry tax exemption: The assessee claimed entry tax exemption as a capital receipt. The CIT(A) treated it as revenue. ITAT, following decisions in similar cases, held that the exemption was capital in nature and allowed the assessee's claim. 7. Income from the sale of carbon credits: The assessee claimed income from the sale of carbon credits as a capital receipt. The CIT(A) treated it as revenue, relying on a specific ITAT decision. ITAT, following decisions of various High Courts, held that the income was capital in nature and allowed the assessee's claim. 8. Exclusion of VAT subsidy, sales tax exemption, entry tax exemption, and income from the sale of carbon credits while computing income under Section 115JB: The CIT(A) included these receipts in the book profit. ITAT, following the decision in PCIT v. Ankit Metal & Power Ltd., directed the AO to exclude these receipts from the book profit calculation. 9. Additional grounds raised by the assessee during appellate proceedings: The assessee raised additional grounds regarding the deduction of education cess and debenture redemption reserve. ITAT remitted these issues back to the AO for verification and decision as per law. 10. Mine development expenses and lease expenditure: The AO disallowed mine development expenses as capital expenditure. The CIT(A), following ITAT’s decision in the assessee's own case for earlier years, allowed the expenses. ITAT upheld the CIT(A)’s decision, dismissing the revenue’s appeal. Conclusion: The ITAT provided a comprehensive analysis for each issue, often relying on precedents set in the assessee's own case or similar cases. The appeals by the revenue were largely dismissed, while the appeals by the assessee were partly allowed, with some issues remitted back to the AO for further verification.
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