2021 (12) TMI 390 - AT - Income Tax

Depreciation - Disallowance of amount released from reserves account under normal computation of income - depreciation claimed on assets purchased at concessional import duty - CIT-A deleted addition made by AO - HELD THAT - Admittedly, the assessee has imported certain capital asset on a concessional import duty with a condition that if export obligations are met, then it could avail the benefit of concession duty payable for import of goods. Further, when the assets were imported under confessional import duty scheme, the assessee has accounted plant machinery in books of accounts with its monetary value including concessional duty availed under the scheme and credited the concessional duty benefit to reserves and surplus account under the head deferred income account. The assessee has claimed depreciation on said plant machinery with its full value, but released an equal amount from reserves and surplus account and credited to Profit Loss account. The net result of the accounting entries passed in the books of accounts was that the assessee has claimed enhanced depreciation on confessional duty and at the same time, reversed the same from reserves and surplus account and thus, the net effect of the entry is nil adjustment to income computed for the year. Therefore AO was erred in disallowing depreciation claim on asset and added back to total income without understanding the fact that entries passed in the books of accounts is not determinative to compute correct income of the assessee - Decided against revenue. Addition of interest income under the head income from other sources while computing tonnage tax u/s.115VI - HELD THAT - In this case, the assessee has earned interest income and claimed that such interest income is derived from shipping business, on the ground that it had maintained separate books of accounts for shipping business and hence, whatever income derived from the segment of shipping business is eligible for tonnage tax scheme. We do not find merits in the arguments of the assessee for the simple reason that interest earned on deposits or loans out of income generated from shipping business cannot be considered as income derived from core activity of operating a ship or incidental activities connected to operating a ship. The question whether the assessee had maintained separate books of accounts or not is irrelevant to decide the nature and head of income. Therefore, we are of the considered view that interest income earned by the assessee from deposits is not an income derived from shipping business and thus, the same is not entitled for tonnage tax scheme. The ld.CIT(A) without appreciating the facts simply deleted addition made by the AO. Hence, we reverse the findings of ld.CIT(A) and allow the ground taken by the Revenue. Disallowance u/s.14A at the rate of 0.5% of average value of investments, income from which does not form part of total income - claim of the assessee before the AO that only those investments which yielded exempt income for the year needs to be considered while computing disallowance under Rule 8D(2)(iii) of the IT Rules, 1962 - HELD THAT - An identical issue has been considered by the Co-ordinate Bench of ITAT, Chennai in assessee s own case for assessment years 2007-08 2016 (1) TMI 1028 - ITAT CHENNAI , where the Tribunal held that, only those investments which yielded exempt income shall be considered to disallow 0.5% of average value of investment, the income from which does not form part of total income - in the case of ACIT vs. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI had considered an identical issue and held that only those investments which yielded exempt income for the year needs to be considered for computing disallowance of 0.5% of the average value of investment.CIT(A) after considered relevant facts has rightly directed the AO to recompute disallowance by taking those investments which yielded exempt income for the year. Therefore, we are of the considered view that there is no error in the findings of the ld.CIT(A) and hence, we are inclined to uphold the findings of ld.CIT(A) and reject ground taken by the Revenue. Disallowance of interest cost on borrowings u/s.36(1)(iii) - AO has disallowed proportionate interest expenses u/s.36(1)(iii) of the Act, on the ground that assessee has diverted interest bearing funds for non-business purpose - CIT-A deleted the addition - HELD THAT - AO has exactly done what the Hon ble Supreme Court said in the case of M/s. Hero Cycles Ltd. 2015 (11) TMI 1314 - SUPREME COURT and sat in the arm-chair of businessman and decided himself that investment made in above two companies are not strategic investments but only a quid pro quo without bringing on record any evidence to prove that said investments is a quid pro quo. The CIT(A) after considering relevant facts has rightly deleted additions made by the AO and hence, we are inclined to uphold the findings of the ld.CIT(A) and reject ground taken by the Revenue. Addition u/s 14A to book profit computed u/s.115JB of the Act - HELD THAT - As relying on own case 2019 (12) TMI 1562 - ITAT CHENNAI and Vireet Investment Pvt. Ltd., 2017 (6) TMI 1124 - ITAT DELHI , held that computation under Clause (f) of the Explanation -1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s.14A r.w.rule.8D of the Rules . Therefore, we direct the AO to delete addition made towards disallowance u/s.14A r.w.rule 8D to book profit computed u/s.115JB. Disallowance of advertisement expenditure - HELD THAT - We find that an identical issue has been considered by the Tribunal in assessee s own case for assessment year 2011-12 and after considering relevant facts held that advertisement charges paid to M/s. Kalaignar TV Pvt. Ltd., is for business purpose and the AO has disallowed the expenses on suspicious grounds by doubting the genuineness of payment but fact remains that assessee has paid the amount towards cost of advertisement for 5 years and filed necessary evidences to prove that M/s. Kalaignar TV Pvt. Ltd., has telecasted the advertisement in the TV for a period of 5 years - we are of the considered view that there is no error in findings recorded by the CIT(A) and delete addition made towards disallowance of advertisement expenses. Hence, we are inclined to uphold the findings of CIT(A) and reject the ground taken by the Revenue. Disallowance of loss on redemption of FCCBs - HELD THAT - CIT(A) opined that when the assessee is following a consistent method of accounting to treat loss / gain of reinstatement of liability towards FCCBs to account gain as income and loss as expenditure, there is no reason for the AO to take different view for the year under consideration, unless there is change in facts for the relevant year. The ld.CIT(A) further observed that the issue is covered by the decision of Hon ble Supreme Court in the case of Woodward Governor India P. Ltd. 2009 (4) TMI 4 - SUPREME COURT The facts remain unchanged. The Revenue has failed to bring on record any evidence to prove the findings of fact recorded by the ld.CIT(A) is incorrect or any judgment of Supreme Court or High Courts to take a different view. Therefore, we are of the considered view that the ld.CIT(A) was right in deleting addition made by the AO towards disallowance of loss on redemption of FCCBs and hence, we are inclined to uphold the findings of ld.CIT(A) and reject ground taken by the Revenue. Disallowance of Forex monetary item translation difference - HELD THAT - On perusal of facts, the assessee has treated loss incurred on fluctuation in foreign currency as per the circular of MCA and has accounted loss related to loans borrowed for capital purpose into capital account and added to concerned asset and loans related to general business purpose has been treated as revenue and added to Forex monetary item translation difference. Further the assessee has accounted said loss in the books of accounts as per the circular issued by MCA however, in the statement of total income deduction has been claimed towards total loss incurred in the year in respect of revenue account. The assessee has following said accounting method consistently for several years and further, when the loss incurred on fluctuation in foreign currency is on revenue account then said loss is deductable u/s.37(1) of the Act irrespective of accounting treatment given in books of accounts of the assessee. Therefore, we are of the considered view that there is no error in findings recorded by the ld.CIT(A) to delete addition made by the AO towards loss on foreign currency translation difference account and hence, we are inclined to uphold the order of the CIT(A) and reject ground taken by the Revenue. Transfer pricing adjustment to deduction claimed u/s.80IA of the Act towards income generated on captive power plant - HELD THAT - We find that an identical issue has been considered by the Tribunal in assessee s own case for assessment year 2011-12. 2019 (12) TMI 1562 - ITAT CHENNAI where the Tribunal under identical set of facts by following certain judicial precedents including the decision of Hon ble Bombay High Court in the case of Reliance Industries Ltd. 2019 (2) TMI 178 - BOMBAY HIGH COURT and the decision of M/s.Godavari Power and Ispat Ltd 2013 (10) TMI 5 - CHHATTISGARH HIGH COURT held that while computing deduction u/s.80IA for generation of power for captive consumption, the rate at which electricity board supply power to its consumers should be considered instead of the rate at which the power generating companies supply its power to the electricity board. As per SRI VELAYUDHASWAMY SPINNING MILLS (P.) LTD. 2011 (7) TMI 965 - ITAT CHENNAI and EVEREADY SPINNING MILLS (P.) LTD. 2011 (11) TMI 368 - ITAT CHENNAI deleted additions made by the AO by holding that market value of the power captively consumed should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power at which power could have been sold to SEBs because this is not the rate for which a consumer could have purchased power in the open market. Therefore, we are of the considered view that there is no error in the finding recorded by the ld.CIT(A) to delete additions made by the AO towards TP adjustment on deduction claimed u/s.80IA of the Act. Hence, we reject the ground taken by the Revenue. Depreciation on franchisee right of Indian Premier League - Assessee was owner of franchisee rights of Chennai Super Kings - HELD THAT - In an identical issue in assessee s own case for assessment year 2008-09 2016 (1) TMI 1028 - ITAT CHENNAI , where under identical set of facts has allowed depreciation claimed by the assessee on total value of franchisee rights of ₹ 364 crores capitalized in books of accounts even though the assessee has paid said amount over a period of 10 years. Disallowance of interest paid on TDS under MAT computation - HELD THAT - TDS cannot be considered as income tax payable by the assessee on its income. Therefore, any interest paid on belated remittance of TDS also in the nature of expenditure deductible under the Act and hence, the same cannot be added back to book profit computed u/s.115JB of the Act. This is so, as per Circular No.1 of 2009 dated 27.03.2009 issued by the CBDT where it has been clarified that the intention behind add backs to book profit is the items which mainly appear below the line in the Profit Loss account. From the above it is very clear that only those items which appear below the line needs to be added back to compute book profit u/s.115JB of the Act. Since interest on TDS is an item above the line in the Profit Loss account, the same cannot be added back while computing book profit u/s.115JB of the Act. The CIT(A) after considering relevant facts has rightly deleted additions made by the AO and hence we are inclined to uphold the order of CIT(A) and reject the ground taken by the Revenue. Depreciation on UPS - @ 60% as applicable to computers whereas, the AO has restricted depreciation @15% on UPS on the ground that UPS is a separate item of plant machinery. - HELD THAT - Tribunal in assessee s own case for assessment years 2011-12 to 2016-17 2019 (12) TMI 1562 - ITAT CHENNAI where the Tribunal has deleted addition made by the AO towards excess depreciation on UPS by holding that UPS is an integral part of computer system which is eligible for depreciation @ 60% as applicable to computers. The CIT(A) after considering relevant facts has rightly deleted addition made by the AO and hence, we are inclined to uphold the finding of ld.CIT(A) and reject ground taken by the Revenue. Nature of receipts - Treatment of subsidy from Government as revenue in nature - HELD THAT - As decided in own case 2019 (12) TMI 1562 - ITAT CHENNAI held that subsidy granted by the Government of Maharashtra for setting up new manufacturing unit under Industrial Promotion Policy is capital in nature which is not taxable under the Act. In the present case, the ld.CIT(A) has recorded categorical finding that the assessee had set up a new cement manufacturing plant at Parli, Beed District, Maharashtra under the Industrial Promotion Policy of Government of Maharashtra and the Package Scheme of Incentives 2011 notified by the Directorate of Industries. The CIT(A) further noted that the assessee has made investments in fixed assets of ₹ 15,214.34 lakhs up to 31.03.2011. The subsidy has been given to offset the capital investment made for setting up new cement manufacturing plant at Parli. Therefore, we are of the considered view that, there is no error in findings recorded by CIT(A) to delete addition made by the AO and hence, we are inclined to uphold the findings of CIT(A) and reject ground taken by the Revenue.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Disallowance of amount released from reserves.
3. Addition of interest income under tonnage tax.
4. Disallowance under Section 14A.
5. Disallowance of interest cost on borrowings.
6. Validity of reopening of assessment under Section 147.
7. Re-computation of book profit under Section 115JB.
8. Disallowance of notional interest on advances to subsidiaries.
9. Disallowance of advertisement expenditure.
10. Disallowance of loss on redemption of FCCBs.
11. Disallowance of Forex monetary item translation difference.
12. Transfer pricing adjustment to deduction claimed under Section 80IA.
13. Depreciation on franchisee rights of IPL.
14. Treatment of subsidy from Government.
15. Disallowance of payment to Vasthu Consultant.
16. Depreciation charges on amount paid to consultant.
17. Addition towards provision for leave encashment.
18. Disallowance of interest paid on TDS under MAT provisions.
19. Depreciation on UPS.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The Tribunal condoned the delay in filing appeals for the assessment years 2012-13 and 2013-14, accepting the Revenue's explanation that the delay was due to a reasonable cause.

2. Disallowance of Amount Released from Reserves:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance made by the AO on the amount released from reserves. It was determined that the entries passed in the books of accounts were not determinative for computing the correct income of the assessee.

3. Addition of Interest Income under Tonnage Tax:
The Tribunal reversed the CIT(A)'s decision and held that interest income earned by the assessee from deposits is not derived from shipping business and is not entitled to tonnage tax scheme benefits.

4. Disallowance under Section 14A:
The Tribunal upheld the CIT(A)'s decision to direct the AO to recompute the disallowance under Section 14A by taking into account only those investments which yielded exempt income for the year.

5. Disallowance of Interest Cost on Borrowings:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest cost on borrowings, stating that the investments in subsidiaries were strategic and for business purposes.

6. Validity of Reopening of Assessment under Section 147:
The assessee did not press the ground challenging the reopening of assessment, and thus, the ground was dismissed as not pressed.

7. Re-computation of Book Profit under Section 115JB:
The Tribunal directed the AO to delete the addition made towards disallowance under Section 14A while computing book profit under Section 115JB, following the decision of ITAT, Delhi Special Bench in the case of ACIT vs. Vireet Investment Pvt. Ltd.

8. Disallowance of Notional Interest on Advances to Subsidiaries:
The Tribunal upheld the CIT(A)'s decision to delete the notional interest on advances to subsidiaries, following the decision in the assessee's own case for earlier years.

9. Disallowance of Advertisement Expenditure:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of advertisement expenditure paid to M/s. Kalaignar TV Pvt. Ltd., stating that the expenditure was genuine and incurred wholly and exclusively for business purposes.

10. Disallowance of Loss on Redemption of FCCBs:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of loss on redemption of FCCBs, following the Supreme Court's decision in the case of CIT vs. Woodward Governor India P. Ltd.

11. Disallowance of Forex Monetary Item Translation Difference:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of Forex monetary item translation difference, citing the Supreme Court's decision in the case of ONGC Ltd. vs. CIT.

12. Transfer Pricing Adjustment to Deduction Claimed under Section 80IA:
The Tribunal upheld the CIT(A)'s decision to delete the TP adjustment on deduction claimed under Section 80IA, following the decision in the assessee's own case for earlier years.

13. Depreciation on Franchisee Rights of IPL:
The Tribunal upheld the CIT(A)'s decision to allow depreciation on the total value of franchisee rights capitalized in the books of accounts, following the decision in the assessee's own case for earlier years.

14. Treatment of Subsidy from Government:
The Tribunal upheld the CIT(A)'s decision to treat the subsidy received from the Government of Maharashtra as a capital receipt, following the decision in the assessee's own case for earlier years.

15. Disallowance of Payment to Vasthu Consultant:
The Tribunal confirmed the disallowance of payment to M/s. Rishividya Consultants Pvt. Ltd., following the decision in the assessee's own case for earlier years.

16. Depreciation Charges on Amount Paid to Consultant:
The Tribunal confirmed the disallowance of depreciation charges on the amount paid to consultant Dr. K. Venkatesan, following the decision in the assessee's own case for earlier years.

17. Addition towards Provision for Leave Encashment:
The Tribunal set aside the issue to the file of the AO to decide after the Supreme Court's decision on the deductibility of provision for leave encashment in light of the amended provisions of Section 43B(f).

18. Disallowance of Interest Paid on TDS under MAT Provisions:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of interest paid on TDS under MAT provisions, stating that TDS is not an income tax of the assessee and hence, interest on TDS cannot be added back while computing book profit under Section 115JB.

19. Depreciation on UPS:
The Tribunal upheld the CIT(A)'s decision to allow depreciation on UPS at 60%, considering it as an integral part of the computer system, following the decision in the assessee's own case for earlier years.

Conclusion:
The appeals filed by the Revenue for the assessment years 2012-13 and 2013-14 were dismissed, the appeal filed by the Revenue for the assessment year 2008-09 was partly allowed, the appeal filed by the assessee for the assessment year 2009-10 was partly allowed, and the cross objection filed by the assessee for the assessment year 2013-14 was partly allowed for statistical purposes.