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2022 (1) TMI 412 - AT - Income TaxDisallowance made u/s 14A for computing book profit u/s 115JB - HELD THAT - As perused the decision of ACIT Vs. Vireet Investments Pvt. Ltd 2017 (6) TMI 1124 - ITAT DELHI wherein held that disallowance made u/s 14A cannot be added for computing the book profit u/s 115JB of the Act. Since the issue on hand being squarely covered following the decision supra, do not find any force in the ground of appeal of the revenue, therefore the same stands dismissed. Computation of depreciation as per the written down value of the assets - HELD THAT - During the course of assessment proceedings the A.O has neither granted the depreciation after taking into consideration of the actual written down value of the assets nor disprove the working of computation of depreciation claimed by the assessee in its submission. CIT(A) has also not issued specific direction to the A.O for allowing correct amount of admissible depreciation to the assessee. In the light of the above facts, we are of considered view that the A.O should provide depreciation on the basis of actual written down value of the assets, therefore we restore this issue to the file of the A.O for providing depreciation on the basis of written own value after verification and examination of the supporting details and information submitted by the assessee. Therefore this ground of appeal raised by the assessee is allowed for statistical purposes. Nature of income - subsidy amount received - revenue or capital receipt - assessee received subsidy from Government of Maharashtra which was claimed as exempt on the ground that the same was capital in nature - HELD THAT - The object of the subsidy scheme was to enable the assessee to set up a new unit which was clearly in the nature of capital receipt. Had it been object of the assessee to run the business more profitably then the receipt was to be revenue in nature In the case of the assessee the project for various plastic product with large capacities was set up in notified backward area of Maharashtra in accordance with the package Scheme of Incentives-2001 of Maharashtra Government. The main object of the scheme was to intensifying and accelerate the process of dispersal of industries in the less developed region, coupled with the object of generating employment opportunities in backward areas. Therefore, we consider that the decision of the Ld. CIT(A) is not justified. Accordingly, this ground of appeal is allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT - Under the circumstances when the assessee has earned huge dividend income but not shown any expenditure for managing the investment the A.O after examination of the return of income in para 5.1 of the assessment order has categorically stated that he was not satisfied with regard to the correctness of claim of expenditure made by the A.O and provision of Rule 8D of the IT Rules was invoked - we consider that Ld. CIT(A) has rightly restricted the disallowance to the extent of ₹ 16,83,942/- under Rule 8D(2)(iii) towards administrative expenditure for managing the different kind of investment and administrative support required for such investment etc. In the light of the above facts and findings we do not find any merit in the appeal of the revenue and appeal of the assessee therefore both the grounds i.e. assessee and revenue are dismissed. Disallowance of commission u/s 40(a)(ia) - HELD THAT - Since the A.O has not specifically asked the assessee to produce the additional evidences of rendering of services by other 8 persons, therefore to decide the issue on merit we have admitted the additional evidences filed by the assessee as placed in paper book. In the light of the above facts and findings we restore this issue to the file of the A.O for deciding the same denovo after verification and examination of the additional evidences filed by the assessee. Accordingly, this ground of appeal of the assessee is allowed for statistical purposes. Nature of expenditure - disallowance of expenditure incurred for concretization of road as capital expenditure - HELD THAT - It is undisputed fact that the assessee has not constructed any new road during the year and it has incurred the expenditure for concretization of the existing road for its maintenance. Therefore no new asset was brought into existence by the assessee and object of the said expenses was for proper maintenance of the existing road. In the case of CHEMAUX LTD. 1993 (9) TMI 348 - BOMBAY HIGH COURT has held that the assessee company incurred expenses on repairs of approach road and resurfacing of katcha roads inside its factory premises and the same was allowable as revenue expenditure - Decided in favour of assessee. Bogus purchases - HELD THAT - A.O has also not proved that there was no sales made against the aforesaid purchases. We are of the considered view that without disproving the aforesaid material evidences provided by the assessee it is not justified to disallow the entire purchases. In the light of the above fact and findings to meet the ends of justice. We consider it would be appropriate to restrict the addition @ 12.5% of such purchases.Therefore, this ground of appeal of the assessee is partly allowed.
Issues Involved:
1. Addition of disallowance made under Section 14A for computing book profit under Section 115JB of the Income Tax Act. 2. Claim of depreciation and industrial promotion subsidy (IPS) classification. 3. Disallowance under Rule 8D(2)(iii) of the Income Tax Act. 4. Disallowance of commission payments under Section 40(a)(ia). 5. Classification of expenditure on road concretization. 6. Levy of interest under Section 234B. 7. Disallowance of purchases as bogus. Detailed Analysis: 1. Addition of Disallowance under Section 14A for Computing Book Profit under Section 115JB: The revenue's appeal contested the CIT(A)'s direction to restrict the addition for computing book profit under Section 115JB. The ITAT noted that the issue was previously adjudicated and the Special Bench of ITAT Delhi in ACIT Vs. Vireet Investments Pvt. Ltd held that disallowance under Section 14A cannot be added for computing book profit under Section 115JB. Therefore, the revenue's appeal on this ground was dismissed. 2. Claim of Depreciation and Industrial Promotion Subsidy (IPS) Classification: - Depreciation: The assessee's appeal against the CIT(A)'s failure to direct the AO to give consequential effect to the claim of depreciation was discussed. The ITAT restored the issue to the AO to provide depreciation based on the actual written down value of the assets after verification. - IPS Classification: The assessee argued that the IPS received was capital in nature. The ITAT agreed, citing the purpose of the subsidy was to incentivize setting up projects in backward areas, thus classifying it as a capital receipt. The CIT(A)'s decision was overturned, and the ground was allowed. 3. Disallowance under Rule 8D(2)(iii): The ITAT reviewed the disallowance of ?16,83,942 under Rule 8D(2)(iii) for administrative expenses related to earning exempt income. The ITAT upheld the CIT(A)'s decision, noting that the AO had recorded satisfaction regarding the correctness of the assessee's claim and that the disallowance was appropriate given the nature of investment activities. 4. Disallowance of Commission Payments under Section 40(a)(ia): The ITAT restored the issue to the AO for fresh adjudication, allowing the assessee to produce additional evidence to substantiate the claim that services were rendered by the eight persons to whom the commission was paid. The AO had initially disallowed the commission payments due to lack of evidence of services rendered. 5. Classification of Expenditure on Road Concretization: The ITAT found that the expenditure on concretization of the existing tar road was for maintenance and not for creating a new asset. Citing relevant case law, the ITAT classified the expenditure as revenue in nature, allowing the deduction and directing the AO to withdraw the depreciation already allowed. 6. Levy of Interest under Section 234B: The ITAT dismissed the ground related to the levy of interest under Section 234B as infructuous, stating that the levy of interest is mandatory as per the provisions of law. 7. Disallowance of Purchases as Bogus: The ITAT addressed the disallowance of purchases from M/s Heta Sales Pvt Ltd as bogus. The ITAT noted that the assessee had provided relevant documents and evidence to support the genuineness of the transactions, which the AO had not disproved. To meet the ends of justice, the ITAT restricted the addition to 12.5% of the purchase amount, partly allowing the assessee's appeal. Conclusion: The appeals filed by the revenue were dismissed, and the appeals filed by the assessee were partly allowed for statistical purposes. The ITAT provided detailed directions on each issue, ensuring that the AO re-examines certain aspects with additional evidence and proper verification. The judgment emphasized adherence to legal precedents and proper classification of income and expenses.
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