2023 (7) TMI 1511 - AT - Income Tax

Disallowance u/s 43B - disallowing the amounts paid or written back during the previous year - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in Grasim Industries Ltd. 2023 (6) TMI 665 - ITAT MUMBAI for the assessment year 2003 04, dismissed similar issue while following the decision rendered in assessee s own case in preceding years as decided against assessee. Taxability of Sales Tax exemption received by the assessee - assessee availed Sales Tax exemption benefit from the State Governments for setting up of industries in the notified area - assessee claimed that the Sales Tax exemption is a capital receipt not chargeable to tax and, therefore, is to be excluded from the profit while computing the income taxable under the head Income From Business - HELD THAT - We find that the coordinate bench of the Tribunal, vide order dated 23/06/2023, passed in assessee s own case in Grasim Industries Ltd. 2023 (7) TMI 555 - ITAT MUMBAI , for the assessment year 2004 05, after considering the Sales Tax subsidy received under the aforesaid schemes held the same to be capital in nature and thus not taxable in the hands of the assessee. Disallowance of depreciation on the let out property - assessee has claimed depreciation on the let out premises and is also claiming a deduction equal to 30% of annual rental value while computing income from house property the assessee cannot be allowed both deductions - HELD THAT - In view of the above, once the property forms part of the block of assets, carving out the depreciation for the said property and disallowing the same goes against the spirit of allowing depreciation on the entire block of depreciable assets. Before concluding, we may note that in this appeal the Revenue has not disputed the claim of deduction u/s 24 of the Act in respect of the property which forms part of the block of assets. Thus, merely because the Revenue has accepted the claim of deduction u/s 24 of the Act doesn t mean that the property which forms part of the block of assets will cease to be so. Therefore, the disallowance of depreciation made by the AO is deleted. As a result, ground raised in assessee s appeal is allowed. Miscellaneous receipts from business profits while computing deduction u/s 80IA - HELD THAT - As various receipts under the broad category of miscellaneous receipts , except excess provision written back, were not examined by the lower authorities, therefore, we deem it appropriate to restore this issue to the file of the AO for de novo adjudication as per law, after examining each and every receipt under the category of miscellaneous receipts , which were excluded from the business profits by the learned CIT(A) for computing the deduction u/s 80IA. Thus, to this extent, the impugned order on this issue is set aside. Accordingly, ground in assessee s appeal is allowed for statistical purposes. Taxability of interest received from the Income Tax Department - HELD THAT - As if in the subsequent year refund of interest is withdrawn, then the same should be reduced from the total income of the assessee. Accordingly, we direct the A.O. to tax interest income in terms of the order of the tribunal for A.Y. 1993-94 keeping in view our above observation. Income taxability in India - taxability of dividend received from Egyptian company - dividend received from Alexandria Carbon Black Company, a company incorporated and registered in Egypt (U.A.R.) - HELD THAT - We find that the coordinate bench, 2023 (7) TMI 555 - ITAT MUMBAI , passed in assessee s own case for the assessment year 2004-05 decided a similar issue against the assessee as the mere fact of taxability in the treaty partner jurisdiction will not take it out of the ambit of taxable income of an assessee in India and that such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement . A coordinate bench of this Tribunal, in the case of Essar Oil Ltd. 2013 (9) TMI 126 - ITAT MUMBAI also proceeded to hold that this notification was retrospective in effect inasmuch as it applied with effect from 1st April 2004 i.e. the date on which sub-section 3 was introduced in Section 90. Treating the subsidy received by the assessee under Technology Upgradation Fund ( TUF ) Scheme as capital receipt and thus not chargeable to tax - HELD THAT - As relying on M/s Grasim Industries Ltd. 2023 (6) TMI 611 - ITAT MUMBAI the issue is squarely covered in favour of the assessee wherein it has been held that interest subsidy received under technology upgradation fund scheme, though credited in the net off against the interest expenditure in the books of account is still capital in nature and therefore not chargeable to tax. Further the argument of the learned departmental representative has also been negated about the applicability of explanation 10 to section 43 (1) of the act by the decision of Orbit exports 2020 (9) TMI 617 - ITAT MUMBAI In view of this both the grounds of appeal raised by the learned assessing officer are dismissed. Disallowance of Education Cess under section 40(a)(ii) - HELD THAT - We find that Finance Act, 2022, with retrospective effect from 01/04/2005, inserted Explanation 3 to section 40(a)(ii), whereby it has been provided that the term 'tax' shall include and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. We further find that in JCIT Vs. Chambal Fertilisers Chemicals Ltd. 2022 (12) TMI 1098 - SC ORDER allowed the Revenue's appeal against decision in Chambal Fertilisers Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT and held that education cess paid by the respondent-assessee would not be allowed as an expenditure under Section 37 read with 40(a)(ii) of the Act. Disallowance on account of rural development expenses - HELD THAT - As we find that the coordinate bench of the Tribunal vide order 2023 (6) TMI 665 - ITAT MUMBAI passed in assessee s own case for the assessment year 2003 04 decided issue in favour of assessee. Expenses incurred for making advertisement films is to be allowed as revenue expenses as observing that advertisement film was made only for advertisement and its useful life is very short and such films do not add to the capital structure of the company. Disallowance made on account of earning exempt income - HELD THAT - As it is sufficiently evident that during the year under consideration, the assessee's own funds are more than investments, including the investments for earning exempt income. We including the investments find that HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under section 14A of the Act can be made. We further find that the Hon'ble Supreme Court in South Indian Bank Ltd. 2021 (9) TMI 566 - SUPREME COURT held that disallowance under section 14A of the Act would not be warranted where interest-free own funds exceed the investment in tax-free securities and in such a case the investment would be presumed to be made out of assessee's own funds. Therefore,no infirmity in the impugned order in deleting the disallowance made under section 14A. Apportionment of Head Office expenses to the Units eligible for deduction u/s 80IA of the Act - HELD THAT - We find that the coordinate bench of the Tribunal 2023 (6) TMI 665 - ITAT MUMBAI passed in assessee s own case for the assessment year 2003 04 decided similar issue in favour of the assessee. Denial of deduction u/s 80IA in respect of profit derived from Rail System at Raipur, and Hotgi - only plea raised by the learned DR is that such an agreement is post the commencement of operation and, therefore, the assessee does not satisfy the conditions as provided in section 80IA(4) for availing the benefit of the said section - HELD THAT - We find that the language of the section does not support the submissions so made by the learned DR, as there is no specific requirement in the section that such an agreement should be prior to the operation. We find that the said section only requires that there has to be an agreement, which condition as noted by the coordinate bench of the Tribunal in the preceding year is duly satisfied. In the absence of any allegation of change in facts and law as compared to the preceding year, we find no reason to deviate from the view so taken by the coordinate bench in the preceding year. Thus, we find no infirmity in the impugned order in allowing deduction under section 80IA of the Act to the assessee in respect of profits from Rail System, Raipur, and Hotgi.

Summary

Issues Involved:

1. Disallowance under section 43B.
2. Club Membership Fees.
3. Sales tax exemption.
4. Depreciation on let out property.
5. Adjustment of receivable against Provisions for Doubtful debts.
6. Loss on loan to Subsidiary Company.
7. Disallowance under section 40(a)(ia).
8. Deduction under section 80G.
9. Miscellaneous Receipts.
10. Interest from Income Tax Department.
11. Taxability of dividend from Egyptian company.
12. TUF subsidy as capital receipt.
13. Disallowance of Education Cess under section 40(a)(ii).
14. Revenue's appeal on various disallowances and deductions.

Detailed Analysis:

1. Disallowance under section 43B:
The Tribunal dismissed the assessee's appeal regarding the disallowance under section 43B, following the precedent set in earlier years where similar issues were deemed infructuous due to prior decisions in favor of the assessee.

2. Club Membership Fees:
The issue was rendered academic as the AO had already allowed the club membership fee as a revenue expenditure, and thus, the ground was left open.

3. Sales Tax Exemption:
The Tribunal allowed the assessee's appeal, holding that the sales tax exemption received under various state schemes was capital in nature and not taxable, following the decision in the assessee's own case for earlier years.

4. Depreciation on Let Out Property:
The Tribunal allowed the assessee's appeal, stating that once an asset forms part of the block of assets, it loses its individual identity, and depreciation cannot be disallowed merely because the property was let out during the year.

5. Adjustment of Receivable against Provisions for Doubtful Debts:
This issue was rendered academic as the deletion of disallowance for the provision for doubtful debts was upheld in earlier years, and thus, it was kept open.

6. Loss on Loan to Subsidiary Company:
The assessee withdrew this ground as relief had already been allowed in a subsequent assessment year, and the ground was dismissed as withdrawn.

7. Disallowance under section 40(a)(ia):
The assessee did not pursue this ground, as the full amount claimed was allowed in a subsequent year, and it was dismissed as withdrawn.

8. Deduction under section 80G:
The ground was not pressed due to the smallness of the amount involved and was dismissed as not pressed.

9. Miscellaneous Receipts:
The Tribunal restored this issue to the AO for de novo adjudication, directing the AO to examine each receipt under the category of 'miscellaneous receipts' excluded from business profits for computing deduction under section 80IA.

10. Interest from Income Tax Department:
The Tribunal allowed the assessee's appeal, directing the AO to follow the precedent set in earlier years where it was held that interest income should be taxed only if it reaches finality.

11. Taxability of Dividend from Egyptian Company:
The Tribunal dismissed the additional ground raised by the assessee, following the decision in the assessee's own case for the preceding year, where the amendment to section 90 was held applicable, rendering the dividend taxable in India.

12. TUF Subsidy as Capital Receipt:
The Tribunal allowed the additional ground, directing the AO to treat the TUF subsidy as capital in nature, following the decision in the case of the assessee's subsidiary.

13. Disallowance of Education Cess under section 40(a)(ii):
The Tribunal dismissed the additional grounds, following the retrospective amendment to section 40(a)(ii) and the Supreme Court's decision, holding that education cess is not allowable as an expenditure.

14. Revenue's Appeal on Various Disallowances and Deductions:
The Tribunal dismissed the Revenue's appeal on multiple grounds, including disallowances under section 43B, contributions to local organizations, rural development expenses, advertisement film expenses, and deductions under section 80IA, following the precedent set in the assessee's own case for earlier years where similar issues were consistently decided in favor of the assessee.