2012 (11) TMI 271 - AT - Income Tax

Depreciation - ownership - held that - Merely because the property has not been registered in the name of the assessee, disallowance of depreciation cannot be made. Application of section 14A - held that - disallowance confirmed to that extent especially when the assessee admitted in his submissions dated 2.12.2010 before the ld. CIT(A) to the fact of part of such expenses have been incurred for earning exempt income and accordingly, provided its own working of such expenses relating to Head office at Ansal Plaza, Delhi Addition on account of valuation of closing stock of sugar undervaluation alleged that the assessee is following the method of valuation of stock of sugar on the basis of cost or market price whichever is lower Held that - the method of valuation adopted by the assessee was accepted.- in favour of the assessee Taxation of interest on Income Tax refund - assessee in the original return offered interest on Income Tax refund to tax, in the revised return filed, assessee reduced the aforesaid interest on the ground that the receipt was inchoate Held that - assessee filed revised computation to exclude interest on refund, which was originally granted by taking the loss on export as Nil - there is not even a whisper regarding method of accounting regularly followed by the assessee in accounting interest on refund granted by the Department - matter remanded Interest u/s 234D of the Act Held that - CIT(A) did not pass a speaking order on the issue and merely observed that levy of interest u/s 234D is only consequential in nature. Since subsequently refund has been granted to the assessee - matter remanded back to the file of the ld. CIT with the directions to pass a speaking order

Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act.
2. Disallowance of interest on late payment of TDS.
3. Taxability of interest on income tax refund.
4. Levy of interest under Section 234D of the Income-tax Act.
5. Disallowance of depreciation.
6. Disallowance of foreign travel expenditure.
7. Disallowance under Section 43B on contribution to provident fund.
8. Valuation of closing stock of sugar.

Detailed Analysis:

1. Disallowance under Section 14A of the Income-tax Act:
The assessee contested the disallowance of Rs.10,00,000 under Section 14A. The CIT(A) reduced the disallowance from Rs.4,72,66,600 to Rs.10,00,000, citing that the interest expenditure was attributable to packing credit facilities for export and not for investment activities. The ITAT upheld the CIT(A)'s decision, referencing previous years' orders and the Bombay High Court's decision in Godrej & Boyce, which held that Rule 8D is not retrospective. The ITAT found no reason to interfere with the CIT(A)'s findings.

2. Disallowance of interest on late payment of TDS:
The assessee's appeal against the disallowance of Rs.4,827 towards interest on late payment of TDS was not pressed, and hence, it was dismissed.

3. Taxability of interest on income tax refund:
The assessee argued that the interest on income tax refund of Rs.12,27,94,011 should not be taxable as it was inchoate. The CIT(A) upheld the AO's decision to tax the interest on a receipt basis. The ITAT noted that the Special Bench in Avada Trading Co. held that interest accrues in the year it is received. The ITAT vacated the CIT(A)'s findings and remanded the issue for re-examination, considering the status of appeals for the relevant assessment years.

4. Levy of interest under Section 234D of the Income-tax Act:
The AO levied interest of Rs.12,23,806 under Section 234D. The CIT(A) held it was consequential. The ITAT remanded the issue back to the CIT(A) for a speaking order, noting that the refund had been granted subsequently.

5. Disallowance of depreciation:
The AO disallowed depreciation of Rs.26,58,308 on the basis that the conveyance deed for the leasehold office building was not executed. The CIT(A) allowed the claim, referencing the Supreme Court's judgment in Mysore Minerals. The ITAT upheld the CIT(A)'s decision, citing previous ITAT orders in the assessee's favor.

6. Disallowance of foreign travel expenditure:
The AO disallowed Rs.15,21,592 for foreign travel expenses, which the CIT(A) deleted, referencing previous years' orders. The ITAT upheld the CIT(A)'s decision, noting that the issue had been consistently decided in the assessee's favor in earlier years.

7. Disallowance under Section 43B on contribution to provident fund:
The AO disallowed Rs.11,26,848, stating the provident fund was unrecognized. The CIT(A) allowed the claim, referencing ITAT orders for previous years. The ITAT upheld the CIT(A)'s decision, noting that the provident fund was recognized and contributions were allowable.

8. Valuation of closing stock of sugar:
The AO added Rs.2,35,00,178 to the closing stock, valuing it at cost instead of the lower of cost or market price. The CIT(A) deleted the addition, referencing ITAT decisions in the assessee's favor for earlier years. The ITAT upheld the CIT(A)'s decision, noting consistent acceptance of the assessee's valuation method.

Conclusion:
The ITAT dismissed the Revenue's appeal and partly allowed the assessee's appeal for statistical purposes. The ITAT upheld the CIT(A)'s decisions on most issues, remanding only the taxability of interest on income tax refund and the levy of interest under Section 234D for further examination.

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