2013 (8) TMI 368 - AT - Income Tax

Disallowance of loss incurred on sale of investment - Bogus purchase - CIT upheld disllowance - Held that - The assessee has filed each and every detail before the AO. The purchase price of shares of was paid through proper banking channel, which were purchased in the year 1996-97. Investments were shown in the balance sheet of the assessee. The investment made in the financial year 1996-97 was not doubted as the assessment for assessment year 1997-98 was completed under Section 143(3) - CIT(A) merely observing that the assessee could not file any further evidence in respect of claim of loss, has rejected the claim of the assessee. Once all relevant details are on record, then learned CIT(A) should have considered all these details on merit and the decision should have taken as to whether the loss is allowable or not - Decided in favour of assessee. Capital receipt of Revenue receipt - swap income from forward contract in foreign currency - CIT held income as capital receipt - Held that - the income earned in the account of swapping of forward rate contract of foreign currency booked for the purpose of capital assets for its Jamnagar refinery project, was earned on account of contract for buying the capital asset. The explanation to Section 43A is also applicable on the facts of the present case - if the foreign exchange loss is on account of purchase of capital asset, then it goes to capital account and if the loss is on account of loan for working capital, then it goes to revenue account - Following decision of Commissioner Of Income-Tax Versus Bharat Heavy Electricals Ltd. 1999 (8) TMI 62 - DELHI High Court and Sutlej Cotton Mills Limited Versus Commissioner of Income-Tax, West Bengal 1978 (9) TMI 1 - SUPREME Court - Decided in favour of assessee. Disallowance u/s 14A - Held that - The demat account relates to purchase and sale of shares. The assessee himself has accepted that there is dividend income which is exempt to tax. The demat account was opened for the purpose of holding the shares in a particular account as per guidelines of the appropriate authority. On opening the demat account etc., the amounts were incurred on that directly linked with purchase and sale of shares on which dividend income is earned, which is exempt to tax. Therefore, it cannot be said that these expenses are for any other purpose and not related to exempted income. If the shares are purchased and sold and they are kept in a particular account and any expenditure incurred on account of that account, it has to be taken that they are directly linked with the purchase and sale of shares - expenses incurred on demat account is directly linked with the earning of exempted income. Accordingly, the provisions of Section 14A are applicable - Rule 8D is prospective in nature - Decided against assessee. Computation of gross total income manner of claiming special deduction under chapter VI-A deduction of depreciation allowance Held that - quantum of deduction under Section 80IA is not dependent upon the assessee claiming or not claiming depreciation, because, under Section 80IA the quantum of deduction has to be determined by computing total income from business after deducting all deductions allowable under Section 30 to 43D of the Act - for the purposes of deduction under Chapter VIA, the gross total income has to be computed inter alia by deducting the deductions allowable under section 30 to 43D of the Act, including depreciation allowable under section 32 of the Act, even though the assessee has computed the total income under Chapter IV by disclaiming the current depreciation - Following decision of Plastiblends India Limited Versus Additional Commissioner of Income-Tax 2009 (10) TMI 39 - BOMBAY HIGH COURT - Decided against assessee. Penalty under Section 271(1)(c) - Held that - penalty on the amount of disallowance under Section 14A is not leviable because the assessee has furnished each and every detail. This is assessee s claim that demat charges are for the purpose of holding the shares, which is a source of income but not directly link with the exempted income - at least penalty on this amount is not leviable as there was no case of furnishing inaccurate particulars. This is a claim of assessee whether the same is allowable or not allowable, is the subject matter of dispute - Decided in favour of assessee.

Summary

Issues Involved:
1. Restriction of claim under Section 35D.
2. Disallowance of loss incurred on sale of investment under the Portfolio Management Scheme.
3. Nature of swap income from forward contract in foreign currency.
4. Disallowance under Section 14A.
5. Deduction of sales tax incentive as capital receipt.
6. Thrusting of depreciation for deduction under Section 80IB.
7. Ad hoc disallowance of travelling expenses for spouses of executives.
8. Computation of book profit under Section 115JB.
9. Levy of penalty under Section 271(1)(c).

Detailed Analysis:

1. Restriction of Claim under Section 35D:
The assessee claimed a deduction under Section 35D amounting to Rs.6,50,08,291/-, which was restricted by the AO to Rs.3,57,23,093/-. The CIT(A) upheld the AO's decision, following the Tribunal's earlier orders for assessment years 1997-98, 1999-2000, and 2000-2001. The Tribunal confirmed the CIT(A)'s order, noting that similar issues had been decided against the assessee in previous years.

2. Disallowance of Loss Incurred on Sale of Investment:
The AO disallowed the assessee's claim of Rs.8,12,43,132/- loss on investment under the Portfolio Management Scheme, citing a lack of details and genuineness. The CIT(A) upheld the AO's decision. However, the Tribunal, after reviewing the submissions and evidence, found the loss to be genuine and directed the AO to allow the claim.

3. Nature of Swap Income from Forward Contract in Foreign Currency:
The AO treated the swap income of Rs.4,70,28,140/- as revenue, not capital, rejecting the assessee's claim. The CIT(A) reversed this, holding the income as capital, citing RBI guidelines and relevant case laws. The Tribunal upheld the CIT(A)'s decision, noting that the income was related to capital assets for the Jamnagar refinery project and supported by the explanation to Section 43A and relevant case law.

4. Disallowance under Section 14A:
The AO disallowed Rs.21,33,075/- under Section 14A for expenses related to earning dividend income. The CIT(A) upheld the AO's decision. The Tribunal also upheld the disallowance, stating that demat charges are directly linked to the purchase and sale of shares, which generate exempt income.

5. Deduction of Sales Tax Incentive as Capital Receipt:
The AO treated the sales tax incentive of Rs.288,28,81,284/- as revenue receipt. The CIT(A) reversed this, following the Special Bench decision in the case of the parent company, holding the incentive as capital in nature. The Tribunal upheld the CIT(A)'s decision, confirming the incentive as capital receipt.

6. Thrusting of Depreciation for Deduction under Section 80IB:
The AO thrust depreciation on the assessee, affecting the deduction under Section 80IB. The CIT(A) reversed this, citing the Supreme Court's decision in Mahendra Mills and other case laws, stating that depreciation cannot be thrust upon the assessee. The Tribunal, however, reversed the CIT(A)'s decision, following the Bombay High Court's decision in Plastiblends India Limited, which mandated the thrusting of depreciation post-amendment.

7. Ad Hoc Disallowance of Travelling Expenses for Spouses of Executives:
The AO made an ad hoc disallowance of Rs.10 lakhs for spouse's travelling expenses. The CIT(A) deleted the disallowance, finding no such expenses incurred. The Tribunal upheld the CIT(A)'s decision, noting the factual finding remained uncontroverted.

8. Computation of Book Profit under Section 115JB:
The AO recomputed book profit under Section 115JB, denying the deduction of eligible export profit under Section 80HHC. The CIT(A) reversed this, directing the AO to compute the deduction with reference to book profits, not normal provisions. The Tribunal upheld the CIT(A)'s decision, supported by the Supreme Court and Special Bench decisions.

9. Levy of Penalty under Section 271(1)(c):
The AO levied a penalty of Rs.10 lakhs for furnishing inaccurate particulars of income, which the CIT(A) reduced to Rs.6,56,118/-. The Tribunal cancelled the penalty, noting that the assessee had furnished all details and the issue was a matter of claim interpretation, not inaccurate particulars.

Conclusion:
The appeals were decided with mixed outcomes, with some decisions favoring the assessee and others the department. The Tribunal's detailed analysis upheld or reversed lower authorities' decisions based on established legal principles and precedents.