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2014 (5) TMI 81 - AT - Income TaxDisallowance u/s 14A of the Act Administrative expenses Held that - As decided in assessee own case for the previous assessment year, the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made - no disallowance out of administrative expenditure can be made as there is no direct nexus the decision in CIT vs. Catholic Syrian Bank Ltd. 2010 (10) TMI 946 - KERALA HIGH COURT followed - there is no precise formula or proportionate disallowance, thus no disallowance can be made Decided in favour of Assessee. Deletion of disallowance of provision for liquidated damages Held that - As decided in assessee own case for the previous assessment year, the issue regarding liquidated damages requires a fresh look by the AO thus, the matter is required to be remitted back to the AO for fresh adjudication Decided in faovur of Revenue. Deletion of bad debts written off Held that - As decided in assessee own case for the previous assessment year, there is no reason to interfere in the order of CIT(A) - assessee has actually written off the amounts the decision in TRF Ltd. vs. CIT 2010 (2) TMI 211 - SUPREME COURT followed - w.e.f. 1.4.1989 in order to obtain a deduction in relation to bad debts it is not necessary for the assessee to establish that the debt in fact has become irrecoverable - It is enough if the bad debt is written off and the bad debt is irrecoverable in the account of assessee thus, the order of the CIT(A) upheld Decided against Revenue. Deletion of provision for warranty expenses Held that - As decided in assessee s own case, the decision in Wipro Ge Medical System Ltd. vs. DCIT 2009 (10) TMI 827 - ITAT BANGALORE followed the assessee has to submit present value of warranty expenses - It has to be properly ascertained and discounted on accrual basis - A proper calculation on this issue will be submitted to the AO who will examine the same and allow the claim - the Revenue has not pointed out any change in the facts and circumstances of the case thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Revenue. Disallowance u/s 14A of the Act Held that - As decided in assessee own case for the previous assessment year, the assessee had sufficient profits generated in the year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest-bearing funds, disallowance of interest cannot be made thus, there is no reason to interfere in the order of the CIT(A) Decided against Revenue. Disallowance of proportionate interest u/s 36(1)(iii) of the Act Held that - As decided in assessee own case for the previous assessment year, the assessee had sufficient profits generated this year and it had mixed funds and no nexus is established by the AO as to whether investment was made out of interest bearing funds, disallowance of interest cannot be made - The assessee had sufficient interest free fund and it had not diverted the interest bearing fund same remained unrebutted thus, there is no reason to interfere in the order of the CIT(A) Decided against Revenue. Disallowance of additional depreciation Held that - The CIT(A) has given a finding on fact that the appellant has started new line of production of manufacturing of parts which was not there earlier, therefore, there was no installed capacity as on 31.3.2002 in respect of manufacturing of parts, therefore there is 100% increase in installed capacity in respect of manufacturing of parts - CIT(A) was of the view that as the new facility of production has been established the appellant is clearly eligible for additional depreciation - there was increase in installed capacity from 0 to 100 thus, there is no infirmity in the order of the CIT(A) Decided against Revenue. Deletion of disallowance of Royalty Held that - CIT(A) has given a finding on fact that the assessee has not acquired any ownership rights - It has got the right of user only - Since, AY 1989-90, the user charges claimed as royalty have been allowed in the assessments, the rate of user charges is 1% of the sales during the year under consideration - TDS has been made in respect of royalty payments - As it is a recurring expenditure payable on the basis of sales and the appellant has not acquired any capital asset or permanent right, the payment of royalty is allowable as business expenditure - Revenue has not controverted the fact by placing any material on record Decided against Revenue. Deletion on account of ALP Sale of material to AE - Held that - CIT(A) was of the view that the transactions considered by the AO are not substantial as compared to the volume of the transactions - it is found that in most of the transactions, the appellant has earned higher sales price and in totality the appellant has gained higher prices Revenue has not controverted the fact by placing any material on record Decided against Revenue. Reduction of prior period adjustment Computation of book profits u/s 115JB of the Act Held that - The decision in CIT vs. The Riddhi Siddhi Gluco Boils Ltd. 2014 (4) TMI 558 - GUJARAT HIGH COURT followed the AO could not have varied the Profit and Loss Account of the company duly audited and prepared in terms of the provisions contained in the Companies Act Decided against Revenue. Non-inclusion of Various expenses - Provision for doubtful debts, Provision for warranty expenses and interest expenses Expenses warned for computation of book profits u/s 115JB of the Act - Held that - CIT(A) rightly held that as regards the provision for doubtful debts and provision of warranty expenses, it should be treated as ascertained liability and therefore, no addition can be made to the book profit in respect of these amounts the decision in M/s. Essar Teleholdings Ltd. Versus The DCIT, Mumbai 2013 (5) TMI 116 - ITAT MUMBAI followed - the provisions of section 14A cannot be imported into while computing the book profit u/s.115JB of the Act inasmuch as clause (f) of Explanation to Section 115JB refers to the amount debited to the profit & loss account which can be added back to the book profit while computing book profit u/s.115JB of the Act - So far as provision for warranty is concerned, CIT(A) has given a finding that there liabilities are ascertained, therefore book profit would not be increased thus, the order of the CIT(A )upheld Decided against Revenue. Deletion of Penalty u/s 271(1)(c) of the Act Held that - As decided in assessee s own case for the previous assessment years, the issue raised in Revenue s appeal with regard to disallowance of interest paid to APSEB and disallowance of u/s.14A of the Act - So far as the disallowance u/s.14A is concerned, this disallowance has been deleted thus, the penalty levied by the AO u/s 271(1)(c) of the Act in respect of interest paid to APSEP does not survive Decided against Revenue.
Issues Involved:
1. Non-allowance of accrued interest claim. 2. Disallowance of administrative expenses under Section 14A. 3. Deletion of disallowance of provision for liquidated damages. 4. Deletion of disallowance of bad debts written off. 5. Deletion of disallowance of provision for warranty expenses. 6. Deletion of disallowance of interest expenses under Section 14A. 7. Deletion of disallowance of proportionate interest under Section 36(1)(iii). 8. Deletion of disallowance of additional depreciation. 9. Deletion of disallowance of royalty expenses. 10. Deletion of addition on account of arm's length price. 11. Direction to allow reduction for prior period adjustment for book profit computation under Section 115JB. 12. Direction not to include certain provisions and expenses for book profit computation under Section 115JB. 13. Deletion of penalty under Section 271(1)(c). Detailed Analysis: 1. Non-allowance of Accrued Interest Claim: The assessee's appeal regarding the disallowance of accrued interest payable to APSEB was rejected. The Tribunal noted that this issue had already been decided against the assessee in a previous judgment (ITA No.1476/Ahd/2006 for AY 2002-03). 2. Disallowance of Administrative Expenses Under Section 14A: The Tribunal allowed the assessee's appeal on this issue. It was noted that the AO did not establish a nexus between the administrative expenses and the exempted dividend income. The Tribunal followed the decision of the Hon'ble Kerala High Court in the case of CIT vs. Catholic Syrian Bank Ltd., which held that no disallowance could be made without a direct nexus. 3. Deletion of Disallowance of Provision for Liquidated Damages: The Tribunal restored this issue back to the AO for fresh adjudication, following the precedent set in ITA No.2002/Ahd/2007 for AY 2003-04. The AO was directed to allow the claim on an actual basis after examining individual accounts. 4. Deletion of Disallowance of Bad Debts Written Off: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of bad debts written off. It was noted that the assessee had actually written off the amounts, and this matter was covered by the Supreme Court's decision in TRF Ltd. vs. CIT, which held that it was sufficient if the bad debt was written off. 5. Deletion of Disallowance of Provision for Warranty Expenses: The Tribunal restored this issue back to the AO for fresh adjudication, following the precedent set in ITA No.12/Ahd/2008 for AY 2004-05. The AO was directed to properly ascertain and discount the present value of warranty expenses on an accrual basis. 6. Deletion of Disallowance of Interest Expenses Under Section 14A: The Tribunal rejected the Revenue's appeal on this issue. It was noted that the assessee had sufficient profits and mixed funds, and no nexus was established by the AO between the interest-bearing funds and the investment. The Tribunal followed the precedent set in ITA No.1476/Ahd/2006. 7. Deletion of Disallowance of Proportionate Interest Under Section 36(1)(iii): The Tribunal upheld the CIT(A)'s decision to delete the disallowance of proportionate interest. It was noted that the assessee had sufficient interest-free funds, and no nexus was established between the interest-bearing funds and the investment. The Tribunal followed the precedent set in ITA No.1476/Ahd/2006. 8. Deletion of Disallowance of Additional Depreciation: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of additional depreciation. It was noted that the assessee had started a new line of production, which resulted in a 100% increase in installed capacity. 9. Deletion of Disallowance of Royalty Expenses: The Tribunal upheld the CIT(A)'s decision to delete the disallowance of royalty expenses. It was noted that the assessee had not acquired any ownership rights and the royalty was paid for the usage of trademarks, which was a recurring expenditure. 10. Deletion of Addition on Account of Arm's Length Price: The Tribunal upheld the CIT(A)'s decision to delete the addition on account of arm's length price. It was noted that the transactions considered by the AO were not substantial compared to the volume of transactions, and the assessee had earned higher sales prices in most transactions. 11. Direction to Allow Reduction for Prior Period Adjustment for Book Profit Computation Under Section 115JB: The Tribunal upheld the CIT(A)'s direction to allow the reduction of prior period adjustment for the purpose of computing book profit under Section 115JB, following the decision of the Gujarat High Court in the case of CIT vs. The Riddhi Siddhi Gluco Boils Ltd. 12. Direction Not to Include Certain Provisions and Expenses for Book Profit Computation Under Section 115JB: The Tribunal upheld the CIT(A)'s direction not to include provision for doubtful debts, provision for warranty expenses, and interest expenses related to earning exempt income for the purpose of computing book profit under Section 115JB. The Tribunal followed the decisions of various Coordinate Benches. 13. Deletion of Penalty Under Section 271(1)(c): The Tribunal upheld the CIT(A)'s decision to delete the penalty levied under Section 271(1)(c). It was noted that the disallowance under Section 14A had been deleted, and the penalty on interest paid to APSEB did not survive. The Tribunal followed the precedent set in the assessee's own case. Conclusion: 1. Assessee's appeal partly allowed for statistical purposes. 2. Revenue's appeal partly allowed for statistical purposes. 3. Revenue's appeal dismissed.
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