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2014 (8) TMI 162 - AT - Income TaxReopening of assessment u/s 147 - Deduction of waiver of interest Interest granted by Board Whether the deduction now being claimed by the assessee in appellate proceedings is connected with this escaped income or not - Held that - Reopening was made only for the escapement of income on account of income accrued on the advance made because the assessee was following mercantile system of accounting and this income on advance was not offered for tax - there is no co-relation between the escaped income and this extra claim being made by the assessee in course of reassessment proceedings relying upon Commissioner of Income-tax Vs Sun Engineering Works P. Ltd. 1992 (9) TMI 1 - SUPREME Court - the matter not agitated in the concluded original assessment proceedings, cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as escaped income - the deduction now being claimed by the assessee is not in relation to the escaped income sought to be taxed by the AO in reassessment proceedings and the assessee cannot be allowed to claim deduction of the amount in reassessment proceedings Decided against assessee. Reopening of assessment u/s 147 r.w section 148 Held that - In the absence of copy of letter submitted by the assessee before the AO requesting the AO to consider the return already filed by the assessee on 02/05/2005 as the return filed in compliance to this notice - the assessee has submitted chronology of relevant dates and events and the original return of income was filed on 02/05/2005 but the same was treated as non-est - even the original return filed by the assessee on 02/05/2005 was treated as non-est and non est return cannot be considered as a valid return at any point of time the return of income filed by the assessee in compliance to notice issued by the AO u/s 148 has to be treated as not in conformity with law and non est and the AO was not required to issue notice u/s 143(2) of the Act Decided against Assessee. Contribution made to LIC under Group Gratuity Insurance Scheme Scheme not approved by CIT Held that - There is specific provision for deemed approval u/s 12AA(2) that the order in respect of the application for registration u/s 12AA should be passed before the expiry of six months from the end of the month in which the application was received u/s 12A (1) of the Act - the payment is not to an approved gratuity fund - the provision of section 37(1) is in respect of those expenditure, which are not covered by section 30 to 36 of the Act - The payment in respect of gratuity is duly covered by section 36(1)(v) of the Act and it cannot be covered u/s 37(1) of the Act - none of the contentions raised by the assessee is acceptable and there was no reason to interfere in the order of the CIT(A) Decided against Assessee. Applicability of section 14A r.w. Rule 8D Held that - Own interest free funds were more than the investment, no disallowance is justified out of interest expenditure but still some disallowance is justified out of administrative expenses - Out of administrative expenses, the disallowance was made by the AO as per Rule 8D but CIT(A) has confirmed the disallowance of ₹ 1 lac and it is in respect of administrative expenditure in respect of managing the income accrued from the shared held as investment - the disallowance of ₹ 1 lac is not excessive and the order of the CIT(A) is upheld Decided against Assessee. Claim u/s 80IA Income income with relation to Tronica city project Held that - CIT(A) has held that these receipts have direct nexus with the assessee s business - CIT(A) has noted down the amount of receipts in respect of only one project i.e. Greater Noida Export Promotion Industrial Park and he has not noted the receipts of similar nature in respect of other project i.e. Tronica City, Industrial Model Town, Loni - Since the receipts of both the projects are of similar nature, it could not held that as to how the receipts of one project is allowable for deduction and similar receipts of other projects is not allowable the AO is directed to exclude the receipts of both the projects in the business profit for the purpose of computing deduction allowable to the assessee u/s 80IA of the Act Decided in favour of Assessee. Deduction u/s 80 IA(4) - Receipts under interest form part of eligible profit or not Held that - Earning of interest on installments granted may be said to have some link with business but such receipts cannot be said to be income derived from such eligible business since it has no first degree nexus with the eligible business - The eligible business of the assessee is infrastructure development by way of development of industrial area or plot for providing the same to entrepreneurs for setting up of industrial unit for the industrial development of the city - earning of interest income is not an eligible business of the assessee company. The assessee company has mixed its both the activities by way of granting installments in respect of premium, such interest income cannot be considered as income of eligible business for the purpose of computing deduction allowable to the assessee u/s 80IA of the Act - interest income is not an income derived from the eligible business and the provisions of sub section 1 of section 80IA - only profit derived from developing and operating and maintaining industrial park is eligible for deduction and interest income cannot be said to be an income on account of development or operation or maintenance of industrial park/ Special Economic Zone - Interest income is in respect of making available the finance and the assessee company is engaged in the business of financing also and the assessee has mixed its both the activities and thereby claiming deduction u/s 80IA in respect of interest income of financing activity which is not eligible for such deduction Decided against Assessee.
Issues Involved:
1. Disallowance of deduction for waiver of interest. 2. Validity of reassessment proceedings under Section 147. 3. Disallowance of contribution to Group Gratuity Insurance Scheme. 4. Accrual of income from premium received from entrepreneurs. 5. Disallowance under Section 14A. 6. Deduction under Section 80IA. 7. Contribution to Udyog Bandhu. 8. Accrued interest income. 9. Prior period expenses. Detailed Analysis: 1. Disallowance of Deduction for Waiver of Interest The assessee claimed a deduction of Rs. 3,78,67,703/- on account of waiver of interest granted by its Board of Directors. The CIT(A) dismissed the appeal based on the Supreme Court decision in Goetze (India) Ltd. vs. CIT, which prohibits new claims at the appellate stage without a revised return. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's judgment in Commissioner of Income-tax Vs Sun Engineering Works P. Ltd., which restricts reassessment proceedings to issues related to escaped income. 2. Validity of Reassessment Proceedings under Section 147 The assessee challenged the validity of reassessment proceedings, arguing that no notice under Section 143(2) was issued. The Tribunal referred to the Patna Bench decision in Shyam Bihari Agarwal vs. ACIT, which held that if a return is filed late, it is non est, and no notice under Section 143(2) is required. The Tribunal upheld the reassessment proceedings as valid. 3. Disallowance of Contribution to Group Gratuity Insurance Scheme The assessee's contribution to LIC's Group Gratuity Insurance Scheme was disallowed due to lack of CIT approval. The Tribunal upheld the disallowance, noting that the scheme was not approved and rejecting the argument of deemed approval. The Tribunal also dismissed the alternative contention that the payment should be allowed as a business expenditure under Section 37. 4. Accrual of Income from Premium Received from Entrepreneurs The assessee argued that no income accrued from the premium received from entrepreneurs. The Tribunal noted that similar additions were upheld in earlier years and found no reason to deviate from this precedent. The addition was upheld. 5. Disallowance under Section 14A The CIT(A) restricted the disallowance under Section 14A to Rs. 1,00,000/- for administrative expenses, rejecting any disallowance of interest expenses. The Tribunal upheld this decision, noting that the assessee's own funds exceeded the investments, justifying no interest disallowance. 6. Deduction under Section 80IA The Tribunal upheld the CIT(A)'s decision to exclude interest income from the eligible business profits for Section 80IA deduction, citing the lack of a direct nexus between the interest income and the eligible business. The Tribunal also directed that receipts from both projects (Tronica City and Greater Noida) should be included in the business profit for computing the deduction. 7. Contribution to Udyog Bandhu The Tribunal upheld the CIT(A)'s decision to allow the deduction for contributions to Udyog Bandhu, citing the Allahabad High Court's judgment in the assessee's favor. The contribution was deemed incidental to the business and allowable under Section 37. 8. Accrued Interest Income The Tribunal upheld the CIT(A)'s decision to exclude accrued interest income from non-performing assets, referencing the Tribunal's decision in the assessee's earlier years. The interest was not considered accrued due to weak recovery chances. 9. Prior Period Expenses The Tribunal upheld the CIT(A)'s decision to allow only the interest written off as a deduction if conditions under Section 36(2) were met. The balance amount was disallowed due to lack of evidence of crystallization in the relevant year. Conclusion: The Tribunal's decisions were largely consistent with earlier judgments and statutory provisions, focusing on the applicability of specific sections and precedents. The appeals were decided based on established legal principles and the facts presented.
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