2015 (1) TMI 560 - AT - Income Tax

Interest income - whether taxed under the head Income from other sources instead of adjusting it against the interest expenditure capitalized to Incidental Expenditure during Construction (EDCP) account? - Held that - Following the decision of the Tribunal in the assessee s own case we restore the issue to the file of the AO with a direction to examine the nexus between interest paid on borrowed funds and decide the issue in terms of the above reproduced directions given by the Tribunal for earlier assessment year. - Decided in favour of assessee by way of remand. Disallowance of expenditure u/s. 14A - Held that - Perusal of the assessment order reveals that the AO has not followed the guidelines of objective satisfaction. He without recording any reasoning for his dissatisfaction with regard to the working/claim of the assessee, straightway applied Rule 8D against the mandate of the provisions of section 14A of the Income Tax Act. The learned CIT(A) also ignored the mandate of the provisions of section 14 A, while confirming the disallowance. Thus restore this issue back to the file of the AO with a direction that the AO will give opportunity to the assessee to place on record all the relevant facts including its accounts and then examine the computation/calculation made in this regard by the assessee having regard to the accounts of the assessee. - Decided in favour of assessee by way of remand. Deduction u/s. 80IB on the Technology Up-gradation Fund TUF subsidy denied - Held that - After considering the arguments of both the sides, we deem it proper to set aside this particular issue to the file of the AO with the direction to examine whether the reimbursement of interest cost is reimbursement of revenue expenditure debited to the P & L Account of that eligible unit to that extent either in this year or in any earlier years. If it is so then due to reimbursement the expenditure incurred by the assessee is reduced, to the extent the profit of the industrial undertaking will increase. - Decided in favour of assessee by way of remand. Deduction u/s. 35AC disallowed - Held that - Restore this issue is also restored to the file of the AO with a direction that the assessee will produce necessary evidence regarding the deduction claimed on this issue before the AO and the AO after proper verification of the same, if found genuine, will allow the claim of the assessee.- Decided in favour of assessee for statistical purposes. Addition made by AO on the basis of loose paper impounded - Held that - CIT(A) after going through the evidences on file has held that the addition on this account was not sustainable as all the payments were made through account payee cheques and were duly reflected in the books of accounts. He however has rightly directed to reduce the amount of ₹ 65 lakhs from the value of assets and calculate the depreciation accordingly. We do not find any infirmity in the order of the CIT(A). It is accordingly upheld. - Decided against revenue. Computation of disallowance made u/s. 14A for computing book profit u/s. 115JB - Held that - The expenditure found disallowable under section 14A can be added back while computing book profits under section 115 JB of the Act. Since in the case in hand, we have restored the issue of disallowance u/s 14A of the Act to the file of the A.O., hence, it is held that whatsoever expenditure would be found by the AO as disallowable under section 14A, the same can be added back while computing book profit under section 115JB in the case of the assessee.- Decided in favour of assessee TUF subsidy received - revenue v/s capital receipt - Held that - Since this issue was not examined by the AO at all, we admit the additional ground and restore the matter to the file of the AO to examine the claim afresh. - Decided in favour of assessee by way of remand.

Issues Involved:
1. Taxation of interest income under "Income from other sources" versus adjustment against interest expenditure.
2. Disallowance of expenditure under Section 14A of the Income Tax Act.
3. Denial of deduction under Section 80IB on Technology Up-gradation Fund (TUF) subsidy.
4. Disallowance of deduction under Section 35AC.
5. Addition based on loose paper and statement during the survey.
6. Computation of disallowance under Section 14A for computing book profit under Section 115JB.

Detailed Analysis:

1. Taxation of Interest Income:
The primary issue was whether the interest income of Rs. 22,12,69,000 should be taxed under "Income from other sources" or adjusted against the interest expenditure capitalized to the Incidental Expenditure during Construction (EDCP) account. The Tribunal restored the issue to the AO, directing an examination of the nexus between the interest paid on borrowed funds and the interest income earned. The AO was instructed to determine if the interest income had a direct nexus with the borrowings and, if so, to adjust the net interest accordingly.

2. Disallowance of Expenditure under Section 14A:
The assessee contested the disallowance of Rs. 7,73,26,424 under Section 14A, arguing that sufficient own funds were available for investments, and no borrowed funds were used. The Tribunal noted that the AO did not follow the guidelines of objective satisfaction as laid out by the Bombay High Court in the case of "Godrej & Boyce Manufacturing Co. Ltd." The Tribunal restored the issue to the AO, directing a thorough examination of the assessee's accounts and proper computation of disallowance as per the law.

3. Denial of Deduction under Section 80IB on TUF Subsidy:
The assessee claimed deduction on TUF subsidy amounting to Rs. 1,87,46,299, which was denied by the AO, treating it as an incentive profit. The Tribunal referred to its previous order and restored the issue to the AO, directing an examination of whether the reimbursement of interest cost reduces the interest claim and, if so, to allow the deduction under Section 80IB accordingly.

4. Disallowance of Deduction under Section 35AC:
The assessee claimed a deduction of Rs. 50,00,000 under Section 35AC for a payment made under the Tirupati Cottage Donation Scheme. The AO disallowed the claim due to a lack of evidence, and the CIT(A) upheld the disallowance. The Tribunal restored the issue to the AO, allowing the assessee to furnish necessary evidence to substantiate the claim.

5. Addition Based on Loose Paper and Statement During Survey:
The AO added Rs. 65,00,000 to the assessee's income based on a statement made during a survey, which was allegedly paid back in cash to the director. The CIT(A) found that all payments were made through account payee cheques and reflected in the books, thus not treating it as unaccounted income. However, the CIT(A) directed to reduce the cost of the factory building by Rs. 65,00,000 and adjust the depreciation accordingly. The Tribunal upheld the CIT(A)'s decision.

6. Computation of Disallowance under Section 14A for Book Profit under Section 115JB:
The Tribunal addressed whether the disallowance under Section 14A should be added back while computing book profit under Section 115JB. It referred to its previous decision in the case of "Godrej Consumer Products Limited," holding that the amount disallowable under Section 14A is to be added back while computing book profit under Section 115JB. The Tribunal restored the issue to the AO, directing that any expenditure found disallowable under Section 14A should be added back while computing the book profit.

Conclusion:
The Tribunal allowed the appeals and cross-objections for statistical purposes, restoring various issues to the AO for further examination and proper adjudication in accordance with the law and judicial precedents. The order emphasized the need for objective satisfaction, proper examination of facts, and adherence to legal principles in determining tax liabilities.

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