2016 (1) TMI 125 - AT - Income Tax

Disallowance being amortization of lease rent - treating the same as of capital nature by CIT(A) - Held that - Similar issue in assessee s own case has been decided in respect of Asst. Years 2005-06 to 2007-08 wherein decided the issue in favour of assessee considering the decision of this Court in the case of Sun Pharmaceutical Industries Limited (2009 (3) TMI 587 - Gujarat High Court ) as well as decision of the Hon ble Supreme Court in the case of Madras Auto Services Pvt. Ltd. (1998 (8) TMI 1 - SUPREME Court), we are of the opinion that the learned Tribunal has committed an error in distinguishing the aforesaid decisions and not applying the same to the facts of the case on hand. Considering the aforesaid two decisions, it is to be held that the aforesaid lease rent was deductible as revenue expenditure and the learned Tribunal has erred in holding that amortization of lease rent paid for the land is capital expenditure. - Decided in favour of assessee Disallowance u/s 14A - Held that - As the assessee seems to be having sufficient interest free funds out of which investments in funds giving tax free income would have been made and also there is no specific observations by the Assessing Officer that during the previous year any such funds bearing interest have been diverted/applied to investments, income of which is not forming part of total income and, therefore, there seems to be no possibility of application of Rule 8D in relation to interest expenditure. As regards apportionment of administrative and establishment expenses debited to the profit and loss account towards exempt income earned during the year on one hand, assessee which is a limited company has provided audited financial statement along with audit report u/s 44AB wherein no specific disallowance u/s 14A is appearing and on the other hand, the Assessing Officer has not gone specifically through the books of account so as to bring any fact that any such expenditure has been incurred for earning exempt income. Therefore, Assessing Officer was not correct in applying section 14A read with Rule 8D in the case of the assessee. However, looking to past history, previous assessments made and the decision of co-ordinate Bench, as well as accepting the fact that one cannot ignore the possibility of incurring some expenditure for earning exempt income which have been debited to the profit and loss account and to cover up such possibility we are of the view that a lump sum disallowance of ₹ 1,00,000/- will meet the ends of justice.- Decided in favour of assessee in part Reduction in the deduction claimed by assessee under section 80IA - AO has estimated the rate of ₹ 2.23 per unit for units of electricity sold and arrived at a conclusion that assessee earned has not earned any profit rather incurred losses - Held that - We find that the co-ordinate Bench in assessee s own case for Asst. Years 2005-06 to 2007-08 has decided similar issue by observing deduction allowable to the assessee u/s 80IA in respect of captive consumption of power, the rates fixed by Electricity Board i.e. GEB in the present case, has to be applied and not the price fixed by the legislative mandate. He has also noted that in the present case, the assessee is prevented by legislative mandate from selling power to any person other than GEB and the rates fixed by GEB was ₹ 1.86 per unit only but the GEB is asking the assessee to pay at ₹ 4.55 per unit and hence, he has directed the AO to allow deduction u/s 80IA as claimed, being the market rate of ₹ 4.55 per unit of power. No contrary decision was brought to our notice by the ld. DR and hence, we do not find any reason to interfere in the order of ld. CIT(A) on this issue which is in line with various Tribunal decisions. This issue is decided in favour of the assessee MAT - Computation of book profit under section 115JB - claim for provision for doubtful debt and claim of provision of diminution in value of investment and provision for loss in the derivative were added back to the book profit - Held that - The issue has been decided by the co-ordinate Bench in assessee s own case for Asst. Year 2004-05 wherein it was fairly conceded by the ld. AR that this issue has to be decided against the assessee as per clause (i) of Explanation 1 to section 115JB and hence, this issue is decided against the assessee

Summary

Issues Involved:
1. Legality of the assessment order.
2. Disallowance of amortization of lease rent.
3. Addition under Section 14A read with Rule 8D.
4. Disallowance of deduction under Section 80IA.
5. Recalculation of book profit under Section 115JB.
6. Charging of interest under Sections 234B and 234C.

Detailed Analysis:

1. Legality of the Assessment Order
The appellant contended that the assessment order passed by the Deputy Commissioner of Income Tax (DCIT) was "bad in law" and contrary to legal pronouncements. The Tribunal did not specifically address this general ground, as it was deemed to require no adjudication.

2. Disallowance of Amortization of Lease Rent
The appellant challenged the disallowance of Rs. 14,01,000 on account of amortization of lease rent, which was treated as capital expenditure by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Tribunal noted that a similar issue in the appellant's own case had been decided by the Hon'ble Gujarat High Court in favor of the appellant, holding that the lease rent was deductible as revenue expenditure. Consequently, the Tribunal deleted the disallowance.

3. Addition under Section 14A read with Rule 8D
The AO made an addition of Rs. 2,26,90,000 by invoking the provisions of Section 14A read with Rule 8D, which was confirmed by the CIT(A). The Tribunal observed that the AO did not specifically record dissatisfaction with the correctness of the appellant's accounts as required under Rule 8D. The Tribunal also noted that the appellant had sufficient interest-free funds to cover the investments generating tax-free income. Consequently, the Tribunal reduced the disallowance to a lump sum of Rs. 1,00,000 to cover any possible administrative expenses related to earning tax-free income.

4. Disallowance of Deduction under Section 80IA
The AO estimated the rate of Rs. 2.23 per unit for electricity sold and concluded that the appellant incurred losses, thereby disallowing the deduction under Section 80IA. The CIT(A) revised the rate to Rs. 3.11 per unit but confirmed the appellant's eligibility for the deduction. The Tribunal referred to its earlier decision in the appellant's own case, which had allowed the deduction based on the rates fixed by the Electricity Board. The Tribunal upheld the CIT(A)'s decision, allowing the deduction under Section 80IA.

5. Recalculation of Book Profit under Section 115JB
The AO added back provisions for doubtful debts and diminution in the value of investment to the book profit, which was confirmed by the CIT(A). The Tribunal referred to its earlier decision in the appellant's case, which had decided against the appellant on similar grounds. The Tribunal found no infirmity in the CIT(A)'s order and rejected this ground of appeal.

6. Charging of Interest under Sections 234B and 234C
The appellant challenged the charging of interest under Sections 234B and 234C. The Tribunal noted that this ground was consequential and did not provide a specific ruling on it.

Conclusion
The appeal was partly allowed, with the Tribunal providing relief on the disallowance of amortization of lease rent and reducing the addition under Section 14A. However, the Tribunal upheld the CIT(A)'s decisions on the recalculation of book profit under Section 115JB and the disallowance of deduction under Section 80IA. The issue of charging interest under Sections 234B and 234C was deemed consequential.