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2016 (1) TMI 940 - AT - Income TaxCredit of taxes paid and set off of MAT credit as per the provisions of section 115JAA - Pro rata quantification of the demerged undertaking MAT, TDS and advance tax credits - Held that - As once the demerged gas distribution undertaking no more exists w.e.f. 01-01-2007 coming to be the appointed day, the assessee-resulting company is entitled for all the pro rata adjustments of TDS, advance tax and MAT credits as per law; to be utilized in former s account. The net result of our above discussion is that assessee s arguments in principle are accepted in view of clauses of the above stated demerger scheme, sections 391 to 394 of the Companies Act, Section 2(19AA) of the Income Tax Act. We direct the Assessing Officer to compute pro rata quantification of the demerged undertaking MAT, TDS and advance tax credits as per law after affording adequate opportunity of hearing
Issues Involved:
1. Disallowance of preliminary expenditure under Section 35D of the Income Tax Act. 2. Disallowance of prior period expenditure. 3. Set-off of prior period income against prior period expenditure. 4. Set-off of MAT credits, TDS, and advance taxes, and consequential interest under Section 234B. Detailed Analysis: 1. Disallowance of Preliminary Expenditure under Section 35D: The assessee challenged the disallowance of Rs. 10,28,028/- of preliminary expenditure under Section 35D of the Income Tax Act. The expenditure included ROC fees paid to increase authorized capital, which was amortized over five years. The assessee argued that similar claims had been allowed in the previous assessment year 2007-08. The Assessing Officer disallowed the claim, stating it was not covered under Section 35D(2). The Tribunal referred to the Gujarat High Court's decision in Gujarat Narmada Valley Fertilizers Company Ltd Vs. DCIT, which was affirmed by the Supreme Court, holding that amortization allowed in preceding years cannot be disturbed in succeeding years. The Tribunal reversed the lower authorities' decision and allowed the assessee's claim. 2. Disallowance of Prior Period Expenditure: The assessee contested the disallowance of Rs. 15,25,746/- as prior period expenditure, which included professional fees and other expenses. The Assessing Officer and CIT(A) disallowed the claim, stating there was no evidence of crystallization during the relevant previous year. The Tribunal upheld the disallowance, agreeing with the lower authorities that the assessee failed to prove the crystallization of the expenditure. 3. Set-off of Prior Period Income Against Prior Period Expenditure: The assessee argued for the set-off of prior period income of Rs. 7,55,575/- against the prior period expenditure. The Tribunal referred to the Delhi High Court's decision in CIT vs. Exxon Mobil Lubricant Pvt. Ltd., which held that if prior period income is taxed, the corresponding expenditure should also be allowed. The Tribunal accepted this alternative contention and directed the Assessing Officer to set off the prior period income against the expenditure as per law. 4. Set-off of MAT Credits, TDS, and Advance Taxes, and Consequential Interest under Section 234B: The assessee challenged the non-entitlement to set off MAT credits, TDS, and advance taxes of Rs. 2,11,51,773/-, and the consequential interest under Section 234B. The CIT(A) held that the Assessing Officer allowed tax credits only to Adani Energy Ltd. since the demerger scheme did not specify bifurcation of tax credits. The Tribunal disagreed, citing the demerger scheme approved by the Gujarat High Court, which included all assets, liabilities, and tax benefits. The Tribunal referred to the Supreme Court's decision in Marshall Sons & Co. India Ltd vs. ITO and the Gujarat High Court's decision in Torrent (P) Ltd vs. CIT, holding that the resulting company is entitled to the tax credits of the demerged undertaking. The Tribunal directed the Assessing Officer to compute the pro rata quantification of the MAT, TDS, and advance tax credits as per law. Conclusion: The Tribunal partly allowed the assessee's appeal ITA 2516/Ahd/2011, granting relief on the disallowance of preliminary expenditure and the set-off of prior period income against expenditure, and directed the Assessing Officer to compute the tax credits. The appeal ITA 2241/Ahd/2011 was dismissed as not pressed.
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