2017 (3) TMI 817 - AT - Income Tax

Disallowance u/s 14A - as per assessee disallowance as per Rule 8D to be made by taking into consideration only those shares which have yielded dividend income in the year under consideration - Held that - There was no documentary evidence submitted to prove that no borrowed fund was used in the impugned investments. Therefore, the submission made by the assessee with regard to the interest expenses. We find that no material was furnished before the AO at the time of assessment proceedings. It was the duty of the assessee to provide necessary information to justify that there is no borrowed fund utilized in the impugned investments. Thus, in such circumstances the AO had no option except to resort to the provisions of section 14A read with rule 8D of Income Tax Rules. As relying on REI Agro Ltd. v. Dy. CIT 2013 (9) TMI 156 - ITAT KOLKATA we direct the Assessing Officer to compute the disallowance as per Rule 8D by taking into consideration only those shares, which have yielded dividend income in the year under consideration. The alternative contention of the assessee is accordingly accepted. Reducing compensation received from the actual cost of the plant & machinery - allowing depreciation thereon though the receipt is capital in nature & consequently not chargeable to tax - Held that - In the instant case before us compensation was given due to non-performance of the machineries at desired level. Therefore the compensation in the instant case before us cannot be treated as capital receipts. Similarly the finding of the ld CIT(A) that the compensation received by the assessee should be reduced from the actual cost is not based on correct law. It is because the cost of the machine has not been met directly or indirectly by the government or any other person as required in Explanation 10 to section 43(1) of the Act. In fact the compensation was given with the sole purpose of reducing the loss which might have incurred by the assessee due to non-performance of the machineries at desired level. At the time of purchase of machineries there was no whisper about the meeting of the cost directly or indirectly by the machine supplier. Therefore, in our considered view the question of reducing the actual cost of machinery does not arise. Hence the ground of appeal of the revenue is allowed Addition on the basis of additional evidence - Held that - At the outset, we find that the necessary details were filed by the assessee at the time of assessment as evident from letter submitted to the AO which is placed at page 14 of the paper book along with sample supporting documents. Therefore the ground of the Revenue that the fresh evidences were submitted is not tenable. Thus we are of the view that no fresh evidences were submitted before the ld. CIT(A). Accordingly we find no infirmity in the order of ld. CIT(A). Hence the ground raised by the Revenue is hereby dismissed.

Issues Involved:
1. Delay in filing the appeal by the Revenue.
2. Disallowance under Section 14A of the Income Tax Act.
3. Treatment of compensation received from the supplier of Wind Electric Generators.
4. Disallowance of prior period expenses.

Detailed Analysis:

1. Delay in Filing the Appeal by the Revenue:
The Revenue's appeal was delayed by 53 days due to a heavy workload and additional charges. The assessee did not object to the condonation of the delay. The Tribunal condoned the delay considering the circumstances.

2. Disallowance under Section 14A of the Income Tax Act:
The assessee, a Limited Company engaged in various businesses, earned a dividend income of ?7.10 crores, claimed as exempt under Section 10(34). The AO invoked Section 14A and Rule 8D, disallowing ?17,15,98,000. The assessee argued no direct or borrowed funds were used for earning the dividend, and administrative expenses disallowed were ?5.97 lakhs. However, the AO rejected these claims, stating the law does not distinguish how dividends are credited.

On appeal, the CIT(A) upheld the AO's decision, noting the assessee had loans and interest expenses, and the investments were made from a common fund. The CIT(A) also emphasized the complexity of investment decisions and the necessity of disallowing indirect expenses.

The Tribunal found the AO had recorded dissatisfaction with the assessee's claims and upheld the disallowance but directed the AO to compute it considering only those shares yielding dividend income during the year, based on precedents like REI Agro Ltd. Thus, the issue was partly allowed in favor of the assessee.

3. Treatment of Compensation Received from the Supplier of Wind Electric Generators:
The assessee received ?1928.18 lakhs as compensation from Suzlon Energy Ltd. for non-performance of wind turbine generators. Initially treated as revenue, the assessee later claimed it as a capital receipt. The AO treated it as revenue, noting it compensated for loss of revenue.

The CIT(A) held the compensation as capital, reducing the actual cost of the machinery per Explanation 10 to Section 43. However, the Tribunal found the compensation was for reducing running losses due to non-performance, thus revenue in nature, not reducing the machinery's actual cost. Hence, the ground of appeal by the Revenue was allowed, and the assessee's ground was dismissed.

4. Disallowance of Prior Period Expenses:
The AO disallowed ?3,86,365 as prior period expenses, questioning their crystallization in the relevant year. The CIT(A) allowed ?1,76,040, finding these expenses crystallized in the current year based on provided agreements.

The Tribunal upheld the CIT(A)'s decision, noting the necessary details were filed during the assessment, and no fresh evidence was submitted. Thus, the ground raised by the Revenue was dismissed.

Conclusion:
The appeals were partly allowed, with specific directions for recomputation of disallowances and treatment of compensation, aligning with legal precedents and statutory provisions.

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