2017 (6) TMI 249 - AT - Income Tax

Addition made on account of capitalization of amount in respect of contract awarded - Held that - We find that the amalgamation of the JSW(E)Ratnagiri took place on 01.04.2010, that before that date Ratnagiri Unit was an independent entity, that the alleged bogus bills were obtained by JSW(E)Ratnagiri.If any addition in that regard had to be made it could be made in the hands of Ratnagiri Unit or successor to that unit. The FAA has deleted the addition as the bills were not taken by the assessee in the year under consideration. In our opinion the order of the FAA does not suffer from any legal or factual infirmity.Therefore, confirming the same the Ground is decided against the AO. Disallowance u/s. 14A r.w. Rule 8D - Held that - AO had not given any justification for enhancing the disallowance to ₹ 44 crores (approx.),that the FAA had restricted the disallowance to ₹ 9.14 crores only, that the assessee itself had offered the disallowance in the return filed in response to notice u/s. 153A of the Act. Considering the above, we are of the opinion that there is no need to disturb the order of the FAA. Deduction u/s. 80IA in respect of the total disallowance u/s.14A - Held that - Issue was adjudicated in favour of the assessee by the Tribunal while deciding the appeal for AY 2008- 09 wherein held whatever income was enhanced on account of disallowance computed u/s 14A of the Act, it has been offset by the exemption available on such enhanced profit in terms of section 80IA of the Act. Thus, on facts it is quite clear that the disallowance u/s 14A of the Act does not impact the net taxable profits as assessee becomes eligible to higher exemption u/s 80IA of the Act Treatment given to sale proceeds of CER and reduction of a sum on account of de-merger of investment division while computing the book profit - Held that - While deciding the appeal for the AY.2008-09 Tribunal had dealt with the issue restoring back the issue to the file of the AO for fresh adjudication

Summary

Issues Involved:
1. Addition on account of capitalization of expenses
2. Disallowance under Section 14A read with Rule 8D
3. Deduction under Section 80IA in respect of disallowance under Section 14A
4. Treatment of sale proceeds of Certified Emission Reduction (CER)
5. Computation of book profit under Section 115JB
6. Penalty proceedings

Detailed Analysis:

1. Addition on Account of Capitalization of Expenses:
The AO disallowed ?33.84 crores claimed as capital expenditure related to a contract awarded to Gremach Infrastructure Equipments and Projects Ltd. (GIEPL), alleging discrepancies and lack of substantiation for the payments. The FAA deleted the addition, noting that the expenditure was incurred by JSW Energy Ltd. (Ratnagiri) before its amalgamation with the assessee and that any disallowance should have been made in the hands of the erstwhile entity or its successor. The Tribunal confirmed the FAA's order, stating that the addition was not justified as the bills were not claimed by the assessee in the year under consideration.

2. Disallowance under Section 14A read with Rule 8D:
The AO enhanced the disallowance under Section 14A to ?44.03 crores, while the assessee had disallowed ?9.14 crores in its return filed in response to a notice under Section 153A. The FAA restricted the disallowance to ?9.14 crores, as offered by the assessee. The Tribunal upheld the FAA's order, noting the lack of justification from the AO for the higher disallowance and confirming that the assessee had correctly disallowed the amount in its return.

3. Deduction under Section 80IA in Respect of Disallowance under Section 14A:
The DR argued against allowing the deduction under Section 80IA for the disallowance made under Section 14A. The Tribunal referred to its earlier decision for AY 2008-09, where it was held that the disallowance under Section 14A resulted in increased profits eligible for deduction under Section 80IA. The Tribunal found no reason to interfere with the FAA's order, confirming that the enhanced profits due to disallowance under Section 14A were eligible for deduction under Section 80IA.

4. Treatment of Sale Proceeds of Certified Emission Reduction (CER):
The issue of the sale of CER was restored to the AO for fresh adjudication. The Tribunal noted that in the earlier year, it had upheld the assessee's plea that CER receipts were capital receipts not chargeable to tax. The AO was directed to re-examine the issue and provide a reasonable opportunity for the assessee to be heard.

5. Computation of Book Profit under Section 115JB:
The Tribunal confirmed the FAA's order regarding the computation of book profit under Section 115JB, following its decision in the assessee's case for AY 2006-07, which was upheld by the Bombay High Court. The Tribunal found no reason to disturb the FAA's order, confirming that the sale proceeds of CER should be excluded from the book profit computation.

6. Penalty Proceedings:
The Tribunal did not adjudicate the issue of penalty proceedings, considering it premature.

Conclusion:
The appeals filed by both the AO and the assessee were partly allowed, with specific issues being restored to the AO for fresh adjudication. The Tribunal upheld the FAA's decisions on the disallowance under Section 14A, the deduction under Section 80IA, and the computation of book profit under Section 115JB, while restoring the issue of the sale of CER to the AO for re-examination.