2018 (9) TMI 1743 - AT - Income Tax

Addition u/s 145A - adjustment of closing stock of the assessee by duty and taxes etc. in the form of CENVAT - Held that - While it is the case of the AO that the element of excise duty / CENVAT etc. would represent part of the closing stock of the assessee in terms of Section 145A, it is the case of the assessee, on the other hand, that Section 145A has no application to the facts of the case. It is further case of the assessee that it follows exclusive method of accounting for valuation of inventory and therefore, entire exercise would be tax neutral. We notice that Section 145A falls under the Chapter XIV procedure for assessment. It essentially deals with method of accounting and is in the nature of machinery provision. Section 145A inter alia provides that inventory of goods shall be valued in accordance with method of accounting regularly employed by the assessee. CIT(A) has examined the issue on facts and binding judicial precedents and concluded the issue in favour of the assessee. In the absence of any impact on the profitability of the assessee per se due to exclusive method of accounting followed, we do not see any error in the conclusion drawn by the CIT(A). Disallowance of interest under s.14A - Held that - We find merit in the plea of the assessee that Rule 8D(2)(ii) shall have no application in the given facts where the interest income earned outweigh the interest expenditure. In consonance with the decision of the Hon ble Gujarat High Court in PRINCIPAL COMMISSIONER OF INCOME TAX-3 VERSUS NIRMA CREDIT AND CAPITAL PVT. LTD 2017 (9) TMI 485 - GUJARAT HIGH COURT , we decline to interfere with the conclusion drawn by the CIT(A) on the issue in favour of the assessee. MAT - adjustments in the book profit computed under s.115JB of the Act following the disallowance under s.14A - Held that - We direct the AO to delete the adjustments made on account of estimated disallowance determined under s.14A of the Act while computing book profit under u/s.115JB of the Act.

Summary

Issues Involved:
1. Disallowance under Section 145A of the Income Tax Act, 1961.
2. Disallowance of interest under Section 14A of the Income Tax Act, 1961.
3. Adjustment of book profit under Section 115JB of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance under Section 145A of the Income Tax Act, 1961:
The Revenue appealed against the deletion of disallowance made by the CIT(A) for AY 2009-10 and AY 2010-11 on account of the assessee following an exclusive method for accounting CENVAT instead of the inclusive method mandated under Section 145A. The assessee argued that it consistently follows the exclusive method, keeping duties and taxes in a separate account, rendering the exercise revenue-neutral. The CIT(A) examined the issue based on facts and judicial precedents, concluding in favor of the assessee. The Tribunal found no error in the CIT(A)'s conclusion, citing judicial precedents such as Narmada Chematur Petrochemicals Ltd. and General Motors India (P.) Ltd. Thus, the Tribunal dismissed the Revenue's appeal on this ground for both assessment years.

2. Disallowance of interest under Section 14A of the Income Tax Act, 1961:
For AY 2009-10 and AY 2010-11, the AO disallowed interest under Section 14A, computed using Rule 8D(2), as the assessee earned tax-exempt dividend income. The assessee contended that it had earned more interest income than it had expended, making the net interest expenditure effectively zero. The CIT(A) granted relief to the assessee, and the Tribunal upheld this decision, referencing the Gujarat High Court's ruling in Pr.CIT vs. Nirma Credit & Capital (P.) Ltd., which supported netting of interest income and expenditure. The Tribunal found merit in the assessee's plea and dismissed the Revenue's appeal on this ground for both assessment years.

3. Adjustment of book profit under Section 115JB of the Income Tax Act, 1961:
For AY 2010-11, the AO adjusted the book profit under Section 115JB by adding the disallowance made under Section 14A. The CIT(A) disagreed with this adjustment. The Tribunal referenced the co-ordinate bench's decision in Arvind Ltd. vs. DCIT, which held that adjustments for disallowance under Section 14A should not be made when computing book profit under Section 115JB. The Tribunal found no error in the CIT(A)'s conclusion and dismissed the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years and the assessee's cross-objection for AY 2009-10. The Tribunal's decisions were based on consistent judicial precedents and the specific facts of the case, supporting the CIT(A)'s conclusions in favor of the assessee.