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2019 (11) TMI 1357 - AT - Income TaxExpenses incurred for replacement of electricity meters - nature of expenditure - revenue or capital expenditure - HELD THAT - In appeal, the CIT-(A) has allowed the appeal of the assessee holding that expenses incurred on replacement of electricity meters is of revenue nature while following the orders of his predecessors for the earlier Assessment Year. On further appeal by the revenue, the Tribunal held that these electricity meters have to be replaced periodically on account of obsolescence, meters burning out or becoming faulty etc. and these expenses are necessarily required to be incurred for the purposes of carrying out business operations. The expenditure is incurred for the purposes of enabling the Assessee to carry out its business more efficiently and more profitably. The replacement of meters does not increase the generation and/or distribution capacity of electricity. Moreover, as held in Empire Jute Co. Ltd. v/s. CIT ( 1980 (5) TMI 1 - SUPREME COURT) the test of enduring benefit is not a conclusive test to be applied mechanically without considering the facts of a given case. In the above facts, the expenses on replacement of electricity meters would be on revenue and not on capital account. The Counsel for the Respondent has not been able to point out that how the conclusion of the Tribunal in the earlier years will not be applicable to the present Assessment Year. Respectfully following the aforesaid decision, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly the ground No.1, raised by the revenue is dismissed Deduction u/s 80IA - proportionate apportionment and allocation of Head Office expenses amongst Goa and Windmill Units respectively while calculating profits eligible for deduction u/s 80IA of the Act in respect of the said units - HELD THAT - We find that the Ld. CIT(A) had granted relief to the assessee in respect of impugned issue by placing reliance on various decisions of this Tribunal in assessee s own case passed up to A.Y 2010-11 and also on the decisions of Hon ble Jurisdictional High Court in the assessee s own case passed up to A.Y 2008-09. We find that the Ld. CIT(A) had also relied on the order passed his predecessor for A.Y 2012-13 and granted relief to the assessee. In assessee s own case for A.Y 2006-07 had decided this issue in favour of the assessee, wherein it was held the findings of the facts by the ITAT for the prior assessment years have been referred to and if at all any reference needed, paragraphs 17 and 18 of the ITAT s order are complete answers . Therefore, the factual findings do not raise any substantial question of law in relation to disclaim as well. Ground No. 2 raised by the revenue is dismissed. Disallowance u/s 14A of the Act r.w.r 8D(2) - Assessee made suo-moto disallowance - HELD THAT - By placing reliance on the decisions of Hon ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd., 2009 (1) TMI 4 - BOMBAY HIGH COURT and in the case of HDFC bank 2014 (8) TMI 119 - BOMBAY HIGH COURT , the Ld. CIT(A) deleted the interest disallowance made by the Ld. A.O under Rule 8D(2)(ii) of the Rules. We find that the factual findings given by the ld CITA on the availability of interest free funds with the assessee company remain uncontroverted by the revenue before us and hence do not find any infirmity in the said finding of the ld CITA. Disallowance of indirect expenses under Rule 8D(2)(iii) of Rules CIT(A) had directed the Ld. A.O to exclude investments made in subsidiaries, being strategic investments and to consider only those investments which had yielded exempt income during the year. We find that with regard to exclusion of investments made in subsidiaries and strategic investments made by the assessee, we find that this issue is recently settled by the Hon ble Supreme Court in the case of Maxopp Investments 2018 (3) TMI 805 - SUPREME COURT , against the assessee. Accordingly, this aspect of the ground raised by the Revenue is allowed. We also find that the Special Bench of the Delhi Tribunal in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI , had held that only those investments which had yielded exempt income need to be considered for the purpose of working out the disallowance of indirect expenses under Rule 8D(2)(iii) of the Rules. Accordingly, the Ld. A.O is directed to re-compute the disallowance under Rule 8D(2)(iii) of Rules by considering only those investments which had actually yielded exempt income during the year under consideration. Disallowance made u/s 14A r.w.r. 8D of the Rules while computing the book profits u/s 115JB - HELD THAT - We find that Ld. CIT(A) had deleted the said disallowance by following the decision of Hon ble Special Bench of Delhi Tribunal in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI . But we find that the Special Bench had only held that the computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause (f) of Explanation (1) to Sec. 115JB(2) of the Act. The special Bench also held that the actual expenses debited to profit and loss account which are incurred for the purpose of earning exempt income need to be disallowed u/s 14A of the Act for the purpose of 115JB - Since, in the instant case, the assessee had already worked out the actual disallowance of ₹ 81,47,392/- as indirect expenses incurred for the purpose of earning exempt income, we direct the Ld. AO to adopt the same figure for the purpose of disallowance u/s 14A of the Act while computing the book profits u/s 115JB of the Act. Accordingly, the ground No. 7 raised by the Revenue is partly allowed.
Issues Involved:
1. Deduction of expenses for replacement of electricity meters. 2. Allocation of Head Office expenses to Goa and Windmill Units for Section 80IA deduction. 3. Disallowance under Section 14A read with Rule 8D(2) under normal provisions. 4. Disallowance under Section 14A read with Rule 8D for computing book profits under Section 115JB. Issue-wise Detailed Analysis: 1. Deduction of Expenses for Replacement of Electricity Meters: The primary issue was whether the expenses incurred for replacing electricity meters should be treated as capital expenditure or deductible as revenue expenditure. The assessee had capitalized the cost of 45,514 meters, with ?3,19,61,732/- pertaining to the replacement of 25,988 meters, and claimed this amount as a deduction. The Assessing Officer (AO) disallowed this claim, treating it as capital expenditure and allowed depreciation instead. The CIT(A) allowed the deduction by relying on previous Tribunal and High Court decisions in the assessee's favor. The Tribunal upheld the CIT(A)'s decision, noting that the High Court had previously ruled that such expenses were necessary for business operations and did not increase the generation or distribution capacity, thus qualifying as revenue expenditure. 2. Allocation of Head Office Expenses to Goa and Windmill Units for Section 80IA Deduction: The second issue involved the allocation of Head Office expenses to Goa and Windmill Units while calculating profits eligible for Section 80IA deduction. The AO had allocated these expenses to reduce the deduction claim. However, the CIT(A) granted relief to the assessee, referencing earlier Tribunal and High Court decisions. The Tribunal affirmed the CIT(A)'s decision, noting that the High Court had previously ruled in favor of the assessee, stating that the factual findings did not raise any substantial question of law. 3. Disallowance under Section 14A read with Rule 8D(2) under Normal Provisions: The third issue was the disallowance under Section 14A read with Rule 8D(2) for earning exempt income. The AO disallowed ?86,79,00,838/- while the assessee had made a suo-moto disallowance of ?81,41,392/-. The CIT(A) found that the assessee's interest-free funds exceeded the investments made and deleted the interest disallowance under Rule 8D(2)(ii). The Tribunal upheld this, noting the availability of sufficient interest-free funds. However, for indirect expenses under Rule 8D(2)(iii), the CIT(A) had excluded investments in subsidiaries. The Tribunal directed the AO to re-compute the disallowance by considering only those investments that yielded exempt income, aligning with the Supreme Court's decision in Maxopp Investments. 4. Disallowance under Section 14A read with Rule 8D for Computing Book Profits under Section 115JB: The fourth issue was the disallowance under Section 14A for computing book profits under Section 115JB. The AO disallowed ?86,79,00,838/-, but the CIT(A) deleted this by following the Special Bench decision in Vireet Investments. The Tribunal noted that the Special Bench had ruled that the computation mechanism in Rule 8D(2) could not be applied to Section 115JB and directed the AO to adopt the actual disallowance of ?81,47,392/- as worked out by the assessee. Conclusion: The Tribunal partly allowed the revenue's appeal and the assessee's cross-objections, directing specific adjustments and re-computations in line with judicial precedents and factual findings.
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