2021 (1) TMI 26 - AT - Income Tax

Treatment of interest income for the purposes of computation of deduction u/s 80IA - During the course of hearing, the assessee has sought permission to raise the modified ground of appeal in place of existing grounds of appeal stating that the assessee has itself disallowed the interest receipt while working out the deduction u/s 80IA - HELD THAT - Where the assessee has suo moto disallowed the interest receipt while working out the deduction u/s 80IA of the Act, we find that principally, both the parties are in agreement that such interest receipts should not qualify for deduction under section 80IA of the Act and the matter is no more in dispute. The fact that assessee has suo moto disallowed the interest receipt for the purposes of deduction u/s 80IA is a matter of record which can be verified from the return of income filed by the assessee for the respective assessment years. We accordingly allow the modification in the ground of appeal so taken by the assessee company and the matter is set aside to the file of the Assessing Officer to carry out the necessary verification and where on such verification, it is so found that the assessee has suo moto disallowed the interest receipts while working out the deduction u/s 80IA of the Act, no further addition is sustainable in the eyes of law and the addition made by the Assessing Officer is hereby directed to be deleted. The existing grounds of appeal are treated as withdrawn as per request of the assessee and modified ground of the appeal for the respective assessment years i.e, A.Y 2010-11 to A.Y 2015-16 so taken by the assessee are admitted and allowed for statistical purposes. Treatment of misc. income for the purposes of computation of deduction u/s 80IA - receipts on account of scrap sale in each of the years under consideration and receipts on account of insurance claim for A.Y 2011-12 - Claim of the Revenue is that such receipts are not having the first degree of nexus with toll operation activity and thus not derived from the maintaining and operating the highway and accordingly not eligible for deduction u/s 80IA - HELD THAT - Where the matter has already been examined by the Coordinate Bench in the earlier year in assessee s own case, and the fact that the Revenue has not challenged the same before the Hon ble High Court, and in absence of any change in the facts and circumstances of the case and following the consistent view taken by other Benches of the Tribunal, we donot see any basis to interfere with the earlier decision taken by the Coordinate Bench in assessee s own case, where one of us was also a party. We accordingly direct the Assessing officer to allow claim of deduction u/s 80IA on such scrap sale receipts for the respective assessment years. Insurance receipts - We find that where such insurance claims are in respect of assets used in the toll operations which have been capitalized and form part of block of assets, the receipts arising in form of insurance claims will go to reduce the block of assets instead of being eligible for deduction under section 80IA of the Act. The matter is accordingly set-aside to the file of the Assessing officer to examine the same afresh after providing reasonable opportunity to the assessee. Addition of overlay expenses claimed in Profit Loss A/c - HELD THAT - There is no dispute that such provision towards cost of overlay expenses is related to the business activity of operating and maintaining of the highway and any addition made towards such provision would enhance the taxable profit which is eligible for deduction u/s 80IA(4)(i) - Here, it is also relevant to note that the disallowance has been made by the Assessing officer while computing the profits of the business under the regular provisions of the Act however no adjustment has been made while computing the book profits for the purposes of MAT u/s 115JB of the Act and therefore, as far as computation of book profits and consequent MAT liability is concerned, the same is not under dispute and our findings on revenue neutrality is thus limited to computation of profits under the regular provisions of the Act which are eligible for deduction u/s 80IA(4)(i) of the Act. The CBDT has stated in its aforesaid Circular that the appeal and ground where so taken should not be pressed/withdrawn and therefore, taking the same into consideration which is binding on the Revenue authorities, the ground of appeal so taken by the Revenue deserved to be dismissed on this account itself for both the years under consideration. No finding recorded by the Assessing officer that the nature of provision so made by the assessee company is different from the past years or not flowing from the requirements of the concessionaire agreement executed with NHAI. Even the report of the independent Consultant was obtained in the first year where it had estimated the total cost of ₹ 56.64 crores which has therefore formed the basis for spreading the total cost equally across five years. We therefore failed to understand that where the provision for periodic wearing course overlay has been accepted all these years as an ascertained liability, then on what basis, the said provision is treated as a contingent liability for A.Y 2014-15 and A.Y 2015-16. Therefore, on this ground as well, where there are no changes in the facts and circumstances of the case, following the rule of consistency as upheld by the Courts from time to time, we are of the considered view that there is no basis to interfere with the consistent position which has been accepted in the earlier years. In the instant case, the assessee company has a present obligation arising out of the concessionaire agreement executed with NHAI to maintain the highway in traffic worthy condition through regular and preventive maintenance of the highway and which mandatorily requires it to maintain the pavement riding quality by way of roughness meeting the minimum standards throughout the service life of the pavement, the settlement of which is expected to result in an outflow of resources and in respect of which a reliable estimate has been made based on report of an independent consultant. - Decided in favour of assessee. Disallowance u/s 14A - HELD THAT - There was no investment by way of shares which were capable of even yielding any dividend income and the amount remain invested as share application money for A.Y 2012-13 to A.Y 2014-15 and even for A.Y 2015-16 where the shares were finally allotted, there was no dividend income which has accrued and claimed exempt, the provisions of section 14A cannot be invoked. In the result, the findings, of the Assessing officer for all the years under consideration as well as of the ld CIT(A) for A.Y 2014-15 2015-16, in so far as invocation of section 14A is concerned, are set-aside. Invoking provisions of 36(1)(iii) for making disallowance of interest on the amount employed in making share application money out of the funds so borrowed - We set-aside the invocation of provisions of section 14A and uphold the invocation of provisions of section 36(1)(iii) for the purposes of making the disallowance of interest expenses debited in the profit/loss account for each of the respective assessment years i.e, A.Y 2012-13 to A.Y 2015-16 under appeal before us. Inclusion of the disallowance made u/s 14A while computing the Book profit u/s 115JB(2) - HELD THAT - In the instant case, as we have held that provisions of section 14A cannot be invoked for the impugned assessment years and thus, no disallowance can be made u/s 14A of the Act, the question of resorting to disallowances made under section 14A doesn t arise at first place while computing the books profits u/s 115JB - Similar view has been taken by the Hon ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd 2014 (11) TMI 1169 - CALCUTTA HIGH COURT wherein it was held that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A . Whether there could be any independent adjustment to book profits by applying clause (f) of explanation under section 115JB? - The Hon ble Kolkata High Court in case of CIT vs Jayshree Tea Industries Ltd (supra) has held that the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act is required to be determined independently as the same is a complete code in itself and considering the said decision, the Coordinate Ahmedabad Benches of the Tribunal in case of Asian Grantio India Ltd 2019 (10) TMI 1193 - ITAT AHMEDABAD has held that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income, and drawing support from the principles laid down under normal provisions further held that the disallowance of the expenses cannot exceed the exempt income and limited the disallowance of the expenses to the extent of exempt income which was NIL in that case. Following the said proposition, in the instant case as well, given that there is no income which is claimed exempt in any of the years under consideration, no disallowance of the expense is warranted under Section 115JB of the Act even in terms of clause (f) to Explanation-1 of Sec. 115JB of the Act in respect of all the impugned assessment years. Depreciation claim of the assessee on toll road @ 10% treating the same as building for A.Y 2011-12, 2012-13 2013-14 respectively - HELD THAT - Matter has been decided in favour of the assessee by the Hon ble Rajasthan High Court 2017 (10) TMI 1380 - RAJASTHAN HIGH COURT where the depreciation claim on the Toll road has been held allowable at the rate of 10% as applicable to buildings. Depreciation @ 60% in respect of EDP equipments consisting of computers, servers, computer software etc which are directly used in toll booth operations and back office operations connecting to toll collection booths - HELD THAT - We find that the matter is squarely covered by the decision of the Co-ordinate Benches right from A.Y 2006-07 onwards wherein EDP equipment have been held as qualifying for depreciation @ 60% as against 15% applied by the Assessing Officer. Claim of employee s share of PF and ESI contributions deposited beyond the prescribed period - HELD THAT - CIT(A) has recorded a finding of fact that the assessee has deposited the employee s contribution towards PF/ESI before the due date of filing the return of income. The said finding of the ld CIT(A) remain undisputed before us. It is therefore an admitted fact that the entire amount was deposited by the assessee before the due date of filing of the return under section 139(1) of the Act, then in such a scenario, the amount cannot be disallowed under section 36(1)(va) of the Act as the due date referred to in section 36(1)(va) of the Act need to be read in conjunction with section 43B(b) of the Act.- Decided in favour of the assessee

Summary

Issues Involved:
1. Treatment of interest income for the purposes of computation of deduction u/s 80IA.
2. Treatment of miscellaneous income for the purposes of computation of deduction u/s 80IA.
3. Claim of periodic overlay expenses.
4. Disallowance u/s 14A/36(1)(iii).
5. Depreciation on Toll road u/s 32(1).
6. Depreciation on EDP equipment u/s 32(1).
7. Disallowance of PF/ESI contributions.

Detailed Analysis:

1. Treatment of Interest Income for the Purposes of Computation of Deduction u/s 80IA:
The assessee challenged the disallowance of deduction u/s 80IA on interest receipts, arguing that the interest was generated from business activities and should be treated as business income. The Tribunal allowed the modification of grounds of appeal and remanded the matter to the Assessing Officer (AO) for verification. If the assessee had suo moto disallowed the interest receipts for the purposes of deduction u/s 80IA, no further addition should be made.

2. Treatment of Miscellaneous Income for the Purposes of Computation of Deduction u/s 80IA:
The Revenue contested the deduction u/s 80IA on income from sale of scrap and insurance receipts. The Tribunal upheld the CIT(A)'s decision, noting that scrap sales and insurance receipts were part of normal business activities and eligible for deduction u/s 80IA. The Tribunal directed the AO to allow the deduction for scrap sales and remanded the matter of insurance receipts for further examination.

3. Claim of Periodic Overlay Expenses:
The assessee claimed periodic overlay expenses as an ascertained liability under the concession agreement with NHAI. The AO disallowed the expenses, considering them contingent liabilities. The CIT(A) allowed part of the claim, and the Tribunal upheld the CIT(A)'s decision, noting that the expenses were mandatory under the concession agreement and based on an independent consultant's report. The Tribunal found the disallowance as revenue-neutral due to the assessee's eligibility for deduction u/s 80IA.

4. Disallowance u/s 14A/36(1)(iii):
The AO disallowed interest expenses u/s 14A, attributing them to investments in share application money. The CIT(A) invoked section 36(1)(iii) instead of section 14A for A.Y 2012-13 and 2013-14. For A.Y 2014-15 and 2015-16, the Tribunal reversed the CIT(A)'s decision to apply section 14A, upholding the invocation of section 36(1)(iii) for disallowance of interest expenses. The Tribunal also held that disallowances under section 14A could not be applied while computing book profits u/s 115JB.

5. Depreciation on Toll Road u/s 32(1):
The Revenue challenged the depreciation claim on the toll road. The Tribunal upheld the CIT(A)'s decision, which followed the Hon'ble Rajasthan High Court's ruling allowing depreciation at 10% as applicable to buildings. The Hon'ble Supreme Court dismissed the SLP filed by the Revenue, finalizing the matter in favor of the assessee.

6. Depreciation on EDP Equipment u/s 32(1):
The Revenue contested the depreciation claim on EDP equipment. The Tribunal upheld the CIT(A)'s decision, which followed the Hon'ble Rajasthan High Court's ruling allowing depreciation at 60%. The Hon'ble Supreme Court dismissed the SLP filed by the Revenue, finalizing the matter in favor of the assessee.

7. Disallowance of PF/ESI Contributions:
The Revenue challenged the allowance of employee's share of PF and ESI contributions deposited beyond the prescribed period. The Tribunal upheld the CIT(A)'s decision, noting that the contributions were deposited before the due date of filing the return. The Tribunal followed the Hon'ble Rajasthan High Court's ruling and the Hon'ble Supreme Court's dismissal of the SLP, finalizing the matter in favor of the assessee.

Conclusion:
The Tribunal's consolidated order addressed multiple issues, upholding the CIT(A)'s decisions favoring the assessee on most grounds, including the treatment of interest and miscellaneous income for deduction u/s 80IA, periodic overlay expenses, and depreciation claims. The Tribunal also clarified the non-applicability of section 14A disallowances in the absence of exempt income and their exclusion while computing book profits u/s 115JB. The Tribunal's decisions were largely guided by precedents from higher courts, ensuring consistency in the application of the law.