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2021 (2) TMI 851 - AT - Income TaxMAT computation u/s 115JB - disallowance of provision for bad and doubtful debts for computing the book profit u/s 115JB - HELD THAT - As decision in Syndicate Bank 2018 (12) TMI 1769 - KARNATAKA HIGH COURT relied on by the Ld. counsel is applicable to the instant case, wherein the Hon ble Karnataka High Court by following the judgment of the Hon ble Supreme Court in Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT has held that where the AO while computing book profit u/s 115JA, added back provision for Non-performing Assets , matter was to be remanded back with a direction to look into records and to record a finding as to whether bad and doubtful debts were reduced from loan and advances of debtors from asset side of balance sheet and thereafter, recompute income u/s 115JA. Accordingly, we set aside the order of the Ld. CIT(A) and restore the matter to the file of the AO to re-compute income u/s 115JB by following the above ratio laid down in Vijaya Bank (supra) and Syndicate Bank (supra) after giving reasonable opportunity of being heard to the assessee.We direct the assessee to file the relevant accounts/documents before the AO. Thus the 1st ground of appeal along with the additional ground is allowed for statistical purposes. Disallowance paid to Tata Sons Limited towards the subscription paid for The Brand Equity and Business Promotion(BEPB) Agreement - HELD THAT - In the wake of new competitive environment and radical transformation of the business scene created by liberalization and globalization of trade and industry, it was felt that all Tata Companies should come under one umbrella and hence an agreement titled TATA Brand Equity Business Promotion Agreement was signed on 01.01.1999 and the assessee-company subscribed to the Brand Equity Scheme by paying premium @ 0.25% per annum. The said agreement was entered into between Tata Sons and Tata Chemicals (the assessee-company) to pool their resources and make a co-operative effort to promote a unified common Tata Brand which, collectively would match the Brand Equity of well known international brand names. Explaining the above, the Ld. counsel submits that the ITAT H Bench, Mumbai in assessee s own case for AY 2002-03 on similar facts has dismissed the appeal filed by the Revenue. Disallowance u/s 80M/section 14A with a direction to rework the same in respect of indirect expenses - HELD THAT - There is no dispute that in the instant case, the assessee-company has not incurred any expenses for earning dividend income. Surplus funds time to time are invested in shares, securities, units etc. of reputed company. In the impugned assessment year, there is merit in the contentions of the Ld. counsel that for earning income from investments, the assessee-company has not incurred any expenses as evident from facts mentioned at para 13 hereinabove, which is reflected in the audited accounts. In fact the Reserve Surplus as at 31st March 2003 is ₹ 1,455.16 crores, whereas the Investment is ₹ 569.02 crores, as evident from the audited accounts for the year under consideration.Further, on identical facts, the Tribunal for AYs 1992-93, 1993-94 and 1994-95 has decided the issue in favour of the assessee. Deduction u/s 80(IB) in respect of the fertilizer unit of Haldia - HELD THAT - Section 80IB claim of ₹ 7.59 crores was made in respect of its 3 new industrial undertakings located in category B industrially backward district i.e. in Midnapore, West Bengal; the effective date of amalgamation was 01.06.2004 and the appointed date of amalgamation was 01.04.2002 i.e. HLCL amalgamated with the assessee-company w.e.f. 01.04.2002 ; after the amalgamation, the assessee-company filed its revised return of income for the year under consideration incorporating the working results of HLCL. Also it is the contentions of the assessee that during the course of assessment proceedings, vide letter dated 30.11.2005, section 80IB claim of ₹ 7,59,59,000/- (same as that claim in original return of HLCL) @ 30% of the profits (this being the 4th year of claim) in respect of erstwhile HLCL was made. Fertilizer price concession from the Government - It is the contentions of the assessee that to support industries, certain portion of price is reimbursed by Central Government in the name of fertilizer concession ; while selling the fertilizer, the assessee-company recovers part cost from farmers and part cost through Government by way of concession; the subsidy is related to the business activity of the assessee as the subsidy claim arises only upon sale of the fertilizer to the farmers ; the subsidy is nothing but a difference between cost of sales and MRP indicated by the Government; it is the subsidy amount which alone permits the manufacturer, like the present assessee to recover is uncovered cost of production including distribution cost and minimal margin allowed; it is only pursuant to the sale of fertilizer to the farmers would the assessee be eligible to receive subsidy; the fertilizer concession received by the assessee is nothing but part of sales proceeds, which cannot be excluded while working out profit u/s 80IB of the Act. Sales tax remission - it is the contentions of the assessee that it sold its products at notified prices and charged sales tax in the invoices ; in the books of accounts, sales tax collected was shown as sales tax incentive and not deposited the Government as per the Industrial Development Policy of the State; sales tax remission/subsidy is arising only on account of sales from fertilizers to the farmers, which clearly indicates that the sales tax remission has direct nexus with the activities of the industrial undertaking Having examined the materials available on record, we find that the AO has not examined in proper perspective the above contentions of the assessee. As the above contentions have a direct bearing on the above ground of appeal, we set aside the order of the Ld. CIT(A) on the above issue and restore the matter to the file of the AO to pass an order afresh.
Issues Involved:
1. Disallowance of provision for bad and doubtful debts under section 115JB. 2. Disallowance of payment to Tata Sons Limited towards the Brand Equity and Business Promotion Agreement. 3. Disallowance under section 80M/section 14A regarding allocation of interest expenses towards dividend income. 4. Exclusion of miscellaneous income from profits for computing deduction under section 80HHC. 5. Disallowance of deduction under section 80(IB) in respect of the fertilizer unit of Haldia. 6. Disallowance under section 40A(9) and share issue and preliminary expenses. Detailed Analysis: 1. Disallowance of Provision for Bad and Doubtful Debts under Section 115JB: The assessee argued that the provision for bad and doubtful debts should not be added back to the book profits under section 115JB, citing the Bombay High Court’s decision in CIT v. Echjay Forgings Pvt. Ltd. and other relevant case laws. The Tribunal noted that the Supreme Court in Vijaya Bank v. CIT held that if the bad debt is reduced from loans and advances on the asset side of the balance sheet, it amounts to an actual write-off and is not hit by clause (i) of Explanation 1 to section 115JB. The Tribunal remanded the matter back to the AO to re-compute the income under section 115JB after giving the assessee an opportunity to present relevant documents. 2. Disallowance of Payment to Tata Sons Limited towards the Brand Equity and Business Promotion Agreement: The AO disallowed the payment made to Tata Sons Limited, considering it non-business expenditure. However, the Tribunal referred to its earlier decisions in the assessee’s own case for previous assessment years, where similar payments were allowed as revenue expenditure. Thus, the Tribunal deleted the addition made by the AO, allowing the payment as a deductible expense. 3. Disallowance under Section 80M/Section 14A Regarding Allocation of Interest Expenses Towards Dividend Income: The AO allocated interest expenses towards dividend income, reducing the deduction under section 80M. The CIT(A) directed the AO to rework the disallowance on a reasonable basis, following the Bombay High Court’s decision in Godrej & Boyce Mfg Co. Ltd. v. DCIT. The Tribunal noted that the assessee had substantial own funds and investments were made from these funds, not borrowed capital. Hence, it allowed the assessee’s appeal, negating any allocation of interest expenses towards dividend income. 4. Exclusion of Miscellaneous Income from Profits for Computing Deduction under Section 80HHC: The assessee did not press this ground due to the smallness of the amount involved. The Tribunal dismissed this ground as not pressed, clarifying that this decision should not be used as a precedent for other years. 5. Disallowance of Deduction under Section 80(IB) in Respect of the Fertilizer Unit of Haldia: The AO disallowed the deduction under section 80(IB) for sales tax remission and fertilizer subsidy, considering them not derived from the industrial undertaking. The CIT(A) upheld this view. The Tribunal, however, found merit in the assessee’s contention that these receipts had a direct nexus with the industrial undertaking’s activities. It remanded the matter back to the AO for fresh examination and decision after considering the assessee’s detailed submissions and relevant documents. 6. Disallowance under Section 40A(9) and Share Issue and Preliminary Expenses (Revenue's Appeal): The Revenue’s appeal involved disallowances under section 40A(9) and share issue and preliminary expenses. However, the tax effect was below the monetary limit specified by the CBDT Circular No. 17/2019. Consequently, the Tribunal dismissed the Revenue’s appeal as withdrawn. Conclusion: The appeal filed by the assessee was partly allowed, with several matters remanded back to the AO for fresh consideration. The Revenue’s appeal was dismissed as withdrawn due to the tax effect being below the specified monetary limit.
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