2021 (7) TMI 1073 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D(2)(iii) - HELD THAT - AO has applied the formula of disallowance without considering the facts of investment pattern, income and total expenses. A.O. has to determine and calculate administrative over heads and compute the total income including exempt income. A.O. has to calculate the percentage of allocating administrative overheads based on total income and exempted dividend income. Further if the disallowance u/sec14A of the Act is worked out, the A.O. has to apply the ratio of special bench decision in the case of ACIT Vs. M/s. Vireet Investments Pvt Ltd. 2017 (6) TMI 1124 - ITAT DELHI - Where the Coordinate Bench has made a distinctive observations on the investments and only dividend yielding investments has to be considered for the purpose of Average value of investments for disallowance u/s 8D(2)(iii). We set aside the order of the CIT(A) on this disputed issue and for limited purpose remit the disputed issue to the file of the assessing officer to recomputed the disallowance under Rule 8D(2)(iii) of the IT Rules and compare with the allocation of expenses to exempted income earned and allow the claim which is beneficial to the assessee. The assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information. We allow the grounds of appeal of the assessee for statistical purposes. Disallowance computed applying Sec 14A and Rule 8D(2) of the I T Rules, the assessee is eligible to make adjustment of disallowance amount while claiming deduction U/sec80IA of the Act in computing the revised profits. Unabsorbed depreciation and accumulated losses of the earlier years prior to initial year of claim u/sec 80IA of the Act have to be adjusted while computing profit of eligible business - HELD THAT - We Find the Honble High Court Of Madras in the case of M/s Velayudhaswamy Spinning Mills (P) Ltd. 2010 (3) TMI 860 - MADRAS HIGH COURT has observed The Loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business, as no such mandate is provided in section 80-IA(5)of the Act. Subsequently the Revenue has challenged the decision before the Hon ble Supreme Court and the SLP was dismissed 2016 (11) TMI 373 - SC ORDER . Accordingly, We follow the ratio of the above judicial decisions and set aside the order of the CIT(A) on this issue and allow the ground of appeal in favour of the assessee. Income tax refund order along with interest u/sec 244A - HELD THAT - We consider the overall aspects and the ratio of decisions in respect of interest calculation. The assessee should not be deprived of its legitimate right for any further interest, due to the lapses on the part of the income tax department. Accordingly, we direct the assessing officer to grant the interest on refund to the date of refund order and allow this ground of appeal. Voluntary Emission Reduction (VER) credits - Revenue or capital receipt - HELD THAT - Receipts in connection with the Voluntary Emission Reduction (VER) credits are in the nature of capital receipts - See M/S. DODSON LINDBLOM HYDRO POWER PVT. LTD. 2019 (4) TMI 1034 - BOMBAY HIGH COURT and M/S. MY HOME POWER LTD., 2014 (6) TMI 82 - ANDHRA PRADESH HIGH COURT Capital gain on Sale of Non convertible debentures - assessee has claimed the cost of acquisition of debenture at ₹ 452/- as against as cost of ₹ 500/- while calculating the capital gains - HELD THAT - As in the subsequent A.Y.2010-11, the assessee has written off in the financial statements, we are of opinion that this matter requires verification and examination of transactions as discussed above to be decided based on the final outcome of A.Y. 2010-11.Accordingly, we restore this disputed issue for verification and examination by the assessing officer and after satisfaction of facts, the assessing officer is directed to allow the claim of the assessee. The assesse should be provided adequate opportunity of hearing and shall co-operate in submitting the information and we allow this ground of appeal for statistical purpose. Grant deduction of education cess on income tax paid during the year - HELD THAT - As relying on decision of M/s Sesa Goa Ltd Vs JCIT Panaji 2020 (3) TMI 347 - BOMBAY HIGH COURT were the Honble High court has observed that the Education cess and Higher Education cess are liable for deduction in computing income chargeable under head of profits and gains of business or profession. We considering the ratio of decision discussed above, direct the assessing officer to allow the deduction of cess and allow the ground of appeal of the assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Deduction under Section 80-IA of the Income Tax Act.
3. Interest under Section 244A of the Income Tax Act.
4. Taxability of Voluntary Emission Reduction credits.
5. Cost of acquisition for computing Capital gains on debentures.
6. Deduction in respect of education cess.

Detailed Analysis:

1. Disallowance under Section 14A:
The assessee challenged the disallowance of ?2,81,70,670 under Section 14A for expenses incurred to earn exempt income. The Commissioner of Income-tax (Appeals) upheld the Assessing Officer's (AO) application of Rule 8D for computing the disallowance. The Tribunal noted that the AO failed to provide a basis for the substantial disallowance and did not verify the investment pattern concerning exempt income. The Tribunal directed the AO to recompute the disallowance considering only the investments yielding exempt income, following the special bench decision in ACIT Vs. M/s. Vireet Investments Pvt Ltd.

2. Deduction under Section 80-IA:
The AO and CIT (A) held that unabsorbed depreciation and accumulated losses from prior years should be adjusted before computing the profits eligible for deduction under Section 80-IA. The Tribunal, relying on the Madras High Court decision in M/s Velayudhaswamy Spinning Mills (P) Ltd. and the Supreme Court's dismissal of the Revenue's SLP, ruled in favor of the assessee, stating that such adjustments are not mandated by Section 80-IA(5).

3. Interest under Section 244A:
The assessee claimed interest on the refund up to the date of the actual refund order (07.09.2009), whereas the interest was calculated only up to the date of processing the intimation (17.07.2009). The Tribunal, citing the jurisdictional High Court decision in CIT Vs Pfizer Ltd and the Tribunal decision in M/s Jay Bros Investment & Trading Co. (P) Ltd., directed the AO to grant interest up to the date of the refund order.

4. Taxability of Voluntary Emission Reduction Credits:
The assessee argued that the receipts from Voluntary Emission Reduction (VER) credits are capital receipts and should be excluded from total income. The Tribunal, following decisions from various High Courts including the Bombay High Court in PCIT vs. Dodson Lindblom Hydro Power Pvt Ltd, ruled in favor of the assessee, treating the VER credits as capital receipts.

5. Cost of Acquisition for Capital Gains on Debentures:
The assessee contended that the cost of acquisition for debentures should be ?500 per debenture instead of ?452, as the detachable warrants received along with the debentures lapsed and were written off. The Tribunal found merit in the argument but remitted the issue back to the AO for verification and examination based on the final outcome of A.Y. 2010-11.

6. Deduction in Respect of Education Cess:
The assessee claimed a deduction for education cess on income tax paid. The Tribunal, referring to the jurisdictional High Court decision in M/s Sesa Goa Ltd Vs JCIT, directed the AO to allow the deduction of education cess.

Conclusion:
The Tribunal partly allowed the appeals for statistical purposes, directing the AO to recompute disallowances and deductions based on the Tribunal's findings and provide the assessee with adequate opportunities for hearing and submission of information.