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2023 (1) TMI 970 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D(2)(iii) - Assessee has made investments on which it has earned exempt income - HELD THAT - In the present case, it is an admitted position that the interest-free funds available with the assessee in the form of share capital and reserves are more than the investments from which the assessee earned exempt income. We find that the Hon'ble Jurisdictional High Court in CIT Vs. Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT held that if funds are available with the assessee, which are sufficient to meet the investment, then the presumption would arise that the investment is made out of funds so available with the assessee. We find that in Nirved Traders (P.) Ltd. 2019 (4) TMI 1738 - BOMBAY HIGH COURT has held that disallowance under section 14A of the Act cannot be more than exempt income. Thus, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, ground no.1, raised in Revenue s appeal is dismissed. Allowance of additional depreciation - assessee has purchased new machinery, which was eligible for additional depreciation at 20% u/s 32(1)(iia) after 01/10/2010, the assessee only claimed 10% of the additional depreciation in the assessment year 2011-12. The balance 10% of additional depreciation was claimed in the year under consideration - HELD THAT - As decided in own case 2017 (2) TMI 578 - ITAT MUMBAI intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one AY., if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent AY. The Tribunal, in our view, has rightly held, that additional depreciation allowed u/s.32(1)(iia) of the Act is a one-time benefit to encourage industrialisation, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal. Thus we hold that the assessee was entitled to claim 10% additional depreciation during the year under appeal. Reversing the order of the FAA, we decide the second ground of appeal in favor of the assessee Allowance of expenditure incurred towards obtaining Certificate of Suitability and filing of Drug Master File ( DMF ) - HELD THAT - We find that the Co-ordinate Bench of the Tribunal in assessee s own case in ACIT Vs. Aarti Drugs Limited 2015 (1) TMI 1486 - ITAT MUMBAI for the assessment year 2009-10 decided a similar issue in favour of the assessee. Allowance of prior period expenses - claim made by the assessee was denied merely on the basis that the liability pertains to the preceding year and since the assessee maintains its account on the mercantile basis, therefore such liability can be claimed in the preceding year only - HELD THAT - In the present case, bank charges levied by the bank in the preceding financial year were debited by the assessee in the year under consideration and the same was not added back in the computation of income filed with the return of income. As per the revenue, since the assessee maintains its account on the mercantile basis, therefore any liability which was incurred in the preceding year cannot be allowed in the year under consideration. It is the plea of the assessee that the bank had levied bank charges during the preceding financial year, however, the assessee had not received the debit advice from the bank. As and when the bank advices were received, the same was appropriately debited to the bank charges. The bank charges were received after the finalisation of the account for the year ending 31/03/2011. Therefore, as per the assessee, it could not record the exact bank charges in the assessment year 2011-12 and created a provision for bank charges. Further, the assessee recorded the bank charges in the assessment year under consideration when it receives the bank advices. Thus, as per the assessee, the liability was crystallised in the current year and therefore, should be allowed in the current year only. No material has been brought on record by the Revenue to prove that the liability has also been crystallized in the preceding year. From the perusal of the order passed by the Co-ordinate Bench of the Tribunal in assessee s own case for the assessment year 2009-10 2015 (1) TMI 1486 - ITAT MUMBAI we find that the Revenue though has raised other issues but did not challenge the order passed by the learned CIT(A) granting relief to the assessee on the similar issue. Hon ble Supreme Court in Radhasoami Satsang 1991 (11) TMI 2 - SUPREME COURT held that while strictly speaking res judicata does not apply to Income-tax proceedings but where the fundamental aspect permeating through the different assessment years has been followed as the fact one way or the other and parties have allowed that position to be sustained by not challenging the order it would not at all be appropriate to allow the position to the change in the subsequent year. - Decided against revenue. Additional ground raised by the assessee - Deduction u/s 80 IA in respect of profit and gains from the generation of steam - AO objected to the claim on the basis that the said claim was neither made in the original return of income nor in the revised return of income and the same cannot be entertained now - HELD THAT - As it is evident that the AO has not drawn any adverse inference as to the claim of deduction u/s 80IA of the Act on the generation of steam and the method of computation adopted by the assessee. Thus, once the deduction u/s 80IA of the Act has been accepted on merits in remand proceedings, the Revenue cannot raise any grievance now in the present appeal before us. Insofar as the admissibility of the claim at the appellate state for the first time is concerned, we have already found the same to be in conformity with the judicial pronouncements as noted above. Therefore, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, grounds no. 6-8 raised in Revenue s appeal are dismissed. Taxability of incentives received in terms of Foreign Trade Policy towards Focus Market Scheme ( FMS ), Focus Products Scheme ( FPS ), and Status Holder Incentives Scrip ( SHIS ) - Capital or revenue receipt - HELD THAT - Subsidy granted under the FMS scheme came up for consideration before the Hon ble Rajasthan High Court in PCIT Vs. Nitin Spinners Ltd. 2019 (9) TMI 1154 - RAJASTHAN HIGH COURT when the objective of the aforesaid subsidies has been admitted to be to encourage industries by providing industrial growth, technological upgradation, and development, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue in treating the amount received by the assessee under the aforesaid schemes as capital receipt. As a result, grounds no. 9-13 raised in Revenue s appeal are dismissed. Claim of education cess as an allowable expenditure - HELD THAT - We find that Finance Act, 2022 with retrospective effect from 01/04/2005 inserted Explanation 3 to section 40(a)(ii), whereby it has been provided that the term tax shall include and shall be deemed to have always included any surcharge of cess, by whatever name called, on such tax. Hon ble Supreme Court in JCIT Vs. Chambal Fertilisers Chemicals Ltd. 2022 (12) TMI 1098 - SC ORDER allowed the Revenue s appeal against the Hon'ble Rajasthan High Court's decision in Chambal Fertilisers Chemicals Ltd. 2018 (10) TMI 589 - RAJASTHAN HIGH COURT and held that education cess paid by the respondent-assessee would not be allowed as an expenditure under Section 37 read with 40(a)(ii) of the Act. Thus, respectfully following the decision of the Hon ble Supreme Court cited supra, grounds no. 14-18 raised in Revenue s appeal are allowed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Allowance of additional depreciation. 3. Classification of expenditure on obtaining 'Certificate of Suitability' and filing 'Drug Master File' as capital or revenue expenditure. 4. Allowance of prior period expenses. 5. Deduction under Section 80IA for profits from the generation of steam. 6. Taxability of incentives received under Foreign Trade Policy (FMS, FPS, SHIS). 7. Allowance of education cess as an expenditure. Detailed Analysis: 1. Disallowance under Section 14A: The Revenue contested the CIT(A)'s decision to restrict the disallowance under Section 14A to the extent of exempt income earned by the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's own funds were sufficient to cover the investments, and disallowance under Section 14A cannot exceed the exempt income earned, following the jurisdictional High Court's decision in CIT Vs. Reliance Utilities & Power Ltd. 2. Allowance of Additional Depreciation: The Revenue challenged the CIT(A)'s allowance of 10% additional depreciation in the subsequent year. The Tribunal upheld the CIT(A)'s decision, referencing the Karnataka High Court's ruling in Rittal India Pvt. Ltd., which allows the balance of additional depreciation to be claimed in the succeeding year if the asset was used for less than 180 days in the initial year. 3. Classification of Expenditure on COS and DMF: The Revenue argued that the expenditure on obtaining 'Certificate of Suitability' and filing 'Drug Master File' should be treated as capital expenditure. The Tribunal upheld the CIT(A)'s decision to treat these expenses as revenue expenditure, referencing the Gujarat High Court's decision that such expenses are part of the process of selling products and thus revenue in nature. 4. Allowance of Prior Period Expenses: The Revenue contested the allowance of prior period expenses. The Tribunal upheld the CIT(A)'s decision, noting that the liability for bank charges crystallized in the current year when the bank advices were received, following the Gujarat High Court's ruling in Saurashtra Cement & Chemical Industries Ltd. 5. Deduction under Section 80IA for Profits from Generation of Steam: The Revenue objected to the CIT(A)'s acceptance of the assessee's claim for deduction under Section 80IA for profits from the generation of steam. The Tribunal upheld the CIT(A)'s decision, noting that the AO, in the remand report, accepted the assessee's contention that the generation of steam amounts to the generation of power and thus qualifies for deduction under Section 80IA. 6. Taxability of Incentives under Foreign Trade Policy: The Revenue challenged the CIT(A)'s decision to treat incentives received under FMS, FPS, and SHIS as capital receipts. The Tribunal upheld the CIT(A)'s decision, noting that the objectives of these subsidies are to increase global trade share, technological upgradation, and employment opportunities, thus qualifying them as capital receipts, referencing the Rajasthan High Court's decision in PCIT Vs. Nitin Spinners Ltd. 7. Allowance of Education Cess as an Expenditure: The Tribunal noted the retrospective amendment by the Finance Act, 2022, and the Supreme Court's decision in JCIT Vs. Chambal Fertilisers & Chemicals Ltd., which clarified that education cess is not allowable as an expenditure under Section 37 read with Section 40(a)(ii). Consequently, the Tribunal allowed the Revenue's appeal on this issue. Conclusion: The Tribunal dismissed the Revenue's appeal on issues related to disallowance under Section 14A, additional depreciation, classification of COS and DMF expenditure, prior period expenses, deduction under Section 80IA, and taxability of incentives under Foreign Trade Policy. However, the Tribunal allowed the Revenue's appeal on the issue of education cess, following the Supreme Court's decision and the retrospective amendment by the Finance Act, 2022.
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