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2023 (11) TMI 322 - AT - Income TaxDisallowance u/s. 14A - HELD THAT - Assessing Officer is directed to re-work disallowance u/s.14A under rule 8D(2)(iii) on investment which has yielded exempt income and consider only those investments which yielded the exempt income. The assessee gets the relief accordingly. This ground of appeal is partly allowed. Unutilized CENVAT Credit - As per revenue though section 45 of the Act makes it mandatory to make adjustment in computing total income as has been rightly done by the Assessing Officer - HELD THAT - irrespective of the method of accounting followed by the assessee, i.e. 'Inclusive method', wherein the taxes are included in the opening stock, purchases, etc. or the 'Exclusive method', the MODVAT credit does not have any impact on the profit of the assessee. Thus, following the ratio laid down by the Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. 2003 (1) TMI 8 - SUPREME COURT and followed by Diamond Dye Chem Ltd. 2017 (7) TMI 616 - BOMBAY HIGH COURT we set-aside the order of the CIT (A) and direct the Assessing Officer to delete the addition made on account of unutilised MODVAT credit. Nature of receipt - sales tax incentives received by assessee are rightly considered as Capital Receipts by Ld.CIT(A). Addition made on account of unutilised MODVAT credit - HELD THAT - As irespective of the method of accounting followed by the assessee, i.e. 'Inclusive method', wherein the taxes are included in the opening stock, purchases, etc. or the 'Exclusive method', the MODVAT credit does not have any impact on the profit of the assessee. Thus, following the ratio laid down by the Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. 2003 (1) TMI 8 - SUPREME COURT and followed by the Hon'ble Bombay High Court in the case of Diamond Dye Chem Ltd. 2017 (7) TMI 616 - BOMBAY HIGH COURT we set-aside the order of the CIT (A) and direct the Assessing Officer to delete the addition made on account of unutilised MODVAT credit. TDS u/s 195 - disallowance of interest paid to State Bank of India- Bahrain branch even though the assessee did not deduct tax at source - HELD THAT - As observed that Ld.CIT(A) in his order has given finding that Bahrain Branch of State Bank of India (SBI) is part of SBI which is governed by the Banking Regulation Act and this fact is not disputed by LD DR. Further it is also a settled position that a branch office is part of the entire SBI and not a separate legal entity. Payment to foreign branch of Indian entity tantamount to payment made to Indian company only. Accordingly, provisions of Section 195 are not applicable in respect of payments made to foreign branch of Indian Bank - we are inclined to accept the findings of Ld.CIT(A) for deleting the addition made by Assessing Officer. Additional depreciation u/s 32(1)(iia) - whether additional depreciation is allowable only on new machinery be. the first year in which it is put to use? - HELD THAT - It is observed that coordinate bench in its later decision in the case of Ambuja Cement Limited 2022 (11) TMI 1419 - ITAT MUMBAI holding company of assessee has allowed similar claim of depreciation. When coordinate bench of ITAT in its latest decision has decided issue in favour of assessee by holding that assessee is entitled for additional depreciation u/s 32(1)(iia), such later decision would prevail over the decision of Everst Industries Limited 2018 (4) TMI 426 - ITAT MUMBAI relied upon by Ld DR. As a result, since this aspect of the matter is no longer res integra, we see no reasons to take any other view of the matter than the view so taken by the coordinate bench in the group concern s case of the assessee. We uphold the plea of the assessee and direct the Assessing Officer to allow depreciation u/s.32(1)(iia) of the Act. Deduction u/s. 80IA of the I.T. Act, in respect of power-generating unit-TG3 located at Wadiif - HELD THAT - As deduction u/s. 80-IB was granted for an initial assessment year, same could not be rejected for subsequent assessment years unless relief for initial year was withdrawn. Thus, assessee is entitled to deduction u/s 80IA on TG-2 and TG-3, Wadi unit. Apportionment of indirect Head Office Expenses while computing deduction u/s. 80IA for TG2 unit - HELD THAT - AO is directed to allocate Head office expenses (other than auditor fees and CMA expenses) on the basis of expenditure incurred by the units vis- -vis overall expenditure. Thus, related ground of appeal in departmental appeal is dismissed and ground of appeal in assessee s appeal is partly allowed. Capital gain computation - AO power to refer the valuation of Land to the DVO - HELD THAT - AO was not justified in considering fair market value of land based upon DVO s report obtained u/s 55A of the Act. This ground of appeal is accordingly allowed. Addition of provision for gratuity, provision for wealth tax, provision for VRS made while computing book profit u/s 115JB is deleted. Disallowance u/s 14A cannot be made while computing book profit u/s.115JB as relying on Vireet Investments Pvt Ltd 2017 (6) TMI 1124 - ITAT DELHI Deduction u/s.80IA on Rail Infrastructure allowed as quantified in form 10CCB subject to allocation of indirect expenditure as confirmed. Disallowance of claim of leave encashment - HELD THAT - On perusal of relevant facts on record, it is observed that Hon'ble supreme court in the case of UOIv. Exide Industries Ltd. 2020 (4) TMI 792 - SUPREME COURT has upheld constitutional validity of provision of section 43B(f) for provision for leave encashment liability and considering binding decision of Hon'ble Supreme Court claim cannot be allowed. However, if payment of such provision towards leave encashment is made in subsequent year, deduction may be allowed to assessee in such years if not allowed till date. Therefore, Assessing Officer is directed to verify and the same and allow the same as per our above directions. Addition of provision for leave encashment made while computing book profit u/s 115JB is deleted. Non-exclusion of profit on sale fixed assets while computing book profits u/s. 115JB - Recompute taxable long term capital gains arising on transfer of fixed assets as well as investments after giving the benefit of indexed cost of acquisition (if applicable) while computing taxable profits u/s 115JB.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Addition of unutilized CENVAT Credit. 3. Addition of sales tax subsidy as capital receipt. 4. Exclusion of excise duty exemption in computing total income. 5. Disallowance of interest paid to SBI Bahrain branch. 6. Disallowance of additional depreciation under Section 32(1)(iia). 7. Deduction under Section 80IA for power-generating units. 8. Apportionment of indirect head office expenses for computing deductions under Sections 80IA, 80IB, and 80IC. 9. Validity of reference to the DVO under Section 55A. 10. Addition of provision for normal gratuity in computing book profit under Section 115JB. 11. Addition of provision for wealth tax in computing book profit under Section 115JB. 12. Addition of provision for VRS in computing book profit under Section 115JB. 13. Disallowance of interest under Rule 8D(ii) read with Section 14A in computing book profit under Section 115JB. 14. Disallowance of club expenses. 15. Deduction under Section 80IA for rail facility. 16. Disallowance of leave encashment provision under Section 43B(f). 17. Addition of leave encashment provision in computing book profit under Section 115JB. 18. Non-exclusion of profit on sale of fixed assets in computing book profits under Section 115JB. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The Tribunal noted that the Assessing Officer (AO) disallowed Rs. 1.94 crore under Rule 8D(2)(iii) for earning exempt income. The Assessee argued that it had sufficient interest-free funds. The Tribunal directed the AO to re-compute the disallowance only on investments yielding exempt income, relying on the decision in Vireet Investment Pvt. Ltd. [165 ITD 27]. 2. Addition of unutilized CENVAT Credit: The Tribunal upheld the CIT(A)'s deletion of the addition of unutilized CENVAT Credit, following the decision in Mahindra & Mahindra Ltd [2020] 113 taxmann.com 230, which held that such credit cannot be directly added to income. 3. Addition of sales tax subsidy as capital receipt: The Tribunal upheld the CIT(A)'s decision to treat sales tax incentives as capital receipts, following the Special Bench decision in Reliance Industries Ltd [88 ITD SB 273] and other judicial precedents. 4. Exclusion of excise duty exemption in computing total income: The Tribunal upheld the CIT(A)'s decision to exclude excise duty exemption from total income, following the decision in Mahindra & Mahindra Ltd [2020] 113 taxmann.com 230. 5. Disallowance of interest paid to SBI Bahrain branch: The Tribunal upheld the CIT(A)'s deletion of the disallowance, stating that payments to foreign branches of Indian banks are not subject to TDS under Section 195. 6. Disallowance of additional depreciation under Section 32(1)(iia): The Tribunal allowed the Assessee's claim for additional depreciation on assets acquired before the assessment year, following the decision in Ambuja Cement Limited (ITA No. 6375 and 6405/Mum/2013). 7. Deduction under Section 80IA for power-generating units: The Tribunal allowed the Assessee's claim for deduction under Section 80IA for power-generating units, following the decision in Ambuja Cement Limited (ITA Nos. 1889 and 1241/Mum/2018). 8. Apportionment of indirect head office expenses for computing deductions under Sections 80IA, 80IB, and 80IC: The Tribunal directed the AO to allocate head office expenses (other than auditor fees and CMA expenses) based on expenditure incurred by the units vis-Ã -vis overall expenditure, following the decision in Ambuja Cement Limited (ITA Nos. 1889 and 1241/Mum/2018). 9. Validity of reference to the DVO under Section 55A: The Tribunal held that the AO was not justified in referring the valuation of land to the DVO under Section 55A, following the decision in CIT v. Puja Prints 360 ITR 697. 10. Addition of provision for normal gratuity in computing book profit under Section 115JB: The Tribunal upheld the deletion of the addition of provision for normal gratuity, following the decision in Bharat Earth Movers (245 ITR 528) and CIT v. Echjay Forgings (P) Ltd. (2001) 251 ITR 15. 11. Addition of provision for wealth tax in computing book profit under Section 115JB: The Tribunal upheld the deletion of the addition of provision for wealth tax, following the decision in CIT v. Echjay Forgings (P) Ltd. (2001) 251 ITR 15. 12. Addition of provision for VRS in computing book profit under Section 115JB: The Tribunal upheld the deletion of the addition of provision for VRS, following the decision in Apollo Tyres Ltd. v. CIT (2002) 255 ITR 273 (SC). 13. Disallowance of interest under Rule 8D(ii) read with Section 14A in computing book profit under Section 115JB: The Tribunal deleted the disallowance of interest under Rule 8D(ii) while computing book profit under Section 115JB, following the decision in Vireet Investments Pvt. Ltd. (82 taxmann.com 415). 14. Disallowance of club expenses: The Tribunal allowed the Assessee's claim for club expenses, following the decision in Otis Elevator Co (I) Ltd. v. CIT (195 ITR 682) (Bom). 15. Deduction under Section 80IA for rail facility: The Tribunal allowed the Assessee's claim for deduction under Section 80IA for rail facilities, following the decision in Ultratech Cement Ltd Vs ACIT [(2017) 88 taxmann.com 907 (Mumbai)]. 16. Disallowance of leave encashment provision under Section 43B(f): The Tribunal upheld the disallowance of leave encashment provision under Section 43B(f), following the decision in UOI v. Exide Industries Ltd. [425 ITR 1]. 17. Addition of leave encashment provision in computing book profit under Section 115JB: The Tribunal deleted the addition of leave encashment provision in computing book profit under Section 115JB, following the decision in Bharat Earth Movers (245 ITR 528). 18. Non-exclusion of profit on sale of fixed assets in computing book profits under Section 115JB: The Tribunal directed the AO to recompute taxable long-term capital gains after giving the benefit of indexed cost of acquisition while computing book profits under Section 115JB, following the decision in Best Trading and Agencies Limited v. DCIT [119 Taxmann.com 129].
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