2023 (11) TMI 384 - AT - Income Tax

Differential unutilized MODVAT credit referable to closing stock invoking the provisions of Section 145A - HELD THAT - As decided in own case AY 2005-06 2023 (2) TMI 1210 - ITAT MUMBAI Tribunal has not committed any error. (underlined for emphasis by us) It is evident from the above 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 AO to delete the addition made on account of unutilised MODVAT credit. Sales tax incentive availed by the units located at Tikaria, Wadi, Chaibasa Damodar of the appellant under various schemes aggregating being capital in nature, in computing total income under the normal provisions of the Act. TDS u/s 194A - interest payment made to SBI Bank- Bahrain Branch - disallowance u/s.40(a) - HELD THAT - As decided in own case AY 2005-06 2023 (2) TMI 1210 - ITAT MUMBAI 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. Deduction u/s 80IA on TG-3 Power-Plant allowed - 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initial assessment year, same could not be rejected for subsequent assessment years unless relief for initial year was withdrawn. Addition of provision for gratuity made while computing book profit u/s 115JB is deleted. Wealth tax provision is not required to be added back while computing Book Profits under Section 115JB. Addition of provision for leave encashment made while computing book profit u/s 115JB is deleted. Addition of VRS expenditure pertaining to earlier years, capital expenditure debited and write down of value of assets while computing the book profit u/s.115JB - HELD THAT - CIT(A) has allowed the claim of the assessee on the basis of decision of the case titled as Apollo Tyres Ltd. 2002 (5) TMI 5 - SUPREME COURT . We also noticed that the issue has already been covered in favour of the assessee in the assessee s own case for the A.Y. 2002-03 we are of the view that the CIT(A) has allowed the claim of the assessee rightly. Amount transferred from Share Premium Account to the profit loss account was correctly reduced from Book Profits by the Assessee while computing book profit as per the provisions of Clause (i) of Explanation to Section 115JB(2) Disallowance u/s 14A r.w.r. 8D - Restrict the disallowance to 1% of the exempt income. The assessee gets the relief accordingly. Excise duty exemption received by assessee are capital receipts both for the purpose of computing income as per normal provision of the Act as well as book profit u/s 115JB of the Act and the addition made by Assessing Officer is deleted. Additional depreciation u/s 32(1)(iia) on the eligible assets acquired during the previous year 2005- 06 in computing the total income under the normal provisions of the Act - 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. Capital gain computation - reference made by the A.O. to the Government Valuation Cell, New Delhi for determining fair market value of Okhla Land as on 01-04-1981 - 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. Apportionment of the indirect Head Office expenses in computing deduction u/s 80IA/ 80IB/80IC - Assessing Officer 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. Deduction u/s 80IA on infrastructure facility, being rail systems at Kymore, Tikaria, Wadi I Wadi II - only dispute of Assessing Officer for not allowing such deduction is that necessary form 10CCB was not filed along with return of income and claim was not quantified in such return of income - HELD THAT - Claim of assessee is found to be correct and AO is directed to allow deduction u/s.80IA on Rail Infrastructure as quantified in form 10CCB subject to allocation of indirect expenditure as confirmed hereinabove. Denial of claim of exclusion of profit on sale of fixed assets in computing Book Profit u/s 115JB - We direct the assessing officer to 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 of the Act. Thus, Assessee s appeal is partly allowed for statistical purpose. Amount transferred to Debenture Redemption Reserve cannot be added back while computing Book Profits. Outstanding BIS Marking Fees and Sales tax disallowed u/s 43B on the basis of Tax Audit Report of that assessment year - As assessee has claimed deduction of BIS marketing fees / sale tax as per provision of section 43B of the Act. The issue requires verification at the end of the Assessing Officer hence, it is remitted to the file of AO to verify the claim of the assessee as per law, accordingly, this ground of appeal is allowed for statistical purpose.

Summary

Issues Involved:

1. Deletion of addition on account of unutilized CENVAT credit.
2. Treatment of sales tax incentive as capital receipt.
3. Deletion of addition on account of interest payment to SBI-Bahrain.
4. Deduction under Section 80IA for power plants.
5. Deletion of disallowance of provision for gratuity in computing book profit under Section 115JB.
6. Deletion of addition of provision for wealth tax in computing book profit under Section 115JB.
7. Deletion of addition of provision for leave encashment in computing book profit under Section 115JB.
8. Deletion of addition of VRS expenditure in computing book profit under Section 115JB.
9. Exclusion of amount withdrawn from share premium account in computing book profit under Section 115JB.
10. Disallowance under Section 14A.
11. Exclusion of excise duty exemption as capital receipt.
12. Additional depreciation under Section 32(1)(iia).
13. Validity of reference to DVO for determining fair market value of land.
14. Apportionment of indirect Head Office expenses for deduction under Sections 80IA/80IB/80IC.
15. Deduction under Section 80IA for rail systems.
16. Exclusion of profit on sale of fixed assets in computing book profit under Section 115JB.
17. Addition of expenditure incurred in relation to exempt income in computing book profit under Section 115JB.
18. Additional ground for deduction of BIS marking fees and sales tax on payment basis.

Detailed Analysis:

1. Deletion of Addition on Account of Unutilized CENVAT Credit:
The tribunal dismissed the revenue's appeal, relying on the decision in the case of Mahindra & Mahindra Ltd., which held that unutilized CENVAT credit cannot be directly added to the income of the assessee. The tribunal followed the ratio laid down by the Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd.

2. Treatment of Sales Tax Incentive as Capital Receipt:
The tribunal upheld the CIT(A)'s decision to treat the sales tax incentive as a capital receipt, relying on the decision in the case of Ambuja Cement Limited. The tribunal noted that the subsidy was for setting up industries in backward areas and was not for augmenting the profits of the assessee.

3. Deletion of Addition on Account of Interest Payment to SBI-Bahrain:
The tribunal dismissed the revenue's appeal, holding that payment to a foreign branch of an Indian bank is tantamount to payment made to an Indian company, and provisions of Section 195 are not applicable.

4. Deduction under Section 80IA for Power Plants:
The tribunal allowed the assessee's claim for deduction under Section 80IA for power plants, holding that the deduction attaches to the undertaking and not to the owner. The tribunal relied on various judicial precedents and CBDT circulars.

5. Deletion of Disallowance of Provision for Gratuity in Computing Book Profit under Section 115JB:
The tribunal upheld the CIT(A)'s decision to delete the addition of provision for gratuity while computing book profit under Section 115JB, relying on the decision in the assessee's own case for earlier years.

6. Deletion of Addition of Provision for Wealth Tax in Computing Book Profit under Section 115JB:
The tribunal upheld the CIT(A)'s decision to delete the addition of provision for wealth tax while computing book profit under Section 115JB, relying on the decision in the assessee's own case for earlier years.

7. Deletion of Addition of Provision for Leave Encashment in Computing Book Profit under Section 115JB:
The tribunal upheld the CIT(A)'s decision to delete the addition of provision for leave encashment while computing book profit under Section 115JB, relying on the decision in the assessee's own case for earlier years.

8. Deletion of Addition of VRS Expenditure in Computing Book Profit under Section 115JB:
The tribunal upheld the CIT(A)'s decision to delete the addition of VRS expenditure while computing book profit under Section 115JB, relying on the decision in the assessee's own case for earlier years.

9. Exclusion of Amount Withdrawn from Share Premium Account in Computing Book Profit under Section 115JB:
The tribunal upheld the CIT(A)'s decision to exclude the amount withdrawn from the share premium account while computing book profit under Section 115JB, relying on the decision in the assessee's own case for earlier years.

10. Disallowance under Section 14A:
The tribunal directed the Assessing Officer to restrict the disallowance under Section 14A to 1% of the exempt income, following the decision in the case of Ambuja Cement Limited.

11. Exclusion of Excise Duty Exemption as Capital Receipt:
The tribunal allowed the assessee's claim for exclusion of excise duty exemption as a capital receipt, following the decision in the case of Ambuja Cement Limited.

12. Additional Depreciation under Section 32(1)(iia):
The tribunal allowed the assessee's claim for additional depreciation under Section 32(1)(iia), following the decision in the case of Ambuja Cement Limited and other judicial precedents.

13. Validity of Reference to DVO for Determining Fair Market Value of Land:
The tribunal held that the reference to the DVO for determining the fair market value of land was not valid, following the decision of the Hon'ble Bombay High Court in the case of Puja Prints.

14. Apportionment of Indirect Head Office Expenses for Deduction under Sections 80IA/80IB/80IC:
The tribunal directed the Assessing Officer to allocate head office expenses on the basis of expenditure incurred by the units vis-à-vis overall expenditure, following the decision in the case of Ambuja Cement Limited.

15. Deduction under Section 80IA for Rail Systems:
The tribunal allowed the assessee's claim for deduction under Section 80IA for rail systems, following the decision in the case of Ultratech Cement Ltd. and other judicial precedents.

16. Exclusion of Profit on Sale of Fixed Assets in Computing Book Profit under Section 115JB:
The tribunal directed the Assessing Officer to recompute taxable long-term capital gains arising on the transfer of fixed assets after giving the benefit of indexed cost of acquisition while computing taxable profits under Section 115JB, following the decision of the Hon'ble Karnataka High Court in the case of Best Trading and Agencies Limited.

17. Addition of Expenditure Incurred in Relation to Exempt Income in Computing Book Profit under Section 115JB:
The tribunal allowed the assessee's claim, following the decision in the assessee's own case for earlier years.

18. Additional Ground for Deduction of BIS Marking Fees and Sales Tax on Payment Basis:
The tribunal admitted the additional ground and remitted the issue to the Assessing Officer for verification, following the decision of the Hon'ble Bombay High Court in the case of CIT v. Pruthvi Brokers & Share Holders Pvt. Ltd.

Conclusion:
The tribunal dismissed the revenue's appeal and partly allowed the assessee's appeals, providing relief on various grounds as discussed above.