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2023 (11) TMI 533 - AT - Income TaxDisallowance u/s. 14A r.w.r. 8D(2) - HELD THAT - Re-work disallowance u/s.14A under rule 8D(2)(iii) on investment which has yielded exempt income. Unutilized CENVAT Credit - 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 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 AO to delete the addition made on account of unutilised MODVAT credit. Sales tax incentives received by assessee are rightly considered as Capital Receipts by CIT(A) both for the purposes of normal tax as well for the purposes of computation u/s.115JB of the Act and be excluded while computing taxable income. Allowability of pre-operative expenses as revenue expenses when in its books of accounts the assessee itself had claimed the expenses as capital expenses and added them to its capital work in progress /fixed assets - HELD THAT - As decided in own case in AY 2009-10 2022 (11) TMI 1420 - ITAT MUMBAI the short grievance raised before us by the Assessing Officer is whether, even when the expenditure is shown in the books of accounts, it can be treated as revenue in nature in our considered view, stands concluded in favour of the assessee.The fact that in the books of account the assessee had capitalised the expenses does not prevent the assessee from claiming them as revenue expenses since the question of allowance of expenses has to be considered in the light of the legal position and the accounting treatment cannot be conclusive. 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 on profit derived from power-generating unit-TG3 located at Wadi allowed - As deduction was granted for an initial assessment year, same could not be rejected for subsequent assessment years unless relief for initial year was withdrawn. Auditor s fee and director s remuneration (indirect expenses) should not be apportioned for computing deduction u/s 80IA - 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. 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. Disallowance u/s 14A cannot be made while computing book profit u/s.115JB of the Act. Expenditure incurred on club entrance fee and subscription fee is made to promote business interest is an allowable expenditure u/s 37(1). Deduction u/s 80-IA on captive power generating units by modifying the basis of determining the 'market value' of power captively consumed, adopted by the appellant - Where consideration paid for purchase of electricity from State Power Corporation represents the market rate on which any industry undertaking or consumer would be getting electricity, then such market rate should be applied as CUP for benchmarking transaction of sale of electricity. See Nectar Life science limited 2021 (9) TMI 1420 - ITAT DELHI As observed that while computing the output of the CPP, AO has excluded the transmission loss which was considered by assessee in their calculations but during the course of hearing before bench, assessee conceded the ground on the exclusion of the units lost in transmission for the purpose of computing the turnover of CPP. As observed that Ld AR has filed details regarding rate to be taken, such working was not available with the file of AO hence on this limited purpose of verification for the year under consideration, the AO is directed to verify the working as submitted by Ld AR and directed to consider the market value of power sold by CPP units at the Electricity rate at which CMM units at different location is purchasing electricity from SEBs as held/discussed by various courts. Deduction u/s.80IA on Rail Infrastructure to be allowed. Adjustment on account of CENVAT in the profits of the eligible units to be deleted. Disallowing claim of leave encashment - HELD THAT - Hon'ble supreme court in the case of UOI v. 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. Nature of expenditure - Write off of CWIP expenditure pertaining to referred projects which are part of existing business activity hence such expenditure is allowable expenditure. Addition of provision for leave encashment made while computing book profit u/s 115JB is deleted. 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. Amount transferred to Debenture Redemption Reserve cannot be added back while computing Book Profits. Not excluding capital profits being profit on sale of investments and profit of sale of fixed assets in the computation of book profits u/s 115JB - HELD THAT - As it is evident that the assessee will be entitled to indexed cost of acquisition while computing capital gains u/s 115JB of the Act. It is also to be noted that in the immediately preceding year Coordinate Bench has held that long term capital gains credited in the books of accounts is taxable to which even the Ld. AR fairly conceded subject to the decisions as relied supra. However, he claimed that the indexed cost of acquisition does not form part of income computed u/s 115JB of the Act. Respectfully following the ratio laid down in Best Trading and Agencies Limited 2020 (9) TMI 94 - KARNATAKA HIGH COURT is directed to recompute taxable long term capital gains arising on transfer of fixed assets after giving the benefit of indexed cost of acquisition while computing taxable profits u/s 115JB. Outstanding VAT disallowed u/s 43B on the basis of Tax Audit Report hence the same should be allowed on the payment basis - This issue needs verification and accordingly this issue is admitted and remitted back to the file of assessing officer verify the claim of the assessee as per law after giving opportunity of being heard to the assessee. Accordingly, the above additional ground is allowed for statistical purpose. Appeals filed by the revenue and assessee are partly allowed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Addition of unutilized CENVAT Credit. 3. Addition of premature payment of deferred sales tax at Net Present Value. 4. Exclusion of excise duty exemption in computing total income. 5. Disallowance of pre-operative expenses. 6. Claim of additional depreciation under Section 32(1)(iia). 7. Deduction under Section 80IA for profit derived from power-generating units. 8. Apportionment of indirect expenses for computing deduction under Section 80IA. 9. Addition of provision for normal gratuity in computing Book Profit under Section 115JB. 10. Addition of provision for wealth tax in computing Book Profit under Section 115JB. 11. Addition under Section 14A in computing Book Profit under Section 115JB. 12. Disallowance of club entrance fee. 13. Determination of 'market value' of power for deduction under Section 80IA. 14. Deduction under Section 80IA for infrastructure facility (Rail System). 15. Allocation of CENVAT credit for Section 80IA units. 16. Allocation of indirect Head Office expenses for Section 80IA and 80IC units. 17. Disallowance of leave encashment provision. 18. Exclusion of Sales Tax Incentive and Excise Duty Exemption benefits in computing Book Profit under Section 115JB. 19. Addition of provision for interest on income tax in computing Book Profit under Section 115JB. 20. Exclusion of capital profits in computing Book Profit under Section 115JB. 21. Deduction of outstanding Value Added Tax on payment basis. Detailed Analysis: 1. Disallowance under Section 14A: The Tribunal upheld the deletion of proportionate interest disallowance under Section 14A, observing that the Assessee had sufficient own funds. The disallowance of administrative expenditure was directed to be recomputed only on investments yielding exempt income during the year. 2. Addition of unutilized CENVAT Credit: The Tribunal deleted the addition of unutilized CENVAT Credit, following the decision in Mahindra & Mahindra Ltd., where it was held that such credit does not impact the profit irrespective of the accounting method used. 3. Addition of premature payment of deferred sales tax: The Tribunal allowed the Assessee's claim, stating that the sales tax incentives were capital receipts and should be excluded in computing total income under normal provisions and Section 115JB. 4. Exclusion of excise duty exemption: The Tribunal upheld the Assessee's claim that excise duty exemptions are capital receipts, following the principle that the purpose of the subsidy scheme determines its nature. 5. Disallowance of pre-operative expenses: The Tribunal allowed the Assessee's claim, holding that such expenses, related to the expansion of existing business, are revenue in nature and allowable. 6. Claim of additional depreciation: The Tribunal directed the Assessing Officer to allow additional depreciation under Section 32(1)(iia) for assets acquired post-01-04-2005, following the decision in Ambuja Cement Ltd. 7. Deduction under Section 80IA for power-generating units: The Tribunal upheld the Assessee's method of determining the market value of power at the rate charged by State Electricity Boards, following the decision in Reliance Industries Ltd. 8. Apportionment of indirect expenses: The Tribunal directed the allocation of indirect Head Office expenses based on expenditure incurred by the units vis-Ã -vis overall expenditure, ensuring correct profit computation for eligible units. 9. Addition of provision for normal gratuity: The Tribunal deleted the addition of provision for normal gratuity in computing Book Profit under Section 115JB, following the decision in the Assessee's own case for A.Y. 2004-05. 10. Addition of provision for wealth tax: The Tribunal deleted the addition of provision for wealth tax in computing Book Profit under Section 115JB, following the decision in the Assessee's own case for A.Y. 2004-05. 11. Addition under Section 14A in computing Book Profit: The Tribunal deleted the addition under Section 14A in computing Book Profit under Section 115JB, following the decision in Vireet Investments Pvt. Ltd. 12. Disallowance of club entrance fee: The Tribunal allowed the Assessee's claim for club entrance fees, following the decision in the Assessee's own case for A.Y. 2004-05. 13. Determination of 'market value' of power: The Tribunal directed the Assessing Officer to verify the Assessee's computation of market value of power based on the rate charged by State Electricity Boards, following the decision in Reliance Industries Ltd. 14. Deduction under Section 80IA for infrastructure facility (Rail System): The Tribunal allowed the Assessee's claim, holding that the rail systems developed under agreements with Indian Railways qualify as infrastructure facilities under Section 80IA. 15. Allocation of CENVAT credit: The Tribunal deleted the adjustment of CENVAT credit in the profits of eligible units, following the decision in Ambuja Cement Ltd. 16. Allocation of indirect Head Office expenses: The Tribunal directed the allocation of Head Office expenses based on expenditure incurred by the units vis-Ã -vis overall expenditure, ensuring correct profit computation for eligible units. 17. Disallowance of leave encashment provision: The Tribunal upheld the disallowance of leave encashment provision following the decision in UOI v. Exide Industries Ltd., allowing deduction on payment basis if not allowed earlier. 18. Exclusion of Sales Tax Incentive and Excise Duty Exemption: The Tribunal allowed the Assessee's claim, holding that these incentives are capital receipts and should be excluded in computing Book Profit under Section 115JB. 19. Addition of provision for interest on income tax: The Tribunal dismissed the Assessee's claim for excluding provision for interest on income tax in computing Book Profit under Section 115JB. 20. Exclusion of capital profits: The Tribunal directed the Assessing Officer to recompute taxable long-term capital gains after giving the benefit of indexed cost of acquisition while computing Book Profit under Section 115JB. 21. Deduction of outstanding Value Added Tax: The Tribunal remitted the issue back to the Assessing Officer to verify the claim of deduction of outstanding Value Added Tax on payment basis, allowing the additional ground for statistical purposes.
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