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2013 (9) TMI 567 - AT - Income TaxDeemed Payment of Sales Tax u/s 43B - Notional sales tax/ sales tax subsidy received under schemes by Government - Capital receipt OR Revenue Receipt - Held that:- The claim for treatment of notional sales tax was capital receipt - Following DCIT V.Reliance Industries Limited. [2003 (10) TMI 255 (Tri)] it was held that claim for treatment of notional sales tax was capital receipt, thus not liable to tax - Further, CIT(A) had rightly held that it was not necessary to go into the alternative plea of the assessee as claiming the notional sales tax as deductible u/s 43B - Decided in favor of assessee. Disallowance of Interest - dis-allowance of interest being interest referable to interest free loans and advances given to subsidiary companies - Held that:- Following Reliance Utilities & Power Ltd.[2009 (1) TMI 4 (HC)] - if interest free funds available to an assessee was sufficient to meet its investment, it can be presumed that the investments were made from the interest free funds available with the assessee - Therefore, considering the fact that assessee had its own funds more than loans given to its subsidiaries and also in absence of any nexus establishing that interest bearing borrowed funds were given as interest free to its subsidiaries - dis-allowance of interest was not justified - interest was allowable u/s 36(1)(iii) of the Act. Disallowance of Administrative Expenses u/s 14A - Dis-allowance u/s 14A of estimated expenses out of administrative expenses being expenditure incurred in relation to earning the exempt income u/s 10(33) and 10(23G) - Held that:- Assessee's own funds were far in excess than the investments made by the assessee giving exempt income, dis-allowance of interest was not justified as it had to be presumed that investments had come from interest free funds available with assessee - assessee was allowed in part by restricting disallowance towards administrative and general expenses u/s 14A of Act towards earning of exempt income u/s 10(23G) while computing total taxable income under normal provisions of Act - However, no disallowance u/s 14A be considered while computing book profit u/s 115JB of the Act - Decided partly in favor of assessee. Disallowance u/s 80HHC – Deduction u/s 80HHC under provisions of section 115JB - Held that:- Exclusion of gross interest or net interest - 90% of net interest expenses have to be considered while computing deduction u/s 80HHC - ACG Associated Capsules Pvt. Ltd. vs. DCIT[2012 (2) TMI 101 (SC)] - CIT(A) erred in confirming restriction of eligible export profit u/s 80HHC(3) of Act by applying provisions of section 80HHC(1B) of Act for computing book profit u/s 115JB - CIT(A) erred in holding that all provisions of section 80HHC of the Act applied while reducing book profits by eligible amount of export profit u/s 115JB - Decided in favor of assessee. Exclusion of profit allowed as deduction u/s 80IA/ 80IB with reference to all(exporting and non-exporting) units while arriving at deduction u/s 80HHC - assessee contended that exclusion should be restricted to export units with reference to which claim u/s 80 HHC was worked out - Held that:- When deduction u/s 80 HHC was to be considered, it was to be allowed in proportion to export turnover to total turnover of an undertaking and accordingly that proportion of deduction allowed u/s 80 HHC was to be considered and reduced while allowing deduction u/s 80 IA of those three exporting units subject to the condition that total deduction will not exceed the eligible profits of the undertaking - entire deduction allowed u/s 80 IA / 80 IB should not be reduced while computing deduction u/s 80 HHC - claim of export profits of these three units u/s 80 HHC should be reduced while allowing deduction u/s 80 IA in proportion of export turnover to total turnover - Decided in favor of assessee. Dis-allowance of expenses on account of traveling of spouse of executives - Held that:- Assessee had not been able to establish that above expenses pertaining to wives/family members of the executives was necessary for purpose of the business - such expenditure was dis-allowed - Decided against the assessee. Disallowance of Depreciation - Restriction of depreciation claimed - assessee didn't claimed depreciation in earlier years thus claimed depreciation on WDV whereas Revenue after considering depreciation for earlier years reduced WDV, thereon restricted depreciation - Held that:- Claim of depreciation prior to insertion of clause 5 to section 32(1), inserted w.e.f. 1/4/2002 as applicable from A.Y 2002-03, was optional and depreciation could not be thrust upon the assessee - Decided in favor of assessee. Disallowance u/s 92C - Transfer pricing - Working of 'Cost plus' method followed by TPO was in dispute - Held that:- A perusal of workings clearly demonstrated that TPO had taken 50% of total cost and whereas the assessee had taken actual cost relating to charter hire activity - This had made a difference to the calculation of cost - Actuals have to be taken to arrive at the correct cost and only then cost plus method can be applied - Cost plus method does not contemplate estimation of cost - When actual figures were replaced in the calculation made by TPO, then, no adjustment was called for as the payment was at arm’s length price - Decided in favor of assessee. Pre-operative Expenses - Held that:- Pre-operative expenses in question have been incurred for the purpose of business of assessee and expenditure was incurred for expansion of its existing activities - these preoperative expenses represent revenue expenditure incurred for purpose of business and be allowed as deduction u/s 37. MAT - Disallowance by increasing the Book Orofit u/s 115JB - Revenue contending adding back of provision for doubtful debts while computing profits u/s 115JB - Held that:- Considering amendment made by finance (No.2) Act 2009 with retrospective effect from 1/4/2001 by inserting clause “ i ” in Explanation -1 to section 115JB the issue was to be decided against the assessee and thus addition made by AO was restored. Commission to Associate – Held that:- CIT(A) had rightly deleted the adjustment made by AO in respect of transaction entered into by the assessee with its associated enterprises REL - similar adjustment made by AO in the preceding assessment year 2002-03 were deleted by CIT(A) and the department did not dispute the said order of CIT(A) in appeal before the Tribunal.
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