2023 (11) TMI 322 - AT - Income Tax

Disallowance 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-à-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.