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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI MAHAVIR SINGH, VP & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
, 2702, 2771 & 2772/Chny/2019 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member)
These are cross appeals for Assessment Years (AY) 2015-16 & 2016-17. The facts as well as issues are stated to be substantially the same. It is admitted position that all the issues are recurring issues and already adjudicated by Tribunal in earlier years. The Ld.AR placed on record ground-wise chart and submitted that the adjudication of earlier years may be followed. The Ld. CIT-DR could not controvert the same. Having heard rival submissions and after careful consideration of material facts, the appeals are disposed-off as under.
The appeals for AY 2015-16 arise against the order of learned Commissioner of Income Tax (Appeals)-9, Chennai [CIT(A)] dated 30- 07-2019 in the matter of an assessment framed by learned Assessing Officer u/s.143(3) on 18-12-2017. Ground No.1 of assessee’s appeal is general in nature. Ground Nos. 5 and 6 has not been pressed. The grounds to be adjudicated in assessee’s appeal are Ground Nos. 2,3 and 4 which read as under: - 2. The Commissioner of Income tax (Appeals) erred in confirming the disallowance under section 36(1)(iii) of the interest of Rs.1,70,05,044/ - capitalized in the books as being attributable to acquisition of fixed assets. 2.1 The Commissioner of Income tax (Appeals) erred in holding that the interest was corning within the purview of proviso to sec 36(1)(iii) of the Income Tax Act without considering the fact that the said sum represents interest on general borrowings and not on specific borrowings. 2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that the notional capitalization of Interest was done as per the requirement of AS 16 issued by ICAI and the said sum neither formed part of cost of acquisition of any specific fixed assets nor was covered by the proviso to Sec 36(1)(iii) of the Income Tax Act. 2.3 The Commissioner of Income tax (Appeals) ought to have appreciated that disallowance under section 36(1) (iii) can be of only interest actually incurred and is not applicable to notional interest capitalized to adhere to Accounting standards , 2702, 2771 & 2772/Chny/2019 2.4 without prejudice to the above contention the Commissioner of Income tax (Appeals) ought to have allowed the depreciation on the said sum since he has held it to be an interest paid in respect of the capita’ borrowed for acquisition of assets. 3 The Commissioner of Income tax (Appeals) erred in confirming the disallowance of weighted deduction claimed u/s 35(2AB) of Rs. 42,98,506/- being expenses incurred on in- house Research facilities merely based on amount certified by the DSIR without specifying the reason for such disallowance. 4.1 The Appellant submits that it had disallowed 0.5% of average investments of Rs. 1,36,181/- under section 14A r.w.r 8D(2)(iii) and the assessing officer has not recorded the reasons as to why the amount disallowed by the appellant was not reasonable 4.2 The Commissioner of Income tax (Appeals) erred in confirming the disallowance of proportionate interest expenditure of Rs.3.83 lakhs under Rule 8D(2)(ii), though the appellant has sufficient funds for making the investments. 4.3 The Appellant relies on the decisions of the Hon’ble Madras High Court In CIT Vs. Hotel Savera 239 ITR 195 and Gujarat High Court in CIT Vs Gujarat State Fertilizers a Chemicals Ltd 85 CCH 273 Guj HC and HDFC Bank Ltd reported in 366 ITR 505 (Bom) where it was held that no ad-hoc disallowance of expenditure u/s 14A was warranted where the assessee had sufficient funds available with it, which was more than the amount it invested for earning dividend income.
The same are adjudicated as under.
Disallowance of interest on acquisition of fixed assets u/s.36(1)(iii) The assessee capitalized interest of Rs.170.05 Lacs along with fixed assets but claimed the same as revenue expenditure for Income Tax Purposes. The Ld. AO disallowed the same u/s 36(1)(iii) and Ld. CIT(A) confirmed the same. We find that this issue has been decided against the assessee by Tribunal in & ors. Order dated 08.03.2023. The bench, in para-16, has directed Ld. AO to verify the claim of the assessee and allow depreciation as per law. Since facts are similar, we upheld the disallowance but direct Ld. AO to verify the claim of depreciation. This ground stand partly allowed. This issue arises in assessee’s appeal for AY 2016-17 also. Therefore, this ground stand similarly partly allowed for AY 2016-17 also.
ITA Nos.2701, 2702, 2771 & 2772/Chny/2019 4. Deduction u/s.35(2AB): The assessee claimed certain weighted deduction u/s.35(2AB). The Ld.AO restricted the deduction as specified by DSIR in Form 3CL and made addition of Rs.42.98 Lacs. The Ld.CIT(A) confirmed the same. We find that this issue has been decided by Tribunal against the assessee in & ors. order dated 08.03.2023. The bench, in para-10, upheld the disallowance. Taking similar view, the impugned disallowance is upheld. This issue arises in assessee’s appeal for AY 2016-17 also and the same stand disposed-off similarly.
Disallowance u/s.14A: The assessee offered disallowance in terms of Rule 8D(2)(iii) @0.5% of average investment. However, Ld. AO computed interest disallowance also in terms of Rule 8D(2)(ii) for Rs.3.83 Lacs. The Ld. CIT(A) upheld the same on the ground that the assessee could not establish that the borrowed funds were not utilized for the purpose of investment. It is the submission of Ld. AR that no fresh investments were made during the year and no borrowed funds were used to make the investment. The Ld. AO is directed to verify the same and re-adjudicate the issue of interest disallowance afresh. The ground stand allowed for statistical purposes.
Additional Grounds of Appeal
– Nature of Export incentive This is new claim made before us. The assessee submits that the export incentives received by it would be capital in nature and therefore, not taxable. Though we admit the additional ground, however, we find that this issue has been decided by the Tribunal against the assessee in ITA Nos. 1604/Chny/2019 & ors. order dated 08.03.2023. The bench, in para-21, held that such receipts would be revenue in nature. Taking , 2702, 2771 & 2772/Chny/2019 similar view, this ground stand dismissed. Similar additional ground has been raised in AY 2016-17 also and the same stand disposed-off accordingly. The assessee’s appeal for AY 2015-16 stands partly allowed.
7. Since no other ground has been pressed by the assessee in its appeal for AY 2016-17, the appeal for AY 2016-17 stand dismissed.
8. The grounds raised by the revenue in AY 2015-16 read as under: -
1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case.
2. The Learned CIT(A) has erred in allowing the assessee’s claim of loss on reinstatement (unrealized loss) relating to foreign currency working capital loan without appreciating the fact that the said the said allowance was upheld by the CIT(A) in the relied upon order in A.Y.2014-15.
3. The learned CIT(A) has erred in allowing the depreciation @ 60% on Printer, Scanners etc. which are not an integral part of Computer. Hence its eligible for depreciation @ 15% only.
4. The learned CIT(A) has erred and held that the disallowance u/s 14A cannot be added in the book profit u/s 115JB of the I.T. Act. 4.2 The learned CIT(A) has failed to appreciate the ruling in the case of DCIT Central Circle 18 and 19, Mumbai Vs Viraj Profiles Limited in 64 Taxmann.com 52(2015) (Mumbai- Trib) wherein it was held that AO has rightly disallowed the expenditure u/s 14A of the Act read with Rule 60 of the Income Tax Rules for computing book profit u/s. 115JB(2) of the Act read with clause (f) to Explanation to Section 115JB(2) of the Act.”
The same are adjudicated as under.
Loss on restatement of foreign currency working capital loan The assessee claimed loss on foreign exchange fluctuation. Such loss was incurred on forward contract cancellation and loss on packing credit in foreign currency loan and reinstatement of outstanding packing credit loan. The Ld. AO disallowed such losses on the ground that the same did not arise out of regular business transaction and therefore, the loss could not be allowed u/s 37. The assessee earned net gain of Rs.679.51 Lacs on forward contract cancellation. The realized loss on packing credit was debited to Profit & Loss Account for Rs.566.76 Lacs. The 2702, 2771 & 2772/Chny/2019 same was held to be allowable. However, unrealized loss for Rs.693.24 Lacs was held to be not allowable. Finally, the net differential of Rs.13.73 Lacs (Rs.679.51 Lacs – Rs.693.24 Lacs) was added to the income of the assessee. The Ld. CIT(A), considering Tribunal decision for AY 2012-13 as well as first appellate order for AY 2014-15, directed Ld. AO to verify, determine and allow the losses in accordance with directions issued in those orders. Aggrieved, the revenue is in further appeal before us. Upon perusal of para-23 of Tribunal order for AY 2012-13, ITA No.2395/Chny/2017 & ors. dated 11.10.2018, we find that Ld.AO was directed to verify whether the loss was debited in the Profit & Loss Account and decide the issue afresh. Similar directions were given in first appellate order for AY 2014-15. We find that pursuant to these directions, Ld. AO has passed order giving effect on 24.05.2023 wherein Ld. AO has allowed deduction of Rs.693.24 Lacs. We find that in the original assessment order, Ld. AO had made net addition of Rs.13.73 Lacs wherein in order giving effect, the deduction has been allowed to the extent of Rs.693.24 Lacs. Therefore, while confirming the adjudication of Ld. CIT(A) which merely follows earlier directions of the Tribunal, Ld. AO is directed to verify the figures and allow correct deduction as available to the assessee. The ground thus raised stand allowed to that extent. This issue arises in AY 2016-17 also and the same stand disposed-off accordingly.
Disallowance of higher depreciation on UPS, Printers & Scanners The assessee claimed higher depreciation of 60% on UPS, printers and scanners. However, Ld. AO restricted the same to 15% and made addition of Rs.2.90 Lacs. The Ld.CIT(A), following earlier appellate ITA Nos.2701, 2702, 2771 & 2772/Chny/2019 orders, directed Ld. AO to delete the disallowance. We find that this issue is covered in assessee’s favor by the decision of this Tribunal in & ors. order dated 08.03.2023. The bench, in para-27, held that the assessee would be entitled for higher depreciation. Taking consistent view, this ground stand dismissed in both the years.
Disallowance u/s.14A while computing Book-Profits u/s.115JB: The Ld. AO enhanced book profits u/s 115JB by additional interest disallowance of Rs.3.82 Lacs. The Ld. CIT(A) held that such an adjustment could not be made since the provisions of Sec.115JB was a separate code in itself. As per the provisions, the amount of expenditure relatable to any income to which Sec.10 apply, ought to be added to the book profit. Accordingly, Ld. AO was directed to verify whether the assessee had increase book profits to the extent of suo motu disallowance or not. We find that the adjudication of Ld. CIT(A) is in accordance with applicable legal position. Therefore, no interference is called for in the impugned order. The corresponding grounds raised
by the revenue stand dismissed. The revenue’s appeal for both the years stands partly allowed to the extent indicated in the order. Conclusion
12. The revenue’s appeal for both the years as well as the assessee’s appeal for AY 2015-16 stands partly allowed whereas the assessee’s appeal for AY 2016-17 stand dismissed.
Order pronounced on 14th July, 2023.