ITAT Mumbai Judgments — June 2018

The tribunal held that the interest income earned on margin deposits, which were inextricably linked to the setting up of the power plant and obtaining credit facilities, should be reduced from the cost of the plant and was not taxable.

The tribunal held that the provision for leave encashment was not allowable as expenditure due to non-compliance with Section 43B(f). However, it allowed depreciation on capitalized expenditure made to a non-resident, as Section 40(a)(ia) is not applicable to capital expenditure.

The Tribunal found that the assessee held more than 10% shares and received a loan, fulfilling conditions for deemed dividend. The MOU's validity and whether the property was ultimately transferred needed further examination.

The Tribunal held that reimbursement of expenses would not constitute FTS as per Article 12 of the tax treaty, referencing a Supreme Court judgment on cost-sharing arrangements. The tribunal decided the ground related to executive search fees in favor of the assessee.

The Tribunal held that the AO was not authorized to make additions to MAT income under Section 154. Since the rectification order was quashed, the penalty order would not survive. The Tribunal also noted that penalty is not leviable in MAT matters for the year under consideration.

The Tribunal held that the unabsorbed depreciation had been fully adjusted against profits in earlier assessment years. Therefore, no unabsorbed depreciation was available for set-off in the current year, and the deduction claimed was rightly disallowed.

The Tribunal noted that the issue of deemed dividend addition was restored to the Assessing Officer for fresh adjudication in the assessee's own case for other assessment years. Therefore, the basis for the penalty no longer existed.

The Tribunal held that the PLI of net margin divided by marketing cost adopted by the TPO was not appropriate for determining the arm's length price of marketing cost. The matter was restored to the Assessing Officer for fresh adjudication.

The Tribunal held that the addition under Section 50C was made without referring the matter to the Valuation Officer. It also noted that the addition for bogus purchases was made without providing the assessee an opportunity to cross-examine the parties whose statements were relied upon by the AO.