2013 (10) TMI 1403 - AT - Income Tax

ITAT Pune rules in favor of taxpayer on deduction eligibility, disallowance under IT Act, and claimed expenditure

Asstt. Commissioner of Income Tax, (Central) Circle, Kolhapur Versus Laxmi Civil Engg. Services Pvt. Ltd.,

The ITAT Pune dismissed the Revenue's appeal and allowed the assessee's appeal regarding eligibility for deduction u/s. 80IA(4) of the Income-tax Act, ... Deduction u/s. 80IA(4) claim allowed Disallowance u/s 14A - Held that:- Admittedly Rule 8D of the I.T. Rules is not applicable for the A.Y. 2008-09 and this legal position has been clarified by the Hon'ble High Court of Bombay in the case of Godrej and Boyce Mfg. Co. Ltd. Vs. DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT). Now the next question is whether there, any justification to apply Sec. 14A on the facts on this particular case. As per the record, the assessee’s interest free funds are more than the investment made in the shares of the subsidies. We, therefore, concur with the finding of the Ld. CIT(A) that there is no justification for making the disallowance at least in this year by invoking Sec. 14A of the Act. Deduction u/s. 80IA(4) - exemption u/s. 10A - Held that:- In the case of Gem Plus Jewellery India Ltd. (2010 (6) TMI 65 - BOMBAY HIGH COURT) the issue was in respect of computation of the profits and gains derived from export for the purpose determined the exemption u/s. 10A. In the said case, disallowance of the PF/ESIC payments had been made because of the statutory provisions i.e. Sec. 43B which was in respect of employer’s contribution and Sec.36(1)(v) r.w.s. 2(24) (x) in the case of employee’s contribution which have been deemed to be the assessee’s income. The Hon'ble High Court held that the disallowance was added back by the Assessing Officer which has increased in the business profits of the assessee and exemption u/s. 10A is allowable with reference to such enhanced income. We, therefore, following the principles laid down by the jurisdictional High Court in the case of Gem Plus Jewellery India Ltd. (supra) allow the plea of the assessee and direct the Assessing Officer to consider the said addition for the purpose of computing the deduction u/s. 80IA(4) of the Act. Issues:1. Eligibility for deduction u/s. 80IA(4) of the Income-tax Act2. Disallowance made under section 14A of the IT Act3. Disallowance of expenditure claimed by the assesseeIssue 1: The first issue revolves around the deduction claimed by the assessee as a developer u/s. 80IA(4) of the Income-tax Act. The Assessing Officer rejected the claim, referencing preceding years. However, the Ld. CIT(A) allowed the claim based on ITAT Pune's decision in the assessee's previous cases and a judgment by the Bombay High Court. The ITAT Pune upheld the Ld. CIT(A)'s decision, citing consistency with previous rulings and confirming the allowance of the deduction.Issue 2: The second issue concerns the disallowance made under section 14A of the IT Act. The Assessing Officer disallowed an amount citing the investment in a subsidiary company. However, the Ld. CIT(A) deleted the addition, emphasizing that Rule 8D of the IT Rules was not applicable for the assessment year 2007-08. The ITAT Pune concurred with the Ld. CIT(A)'s finding, dismissing the Revenue's appeal on this ground.Issue 3: The third issue pertains to the disallowance of expenditure claimed by the assessee. The Assessing Officer disallowed a portion of the claimed expenditure, which was upheld by the Ld. CIT(A). The ITAT Pune examined the matter and noted that the disallowances were made on an ad hoc basis. The ITAT Pune allowed the assessee's appeal, directing the Assessing Officer to consider the said addition for computing the deduction u/s. 80IA(4) of the Act, following the principles laid down by the jurisdictional High Court in a similar case.In conclusion, the ITAT Pune dismissed the Revenue's appeal while allowing the assessee's appeal, addressing the issues of deduction eligibility, disallowance under section 14A, and the disallowance of claimed expenditure comprehensively and in line with legal precedents and interpretations. The judgment was pronounced on 30-10-2013 by the ITAT Pune.