Tribunal allows assessee's cross-objections, overturns disallowances, and clarifies deductions.

Asstt. Commissioner of Income Tax Versus Ltd. Cir. 8 (1), New Delhi Versus SIL Investment Ltd. (Formerly Sutlej Industries Ltd.), and vice-versa

Asstt. Commissioner of Income Tax Versus Ltd. Cir. 8 (1), New Delhi Versus SIL Investment Ltd. (Formerly Sutlej Industries Ltd.), and vice-versa - [2012] ... Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance of fines and penalties.
3. Verification and exclusion of interest income from UTI.
4. Allowance of additional depreciation.
5. Deduction under Sections 80IA/80IB of the Income Tax Act.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:
The Assessing Officer (AO) disallowed Rs. 2,08,83,181/- under Section 14A, attributing expenses to income exempt under Section 10. The AO applied Rule 8D retrospectively, which was contested by the assessee. The CIT(A) restricted the disallowance to Rs. 16,54,531/-, considering the demerger of the Textile Division and the transfer of interest-bearing liabilities to the resulting company, STIL. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to establish a nexus between borrowed funds and tax-free investments, and Rule 8D was not applicable retrospectively as per "Godrej & Boyce Manufacturing Co. Ltd. v. DCIT."

2. Disallowance of fines and penalties:
The AO disallowed Rs. 5,000/- for fines related to traffic violations. The CIT(A) deleted this disallowance, following the Tribunal's decision for the assessment year 1990-91, which allowed similar expenses. The Tribunal upheld the CIT(A)'s decision, confirming the deletion of the disallowance.

3. Verification and exclusion of interest income from UTI:
The AO was directed by the CIT(A) to verify the claim of the assessee regarding the exclusion of interest income from UTI and allow the balance 50% of additional depreciation. The Tribunal found the CIT(A)'s directions proper, emphasizing the need for factual verification. The Tribunal rejected the Department's appeal on this ground, confirming the CIT(A)'s directions.

4. Allowance of additional depreciation:
The AO refused additional depreciation for plant and machinery installed in the preceding year. The CIT(A) directed the AO to verify the claim and allow the balance 50% of additional depreciation if found correct. The Tribunal upheld the CIT(A)'s directions, noting that the eligibility for deduction was admitted since 50% was already allowed in the previous year.

5. Deduction under Sections 80IA/80IB of the Income Tax Act:
The AO disallowed the deduction for the pre-demerger period, stating it was allowable only to the resulting company under Section 80IA(12). The CIT(A) upheld this view. The Tribunal, however, found that the deduction related to the eligible undertaking and transferred with it, as clarified by CBDT Circular No. 15/5/63. The Tribunal held that the deduction should be allowed for the profits earned by the undertaking during the pre-demerger period, as claimed in the Notes to the return of income, and allowed the assessee's cross-objection.

Conclusion:
The Tribunal dismissed the Department's appeal and allowed the assessee's cross-objections, confirming the CIT(A)'s decisions on disallowance under Section 14A, fines and penalties, and additional depreciation, while overturning the disallowance under Sections 80IA/80IB for the pre-demerger period.