2014 (2) TMI 431 - AT - Income Tax

Tribunal rules on Income Tax Act sections, remits 80IB issue for reconsideration, dismisses ISO subsidy appeal.

DCIT, Mehsana Circle, Mehsana Versus Devikrupa Specific Family Trust, Prop. of Bhoomi Print Pack

The Tribunal allowed the assessee's appeal partly, directing the deletion of the disallowance under Section 14A of the Income Tax Act. The matter ... Disallowance of interest u/s 14A of the Act – Held that:- The details of the investment made by the Assessee are also reproduced by CIT in his order - no amount of interest has been disallowed in earlier years and further no borrowed funds were used for the purpose of investments as the Assessee was having sufficient interest free funds – Relying upon CIT vs. Reliance Utilities Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - if interest free funds available to an Assessee are sufficient to meets its investment and at the same time the Assessee has raised the loan, it can be presumed that the investments were from interest free funds available with the Assessee - nothing has been brought on record by Revenue to demonstrate that interest bearing funds have been used by Assessee to make investments - no disallowance in is called for and the deletion of disallowance made by AO directed – Decided in favour of Assessee. Deduction u/s 80IB of the Act - Freight receipt income – Held that:- Assessee neither submitted the details before A.O. or CIT(A) - assessee has not given any reason for non submission of the details before the lower authorities –thus, one more opportunity be given to the Assessee to present before A.O. the required details in support of its claim deduction under section 80IB – Matter remitted back to the AO for adjudication. Issues Involved:1. Status of the assessee as an individual versus an Association of Persons (AOP).2. Disallowance under Section 14A of the Income Tax Act.3. Deduction under Section 80IB of the Income Tax Act for job charges and other income.4. Deduction under Section 80IB for freight receipt income.5. Deduction under Section 80IB for subsidy received from customs authority for ISO certification.Detailed Analysis:1. Status of the Assessee:The Revenue contended that the status of the assessee should be treated as an Association of Persons (AOP) rather than an individual. The CIT(A) had directed to treat the status of the assessee as an individual. However, this specific issue was not elaborated upon in the judgment.2. Disallowance under Section 14A:The Assessing Officer (A.O.) noticed that the assessee had investments in shares of Nirma Ltd., generating exempt income, and had incurred interest expenses. The A.O. disallowed a proportionate interest amount under Section 14A, which was upheld by the CIT(A). The CIT(A) referenced the ITAT Special Bench's decision in Daga Capital Management, stating that Rule 8D is mandatory and applicable to all pending assessments. The assessee argued that no borrowed funds were used for these investments, and the investments were made in earlier years. The Tribunal, referencing the decisions of the Bombay High Court in CIT vs. Reliance Utilities Power Ltd. and the Gujarat High Court in CIT vs. Gujarat Industrial Development Corporation Ltd., concluded that no disallowance was warranted as the investments were made from interest-free funds. Thus, the Tribunal directed the deletion of the disallowance made by the A.O.3. Deduction under Section 80IB for Job Charges and Other Income:The A.O. disallowed the deduction under Section 80IB as the assessee did not specify the sub-section under which the deduction was claimed. The CIT(A) partially upheld the A.O.'s decision but allowed job charges and certain other incomes to be included in the eligible profits. The Tribunal noted that similar issues were adjudicated in the assessee's favor in earlier years and directed the A.O. to verify and include job charges and other eligible incomes in the deduction calculation.4. Deduction under Section 80IB for Freight Receipt Income:The A.O. disallowed the deduction for freight receipt income under Section 80IB due to lack of details. The CIT(A) directed the A.O. to verify if the freight receipts were reimbursements of freight expenses. The Tribunal upheld this direction, allowing the assessee another opportunity to submit the necessary details to the A.O. for verification. The Tribunal emphasized that the assessee must promptly provide the required details, failing which the A.O. could proceed based on the available material.5. Deduction under Section 80IB for Subsidy Received from Customs Authority:The assessee did not press this ground due to the smallness of the amount involved (Rs. 23,500). Consequently, this ground was dismissed as not pressed.Conclusion:The Tribunal allowed the appeal of the assessee and the Revenue partly for statistical purposes. The Tribunal directed the deletion of the disallowance under Section 14A and remitted the matter regarding the deduction under Section 80IB for freight receipt income to the A.O. for fresh adjudication. The Tribunal emphasized the need for the assessee to provide the necessary details promptly. The appeal for the subsidy received for ISO certification was dismissed as not pressed.