2019 (3) TMI 1666 - AT - Income Tax

Tribunal Partially Allows Revenue's Appeal, Limits Sec 14A Disallowance to Actual Exempt Income, Favors Assessee on Key Issues.

The Tribunal partially allowed the revenue's appeal. It upheld the disallowance of investments in Garware Chemicals Ltd. under Sec 14A, aligning with the ... Disallowance u/s 14A - HELD THAT:- While deciding the appeal for AY 2009-10 followed the decision of Hon’ble Supreme Court in Maxopp Investment [2018 (3) TMI 805 - SUPREME COURT] wherein it was held that investment made in group concern as strategical investment is also liable for disallowance under section 14A. Therefore, considering the decision of Hon’ble Supreme Court in Maxopp Investment (supra) this ground of appeal raised by revenue is allowed. Disallowance of interest expenses under Rule 8D - HELD THAT:- This ground of appeal is covered in favour of assessee in assessee’s own case for Assessment Year 2008-09 to 2011-12 no interest disallowance can be made u/s 14A of the Act when own funds of the assessee are sufficient to cover the value of investments for this purpose. Computing the book profit under section 115JB on disallowance under section 14A - HELD THAT:- This ground of appeal is covered by the decision of Tribunal in assessee’s own case for Assessment Year 2008-09 to 2011-12 and by the decision of Special Bench of Delhi Tribunal in Vireet Investment [2017 (6) TMI 1124 - ITAT DELHI]. Therefore, considering the decision of Special Bench which was followed in assessee’s own case for Assessment Year 2008-09 to 2011- 12, we do not find any merit in the grounds of appeal raised by revenue. Set off of unabsorbed depreciation pertaining to Assessment Year 2001-02 against the income of current year - HELD THAT:- This ground of appeal is also covered in favour of assessee and against the revenue by the decision of Assessment Year 2010-11, wherein find no infirmity in the order of the CIT(A) for allowing set off of unabsorbed depreciation pertaining to the A.Ys 1999-00 and 2000-01 similar view has been taken by the Delhi High Court in the case of Motor and General Fine Ltd., [2017 (5) TMI 637 - DELHI HIGH COURT]. Following the above reasons, we do not find any infirmity in the order of the Ld. CIT(A). Issues:1. Disallowance of investments made by the assessee in Garware Chemicals Ltd. under section 14A read with Rule 8D.2. Deletion of disallowance of interest expenses under Rule 8D.3. Ignoring CBDT Circular No. 5 of 2014 regarding disallowance under section 14A.4. Importing provisions of Sec 14A while computing book profit under section 115JB.5. Allowing set off of unabsorbed depreciation against current year's income.Analysis:1. Issue 1 - Disallowance of Investments:The appeal by the revenue challenges the direction to exclude investments in Garware Chemicals Ltd. while computing disallowance under section 14A. The Tribunal noted that the investment in a group concern is liable for disallowance under section 14A as per the decision of the Hon'ble Supreme Court in Maxopp Investment. Consequently, the ground of appeal by the revenue was allowed.2. Issue 2 - Deletion of Interest Expenses Disallowance:The ground related to deleting the disallowance of interest expenses under Rule 8D was considered in favor of the assessee. The Tribunal cited various judicial pronouncements to support the view that interest disallowance cannot be made when the assessee's own funds are sufficient to cover the value of investments. Therefore, the Tribunal found no merit in the revenue's grounds of appeal.3. Issue 3 - Ignoring CBDT Circular:Regarding the CBDT Circular No. 5 of 2014, the Tribunal held that no disallowance is necessary if there is no dividend income during the year. The Tribunal directed the Assessing Officer to restrict the disallowance under section 14A to the amount of exempt income earned by the appellant during the relevant year. The Tribunal found support for this contention in various judicial pronouncements and upheld the decision in favor of the assessee.4. Issue 4 - Computing Book Profit under Section 115JB:The ground concerning the computation of book profit under section 115JB on disallowance under section 14A was addressed by referring to the decision of the Special Bench of the Delhi Tribunal in Vireet Investment. The Tribunal found no merit in the revenue's grounds of appeal based on the decisions in the assessee's own case for the relevant assessment years.5. Issue 5 - Set Off of Unabsorbed Depreciation:The appeal also raised the issue of disallowance of set off of unabsorbed depreciation against the income of the current year. The Tribunal noted that this issue was covered in favor of the assessee by the decisions of the Bombay High Court and Gujarat High Court. The Tribunal upheld the order of the CIT(A) regarding the set off of unabsorbed depreciation, finding no infirmity in the decision.In conclusion, the Tribunal partly allowed the appeal by the revenue based on the detailed analysis and application of relevant legal principles and precedents.