2019 (11) TMI 1717 - AT - Income Tax

Tribunal confirms deduction under Section 80IA, disallows Section 14A adjustment.

The Tribunal upheld the CIT(A)'s decisions in dismissing the revenue's appeals. It confirmed that the assessee was entitled to the additional deduction ... Deduction u/s 80IA - assessee made no such claim in its return u/s 139(1) which was mandatory in view of the provisions of section 80A(5) read with section 80AC - scope of revised return was filed u/s 139(5) - CIT-A deleted the addition - HELD THAT:- In this case, the assessee has filed a return u/s 139(1) within due date specified date, but the claim for deduction u/s 80IA, in respect of second unit was not made, however a revised return was filed u/s 139(5) within due date specified under the Act and made additional claim for deduction, in respect of second unit. When original return was filed within due date specified u/s 139(1), then any revised return filed within the due date specified u/s 139(5) to rectify any mistakes or omissions or wrong statements made in the return already filed u/s 139(1), then the revised return takes, the nature of the original return filed within due date specified u/s 139(1) and consequently, the assessee fulfills the conditions prescribed u/s 80AC of the Act, in order to be eligible for deduction u/s 80IA of the I.T. Act, 1961. CIT(A) after considering relevant facts has rightly deleted additions made by the AO towards disallowances of deduction claimed u/s 80IA - No reasons to interfere in the order of the Ld. CIT(A) and hence, we are inclined to uphold the findings of the Ld. CIT(A) and reject ground taken by the revenue. Addition u/s 14A - disallowance of expenditure incurred in relation to exempt income - HELD THAT:- We find that the Ld. DR for the revenue did not dispute the fact that there is no exempt income earned for the year under consideration. When there is no exempt income, the question of disallowance of expenditure incurred in relation to said exempt income does not arise. This legal proposition is supported by the decision of Hon’ble Bombay High Court in the case of CIT vs M/s. Ballarpur Industries [2016 (10) TMI 1039 - BOMBAY HIGH COURT] where it was categorically held that provision of section 14A would not apply, in case, there is no exempt income was received or receivable during the relevant previous year - Decided in favour of assessee. Re-computation of book profit u/s 115JB in respect of disallowance of expenditure incurred in relation to exempt income u/s 14A - HELD THAT:- We find that the Ld. CIT(A) has correctly deleted adjustments made by the AO to book profit computed u/s 115JB in respect of 14A disallowances by following the decision of M/S. BENGAL FINANCE & INVESTMENTS PVT. LTD. [2015 (2) TMI 1263 - BOMBAY HIGH COURT] where it was held that amount disallowed u/s 14A of the Act, cannot be added to arrive at book profit for purpose of section 115JB - Also VIREET INVESTMENT (P.) LTD. [2017 (6) TMI 1124 - ITAT DELHI] where it was held that computation under clause (f) of Explanation (1) to section 115JB(2) is to be made without resorting to computation as contemplated u/s 14A r.w.s. Rule 8D. We find that the finding of facts recorded by the Ld. CIT(A), in light of above two decisions is in accordance with law and does not called for any interference - Revenue appeal dismissed. Issues Involved:1. Disallowance of deduction claimed under Section 80IA of the Income Tax Act, 1961.2. Disallowance of expenditure incurred in relation to exempt income under Section 14A read with Rule 8D of the Income Tax Rules, 1962.3. Re-computation of book profit under Section 115JB of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Disallowance of Deduction Claimed under Section 80IA:The primary issue was whether the assessee was entitled to claim a deduction under Section 80IA for the Jaigarh unit in the revised return filed under Section 139(5), despite not making such a claim in the original return filed under Section 139(1). The Assessing Officer (AO) disallowed the additional claim of Rs. 11,28,18,375 on the ground that it was not made in the original return, citing Section 80A(5) read with Section 80AC, which mandates filing the return within the due date specified under Section 139(1) for claiming any deduction.The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the disallowance, holding that Section 80AC requires the filing of the return within the due date specified under Section 139(1) but does not stipulate that the claim must be made in the original return. The CIT(A) relied on several judicial precedents, including the ITAT Chennai Bench decision in ACIT vs Precot Meridian Limited, which clarified that a revised return filed under Section 139(5) to rectify any omission or wrong statement in the original return can take the character of the original return. Thus, the assessee was entitled to the additional deduction claimed under Section 80IA.The Tribunal upheld the CIT(A)’s decision, noting that the assessee had filed the original return within the due date specified under Section 139(1) and subsequently filed a revised return within the due date specified under Section 139(5), thereby fulfilling the conditions prescribed under Section 80AC.2. Disallowance of Expenditure Incurred in Relation to Exempt Income under Section 14A:The second issue was the disallowance of expenditure incurred in relation to exempt income under Section 14A read with Rule 8D. The AO made a disallowance of Rs. 13,30,85,624 under Rule 8D(2)(ii) & (iii), despite the assessee not earning any exempt income during the year.The CIT(A) deleted the disallowance, following the decision of the Hon’ble Delhi High Court in Joint Investment Pvt. Ltd. vs CIT, which held that disallowance under Section 14A cannot exceed the amount of exempt income earned. Additionally, the CIT(A) noted that no disallowance could be made under Section 14A in the absence of any exempt income, as supported by the Hon’ble Bombay High Court in CIT vs M/s. Ballarpur Industries Ltd. and the Hon’ble Supreme Court in CIT vs Chettinad Logistics Pvt. Ltd.The Tribunal affirmed the CIT(A)’s decision, emphasizing that when there is no exempt income, the question of disallowance of expenditure incurred in relation to such exempt income does not arise.3. Re-computation of Book Profit under Section 115JB:The final issue was the re-computation of book profit under Section 115JB in respect of disallowance of expenditure incurred in relation to exempt income under Section 14A. The AO made adjustments to the book profit by adding the disallowed expenditure under Section 14A.The CIT(A) deleted the adjustments, relying on the decision of the Hon’ble Bombay High Court in CIT vs Bengal Finance and Investments Pvt. Ltd., which held that the amount disallowed under Section 14A cannot be added to arrive at the book profit for the purpose of Section 115JB. The CIT(A) also referred to the ITAT Special Bench decision in ACIT vs Vireet Investment Pvt. Ltd., which stated that computation under clause (f) of Explanation (1) to Section 115JB(2) should be made without resorting to the computation under Section 14A read with Rule 8D.The Tribunal upheld the CIT(A)’s findings, concluding that the adjustments made by the AO to the book profit under Section 115JB were not warranted.Conclusion:The Tribunal dismissed the appeals filed by the revenue, upholding the CIT(A)’s decisions on all issues. The Tribunal confirmed that:1. The assessee was entitled to the additional deduction claimed under Section 80IA in the revised return.2. No disallowance under Section 14A could be made in the absence of exempt income.3. Adjustments to book profit under Section 115JB in respect of disallowance under Section 14A were not justified.