2019 (2) TMI 2078 - AT - Income Tax

Tribunal Partially Allows Appeal, Directs Deductions

Raymond Limited Versus Addl. CIT, Range 2 (3), Aayakar Bhavana And (Vice-Versa)

The Tribunal partly allowed the appeal, remitting the disallowance under section 14A back to the A.O., and directing deductions under sections 35D and ... Disallowance of deduction u/s 14A - disallowance for interest on funds used for making the investment for earning the tax free income - HELD THAT:- As expounded that if the assessee has sufficient interest free funds to make the investment in tax free instrument, disallowance u/s. 14A cannot be done. Respectfully following the Hon'ble Jurisdictional High Court decision in the case of Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and CIT vs. HDFC Bank Ltd [2014 (8) TMI 119 - BOMBAY HIGH COURT] we remit the issue to the file of the A.O. to decide as per the Hon'ble Jurisdictional High Court’s decision as referred above. Deduction u/s. 35D - AO has disallowed the claim on the ground that the assessee has sold its Steel Division - HELD THAT:- We find that the ITAT on this issue vide order [2015 (12) TMI 1237 - ITAT MUMBAI] held that as perusal of section 35D shows that the Act is silent in the case when a unit is sold. There is no clause in the section which debars the assessee from claiming the expenses as a write off on sale of the undertaking. We, therefore, do not find any reason for declining the claim of the assessee - claim can be denied in the case of amalgamation and demerger but since the Act is silent in the case of sale of undertaking, in our understanding of the law, the Revenue authorities have erred in denying the claim. Decided in favour of assessee. Addition on account of annual value of the property - As per revenue determining the annual value @ 12% of the cost of land and building shall mean that the same annual value shall remain for eternity as the cost of the land and building will never change - HELD THAT:- As assessee’s contented that the direction should be given in accordance with the earlier year ITAT order that the annual value of the property should be 12% of the cost and the land and building, we note that it is the plea of the Revenue that making an annual value as a percentage of the cost of the land and building forever will lead to annual value fixed for eternity which can never be permitted. We find that the ITAT earlier had confirmed the same direction. The matter is already before the Hon'ble Jurisdictional High Court. We do not find any cogent reason to depart from the earlier order of the Tribunal in the assessee’s own case. Loss on compulsory conversion of u/s 64 - assessee submitted that the ITAT in the case of Schrader Duncan Ltd. [2012 (4) TMI 394 - ITAT MUMBAI] has dismissed the assessee’s appeal on similar issue and the Hon'ble Bombay High Court has admitted the said appeal - HELD THAT:- As we find that on the same issue, the ITAT has decided the case against the assessee and it is not the case that the Hon'ble Jurisdictional High Court has reversed the said decision. Respectfully following the same, we uphold the order of the ld. CIT(A). Deduction u/s. 80HHC - assessee has claimed deduction on DEPB - HELD THAT:- Assessee stated that this issue is covered in favour of the assessee by ITAT order for A.Y. 2003-04 and Topman Exports vs. CIT [2012 (2) TMI 100 - SUPREME COURT] - Decided in favour of assessee. Issues Involved:1. Disallowance under section 14A of the Income Tax Act, 1961.2. Deduction under section 35D.3. Determination of the annual value of the property under section 23.4. Treatment of loss on the compulsory conversion of units of US-64.5. Deduction under section 80HHC on Export Incentives.Analysis of the Judgment:1. Disallowance under section 14A:The Assessing Officer (A.O.) disallowed Rs. 3,21,73,680/- for interest on funds used for making investments that earned tax-free income, rejecting the assessee's claim of having sufficient interest-free funds. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance. However, the Tribunal found the A.O.'s argument unsustainable, referencing the jurisdictional High Court decisions in Reliance Utilities and Power Ltd. and CIT vs. HDFC Bank Ltd., which state that if an assessee has sufficient interest-free funds, disallowance under section 14A is not warranted. The Tribunal remitted the issue back to the A.O. for reconsideration in light of these precedents.2. Deduction under section 35D:The A.O. disallowed Rs. 60,00,150/- claimed under section 35D for preliminary expenses related to the Steel Division, which was sold. The CIT(A) upheld this disallowance. However, the Tribunal referred to its previous orders for assessment years 2003-04 and 2005-06, which allowed such deductions despite the sale of the unit, as section 35D does not explicitly prohibit the claim in such circumstances. The Tribunal directed the A.O. to allow the deduction.3. Determination of Annual Value of Property:The A.O. determined the annual value of the property at Rs. 3,60,21,880/- based on market rates, significantly higher than the Rs. 2,89,000/- declared by the assessee. The CIT(A) directed the A.O. to compute the annual value based on the standard rent as per the Rent Act, which the Tribunal upheld, following its previous decisions. The Tribunal rejected the Revenue's cross objection regarding the annual value determination, citing the significant delay in filing and lack of reasonable cause.4. Loss on Compulsory Conversion of Units of US-64:The A.O. disallowed the claimed loss of Rs. 6,89,82,716/- on the conversion of US-64 units into bonds, stating it did not constitute a transfer. The CIT(A) upheld this view. The Tribunal referenced a similar case (Schrader Duncan Ltd. vs. Addl. CIT), where the ITAT dismissed the appeal, and the Bombay High Court admitted the appeal. Following this precedent, the Tribunal upheld the CIT(A)'s decision.5. Deduction under section 80HHC on Export Incentives:The A.O. denied the deduction on DEPB and other export incentives, arguing the assessee did not meet the conditions under the third proviso to section 80HHC. The CIT(A) upheld this denial. The Tribunal, however, referred to the Supreme Court's decision in Topman Exports vs. CIT, which clarified that only the profit on transfer of DEPB, not the entire sale proceeds, is taxable. Following this precedent, the Tribunal allowed the deduction under section 80HHC.Conclusion:The Tribunal partly allowed the assessee's appeal, remitting the issue of disallowance under section 14A back to the A.O. and directing the allowance of deductions under sections 35D and 80HHC. The Tribunal upheld the CIT(A)'s decisions on the annual value of the property and the treatment of the loss on US-64 units, rejecting the Revenue's cross objection due to the significant delay in filing.