2017 (4) TMI 1183 - AT - Income Tax

Tribunal grants relief on disallowance & deduction, remands weighted deduction issue for verification. Interest & penalty pending.

Banco Products Pvt. (India) Ltd. Versus The DCIT, Circle-1 (1), Vadodara

Banco Products Pvt. (India) Ltd. Versus The DCIT, Circle-1 (1), Vadodara - TMI Issues Involved:1. Disallowance under Section 14A of the Income Tax Act, 1961.2. Non-allowance of deduction under Section 80IA of the Income Tax Act, 1961.3. Disallowance of weighted deduction under Section 35(2AB) of the Income Tax Act, 1961.4. Charging of interest under Section 234B of the Income Tax Act, 1961.5. Charging of interest under Section 234D of the Income Tax Act, 1961.6. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act, 1961:The assessee challenged the disallowance of Rs. 3,19,784/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D. The AO observed that the assessee had received dividend income and long-term capital gains, both exempt under the Act, and thus invoked Section 14A to disallow the expenditure related to earning such exempt income. The assessee argued that substantial accruals were utilized for investments and objected to the disallowance. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the assessee did not maintain separate accounts for funds used for investments and did not allocate any interest towards exempt income. The Tribunal, after considering the totality of facts, excluded the interest component of Rs. 88,991/- and restricted the disallowance to Rs. 2,30,793/-, partly allowing the assessee's appeal.2. Non-allowance of deduction under Section 80IA of the Income Tax Act, 1961:The assessee contended that the issue was covered in its favor by previous decisions, including those of the ITAT Ahmedabad and the Hon'ble Gujarat High Court in the case of Alembic Ltd. The Tribunal noted that the issue of eligibility for deduction under Section 80IA(4) for generating power for captive consumption was already decided in favor of the assessee by the Gujarat High Court. The Tribunal followed the High Court's judgment, allowing the assessee's claim for deduction under Section 80IA(4) at the rate of selling price charged by the Gujarat State Electricity Board, and thus allowed this ground of the assessee.3. Disallowance of weighted deduction under Section 35(2AB) of the Income Tax Act, 1961:The AO rejected the assessee's claim for weighted deduction under Section 35(2AB) for the period before 01-04-2008, as the approval for the Research and Development (R&D) facility was effective from 01-04-2008 to 31-03-2010. The CIT(A) upheld the AO's decision, distinguishing the assessee's case from the Claris Life Sciences Ltd. case, where the approval was granted during the relevant assessment year. The Tribunal observed conflicting claims regarding the application date for approval and found it appropriate to remand the issue back to the AO for verification of facts and re-examination, providing due opportunities to the assessee.4. Charging of interest under Section 234B of the Income Tax Act, 1961:The issue of charging interest under Section 234B was not specifically detailed in the judgment. However, the Tribunal's decision on this matter implicitly followed the outcomes of the primary issues discussed.5. Charging of interest under Section 234D of the Income Tax Act, 1961:Similar to Section 234B, the specific details regarding the charging of interest under Section 234D were not elaborated. The Tribunal's decision on this matter was contingent on the primary issues.6. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961:The Tribunal did not provide specific details on the initiation of penalty proceedings under Section 271(1)(c). The resolution of this issue would depend on the final outcomes of the primary issues upon reassessment and verification by the AO.Conclusion:The Tribunal partly allowed the assessee's appeal, providing relief on the disallowance under Section 14A and fully allowing the deduction under Section 80IA. The issue regarding the weighted deduction under Section 35(2AB) was remanded back to the AO for further verification. The decisions on interest charges under Sections 234B and 234D, and the penalty proceedings under Section 271(1)(c), were dependent on the final outcomes of the reassessed primary issues.