Tribunal Upholds Deduction Under Section 80IC and Disallows Additional Expenses

DCIT, Circle-18 (2), And DCIT, Circle-13 (1), New Delhi New Delhi Versus NIIT GIS Ltd.

DCIT, Circle-18 (2), And DCIT, Circle-13 (1), New Delhi New Delhi Versus NIIT GIS Ltd. - Tmi Issues Involved:

1. Deduction under Section 80IC of the Income Tax Act.
2. Disallowance of expenses under Section 14A of the Income Tax Act invoking Rule 8D.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IC of the Income Tax Act:

The Revenue's appeal (ITA No. 6500/Del/2014) contested the allowance of a deduction under Section 80IC amounting to Rs. 10,46,93,829/- by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Revenue argued that the deduction was previously disallowed in AY 2006-07 due to non-fulfillment of conditions regarding substantial expansion in the Parwanoo unit and that the assessee was not engaged in manufacturing activities. The CIT(A) had allowed the deduction by following the decision of his predecessor for AY 2006-07, which was in favor of the assessee. The Tribunal noted that similar issues had been resolved in favor of the assessee in previous years (AY 2006-07, 2007-08, and 2008-09) by the Tribunal itself, which had been upheld by higher courts, including the Supreme Court.

The Tribunal examined the CIT(A)'s detailed observations, which highlighted that the assessee's activity of producing ESRI software was considered as manufacturing, and substantial expansion was validated by the Director of Industries, H.P., certifying the increase in investment in plant and machinery. The Tribunal also referenced Section 80IC(6), which restricts deductions to a total period of 10 years, affirming that the assessee was eligible for the deduction for at least 5 years. Consequently, the Tribunal upheld the CIT(A)’s decision, dismissing the Revenue's grounds.

2. Disallowance of Expenses under Section 14A of the Income Tax Act Invoking Rule 8D:

The assessee's appeal (ITA No. 6561/Del/2014) challenged the disallowance of Rs. 14,97,616/- under Section 14A read with Rule 8D. The Assessing Officer (AO) had not accepted the assessee's suo motu disallowance of Rs. 2,65,537/- and instead computed a higher disallowance using Rule 8D. The CIT(A) upheld the AO's decision but allowed credit for the assessee's initial disallowance.

The Tribunal considered the assessee's argument that the AO had not properly recorded dissatisfaction with the assessee's disallowance computation, a prerequisite for invoking Rule 8D. The Tribunal also noted that the disallowance should not exceed the exempt income, referencing the Delhi High Court's decision in Joint Investment Pvt. Ltd. v. CIT, which stated that disallowance under Section 14A should not exceed the exempt income. Given that the assessee's disallowance exceeded the exempt dividend income, the Tribunal found no further disallowance necessary and deleted the additional disallowance upheld by the CIT(A).

Conclusion:

The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, thereby upholding the CIT(A)'s decision on the Section 80IC deduction and deleting the additional disallowance under Section 14A. The decision was pronounced on 30th August 2017.