2017 (12) TMI 60 - HC - Income Tax

Court affirms ITAT decisions on tax matters, dismisses appeals, no substantial question of law

The court upheld the ITAT's decisions in favor of the appellant, dismissing the appeals and affirming the deletions of additions made by the AO under ... Disallwoance u/s 14A - Held that:- Assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities. This factual position is not one that is disputed. In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT), it would have to be presumed that the investment made by the Assessee would be out of the interest-free funds available with the Assessee - Decided in favour of assessee. Issues Involved:1. Justification of ITAT in deleting the addition under Section 14A read with Rule 8D.2. Justification of ITAT in deleting the addition under Section 80IA.3. Justification of ITAT in deleting the addition on account of disallowance of VAT reimbursement.Issue-wise Detailed Analysis:1. Justification of ITAT in Deleting the Addition under Section 14A read with Rule 8D:The appellant challenged the deletion of additions made by the Assessing Officer (AO) under Section 14A read with Rule 8D, amounting to Rs. 39,82,710/- and Rs. 53,27,138/- in Appeal Nos. 297/2017 and 299/2017 respectively. The court referenced the decision in 'Godrej & Boyce MFG. Co. Ltd. vs. Deputy Commissioner of Income Tax & anr.' where the Supreme Court confirmed that for Section 14A(1) to apply, there must be proof that the expenditure sought to be disallowed was actually incurred in earning dividend income. The court noted that the AO failed to establish a nexus between the disallowed expenditure and the earning of dividend income. The court also cited 'CIT vs. Reliance Utilities & Power Ltd.' and 'CIT vs. HDFC Bank Ltd.' which supported the principle that if there are sufficient interest-free funds available, it is presumed that investments are made from those funds. The court concluded that the ITAT was justified in deleting the additions as the AO did not satisfactorily demonstrate the expenditure's connection to earning tax-free income.2. Justification of ITAT in Deleting the Addition under Section 80IA:The appellant contested the deletion of additions made by the AO under Section 80IA, amounting to Rs. 26,52,569/- in Appeal No. 297/2017. The court referenced its previous decision in 'The Commissioner of Income Tax, Alwar vs. M/s. Deepak Vegpro Pvt. Ltd.' where it was held that the income earned from certain operations qualifies for exemption under Section 80IA. The court noted that the assessee's activities, including power generation from windmills, were consistent with those in previous years where similar exemptions were granted. Thus, the court upheld the ITAT's decision to delete the addition, affirming that the assessee was entitled to the benefits under Section 80IA.3. Justification of ITAT in Deleting the Addition on Account of Disallowance of VAT Reimbursement:The appellant disputed the deletion of additions made by the AO on account of VAT reimbursement, amounting to Rs. 1,00,45,602/- and Rs. 1,63,56,577/- in Appeal Nos. 297/2017 and 299/2017 respectively. The court reiterated its stance from 'The Commissioner of Income Tax, Alwar vs. M/s. Deepak Vegpro Pvt. Ltd.' and other relevant judgments, emphasizing that VAT reimbursements are legitimate claims and should not be disallowed if they are in line with the statutory provisions. The court found that the AO's disallowance lacked a substantive basis and that the ITAT correctly deleted the additions, recognizing the assessee's rightful claim for VAT reimbursement.Conclusion:The court dismissed the appeals, affirming the ITAT's decisions in favor of the assessee. The court found no substantial question of law arising from the issues presented, thereby upholding the deletions of the additions made by the AO under Sections 14A, 80IA, and on account of VAT reimbursement.