2018 (2) TMI 171 - AT - Income Tax

Tribunal allows deduction claim under Section 80IA, upholds deletion of disallowance under Section 40A(2)(b) and Section 14A.

The Tribunal allowed the assessee's claim for deduction under Section 80IA, stating that both the original and revised returns were filed within the ... Addition u/s 14A - Held that:- The assessee’s claim should be allowed in view of the binding judgments of the Hon’ble Bombay High Court in the case of HDFC (2014 (7) TMI 724 - BOMBAY HIGH COURT ) and Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT) and existence of “interest free own funds” of the assessee, the assessee should be given relief on the amount of ₹ 8,43,096/-. Thus, Ground No.2 raised by the assessee is allowed. Attracting the provisions of section 40A(2)(b) - Held that:- CIT(A) held that the disallowance of ₹ 40 lakhs is almost three times of gross margin allowed by that assessee which cannot be held to be justified. The correlation drawn by the AO to the PF deductions was also not approved by the CIT(A). For want of comparable cases to be brought on record by the AO, the CIT(A) deleted the addition. We find the order of the CIT(A) is fair and reasonable and it does not call for any interference. The same is the finding of CIT(A) for A.Y. 2011-12. In both the assessments, AO has not brought any comparables from the market to make out that the current payment is excessive and unreasonable within the meaning of section 40A(2)(b). We therefore uphold the order of CIT(A) for both the years and dismiss the relevant grounds raised by the revenue for both the assessment years, i.e. A.Yrs. 2010-11 and 2011-12. Invoking the provisions of section 80IA(5) - Held that:- As decided in Serum International Ltd. [2013 (1) TMI 688 - ITAT PUNE] when the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee - no notional brought forward and set off against the profits of the eligible business as no such mandate is provided in section 80-IA(5). When the assessee exercises the option, only the losses of the years beginning from the initial A.Y. are to be brought forward and not the losses of the earlier years which have been already set off against the income of the assessee. As DR has not brought to the notice of the Bench any decision contrary on the issue in question it is to be held that the assessee is eligible for claim of deduction u/s 80-IA for the year under consideration in a manner whereby the initial assessment year referred to in section 80-IA(5) is to be taken as the A.Y. 2004-05 as the assessee has opted to claim this deduction only in this assessment year - Decided in favour of assessee. Issues Involved1. Allowability of deduction under Section 80IA of the Income Tax Act claimed through filing of a revised return.2. Correctness of disallowance made by the Assessing Officer (AO) under Section 40A(2)(b) of the Income Tax Act.3. Correctness of disallowance made under Section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax Rules.Issue-wise Detailed Analysis1. Allowability of Deduction under Section 80IA of the Income Tax Act Claimed through Filing of a Revised ReturnThe assessee filed a revised return claiming a deduction under Section 80IA(4) amounting to Rs. 77,62,555, which was not claimed in the original return. The AO denied this deduction based on a literal interpretation of Section 80AC, which mandates that deductions are allowed only if the return is filed within the time specified under Section 139(1). The assessee argued that the revised return filed under Section 139(5) should be considered valid for claiming the deduction.The Tribunal found that similar cases had been decided in favor of the assessee, where the courts allowed deductions claimed through revised returns. The Tribunal cited decisions from the Chennai Bench and the Allahabad Bench, which supported a liberal interpretation of Section 80AC. Consequently, the Tribunal allowed the assessee's claim for the deduction under Section 80IA, stating that both the original and revised returns were filed within the stipulated time.2. Correctness of Disallowance Made by the AO under Section 40A(2)(b) of the Income Tax ActThe revenue appealed against the CIT(A)'s decision to delete the disallowance of Rs. 40 lakhs for A.Y. 2010-11 and Rs. 15 lakhs for A.Y. 2011-12 under Section 40A(2)(b). The AO had disallowed these amounts on the grounds that the payments made to a related party were excessive. The CIT(A) found that the AO did not provide sufficient evidence or comparable market rates to justify the disallowance. The CIT(A) noted that the disallowance was almost three times the gross margin allowed by the assessee and deemed it unjustified.The Tribunal upheld the CIT(A)'s decision, agreeing that the AO had not brought any comparables from the market to substantiate the claim that the payments were excessive. The Tribunal found the CIT(A)'s order to be fair and reasonable and dismissed the revenue's appeal on this issue for both assessment years.3. Correctness of Disallowance Made under Section 14A of the Income Tax Act read with Rule 8D(2) of the Income Tax RulesThe assessee contested the disallowance of Rs. 8,43,096 made under Section 14A read with Rule 8D(2) on account of interest. The assessee argued that it had sufficient interest-free own funds to cover the investments, citing judgments from the Bombay High Court in the cases of CIT vs. HDFC Bank Ltd. and CIT vs. Reliance Utilities and Power Ltd., which established a presumption in favor of the assessee when interest-free funds exceed the investments.The Tribunal agreed with the assessee, noting that the financial statements showed sufficient interest-free funds. It allowed the assessee's claim for relief on the disallowed amount of Rs. 8,43,096, based on the binding judgments of the jurisdictional High Court.Conclusion- The assessee's appeal for A.Y. 2010-11 was partly allowed, with the Tribunal permitting the deduction under Section 80IA and providing relief on the disallowance under Section 14A.- The revenue's appeals for A.Y. 2010-11 and A.Y. 2011-12 were dismissed, with the Tribunal upholding the CIT(A)'s decision to delete the disallowances made under Section 40A(2)(b) and Section 80IA(5).