2018 (8) TMI 979 - AT - Income Tax

Tribunal rules in favor of assessee on disallowance under section 14A, upholds DRP's decision on miscellaneous disallowances.

M/s. Guajarat Guardian Ltd. Versus DCIT, Circle-12 (1), (Now Circle- 10 (2), New Delhi And Vice-Versa

M/s. Guajarat Guardian Ltd. Versus DCIT, Circle-12 (1), (Now Circle- 10 (2), New Delhi And Vice-Versa - TMI Issues Involved:1. Disallowance under section 14A of Rs. 90,44,496.2. Disallowance of engineering fees of Rs. 81,94,914.3. Disallowance under section 80IA(4)(IV) of Rs. 18,35,10,396.4. Miscellaneous disallowances including horticulture expenditure, computer supplies, software purchase, and security services.Issue-wise Detailed Analysis:1. Disallowance under section 14A of Rs. 90,44,496:The assessee argued that the investment in mutual funds was made out of its own surplus funds, and no borrowings were involved. The assessee had already disallowed Rs. 3,17,216 suo moto, attributing it to the salary of one accountant and a portion of the finance director's remuneration. The Assessing Officer (AO) applied Rule 8D without recording satisfaction regarding the correctness of the assessee’s claim, resulting in a disallowance of Rs. 90,44,496. The Tribunal found that the AO failed to record the necessary satisfaction as required under section 14A(2) and Rule 8D, and thus, the disallowance was deleted. The Tribunal referred to its decision in the assessee's own case for the assessment year 2009-10, emphasizing the need for the AO to point out discrepancies in the assessee's claim before invoking Rule 8D.2. Disallowance of engineering fees of Rs. 81,94,914:The assessee had incurred Rs. 5,85,35,098 as the second installment of engineering fees for cold tank repair, of which Rs. 81,94,914 was claimed as revenue expenditure and the rest capitalized. The AO treated the entire amount as capital expenditure. The Tribunal noted that a similar issue for the assessment year 2009-10 was remanded back to the AO for verification. Following the same reasoning, the Tribunal remanded the issue back to the AO to verify the nature of the expenditure and decide accordingly.3. Disallowance under section 80IA(4)(IV) of Rs. 18,35,10,396:The AO disallowed the deduction under section 80IA on the grounds that the assessee did not maintain separate books of accounts and failed to comply with the audit requirements. The assessee argued that it maintained separate books, which were duly audited, and revenue was recognized based on credit notes issued by the Gujarat Electricity Board. The Tribunal found that the AO rejected the claim without proper verification. The Tribunal also noted that the assessee's claim for deduction under section 80IA was allowed in previous years, invoking the principle of consistency. Consequently, the issue was remanded back to the AO for verification of the audited accounts and proper examination.4. Miscellaneous disallowances:The AO disallowed various expenditures, including horticulture expenses, computer supplies, software purchase, and security services, treating them as capital expenditure. The Tribunal referred to its decisions in the assessee's own case for the assessment years 2007-08 and 2008-09, where similar disallowances were deleted. The Tribunal upheld the directions of the Dispute Resolution Panel (DRP) to delete these disallowances, finding no reason to deviate from its earlier decisions.Conclusion:The appeals were disposed of with the Tribunal allowing the assessee's appeal on the disallowance under section 14A and remanding the issues of engineering fees and section 80IA deduction back to the AO for verification. The revenue's appeal against the DRP's directions on miscellaneous disallowances was dismissed.