2019 (6) TMI 163 - AT - Income Tax

Tribunal upholds CIT(A)'s decisions, dismissing Revenue's appeals for assessment years 2011-12 & 2012-13.

The DCIT, Circle-4, Chandigarh Versus M/s Aarti Steels Ltd., G.T. Road, Miller Ganj, Ludhiana

The Tribunal dismissed all appeals of the Revenue, upholding the CIT(A)'s decisions for the assessment years 2011-12 and 2012-13. The Tribunal found no ... Deduction claimed u/s 80IA - allocation of expenses - HELD THAT:- CIT(A) rightly held that there was no justification on the part of the Assessing officer to disallow the entire claim of deduction claimed by the assessee. If the Assessing officer was of the view that the assessee had exaggerated the profits of the units eligible for deduction u/s 80IA , at the most, he could have allocated some part of the profits to non eligible units but without making any such exercise, he disallowed the entire claim of deduction. The Ld. CIT(A) has also observed that even otherwise though the profits of the eligible units were at ₹ 59.29 crores, however, since the gross income of the assessee from all units was at ₹ 25.60 crores, the claim was restricted to that extent. The Ld. CIT(A) observed that any minor variation in the profits of the eligible units would not make any difference. Even otherwise, if the profits of the eligible units are to be computed on turn over basis, the resultant effect will be the enhancement of the profits than that has been declared by the assessee. - Decided against revenue Addition u/s 14A r.w. Rule 8D - expenditure incurred for earning of tax exempt dividend income - CIT(A) restricted the disallowance u/s 14A to the extent of tax exempt income - HELD THAT:- disallowance u/s 14A cannot exceed the tax exempt income earned by the assessee. See WINSOME TEXTILE INDUSTRIES LTD. [2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT] and CHEMINVEST LIMITED [2015 (9) TMI 238 - DELHI HIGH COURT]. Disallowance of notional interest u/s 36(1)(iii) - investment made on CWIP - HELD THAT:- We find from the chart that in the year under consideration the paid up capital of the assessee for the year under consideration was at ₹ 10.42 crores, reserves and surplus at ₹ 297 crores and apart form that profit during the year was of ₹ 101 crores totalling ₹ 408 crores. Apart from the aforesaid work in progress, the total investments of the assessee at the end of the year was at ₹ 6.36 crores. The total amount incurred by the assessee on investments as well as capital work in progress is a meager amount as compared to the own funds available with the assessee. The issue is now squarely covered by the various decisions of the High Courts including that of the decision of CIT Vs. Kapsons Associates’ [2015 (8) TMI 1277 - PUNJAB AND HARYANA HIGH COURT] and the latest decision of the Coordinate Bench of the Tribunal in the case of ACIT Vs. Janak Global Resources Pvt Ltd [2018 (12) TMI 902 - ITAT CHANDIGARH] holding that that if the assessee is possessed of sufficient own interest free funds to meet the investments / interest free advances, then, under the circumstances, presumption will be that interest free advances / investments have been made by the assessee out of own funds / interest free funds There is no basis to apply the presumption that the assessee might have used the borrowed funds for CWIP, when as noted above, the assessee was possessed sufficient own funds. - Decided in favour of assessee Disallowance of interest u/s 14A r.w. Rule 8D - HELD THAT:- So far as the disallowance in respect of interest expenditure under Section 14A r.w. Rule 8D(2)(ii) is concerned, since the assessee was possessed of sufficient own funds to meet the investment, hence, the issue is covered by the decision of the Coordinate Bench of the Tribunal in the case of ‘ACIT Vs. Janak Global Resources Pvt Ltd’ [2018 (12) TMI 902 - ITAT CHANDIGARH]. This issue is also now squarely covered by the latest decision of ‘CIT (LTU) Vs. Reliance Industries Ltd.’ [2019 (1) TMI 757 - SUPREME COURT] wherein, reiterated the proposition that if there are interest funds available with the assessee, which are sufficient to meet the investment, it can be presumed that the investments are made from the interest free funds available with the assessee. So far as the action of the CIT(A) in directing to calculate the disallowance under Rule 8D(2)(iii) in respect of administrative expenditure incurred on earning of tax exempt income is concerned no infirmity in the order of the CIT(A) on this issue. Issues Involved:1. Deletion of addition made on account of deduction claimed under Section 80IA of the Income Tax Act.2. Deletion of addition made under Section 14A of the Income Tax Act.3. Deletion of addition made under Section 36(1)(iii) of the Income Tax Act.Issue-wise Detailed Analysis:1. Deduction under Section 80IA:The Revenue challenged the deletion of the addition made on account of deduction claimed under Section 80IA for the assessment years 2011-12 and 2012-13. The Assessing Officer (AO) had denied the entire claim of deduction, arguing that the assessee showed excessive and unreasonable profits from its 40MW Power Plant Unit, which were eligible for deduction under Section 80IA. The AO believed the expenses were not properly allocated, resulting in exaggerated profits.The CIT(A) deleted the additions, stating that the AO failed to provide a justified reason for denying the entire deduction. The CIT(A) observed that the same AO had allowed the deduction in the previous year with minor adjustments. The Tribunal upheld the CIT(A)’s decision, noting that the AO could have reallocated some profits to non-eligible units instead of disallowing the entire claim. The Tribunal found no merit in the Revenue's appeal and dismissed it.2. Addition under Section 14A:For both assessment years 2011-12 and 2012-13, the Revenue contested the deletion of additions made under Section 14A read with Rule 8D, related to notional expenditure incurred for earning tax-exempt dividend income. The AO had computed disallowance based on the exempt income earned by the assessee.The CIT(A) restricted the disallowance to the amount of tax-exempt income earned, aligning with various High Court decisions, including the Jurisdictional High Court of Punjab and Haryana. The Tribunal upheld the CIT(A)’s decision, referencing multiple judicial precedents that disallowance under Section 14A cannot exceed the tax-exempt income earned by the assessee.3. Addition under Section 36(1)(iii):The Revenue disputed the deletion of disallowances made under Section 36(1)(iii) for both assessment years 2011-12 and 2012-13. The AO had added notional interest on investments made in Capital Work in Progress (CWIP) and capital advances, arguing that these were made out of borrowed funds.The CIT(A) deleted the additions, relying on the Tribunal's previous decision for the assessee's case for the assessment year 2009-10, which found that the assessee had sufficient own funds to cover the investments. The Tribunal upheld the CIT(A)’s decision, noting that the assessee's own funds far exceeded the investments in CWIP and capital advances. The Tribunal also referenced the Supreme Court's recent decision in ‘CIT (LTU) Vs. Reliance Industries Ltd.’, affirming that if an assessee has sufficient own funds, it is presumed that investments are made from those funds.Conclusion:The Tribunal dismissed all the appeals of the Revenue, upholding the CIT(A)’s decisions on all issues. The Tribunal found no justification for the AO’s disallowances and agreed with the CIT(A)’s reasoning and reliance on judicial precedents. The decisions were pronounced in the open court on 24.5.2019.