2019 (10) TMI 859 - AT - Income Tax

Tribunal grants 100% deduction under Section 80IC but upholds disallowance under Section 14A

M/s. Indian Herbs Specialties Pvt. Ltd. Versus Addl. CIT, Special Range-4, New Delhi

The Tribunal allowed the assessee's appeal for both assessment years, granting a 100% deduction under Section 80IC of the Income-tax Act, 1961. However, ... Deduction u/s 80IC - whether the assessee is entitled for deduction u/s 80IC @ 100% for 6th to 10th assessment years from the year of the manufacturing as claimed by the assessee, on the ground that for the purpose of substantial expansion “initial assessment years” would be separate? - HELD THAT:- We find that Hon’ble Supreme Court in the case of Aarham Softronics [2019 (2) TMI 1285 - SUPREME COURT] has held in case of substantial expansion, the said previous year would become initial assessment year and from that assessment year the assessee shall be entitled to hundred percent deduction of the profit and gains - CIT(A) on the issue in dispute is set aside and the Assessing Officer is directed to allow the deduction under section 80IC of the Act to the assessee’s. Disallowance u/s 14A - assessee has challenged the disallowance only on the ground that statutory precondition of invoking Rule 8D has not been satisfied by the AO - HELD THAT:- We find that the Assessing Officer has properly recorded the dissatisfaction on the claim of assessee of expenses of ₹ 2000 per month incurred for earning dividend income No error in the order of the learned CIT(A) in upholding the disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules. The ground of the appeal of the assessee is accordingly dismissed. Issues Involved:1. Deduction under Section 80IC of the Income-tax Act, 1961.2. Disallowance under Section 14A of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Deduction under Section 80IC of the Income-tax Act, 1961:The primary issue revolves around the eligibility of the assessee for a 100% deduction under Section 80IC of the Income-tax Act for the assessment years 2014-15 and 2015-16. The assessee argued that they were entitled to a 100% deduction due to substantial expansion undertaken during the financial year 2011-12. The Assessing Officer (AO) restricted the deduction to 30%, stating that the provisions of substantial expansion were not applicable to the assessee. The CIT(A) upheld this disallowance, emphasizing that the scheme of exemption under Chapter VI-A of the Act is specific and does not allow for multiple initial assessment years.The Tribunal, however, found merit in the assessee's contention, citing the Supreme Court's ruling in the case of Principal CIT, Shimla Vs M/s Aarham Softronics, which held that in case of substantial expansion, the said previous year would become the initial assessment year, allowing the assessee to claim a 100% deduction of the profit and gains. The Tribunal also referenced its own decisions for the assessment years 2012-13 and 2013-14, which supported the assessee's claim.The Tribunal concluded that the assessee was entitled to a 100% deduction for the years under appeal, following the precedent set by the Supreme Court and its own earlier rulings. The AO was directed to allow the deduction under section 80IC as claimed by the assessee.2. Disallowance under Section 14A of the Income-tax Act, 1961:The second issue concerns the disallowance of Rs. 40,31,675/- for AY 2014-15 and Rs. 14,63,881/- for AY 2015-16 under Section 14A of the Act. The assessee contested the disallowance, arguing that the AO did not satisfy the statutory preconditions of recording dissatisfaction with the assessee's claim of expenses incurred for earning exempt income. The assessee also claimed that investments were made from their own funds and not from borrowed funds, citing the Supreme Court's decision in Pr. CIT, Ahmedabad Vs. Sintex Industries Ltd.The Tribunal examined the AO's order and found that the AO had indeed recorded dissatisfaction with the assessee's claim of incurring only Rs. 2000 per month for earning substantial dividend income. The Tribunal upheld the disallowance under Section 14A read with Rule 8D, finding no error in the CIT(A)'s order.Consolidated Order:For AY 2014-15, the Tribunal allowed the appeal concerning the deduction under Section 80IC but dismissed the appeal regarding the disallowance under Section 14A. For AY 2015-16, the Tribunal followed the same reasoning and conclusions as for AY 2014-15, allowing the appeal on the deduction under Section 80IC and dismissing the appeal on the disallowance under Section 14A.Conclusion:The appeals were partly allowed, with the Tribunal directing the AO to grant the 100% deduction under Section 80IC for both assessment years and upholding the disallowance under Section 14A.