2019 (10) TMI 915 - AT - Income Tax

Tribunal Limits Disallowance u/s 14A, Upholds CIT(A)'s Decisions on Revenue Expenditure and Export Turnover.

The Tribunal dismissed the Revenue's appeals for AY 2009-10 and partially allowed the appeal for AY 2010-11, limiting the disallowance under Section 14A ... Disallowance u/s 14A r.w.r 8D - suo moto disallowance by assessee - HELD THAT:- CIT(A) correctly deleted the additions in view of the decision of the Hon’ble High Court in the case of Joint Investment Ltd. vs. CIT, [2015 (3) TMI 155 - DELHI HIGH COURT] that disallowance cannot be more than exempt income. CIT(A) has followed the binding precedent of the Jurisdictional High Court, we do not find any error in the order of the learned CIT(A) Nature of expenditure - treating the licence fee paid to DOT as revenue expenditure - HELD THAT:- We find that the learned CIT(A) has deleted the additions following the order of the Tribunal in the case of the assessee for assessment year 2007-08 [2015 (1) TMI 924 - ITAT DELHI] which is a binding precedent wherein the licence fee paid by the appellant is treated as revenue in nature Deduction u/s 10A computation - whether the telecommunication charges and foreign currency expenditure has to be reduced from the export turnover for the purpose of computing deduction? - HELD THAT:- Issue in dispute is covered in favour of the assessee by the decision of the Hon’ble Supreme Court in the case of CIT Vs. HCL Technologies Ltd. [2018 (5) TMI 357 - SUPREME COURT] held that adjustment, if any made from “export turnover” under Explanation 2 of section 10A of the Act is also liable to be paid on “total turnover” to avoid unintended and absurd results Disallowance u/s 14A invoking Rule 8D - HELD THAT:- We agree with the contention of the learned counsel that disallowance as per Rule 8D(2)(iii) ought to be computed at nil, however, on perusal of the computation of Rule 8D(2)(iii) by AO we find that he has worked out investment as on 31.03.2009 at ₹ 54,94,39,000/- and investment as on 31.03.2010 at ₹ 1,68,79,28,003/- and worked out the average investment of ₹ 111,86,83,501/-. In view of above facts, the contention that there was wrong opening and closing investment is not accepted. As far as satisfaction of the Assessing Officer is concerned, firstly the Assessing Officer has rejected the claim of assessee after perusal of the account of the assessee, thereafter, he proceeded to invoke Rule 8D of the Rules. Thus, the contentions of the assessee that no dissatisfaction has been recorded by the Assessing Officer for invoking Rule 8D is not correct. Secondly, the assessee is not in appeal before us and thus, the assessee cannot raise this issue in the appeal of Revenue. Accordingly, we reject the contentions of the assessee. In view of the decision of Joint Investment P. Ltd. [2015 (3) TMI 155 - DELHI HIGH COURT] the disallowance cannot be more than exempt income and accordingly, we restrict the disallowance at ₹ 4,22,021/- Disallowance of unrealized foreign exchange loss on account of reinstatement of assets and liabilities holding the same to be notional - CIT-A allowed the claim - HELD THAT:- We find that the learned CIT(A) has decided the issue following the decision of the Hon’ble Supreme Court in the case of CIT vs Woodward Governor India Pvt. [2009 (4) TMI 4 - SUPREME COURT] We do not find any error in the order of the learned CIT(A) on the issue in dispute, accordingly, uphold the same. Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Treatment of license fee paid to DOT as revenue expenditure.3. Exclusion of telecommunication charges and foreign currency expenditure from export turnover for Section 10A deduction.4. Disallowance of unrealized foreign exchange loss on account of reinstatement of assets and liabilities.Issue-wise Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:For the assessment year 2009-10, the Revenue challenged the deletion of disallowance under Section 14A r.w.r. 8D amounting to Rs. 23,44,799/-. The Assessing Officer (AO) computed the disallowance at Rs. 27,49,999/- and after subtracting the assessee's suo motu disallowance of Rs. 4,05,200/-, made an addition of Rs. 23,44,799/-. The CIT(A) deleted the addition citing the Hon'ble High Court's decision in Joint Investment Ltd. vs. CIT, which held that disallowance cannot exceed the exempt income. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground.For the assessment year 2010-11, the AO computed the disallowance at Rs. 55,93,417/- and after subtracting the assessee's suo motu disallowance of Rs. 10,767/-, made a net addition of Rs. 55,82,650/-. The CIT(A) deleted the addition, stating the AO did not specifically point out any deficiency in the assessee's computation and that Rule 8D was not warranted. The Tribunal partially allowed the Revenue's appeal, restricting the disallowance to Rs. 4,22,021/- (the amount of exempt income), following the Hon'ble High Court's decision in Joint Investment P. Ltd.2. Treatment of License Fee Paid to DOT as Revenue Expenditure:For both assessment years, the Revenue challenged the CIT(A)'s decision to treat the license fee paid to DOT as revenue expenditure. The CIT(A) followed the Tribunal's order in the assessee's case for AY 2007-08, which treated the license fee as revenue expenditure. The Tribunal upheld the CIT(A)'s order for both years, dismissing the Revenue's grounds.3. Exclusion of Telecommunication Charges and Foreign Currency Expenditure from Export Turnover:For both assessment years, the Revenue contested the exclusion of telecommunication charges and foreign currency expenditure from export turnover for the purpose of computing deduction under Section 10A. The CIT(A) followed the Hon'ble Supreme Court's decision in CIT Vs. HCL Technologies Ltd., which upheld the exclusion of such expenses from both export turnover and total turnover. The Tribunal upheld the CIT(A)'s order for both years, dismissing the Revenue's grounds.4. Disallowance of Unrealized Foreign Exchange Loss on Account of Reinstatement of Assets and Liabilities:For the assessment year 2010-11, the Revenue challenged the deletion of disallowance of unrealized foreign exchange loss amounting to Rs. 15,97,25,873/-. The CIT(A) allowed the deduction, following the Hon'ble Supreme Court's decision in CIT vs Woodward Governor India Pvt. Ltd., which held that such losses are allowable under Section 37(1). The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground.Conclusion:The Tribunal dismissed the Revenue's appeals for AY 2009-10 and partly allowed the appeal for AY 2010-11, restricting the disallowance under Section 14A to the amount of exempt income. The Tribunal upheld the CIT(A)'s decisions on all other issues, including the treatment of license fee as revenue expenditure, exclusion of telecommunication charges and foreign currency expenditure from export turnover, and allowance of unrealized foreign exchange loss.