2021 (1) TMI 880 - AT - Income Tax

ITAT ruling: Disallowance under sec 14A, 115JB upheld; issue under sec 37(1) for review

The ITAT partially allowed the revenue's appeal, upholding decisions on disallowance under section 14A and adjustment to book profit under section 115JB ... Disallowance u/s 14A r.w.r 8D - CIT(A) restricting the disallowance u/s 14A to the extent of exempt income earned by the assessee which was computed as per Rule 8D of I.T Rules 1962 on the basis of CBDT Circular No.5/2014 dated 11.02.2014 which clearly states that it is not necessary to earn exempt income in a particular year in which the disallowance is made - HELD THAT:- We noted that the CIT(A) has restricted the disallowance to the extent of exempt income at ₹ 3,000/- only by following the decision of Hon’ble Supreme Court in the case of Maxopp Investment Ltd [2018 (3) TMI 805 - SUPREME COURT] and hence we find no infirmity in the order of CIT(A). Hence, the order of CIT(A) is confirmed and this issue of revenue is dismissed Adjustment made to the book profit under section 115JB on account of expenses relatable to exempt income claimed by assessee under section 14A - HELD THAT:- As relying on case of Vireet Investment Pvt. Ltd [2017 (6) TMI 1124 - ITAT DELHI] wherein it is held that disallowance u/s. 14A is not to be considered for computing book profit u/s. 115JB of the Act. Therefore, this ground of appeal of the assessee is allowed. Disallowance of additional depreciation claimed by assessee u/s 32(1)(iia) - Asset put to use - HELD THAT:- We find that as per second proviso to Sec. 32(1) the entitlement of an assessee towards claim of depreciation in a case where a new machinery or plant acquired during the previous year is put to use for a period of less than 180 days in that previous year shall be restricted to 50% for the percentage prescribed for the said asset under clause (iia) of Sec. 32(1) of the I.T. Act. However, there is nothing available in the statute from where it can be gathered that the assessee would be disentitled for claiming the balance 50% of the additional depreciation i.e.10% in the succeeding year - there is no restriction made avai1able on the statute as per which the assessee who had put to use the new machinery for a period of less than 180 days during a year, would be divested of its entitlement to claim the balance 10% of the additional depreciation in the succeeding assessment year. Our aforesaid views is fortified by the judgment of the Hon'ble High Court of Hon’ble Madras High Court in the case of CIT, Madurai, Vs. T.P. Textiles (P) Ltd.[2017 (3) TMI 739 - MADRAS HIGH COURT] - no infirmity arises from the order of the CIT(A) who had rightly deleted the disallowance of additional depreciation. Disallowance of expenditure on account of sales and services under section 37(1) - HELD THAT:- We noted that the CIT(A) has already restored the matter back to the file of Assessing Officer for fresh consideration. Hence, we find no infirmity in the order of CIT(A). But we direct the Assessing Officer to verify the nature of expenditure first and then decide as per law whether the expenses are allowable under section 37(1) or not? Hence, this issue of revenue’s appeal has been set-aside. Issues:1. Disallowance under section 14A of the Act r.w.r 8D of the Income Tax Rules, 1962.2. Adjustment made to the book profit under section 115JB of the Act on account of expenses relatable to exempt income.3. Disallowance of additional depreciation claimed by assessee under section 32(1)(iia) of the Act.4. Disallowance of expenditure on account of sales and services under section 37(1) of the Act.Issue 1 - Disallowance under section 14A:The revenue appealed the order of CIT(A) restricting the disallowance under section 14A to the extent of exempt income. The Assessing Officer disallowed &8377; 29.01 lakh, but CIT(A) restricted it to &8377; 3,000 based on the decision of the Supreme Court in Maxopp Investment Ltd. case. The ITAT confirmed CIT(A)'s decision, citing the same case law, and dismissed the revenue's appeal.Issue 2 - Adjustment to book profit under section 115JB:The revenue challenged the CIT(A)'s deletion of the adjustment made to the book profit under section 115JB due to expenses related to exempt income. CIT(A) had already deleted the disallowance citing precedents and the decision of a Special Bench. The ITAT upheld CIT(A)'s decision, stating it was covered by the Special Bench ruling, and dismissed the revenue's appeal.Issue 3 - Disallowance of additional depreciation:The revenue disputed the CIT(A)'s deletion of the disallowance of additional depreciation claimed under section 32(1)(iia) of the Act. The ITAT upheld CIT(A)'s decision based on a previous Tribunal ruling in the assessee's case for AY 2013-14, allowing the additional depreciation, and dismissed the revenue's appeal.Issue 4 - Disallowance of expenditure under section 37(1):The revenue contested the CIT(A)'s deletion of the disallowance of expenditure on sales and services under section 37(1) of the Act. CIT(A had set aside the issue for fresh consideration by the Assessing Officer, who was directed to verify the nature of the expenses. The ITAT found no fault in CIT(A)'s decision but directed the AO to verify the expenses before making a final determination. Hence, this issue was set aside for further review.In conclusion, the ITAT partly allowed the revenue's appeal for statistical purposes, confirming some decisions while setting aside one issue for further examination. The judgment was pronounced on 12th January 2021.