2022 (3) TMI 668 - AT - Income Tax

Tribunal Decisions on Tax Disallowances and Deductions Under Rule 8D, Section 14A, and Section 80IA

Kirloskar Industries Ltd. Versus Deputy Commissioner of Income Tax, Circle – 9, Pune, Assistant Commissioner of Income Tax, Circle – 14, Pune, The Income Tax Officer, Ward – 14 (5), Pune

The Tribunal partially allowed three appeals for statistical purposes and dismissed one appeal, affirming the CIT(A)'s decisions on disallowances under ... Disallowance made Rule 8D r.w.s. 14A - HELD THAT:- In the working of disallowance u/s. 14A, it was seen that Clause (iii) of Sub-rule (2) of Rule 8D is primarily applicable in assessee’s case, we find the observation of which made by the AO, in our opinion, is a satisfaction recorded by not accepting the disallowance made by the assessee on its own as it was not appropriate method. The AO arrived at such conclusion only on the examination of accounts of the assessee and held disallowance primarily under Rule 8D(2)(iii) is required to be made which clearly shows that the AO not satisfied with the accounts of assessee and proceeded to made disallowance only under Rule 8D(2)(iii) in addition to the disallowance made by the assessee, in our opinion, that the AO examined the accounts of the assessee and by recording its non-satisfaction of the assessment order proceeded to further disallowance as required u/s. 14A - ratio laid down in the case of Godrej & Boyce Manufacturing Co. Ltd. [2017 (5) TMI 403 - SUPREME COURT] which was followed by this Tribunal in the case of Caggemini Technology Services India Ltd. [2019 (3) TMI 1135 - ITAT PUNE] for A.Y. 2011-12. Thus, the arguments of ld. AR in respect of satisfaction by the AO are rejected. Thus, the order of CIT(A) is justified and the ground No. 1 raised by the assessee is dismissed. Disallowance of valid claim u/s. 80IA - AO denied the claim u/s. 80IA(4) of the Act considering each of the unit as a separate business on stand-alone basis which did not have any profit entitled for the said deduction in the year under consideration - HELD THAT:- As explained by the assessee that all the units have huge brought forward losses as on 01-04-2009 and if profit and loss of each windmill should not be considered on stand-alone basis otherwise windmill business has no positive income entitled to deduction u/s. 80IA of the Act. The AO rejected the said explanation and by considering each windmill as a separate unit and deduction for the year under consideration was denied. CIT(A) following earlier year confirmed the disallowance made by the AO. A similar issue came up before the Tribunal in assessee‟s own case for A.Y. 2010-11 . [2019 (1) TMI 1963 - ITAT PUNE]remanded the issue to the file of AO to decide the issue in terms of the ratio laid down by the Hon‟ble High Court of Bombay in the case of CIT Vs. Hercules Hoists Ltd [2017 (6) TMI 1125 - BOMBAY HIGH COURT] Disallowance on account of Security Expenses and Gardening Expenses, respectively as part of annual value under Income from House Property - HELD THAT:- The agreement filed before us does not convey anything that the assessee let out its property and in turn it shows contrary to the explanation offered to the AO. The assessee did not furnish any evidence showing that the license fee of ₹ 1,50,00,000/- is inclusive of security and gardening expenses and no bifurcation given in support of its contention as rightly pointed out by the CIT(A). Therefore, in the absence of such valid evidences, we find no infirmity in the order of CIT(A). AR placed on record order of Neelam Cable Manufacturing Co. [1997 (8) TMI 102 - ITAT DELHI-A]. On perusal of the same the Tribunal held no separate deduction for security service charges is provided u/s. 24 of the Act but the service charges is to be deductible while computing the annual value u/s. 23 of the Act. In the present case, as discussed above, there was no break up provided by the assessee as pointed out by the CIT(A) and also Leave and License agreement no such break up is reflected to claim gardening and security service charges for computing the annual value. Therefore, the order in the case of Neelam Cable Manufacturing Co. (supra) is not applicable. In view of the discussion made here-in-above, the impugned order passed by the CIT(A) is justified. Thus, ground No. 3 raised by the assessee is dismissed. Issues Involved:1. Disallowance under Rule 8D r.w.s. 14A of the Act.2. Disallowance of deduction u/s 80IA of the Act.3. Disallowance of Security and Gardening Expenses under Income from House Property.Detailed Analysis:1. Disallowance under Rule 8D r.w.s. 14A of the Act:The assessee challenged the CIT(A)'s confirmation of disallowance made under Rule 8D read with Section 14A of the Income Tax Act. The assessee, engaged in the power generation business, earned exempt dividend income and disallowed certain expenses on its own. The AO, however, deemed the self-disallowance method inappropriate and applied Rule 8D, leading to a higher disallowance. The CIT(A) upheld the AO's decision. The Tribunal noted that the AO had recorded satisfaction regarding the inadequacy of the assessee's disallowance method. Citing the Supreme Court's decision in Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, the Tribunal found the AO's approach justified and dismissed the assessee's appeal on this ground.2. Disallowance of deduction u/s 80IA of the Act:The assessee contested the CIT(A)'s decision to uphold the AO's disallowance of deduction claimed under Section 80IA for income from windmills. The AO treated each windmill as a separate unit, leading to disallowance due to lack of individual unit profits. The CIT(A) followed the AO's approach based on earlier years' assessments. The Tribunal referenced its own decision for the previous assessment year (2010-11), which remanded the issue to the AO for reconsideration in light of the Bombay High Court's ruling in CIT vs. Hercules Hoists Ltd. Consequently, the Tribunal remanded the issue for fresh consideration, allowing the assessee's appeal for statistical purposes.3. Disallowance of Security and Gardening Expenses under Income from House Property:The assessee challenged the disallowance of security and gardening expenses claimed under income from house property. The AO disallowed these expenses, arguing they were covered under the standard deduction allowed u/s 24. The CIT(A) upheld the AO's decision, noting the lack of documentary evidence supporting the assessee's claim of composite compensation for these services. The Tribunal found discrepancies in the assessee's submissions and the leave and license agreement, which did not substantiate the claim. The Tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.Consolidated Appeals:The issues in ITA Nos. 1383/PUN/2017, 267/PUN/2018, and 268/PUN/2018 were found to be identical to those in ITA No. 787/PUN/2017, except for the variance in amounts. Therefore, the Tribunal's findings in ITA No. 787/PUN/2017 applied mutatis mutandis to these appeals. Consequently, the appeals in ITA Nos. 787, 1383/PUN/2017, and 268/PUN/2018 were partly allowed for statistical purposes, while the appeal in ITA No. 267/PUN/2018 was dismissed.Conclusion:The Tribunal's order pronounced on 11th March 2022 resulted in partial allowance for statistical purposes for three appeals and dismissal of one appeal, upholding the CIT(A)'s decisions on disallowances under Rule 8D r.w.s. 14A, Section 80IA, and expenses under income from house property.