2022 (10) TMI 609 - AT - Income Tax

Tribunal adjusts disallowance under Section 14A, upholds deductions under Section 80IA & 40.

DCIT Circle-1, Jamnagar Versus M/s. Seabird Marine Services Pvt. Ltd.

DCIT Circle-1, Jamnagar Versus M/s. Seabird Marine Services Pvt. Ltd. - TMI Issues:1. Disallowance of deduction under Section 80IA of the Act.2. Disallowance under Section 14A.3. Disallowance of claim for deduction in respect of payment of education cess and SHEC under Section 40.4. Treatment of rental income as business income and eligibility for deduction under Section 80IA.Issue 1: Disallowance of deduction under Section 80IA of the Act:The Revenue challenged the deletion of the addition made by the AO on account of disallowance of the claim for deduction under Section 80IA. The Revenue argued that the assessee did not fulfill the conditions set out under Section 80IA(4) as the infrastructure facility did not meet the definition of a port. However, the assessee contended that the facility was approved by JNPT authority, which clarified the definition of a port to include the Container Freight Station (CFS). The Tribunal relied on a previous Supreme Court decision in the assessee's case and dismissed the Revenue's appeal, upholding the eligibility of the assessee for claiming deduction under Section 80IA.Issue 2: Disallowance under Section 14A:The Revenue contested the deletion of the addition made by the AO on account of disallowance under Section 14A. The AO had disallowed expenses based on Rule 8D, despite the assessee making a suo moto disallowance on dividend income. The Tribunal found that while the AO had recorded satisfaction for disallowance, the disallowance amount needed adjustment based on the exempt income earned by the assessee. The Tribunal partially allowed the Revenue's appeal, directing the AO to restrict the disallowance under Rule 8D.Issue 3: Disallowance of claim for deduction under Section 40:The Revenue raised concerns regarding the disallowance of the claim for deduction in respect of payment of education cess and SHEC under Section 40. The Tribunal dismissed this ground, citing a decision of the Bombay High Court where a similar claim was allowed. Thus, the Tribunal upheld the decision of the CIT(A) on this issue.Issue 4: Treatment of rental income as business income and eligibility for deduction under Section 80IA:The Revenue disputed the CIT(A)'s decision to treat rental income as business income eligible for deduction under Section 80IA. The Tribunal upheld the CIT(A)'s finding, stating that the rental income was essential for the business activities of the assessee, as mandated by Ministry of Commerce guidelines. The Tribunal dismissed the Revenue's appeal on this issue, agreeing with the CIT(A)'s detailed findings.In conclusion, the Tribunal partially allowed the Revenue's appeal on the issue of disallowance under Section 14A, directing the AO to adjust the disallowance amount. However, the Tribunal dismissed the Revenue's appeal on the other issues, upholding the CIT(A)'s decisions regarding deduction under Section 80IA, claim for deduction under Section 40, and treatment of rental income as business income.