2023 (8) TMI 1058 - AT - Income Tax

Tribunal upholds CIT(A) decisions on investments, expenses, deductions

ACIT, CIRCLE-14 (1) (2) Versus M/s. Reliance Infrastructure Ltd, Mumbai.

ACIT, CIRCLE-14 (1) (2) Versus M/s. Reliance Infrastructure Ltd, Mumbai. - TMI Issues Involved:1. Exclusion of investments in subsidiaries for disallowance under Rule 8D2(iii) and Section 14A.2. Treatment of expenses incurred for replacement of meters as Revenue expenditure.3. Allocation of Head Office expenses while calculating deduction under Section 80IA.4. Deduction under Section 80IA against gross total income versus net business income.5. Disallowance under Section 14A while computing book profit under Section 115JB.6. Disallowance of inflated coal expenses.Summary:Issue 1: Exclusion of Investments in Subsidiaries for Disallowance under Rule 8D2(iii) and Section 14AThe Tribunal upheld the CIT(A)'s direction to exclude investments in subsidiaries that yielded exempt income during the year for the purpose of computing disallowances under Rule 8D2(iii). The Tribunal noted that the CIT(A) followed precedents from earlier years and Supreme Court decisions, confirming that only those investments which earned tax-free income during the year should be considered. Consequently, the Tribunal dismissed the Revenue's appeal on this ground.Issue 2: Treatment of Expenses Incurred for Replacement of Meters as Revenue ExpenditureThe Tribunal confirmed the CIT(A)'s decision treating the expenditure on replacement of meters as revenue expenditure. The Tribunal noted that this issue had been consistently decided in favor of the assessee in earlier years by both the High Court and the ITAT. The Tribunal agreed that the replacement of meters facilitated business operations without enhancing capital assets or increasing power supply capacity.Issue 3: Allocation of Head Office Expenses While Calculating Deduction under Section 80IAThe Tribunal upheld the CIT(A)'s decision not to allocate head office expenses to the eligible 80IA profits. The Tribunal referenced earlier decisions by the High Court and ITAT, which consistently held that head office expenses should not be deducted from the profits of the eligible undertaking, as these expenses do not have a direct and immediate connection with the unit.Issue 4: Deduction under Section 80IA Against Gross Total Income Versus Net Business IncomeThe Tribunal dismissed the Revenue's appeal, confirming that the deduction under Section 80IA should be allowed up to the gross total income. The Tribunal noted that this issue had been settled by the Supreme Court in favor of the assessee in earlier years, and there was no impact on the disallowance by the AO for the year under consideration.Issue 5: Disallowance under Section 14A While Computing Book Profit under Section 115JBThe Tribunal upheld the CIT(A)'s decision to delete the addition made under Section 14A while computing book profits under Section 115JB. The Tribunal referenced earlier ITAT decisions and Special Bench rulings, confirming that no disallowance under Section 14A is required for computing book profits under Section 115JB.Issue 6: Disallowance of Inflated Coal ExpensesThe Tribunal deleted the entire disallowance of inflated coal expenses, noting that the AO's addition was based on a DRI report from earlier years, which had not been substantiated by higher appellate forums. The Tribunal agreed with the assessee that the cost of coal is an integral part of determining the tariff price, which has already been offered for tax. Consequently, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal on this ground.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, confirming the CIT(A)'s decisions on all the issues raised. The order was pronounced on 29th March 2023.