TaxTMI 
TaxTMI 
2017 (1) TMI 938
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 7,41,26,060/- u/s. 14A r.w. Rule 8D. Aggrieved by the assessment order dated 01-03-2013, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by placing reliance on various decisions including the decision of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. Gem Plus Jewellery India Ltd. reported as 42 DTR 73 and the decision of Pune Bench of the Tribunal in the case of ITO Vs. Kalbhor Gawade Builders reported as 155 TTJ 124 decided the issue in favour of the assessee. Against the order of Commissioner of Income Tax (Appeals) in allowing deduction u/s. 80IA of the Act on the additions made u/s. 14A r.w. Rule 8D, the Department is in appeal before the Tribunal. 3. Shri Neelesh Khandelwal appearing on behalf of the assessee submitted at the outset that the issue raised in the present appeal by the Department has already been adjudicated by the Tribunal in assessee's own case in ITA No. 746/PN/2013 for the assessment year 2009-10 decided on 30-12-2016. 3.1 The ld. AR further submitted that the CBDT Circular No. 37/2016 dated 2nd November, 2016 categorically mentions that the Depar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts were purportedly allotted to the assessee on the condition that each project should be carried out by separate SPV of the assessee company. The assessee has made investment in the above said two newly formed SPVs by utilizing borrowed funds. The assessee has paid interest to the tune of Rs. 3.44 crores on the investment made in NKIPL and Rs. 0.23 crores in respect of investment made in the shares of PIPL. It is the case of the assessee that the assessee has not received any exempt income in the form of dividend etc. from the aforesaid two newly formed companies. The ld. AR has made an alternate submission in ground No. 4 of the appeal that even if disallowance u/s. 14A is sustained. The assessee is eligible to claim deduction u/s. 80(IA) on the said disallowance. To support his submissions the ld. AR has placed reliance on the CBDT Circular dated 02-11-2016. 9. We find that the Hon'ble Delhi High Court in the case of Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. (supra) has upheld the order of Tribunal where disallowance made u/s. 14A r.w. Rule 8D was deleted under similar circumstances. In the said case the assessee had made investment in the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0IA(4), therefore, even if any disallowance is made the business income of the assessee will go up and therefore there will be corresponding deduction of the said amount and therefore it is revenue neutral. 18.1 We find some force in the arguments advanced by the Ld. Counsel for the assessee. We find an identical issue had come up before the Hon'ble Delhi High Court in the case of Oriental Structure Engineers Pvt. Ltd. (Supra). In that case also investments were made in the subsidiary companies out of borrowed funds. The subsidiary company had to form special purpose vehicles (SPV) in order to obtain contracts from NHAI. The disallowance u/s.14A r.w. Rule 8D was restricted by the CIT(A) which was upheld by the ITAT. On further appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue by observing as under : "This appeal has been preferred by the revenue against the order dated 02.12.2011 passed by the Income Tax Appellate Tribunal, New Delhi in ITA No.4245/Del/20 11 in respect of the assessment year 2008-09. The issue before the Tribunal, which is also an issue before us, was whether in the facts and circumstances of the case the Comm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The appeal is dismissed." 19. We also find merit in the alternate contention of the Ld. Counsel for the assessee that since assessee is entitled to deduction u/s.80IA(4), therefore, the addition, if any, has to be allowed u/s.80IA(4) and therefore, the same is revenue neutral. Admittedly, the income of the assessee is eligible for deduction u/s.80IA which the AO himself has allowed in the body of the assessment order. The returned business income has been allowed by the AO as deduction u/s.80IA as per the claim. Therefore, once a part of the interest expenditure is disallowed then the corresponding business income will go up. Therefore, the request of the Ld. Counsel for the assessee that the AO may be directed to increase the deduction u/s.80IA(4) to the extent of disallowance u/s.14A which increases the business profit to that extent is acceptable. In this view of the matter, we set aside the order of the CIT(A) and direct the AO to delete the disallowance made u/sa.14A. Ground of appeal No.1 as well as the first issue in the additional ground raised by the assessee are accordingly allowed." 10. We further observe that the CBDT vide Circular No. 37/2016 da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....npur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In View of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter Vl-A is admissible on the profits so enhanced by the disallowance." 11. The Co-ordinate Bench of the Tribunal in the case of Hari Infrastructure Pvt. Ltd. Vs. Dy. CIT (supra) has already decided the issue with respect to disallowance u/s. 14A has accepted the contentions of the assessee in respect of disallowance u/s. 14A on both the grounds. Thus, in view of the facts of the case, the order of Co-ordinate Bench and the CBDT Circular, we direct the Assessing Officer to delete the disallowance made u/s. 14A of the Act. Accordingly, ground Nos. 2 and 4 ....