TaxTMI 
TaxTMI 
2023 (5) TMI 112
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....ENT YEAR 2016-17 "1) "The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs 25,02,096/- U/S.14A of the Act r.w.r. 8D of the IT Rules, 1962 made while computing income under normal provisions of the Act?. 2) "The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs 20,77,01,000/- made on account of R & D expenditure, without properly appreciating the facts of the case and the material brought on record?". 3) The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary 4) It is, therefore, prayed that the order of ld. CIT(A) may be set aside and that of the Assessing Officer be restored." ASSESSMENT YEAR 2017-18 "(1) The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.13,39,050/-under section 14A of the Income-tax Act r.w.r. 8D of the Income-tax Rules, 1962 made while computing income under normal provisions of the Act. (2) The Ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.20,17,60,000/-made on account of R&D Expenditure without properly appreciating the facts of the case and the material brought on record. (3) The appellant craves leav....
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....pellant. The AO has made the disallowance u/s. 14A of the I. T. Act, 1961 r.w. Rule 8D of I. T, Rules at Rs.89,19,604/- stating that the interest bearing borrowed funds have been utilized for the purpose of investment in the shares. The appellant has claimed the interest expenses at Rs.9,45,19,687/-. The AO observed that the appellant has not proved that the borrowed funds have not been used by the appellant towards investment in shares which was the onus upon the appellant. 2.4. The appellant submitted that the provisions of section 14A of I. T. Act are not applicable in the case in view of recent judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Corrtech Energy Pvt. Ltd. [(2014) 223 Taxmann. 130], since the appellant has not derived any exempted income on the investments so made in the form of share and not claimed any income exempt. It was held by the Hon'ble Court that section 14(1) provides that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Since in the instant case, the appellant ....
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.... Court, as discussed above, no disallowance could be made. Further, the circular No. 5 of 2014 issued by the CBDT is also not applicable as the same cannot overcome the judgment of jurisdictional High Court and other authorities as has been discussed in detail in the other paras of this order. 2.9. It has been noticed that the Hon'ble ITAT, Bangalore 'C' Bench in the case of M/s. Anriya Project Management Vs. assessee in ITA No,1799/Bang/2013 dated 20/02/2015 has held that even the Circular No. 5 of 2014 dated 11/02/2014 issued by the.-GBDT is not relevant for the reasons that it was contrary to the Hon'ble High Court's judgment .and the circular cannot prevail over the judgments of Hon'ble High Courts. The relevant para of the judgment is reproduced as under:- 19. We have given a careful consideration of the rival submissions. On the basis of the documents to which our attention was drawn it is clear that the assessee did not earn any exempt income during the previous year. In such circumstances, as laid down in the decision relied upon by the learned counsel for the assessee, provisions of section 14A could not be invoked. The Board circular which is c....
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.... as notional. -Hindustan Aeronautics Ltd. Vs. CIT: Even if there is a circular, once the law is declared by the H.C./S.C., the same is to be followed.-110 Taxmann 311 SC -All Gujarat Federation of Tax Con Vs. CBDT 76 TAXMANN 307 Guj. Interpretation by CBDT not binding on the assessing authority. -C.I.T.V/S. SIRPUR .PAPE/R MILLS LTD Circulars cannot direct the A.O. -He make particular assessment in particular way: SB EXIT OPTEES' Association Vs. CBDT (26 taxmann.com 08) (Bom) The Circular was not quashed as it did not preclude the A.O. from deciding the matter in accordance with the law. If the existing circular is in conflict with the judicial decisions, the revenue authorities have to ignore the circular and decide the matter applying their discretion. -Bharatia Ind. Ltd. V/S. C.I.T. 12 TAXMANN.COM 409 Cal. 2. 10.4. The quasi-judicial functions cannot be controlled by CBDT. Only general instructions can be given. The circular cannot direct the quasi-judicial authority to take the view as dictated. It can give the guidelines (In this case to verify the nature of liability). Gujarat Gas Co. Ltd. v. JT. C.I.T.[2000] 111 Taxman 144 (GUJ). Section 143, read with secti....
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....ailable on record. So, in substance, he was statisfied and after recording the reasons, it has invoked the provisions of section 14A r.w. Rule 8D. Thus, this ground is dismissed. The grounds of appeal are partly allowed." From the submissions made by the appellant, it is seen that the appellant had not derived any exempt income during the year under consideration. Therefore, the provisions of the section 14A of the Act are not applicable. Also, since the facts of the case are similar to those of AY 2013-14 and 014-15, following the decision taken by the CIT(A)-2, Ahmedabad, the disallowance made by the A.O. u/s. 14A r.w.r. 8D of Rs. 25,02,096/- is hereby deleted." 6. The Department is in appeal before us against the order passed by ld. CIT(A). In appeal before us, the ld. counsel for the assessee invited our attention to the recent ruling passed by the Delhi High Court in the case of Era Infrastructure India Ltd. 141 taxman.com 289 (Delhi High Court) which has held that the amendment brought in by the Finance Act, 2022, to section 14A by inserting a non-obstante clause and Explanation will take effect from 01-04-2022 and cannot be presumed to have retrospective effect. Therefo....
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....no exempt income was earned, in such case disallowance under section 14A could not be made. In the case of Corrtech Energy (P.) Ltd. [2014] 45 taxmann.com 116 (Gujarat), the Gujarat High Court held that where assessee did not make any claim for exemption of any income from payment of tax, disallowance under section 14A could not be made. The Delhi High Court in the case of Delhi International Airport (P.) Ltd. [2022] 144 taxmann.com 80 (Delhi) held that section 14A would not be applicable if no exempt income was received or receivable during relevant previous year. The Delhi High Court in the case of Amadeus India (P.) Ltd.[2022] 145 taxmann.com 311 (Delhi), held that section 14A envisages that there should be an actual receipt of income which is not includible in total income; hence, section 14A will not apply where no exempt income is received or receivable during relevant previous year. The Ahmedabad ITAT in the case of Edelweiss Financial Advisors Ltd. [2021] 124 taxmann.com 361 (Ahmedabad - Trib.) held that disallowance of expenses under section 14A read with rule 8D could not exceed amount of exempted income. The Ahmedabad ITAT in the case of Addlife Investments (P.) Ltd.[202....
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.... of capital nature. The appellant in his statement of income had shown expenditure on R & D of Rs. 20,77, 01,000/-, out of which Rs.20,77,01,000/- was claimed as revenue expenditure. The assessing officer held that entire R & D expenditure is of capital nature and disallowed the sum of Rs.20,77, 01 ,000/-. The appellant contended that it is engaged in manufacturing of customized bearing cages and R&D expenditure towards the product developed in accordance with the specification of the customers and its benefits are endured till the time the appellant delivers the cages to the customer and therefore, cannot be termed as capital expenditure. In this connection, the appellant also submitted that identical issue was decided in the appellant's case for A.Y. 2013-14 by Hon'ble ITAT, Ahmedabad vide order No. 1735/Ahd/2019 dated 05.10.2020. The relevant part of the above judgment is reproduced as under: "16. If we analysis the nature of expenditure noted by the AO in the reply of the assesses reproduced on page no. 5 and extracted (supra) then it would indicate that these are the expenditure which were incurred by the assesses for preparing pro-type or preparing a product spe....
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....owing the assessee's appeal with respect to this ground of appeal, so as to call for any interference. In the result, ground no. 2 of the Department's appeal is dismissed. 13. Ground Nos. 3 and 4 of the Department's appeal are general in nature and do not require any specific adjudication. Now we shall discuss the Department's Appeal for assessment year 2014-15 and assessment year 2017-18 The Department's Appeal for assessment year 2014-15 Ground No. 1: CIT(A) erred in deleting the addition of Rs. 11,61,96,094/- made on account of R&D expenditure 14. We observe that the facts of this ground no. 1 of Department's appeal is identical to ground no. 2 of Department's appeal for assessment year 2016-17. In view of our observations made with respect to ground no. 2 of Department's appeal on identical set of facts for assessment year 2016-17, ground no.1 of Department's appeal for assessment year 2014-15 relating to deletion of disallowance of R&D expenditure, is hereby dismissed. 15. In the result, the ground no. 1 of Department's appeal for assessment year 2014-15 is hereby dismissed. 16. Ground Nos. 2 and 3 of Department's appeal for assessment year 2014-15 are general in natur....