TaxTMI 
TaxTMI 
2026 (3) TMI 1113
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....ase, the learned CIT(A) has erred both on facts and in law in confirming the disallowance of Rs. 26,79,000/- made by the AO on account of Fees for technical services invoking the provisions of section 37(1) of the Income Tax Act. (ii) That the above said disallowance has been confirmed ignoring the submission of the assessee that these expenses have been incurred wholly and exclusively for the purpose of business activities of the assessee and are allowable expenditure under section 37(1) of the Income Tax Act. (iii) That the abovesaid addition has been confirmed despite the fact that addition has been made by the AO without concluding the independent enquiry conducted during the course of assessment proceedings to the logical end. (iv) That the disallowance has been confirmed arbitrarily rejecting the detailed explanation and evidences brought on record by the assessee in this regard. 3. (i) On the facts and circumstances of the case the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 18,52,306/- made by the AO invoking the provision of section 14A read with rule 8D of the Income Tax Rules. (ii) That ....
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....The ld. AO has made the following additions during the year under consideration: Revenue Appeal Assessee Appeal Issue Addition made by AO CIT(A) Ground 1 - Disallowance of "Power and Fuel expenses" under section 37 of the Act 18,33,27,280 Deleted by CIT(A) Ground 2 & 3 Ground 3 Disallowance u/s. 14A read with Rule 8D 1,74,10,450 Restricted to Exempt income = 18,52,306 - Ground 2 Disallowance of Fees for Technical services from Pioneer Inspection Services 26,79,000 Confirmed by CIT(A) Gr. No Particulars AO Order CIT(A) Order Remarks 1 of Revenue Appeal Disallowance of "Power and Fuel expenses" under section 37 of the Act of Rs. 18,33,27,280 Pg. 7 Para 4.2 to Pg. 14 Pg. 40 para 5.1 to pg. 43 para 5.2 Disallowance of "Power and Fuel expenses" under section 37 of the Act of Rs. 18,33,27,280/- Ground No. 1 of Revenue appeal is regarding the deletion of disallowance of Rs. 18,33,27,280/- on account of Power and Fuel expenses. The reasoning given by the AO is exactly same as given in AY 2016-17 and AY 2018-19 as can be seen from the assessment order attached at PB pg. 246-252....
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.... friendly fuel and practically there is no emissions when compared with conventional fuel. The ld. CIT(A) has also appreciated that the captive power plant was established in 2011 and before that the assessee procured electricity supply from UP Electricity Board. However, before FY 2015-16 the AO has never doubted the genuineness of power and fuel expenses as evident from the copies of assessment orders for AYs 2013-14, 2014-15 and 2015-16 relied before us. Thus, there was no substance in the conclusion of the AO that the assessee has failed to establish that captive power plant has actually generated and supplied powers for the manufacturing activities of the assessee and the ld.CIT(A) has rightly deleted the addition." 4. Thus, the Hon'ble ITAT has already examined and considered the issue of disallowance of Power and Fuel expenses. The ITAT has accepted the contentions of the assessee and dismissed the ground raised by the Revenue. 5. Therefore, the issue is directly covered and no addition can survive in the present year, where facts are identical. 6. The Hon'ble ITAT has categorically relied on the fact that prior to AY 2015-16, the AO never questioned Power & Fuel ex....
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....ourt that the disallowance u/s. 14A cannot exceed the amount of exempt income of the relevant year. 12. The Revenue in Ground 2 and 3 has now carried the matter before your honour against the action of CIT(A), relying upon the CBDT Circular No. 5/2014 dated 11.02.2014. CIT(A) has rightly restricted the disallowance u/s. 14A to the extent of exempt income earned during the year 13. Firstly, it is submitted that it is undisputed fact that the assessee has earned agricultural income of Rs. 6,52,500/- (Ledger at PB pg. 146), and dividend income of Rs. 11,99,806/- (Ledger at PB pg. 147- 148), the total exempt income earned for the year under consideration is Rs. 18,52,306/-. However, the ld. AO has disallowed Rs. 1,74,10,450/- which is approximately 9.4 times the amount of exempt income. 14. It is also a well settled law that the total amount of disallowance under section 14A can under no circumstances exceed the amount of exempt income. In this regard reliance has been placed on the following judgments- • Delhi High Court in the case of Joint Investments Pvt Ltd Versus Commissioner of Income Tax, [2015] 372 ITR 694 (Del), dated 25.02.2015 • Delhi H....
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.... The Revenue's reliance on the Circular is therefore wholly untenable. Invocation of Amendment by Finance Act 2022 by the AO is also misplaced 20. The AO's reliance on the Memorandum to the Finance Bill, 2022 (page 18 of the assessment order) is misplaced, as the amendment to section 14A made by the Finance Act 2022 is prospective and cannot apply to AY 2020-21. The amendment expands the scope of disallowance by introducing a new deeming fiction, and such substantive changes cannot operate retrospectively unless expressly stated. 21. Reliance is placed on following judicial pronouncement- • Delhi High court in the case of PCIT v. Era Infrastructure (India) Ltd., 2022 (7) TMI 1093 • Delhi High court in the case of PCIT V. M/s. Delhi International Airport Pvt. Ltd., 2022 (10) TMI 300 22. Therefore, the AO's reliance on the Finance Bill 2022 Memorandum is legally unsustainable. Ground 3 of Assessee appeal Addition u/s. 14A read with Rule 8D of Rs. 1,74,10, 450 Pg. 14 Para 4.3 to Pg. 19 Pg. 44 para 6 to pg. 45 para 6.5 No Addition is legally permissible u/s. 14A read with Rule 8D 23. The assessee in Ground 3 has challenged the add....
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.... ITAT Mumbai in the case of Trent Limited Vs. Deputy Commissioner of Income Tax, ITA No. 4074/MUM/2024 • ITAT Delhi in the case of DCIT Vs. M/S Nestle India Ltd, 2020 (7) TMI 567 • Supreme Court in the case of SOUTH INDIAN BANK LTD. VERSUS COMMISSIONER OF INCOME TAX, 2021 (9) TMI 566 • Delhi High court in the case of COMMISSIONER OF INCOME TAX-VI VERSUS TAIKISHA ENGINEERING INDIA LTD., 2014 (12) TMI 482 • Delhi High Court in the case of EICHER MOTORS LTD. VERSUS COMMISSIONER OF INCOME-TAX-III, 2017 (9) TMI 1043 • The SLP in the above decision has been dismissed by Supreme Court in the case of COMMISSIONER OF INCOME TAX - III VERSUS EICHER MOTORS LTD, 2018 (9) TMI 1328 • Supreme Court in the case of GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VERSUS DY. COMMISSIONER OF INCOME-TAX & ANR, 2017 (5) TMI 403 • Delhi High Court in the case of PCIT Vs. DLF UTILITIES LIMITED, 2022 (9) TMI 90 • Delhi High Court in the case of MAXOPP INVESTMENT LTD., CHEMINVEST & OTHERS VERSUS COMMISSIONER OF INCOME TAX, COMMISSIONER OF INCOME TAX VERSUS ESCORTS FINANCE LTD, 2011(11) TMI 267 29. In view....
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.... UWILD underwater inspection of Rig "Jindal Star" - Rs. 15,00,000 Operational delay charges - Rs. 7,50,000 22,50,000 4,05,000 225,000 24,30,000 128 13.05.201 9 Towing gear inspection (LEEA + ASNT Level II inspector with MPI kit) - Rs. 24,000 Mobilization & demobilization of team/equipment - Rs. 5,000 29,000 5,220 290 0 31,320 129 Total 26,79,000 35. The invoices clearly reflect the nature of work undertaken-Rs.4,00,000 for rope-access NDT of leg chords and nodes; Rs. 22,50,000 comprising Rs. 15,00,000 for the full UWILD inspection of Rig Jindal Star and Rs. 7,50,000 towards operational delay charges; and Rs. 29,000 towards towing-gear inspection and mobilization/demobilization. 36. Thus, the assessee has duly deducted TDS on the above payments and deposited the same, as is evident from the TDS summary on PB pg. 139-143. The assessee has also submitted ledger confirmation (PB pg. 130), establishing complete reconciliation and genuineness of the expenditure. 37. The ld. AO has made the disallowance of fees for technical services of Rs. 26,79,000/- paid to M/s. Pioneer Inspection services and ....
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....ed the complete particulars of the payee including PAN AARFP3868Q, registered address B47/1 Bhagyoday Society, Sector-12, Kharghar, Navi Mumbai-410210, and GST registration 27AARFP3868Q1Z1. The assessee has also placed on record the payee's ITR for AY 2019-20 (PB 144). These details conclusively prove the identity and existence of the service provider. Once the assessee has established identity, genuineness of services and payment through proper channels with TDS deduction, the assessee's burden under law stands fully discharged. The payee's subsequent non- filing, if any, cannot be a ground to disallow an otherwise genuine business expenditure. Point 3. The assessee failed to discharge the onus squarely upon it of establishing what service was rendered in lieu of fee claimed to be paid and as to how the payment was wholly related to the business under section 37(1) of the Act. The allegation that the assessee failed to establish what services were rendered, or how the payment was wholly for business purposes, is contrary to the detailed material already furnished during assessment proceedings. The assessee has clearly explained the nature of its rig-operations business, i....
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....l pronouncement wherein it has been held that no addition can be made on the ground that notices issued u/s. 133(6) of the Act were not replied/complied- Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Limited, 1986 (3) TMI 3 Bombay High court in the case of CIT Vs. M/S Nikunj Eximp Enterprises Pvt Ltd., 2013 (1) TMI 88 Point 6 to 8 The AO alleges that the assessee has not furnished sufficient supporting documents to justify the claim of expenses paid to Pioneer Inspection Services. According to the AO, no agreement, email correspondence, or other documentary evidence was filed to show why these services were required, what specific work was performed, or whether Pioneer possessed the technical competence to render such services. The AO further contends that the assessee failed to demonstrate any business necessity for the expenditure, and therefore, in the absence of such corroborative evidence, the entries in the books and payments through banking channels are not adequate to establish the genuineness of the services. The allegations of the AO in points 6 to 8 are factually incorrect and contrary to the material placed on record. The assessee has already furnis....
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....ing. 41. Every allegation raised by the AO has been specifically met and rebutted with facts on record. The expenditure relates to mandatory technical inspections required for operating and maintaining a DNV-class jack-up rig hired to ONGC, and is therefore wholly and exclusively for the purposes of business. 42. The disallowance made by the AO and confirmed by the CIT(A) is based on conjectures, misreading of documents, and irrelevant considerations such as third-party non-response to section 133(6), which cannot override the documentary evidence submitted by the assessee. 43. Accordingly, the addition of Rs. 26,79,000/- deserves to be deleted in full. 6. We have considered the findings given by the AO in the assessment order and by the ld. CIT(A) in its appellate order. We find that all the grounds of appeal filed by the Revenue as well as raised by the assessee are covered in assessee's own case in ITA Nos.3924 & 3895/Del/2023 for the Assessment Years 2016-17 and 2018-19, vide order dated 30.05.2025. The relevant paragraph of the aforesaid order is reproduced hereunder:- "2. Heard and perused the records. The assessee company is engaged in the business of ma....
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....nd incurred expenses of Rs. 4.08 crore on technical services obtained from JDIL which shows that the assessee company was able to generate additional profit by providing drilling services. 5. We find that the ld. CIT(A) analysed the nature of the services rendered by the assessee, highlighting the acceptance of invoices by ONGC and the corresponding technical know-how fee tax deductions. These deductions were substantiated by the requisite documentation, such as the submission of Form 16A and other evidences that validated the actual rendering of services. Moreover, the CIT (A) highlighted that the services had been accepted and utilized by ONGC, who duly made payments to the assessee for the same. The ld. CIT(A) also noted the deduction of TDS on the payments made for technical services rendered, as evidenced by the quarter-wise Form 16A issued to JDIL, which conclusively demonstrated that the fees paid by the assessee were for legitimate services provided. This highlights the assessee's stance that all payments were appropriately documented and in accordance with the tax provisions. The ld. CIT(A) further observed that the Rig division of the assessee company reported a ....
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....9 through its 5 MW captive power plant which was installed at 22 Milestone, Delhi-Hapur Road, P.O. Jindal Nagar, Ghaziabad for the purpose of utilization of generated electricity at its manufacturing plants located at the same address. During the assessment proceedings, the AO, on the basis of segmental information of primary segments reported in financial statements observed that Power-Electricity Division was showing losses of Rs. 12,79,82,440/- in AY 2016-17 and, accordingly, required the assessee to submit segregated balance sheet and P&L Account for this segment and to establish that the power has actually been supplied. The necessary evidences were filed. It was submitted that there are no separate segment of Power and Electricity division as the segment was not generating any revenue from selling of electricity. That it is only the requirement of auditor to show Power Electricity Division as a separate segment in the financial statements. 8. The ld.CIT(A) has appreciated that no revenue was generated from these reported segments and the electricity generated was used for manufacturing activities on assessee's plants only. More so, the necessity arose out of the fact....