2016 (2) TMI 904 - AT - Income Tax

Deduction under section 80IA - initial assessment year selection - Held that - Choosing of initial assessment year for claiming deduction under section 80IA of the Act in a block of ten years out of fifteen years is with the assessee i.e. it is the option of the assessee to choose the initial assessment year for claiming deduction under section 80IA of the Act. Further the loss claimed by the assessee in respect of eligible business is to be set off against the income of the assessee from other ineligible business as in respect of assessment years and there is not need to notionally carry forward these losses up to the initial assessment year and write off the same out of the profits of eligible business. Disallowance u/s 37 - Held that - CIT (Appeals) has given detailed finding with respect to each and every individual item of the expenses incurred under the head business promotion and as regards the disallowance sustained by the learned CIT (Appeals) the assessee has not been able to give any evidence to prove that these expenses were incurred wholly and exclusively for the purposes of business. Wherever required the CIT (Appeals) has given relief to the assessee. We hereby confirm the order of the learned CIT (Appeals) in this regard. Disallowance of rental expenses - Held that - We are in agreement with the findings of the learned CIT (Appeals) that even though the sister concerns have not paid their part of rental expenses for using the premises but to arrive at the correct computation of taxable income of the assessee it would be necessary to claim deduction on account of rental expenditure to that extent which is only attributable to the assessee company

Summary

Issues Involved:
1. Deduction under Section 80IA of the Income Tax Act, 1961.
2. Disallowance under Section 37(1) of the Income Tax Act, 1961.
3. Disallowance of rental expenses.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IA of the Income Tax Act, 1961:

The main issue revolves around the assessee's claim for deduction under Section 80IA of the Income Tax Act, 1961, for income earned from wind power generation projects. The Assessing Officer (AO) disallowed the deduction, arguing that brought forward losses from assessment years 2004-05 to 2006-07 should be set off against the income from the eligible business before claiming the deduction. The AO relied on the decision of the Ahmedabad Tribunal in the case of ACIT Vs. Goldmine Shares & Finance Pvt. Ltd., 113 ITD 209 (Ahd).

The assessee contended that as per Section 80IA(2), the deduction can be claimed for any ten consecutive assessment years out of fifteen years from the year in which the undertaking begins to operate. The assessee chose 2008-09 as the initial year, asserting that losses prior to this year should not be considered. The CIT (Appeals) agreed with the assessee, stating that the initial assessment year is at the option of the assessee and only the losses from the initial assessment year should be considered for deduction purposes.

The Tribunal upheld the CIT (Appeals) decision, referencing judgments from the Madras High Court in Velayudhaswamy Spinning Mills (P) Ltd. and the Karnataka High Court in CIT Vs. Anil H. Lad. It was concluded that the assessee has the option to choose the initial assessment year and that losses prior to this year, which have already been set off against other income, should not be brought forward.

2. Disallowance under Section 37(1) of the Income Tax Act, 1961:

The AO disallowed expenses amounting to Rs. 2,45,872/- under Section 37(1), considering them to be for unlawful purposes. The CIT (Appeals) partially allowed the assessee's appeal, reducing the disallowance to Rs. 77,947/- after verifying the nature of the expenses.

The Tribunal confirmed the CIT (Appeals) decision, noting that the assessee failed to provide evidence that the disallowed expenses were incurred wholly and exclusively for business purposes. The detailed examination by the CIT (Appeals) was upheld, and the disallowance under Section 37(1) was sustained.

3. Disallowance of rental expenses:

The AO disallowed 60% of the rental expenses claimed by the assessee, amounting to Rs. 15,67,116/-, on the grounds that the expenses were attributable to the assessee's sister concerns. The CIT (Appeals) upheld the AO's decision, stating that the premises were used by three companies, and the rental expenses should be bifurcated accordingly.

The Tribunal agreed with the CIT (Appeals), emphasizing that for accurate computation of taxable income, only the rental expenses attributable to the assessee should be claimed. The disallowance of 60% of the rental expenses was upheld, as the sister concerns also used the premises.

Conclusion:

The Tribunal dismissed both the appeals filed by the Revenue and the Cross Objection filed by the assessee, confirming the decisions of the CIT (Appeals) on all issues. The judgment emphasized the assessee's right to choose the initial assessment year for Section 80IA deductions and upheld the disallowances under Sections 37(1) and rental expenses based on the evidence and detailed findings of the CIT (Appeals).