2015 (7) TMI 1202 - AT - Income Tax

Business expenses claimed in the absence of likelihood of any business income - Held that - The assessment orders for the Assessment Year A.Y. 2008-09 as well as for the A.Y. 2010-11 was passed u/s 143(3) of the Income Tax Act, 1961 (the Act) and the income in question was assessed under the head income from business . Thus for the immediate preceding year and the subsequent year the AO accepts the assessee s stand that business has commenced. The purpose for which the assessee company was set up, is to develop power and other infrastructure projects, either directly or indirectly, through special purpose vehicles (SVPs) by participating in the equity share holding and management of the project companies. The First Appellate Authority has on the ground of consistency allowed the claim of the assessee. We find no infirmity in this order of the Ld.CIT(A). Hence we uphold the same and dismiss this ground of Revenue. Addition u/s 14A - Held that - The assessee has shown turnover from execution of contracts. In our view this is not material as the investment in this case is made in the form of SPVs to undertake contracts and thus trade investment. Applying the propositions laid down in this case law to the facts of the case, we hold that no disallowance can be made u/s 14A of the Act.

Summary

Issues:
- Disallowance of business expenses
- Initiation of penalty proceedings under section 271(1)(c)
- Disallowance under section 14A for exempt income

Disallowance of Business Expenses:
The appeal was filed by the Revenue against the order of Ld.CIT(A)-V, New Delhi for the Assessment Year 2009-10. The appellant company was engaged in developing power and other infrastructure projects through special purpose vehicles. The Assessing Officer (AO) completed the assessment at an income higher than the returned loss, making various additions and disallowances. The appellant contended that the AO did not follow natural justice principles, disallowed expenses claimed as business expenditure, and initiated penalty proceedings under section 271(1)(c). The AO did not object to the admission of additional evidence filed by the appellant during the appeal proceedings. The First Appellate Authority allowed the appeal of the assessee, emphasizing that the business had commenced based on previous assessments. The Tribunal upheld the order of the Ld.CIT(A) citing consistency in assessments for the preceding and subsequent years.

Initiation of Penalty Proceedings under Section 271(1)(c):
The AO initiated penalty proceedings under section 271(1)(c) against the appellant. However, during the appeal proceedings, the appellant submitted additional evidence to prove that the business was being carried out, which the AO did not resist. The AO's argument regarding the application of section 14A on exempt income was also considered. The Tribunal held that the AO's failure to raise specific queries on the business commencement and the acceptance of business income in previous and subsequent assessments supported the appellant's claim. The Tribunal dismissed the Revenue's appeal on this ground.

Disallowance under Section 14A for Exempt Income:
The AO did not make any disallowance under section 14A. The Revenue contended that the Ld.CIT(A) overlooked the provisions of section 14A during the appellate proceedings. The Tribunal referenced a case law involving a similar scenario where trade investments were made by the assessee in subsidiary companies for commercial expediency. The Tribunal found that no disallowance could be made under section 14A as the investments were trade investments. The Tribunal dismissed the Revenue's appeal on this ground as well, following the principles established in the referenced case law.

In conclusion, the Tribunal upheld the Ld.CIT(A)'s order, dismissing the Revenue's appeal on all grounds related to the disallowance of business expenses, initiation of penalty proceedings under section 271(1)(c), and disallowance under section 14A for exempt income.