2011 (1) TMI 39 - AT - Income Tax

Deduction u/s 80IA - inclusion of insurance / interest receipts for the purpose of section 80IA - business receipt- dis allowance u/s 14A - Held that - the plea of the assessee regarding claim of deduction u/s 80IB in respect of insurance claim receipt, was accepted. The provisions of section 80IA are in para materia in section 80IB of the Act. Spot king India Ltd. (2009 -TMI - 34367 - DELHI HIGH COURT) being a decision rendered by the jurisdictional High Court of Delhi, is, as such squarely applicable. - Khemka Container Ltd. (2004 -TMI - 10421 - PUNJAB AND HARYANA High Court) relied by the AO, distinguished. In the return of income filed, a suo moto disallowance of expenses to the tune of ₹ 173038 had been made by the assessee u/s 14A of the Act. In the assessment order, the AO made a disallowance of ₹ 3218475 by applying the method provided in Rule 8D of the I.T. Rules, 1962. This was done without pointing out any inaccuracy in the method of apportionment or allocation of expenses, as adopted by the assessee. - It was the case of the assessee that to earn such dividend income, no direct expenditure was required and no expenses were incurred to make investment of surplus amounts in mutual funds. The suo moto disallowance had, however, been made by the assessee keeping in consideration, the provisions of section 14A of the Act. - Revenue appeal dismissed.

Summary

Issues:
1. Deduction u/s 80IB for insurance receipts
2. Disallowance u/s 14A of the I.T. Act

Issue 1: Deduction u/s 80IB for insurance receipts

The department appealed against the CIT(A)'s order directing the AO to include insurance claim amounts in the Dadra and Samba units for calculating deduction u/s 80IB. The AO excluded interest income, claims received, miscellaneous receipts, excess provisions, and depreciation from the turnover. The CIT(A) allowed miscellaneous receipts, excess provisions, and depreciation as directly related to eligible units. Regarding interest income, the AO excluded it, citing "Pandian Ltd. vs. CIT," while the CIT(A) relied on "Spot King India Ltd." The tribunal upheld the CIT(A)'s decision, stating that "Spot King India Ltd." is applicable as a jurisdictional High Court decision, rejecting the department's appeal.

Issue 2: Disallowance u/s 14A of the I.T. Act

The AO disallowed expenses under section 14A using Rule 8D, but the CIT(A) restricted it, considering the assessee's self-disallowed expenses. The department challenged this decision. The tribunal noted the exempt dividend income and the AO's disallowance without proving inaccuracy in the assessee's method. It was argued that Rule 8D was incorrectly applied without AO's satisfaction. Citing precedents like "CIT vs. Hero Cycles" and "ACIT vs. Eicher Ltd.," the tribunal held that the burden is on the AO to establish the nexus of expenses with exempt income. Relying on various cases, the tribunal confirmed the CIT(A)'s decision, rejecting the department's appeal.

In conclusion, the tribunal dismissed the department's appeal, upholding the CIT(A)'s decisions on both issues. The judgment provides a detailed analysis of the application of relevant legal provisions and precedents in determining the eligibility for deductions and disallowances under the Income Tax Act.