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2018 (12) TMI 1679 - AT - Income TaxDisallowance u/s. 14A - assessee has not earned any exempt income - HELD THAT - Section 14A(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 other total income under the act. However, in the case of the assessee, it has not made any claim or exemption of any income from payment of tax for the year under consideration - See SHAH ALLOYS LTD. OTHERS VERSUS THE JCIT OTHERS 2015 (4) TMI 884 - ITAT AHMEDABAD and COMMISSIONER OF INCOME TAX I VERSUS CORRTECH ENERGY PVT. LTD. 2014 (3) TMI 856 - GUJARAT HIGH COURT we consider that the disallowance u/s. 14A r.w.s Rule 8D cannot be made as the assessee has not earned any exempt income. Accordingly, this ground of appeal of the revenue is dismissed. Disallowance u/s. 35D - HELD THAT - Claim of the assessee as 1/5 related to expenses IPO F.Y. 2007-08 were never disallowed by the assessing officer in any of the earlier years. Even, in the assessment year 2008-09 and 2009-10, this deduction was allowed. We have also noticed that 1/5 expenses of ₹ 52,50,805/- to the amount of ₹ 1111226/- was allowed by the CIT(A) in assessment year 2008-09 and 2009-10. Therefore, we justify the decision of ld. CIT(A) to allow the claim of preliminary expenses to the amount of ₹ 20,11,387/- consisting of ₹ 11,11,226 9,00,161. After perusal of the above facts, we observed that claim of the assessee to the amount of ₹ 11,11,226/- was never disallowed in any of the earlier years and similarly for the assessment year 2008-09 and 2010-11 the Ld.CIT(A) had allowed the deduction of ₹ 900161/-. In the light of the fact and findings reported in the decision of the Ld.CIT(A), we do not find any merit in the ground of appeal of the revenue therefore the same is dismissed. Deemed interest disallowance u/s. 36(1)(iii) - HELD THAT - After referring the assessment year 2009-10, the assessing officer was of the view that assessee has given interest free advances to M/s. Red Event India Pvt. Ltd. and this amount was advanced for non-business purposes. Therefore, considering the average rate of interest @ 12% on average of balance of 20 lacs after stating that ₹ 15 lascs received during the year, the assessing officer has made disallowance to the amount of ₹ 21,0000/-. As noticed that assessee had given the aforesaid amount to Red Event India Pvt. Ltd. for managing the function related to the customers of the assessee s company and such contract was cancelled, thereafter, the assessee had received back such amount from them. In the light of the above facts we are inclined with the decision of the CIT(A) that assessee had used these borrowed funds for the purpose of business of the assessee. Therefore, we do not find any error in the decision of ld. CIT(A) on this issue. Accordingly, this ground of appeal of the revenue is dismissed. Addition u/s. 80IA - HELD THAT - AO disallowed the claim of deduction on presumption basis without considering the relevant legal provision as elaborated in the findings of the Ld.CIT(A). The relevant legal provision has already been elaborated by the Ld. CIT(A) in his findings that as per the provisions of section 80IA(12) when any undertaking of an Indian Company which is entitled to deduction under this section is transferred before the expiry of the period specified in this section to another Indian Company then as per clause (b) the provision of this section shall apply to the amalgamated Company as they would have applied to the amalgamating Company if the amalgamation had not taken place and the provisions of subsection (12) would only apply if the amalgamating Company was eligible for claiming deduction u/s 80IA. It is demonstrated from the above facts and circumstances that the assessing officer has disallowed the claim of the assessee on presumption basis that addition of ₹ 71,12,34,167- was old plant and machinery without bringing on record evidence to substantiate that specified machinery was purchased by Shanti processor Ltd and the assessing officer has also failed to disproved the material fact that similar claim was allowed to the assessee in the assessment year 2009-10 on fulfilling of all the conditions. Disallowance u/s. 35D - HELD THAT - We have noticed that during the year under consideration the ld. CIT(A) has simply stated that he is not agreed with the finding of his predecessor or in allowing the claim without specifically disproving the basis of claim which has been continually being allowed by the Ld. CIT(A) from assessment year 2008-09 to assessment year 2010-11, therefore, we consider CIT(A) is not justified. Therefore , we allow the claim of the assessee to the amount of ₹ 9,00,161/- out of the preliminary expenses of ₹ 52,50,805/- pertaining to assessment year 2008-09 as allowed in the preceding assessment year on identical issue and identical facts. In respect of the remaining claim we have noticed that in assessment year 2009-10 similar claim was disallowed by ld. CIT(A) in respect of ₹ 3,40,380/- and similarly to the amount for the claim of ₹ 2,52,504/- for assessment year 2010-11 the ld. CIT(A) has disallowed the claim of as the assessee has failed to substantiate that the said expenditure were incurred for the extension of its undertaking or in connection with setting up of new unit, we do not find any change in this facts during the year under consideration, therefore, the disallowance up to this amount is justified on the reason specified in the preceding year in the order of the Ld.CIT(A). Therefore, this ground of the assessee on this issue is partly allowed. Disallowance of interest expenses - HELD THAT - In view of the detailed finding as elaborated in the decision of ld. CIT(A), that the interest free funds enjoyed by the assessee were far in excess of the interest free advances made by assessee and after considering the decsion of CIT vs. Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT we do not find any error in the decision of Ld.CIT(A). Therefore, the appeal of the revenue on this issue is dismissed.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance under Section 35D of the Income Tax Act. 3. Deemed interest disallowance under Section 36(1)(iii) of the Income Tax Act. 4. Deemed rental income. 5. Deduction under Section 80IA of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A: The assessing officer disallowed ?54,50,016 under Section 14A read with Rule 8D, arguing that the assessee incurred expenses for earning exempt income. The assessee contended that no borrowed funds were used for investments and no exempt income was earned. The CIT(A) deleted the disallowance, citing the jurisdictional High Court's decision in Corrtech Energy Pvt. Ltd., and the ITAT upheld this, noting the assessee had sufficient non-interest-bearing funds and no exempt income was earned during the year. 2. Disallowance under Section 35D: The assessing officer disallowed ?25,69,571 claimed as preliminary expenses under Section 35D, stating that IPO expenses were capital in nature and not eligible for deduction. The CIT(A) partly allowed the appeal, permitting ?20,11,387 based on previous years' allowances. The ITAT upheld this decision, noting the consistency in allowing these expenses in earlier years. 3. Deemed Interest Disallowance under Section 36(1)(iii): The assessing officer disallowed ?2,10,000 as deemed interest on advances to M/s. Red Event India Pvt. Ltd., considering them non-business purposes. The CIT(A) allowed the appeal, noting that the advances were for business purposes, and the ITAT upheld this, emphasizing the use of borrowed funds for business. 4. Deemed Rental Income: The assessing officer added ?1,68,000 as deemed rental income for two flats, not accepted as used for business purposes. The CIT(A) confirmed this addition, stating the assessee failed to provide evidence of business use. The ITAT upheld this decision, noting the lack of substantiating evidence from the assessee. 5. Deduction under Section 80IA: The assessing officer disallowed ?3,03,57,497 claimed under Section 80IA, arguing the power plant was not new and formed by transferring old machinery. The CIT(A) allowed the claim, stating the plant and machinery were new when acquired by the amalgamating company and the provisions of Section 80IA(12) applied. The ITAT upheld this, noting the plant was new and the deduction was allowed in previous years. Separate Judgments: The judgment was delivered as a common order without separate judgments by different judges. The ITAT considered the consistency of previous years' decisions and the factual matrix of each issue, leading to a thorough and detailed analysis of each ground of appeal.
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