2016 (5) TMI 1539 - AT - Income Tax

Disallowance u/s 14A - assessee has argued that no administrative expenses were incurred to earn the exempt income therefore no expenses are required to be deducted in view of the provision u/s. 14A - HELD THAT - The balance sheet of both the years are on the file as annexure - 1 and 2 which speaks that the assessee was having sufficient surplus amount in comparison to the investment made in mutual fund to earn the exempt income. Therefore, the said circumstances and in view of the above mentioned law settled in Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT . We are of the view that the claim of the assessee is required to be examined a fresh in accordance with law. Therefore the finding of the learned CIT(A) on this account has been ordered to be set aside and learned Assessing Officer is hereby directed to decided the matter afresh in accordance with law. This issue is decided in favour of the Assessee against the Revenue. In the result the appeals of the assessee are allowed. Depreciation on plant and machinery as transferred from the holding company to subsidiary company -provisions of explanation 6 to sub-section (1) of section 43 - WDV in the books or in the block of assets of the transferor company shall be considered as the actual cost in the hand of the transferee company in respect of such assets - HELD THAT - Considering the facts of the case before us we agree that the case of the assessee is duly covered by the case of Essar Oil Ltd. 2011 (7) TMI 1371 - BOMBAY HIGH COURT . Therefore, we do not find any infirmity and illegality in the finding given by the learned CIT(A), hence we dismissed the appeal filed by the revenue.

Summary

Issues:
1. Disallowance of expenses under section 14A of the Income Tax Act, 1961.
2. Interpretation of Explanation 6 to sub-section (1) of section 43 regarding transfer of assets from a holding company to a subsidiary company.

Issue 1: Disallowance of expenses under section 14A:
The case involved appeals by the assessee and revenue regarding disallowance of expenses under section 14A of the Income Tax Act, 1961. The assessee, engaged in automobile manufacturing, challenged the disallowance of expenses incurred to earn exempt income. The Assessing Officer did not connect the expenses to exempt income, leading to the appeal. The tribunal noted that no expenses were shown to earn the exempt income, and the Assessing Officer's order lacked specifics on expenses incurred. Relying on precedent and assessing the balance sheets, the tribunal directed the Assessing Officer to reevaluate the matter in accordance with the law. The tribunal ruled in favor of the assessee, allowing the appeals.

Issue 2: Interpretation of Explanation 6 to sub-section (1) of section 43:
The revenue raised a point regarding the transfer of assets from a holding company to a subsidiary company, questioning the application of Explanation 6 to sub-section (1) of section 43. The tribunal analyzed the provisions and highlighted that the exemption under section 47(iv) ceases if the subsidiary company is no longer a subsidiary within 8 years of the transfer. The tribunal emphasized that subsequent events impact the application of these provisions. Referring to relevant sections and case law, the tribunal upheld the CIT(A)'s decision, stating that the case was covered by precedent. Consequently, the tribunal dismissed the revenue's appeal and allowed the assessee's appeals.

In conclusion, the tribunal addressed the issues of disallowance of expenses under section 14A and the interpretation of Explanation 6 to sub-section (1) of section 43 in a detailed manner, providing a comprehensive analysis and ruling in favor of the assessee in both instances.