2017 (11) TMI 1965 - AT - Income Tax

Addition being depreciation claimed on civil work of factory building - assessee could not prove the genuineness of the transaction - CIT-A deleted the addition admitting the additional evidence - HELD THAT - Since prima facie the additional evidences submitted by assessee before Ld. first appellate authority were never confronted to Ld. AO and no remand report was called against the same we remit the matter back to the file of Ld. AO to re-appreciate the contentions of the assessee and decide as per law after affording adequate opportunity of being heard to the assessee. The assessee in turn is directed to substantiate his claim in this regard. This ground of revenue s appeal stands allowed for statistical purposes. Addition u/s 14A - expenditure incurred on earning the exempt income by invoking provision of section 14A of the I.T.Act read with rule 8D HELD THAT - We confirm the stand of Ld.CIT(A) firstly because it was noted that own interest free funds of the assessee far exceeded the impugned investments and secondly no exempt income has been earned by the assessee during the year and hence disallowance u/s 14A was not attracted. These facts are nowhere disputed or controverted by the revenue. Our view is fortified by a recent judgment of Hon ble Delhi High Court rendered in PCIT Vs. IL FS Energy Development Co. Ltd. 2017 (8) TMI 732 - DELHI HIGH COURT where the Hon ble court has discussed the issue elaborately in the light of statutory provisions and CBDT circular dated 11/05/2014. Thus we dismiss this ground of revenue s appeal.

Summary

Issues Involved:
1. Deletion of addition made by the A.O of Rs. 3,04,36,209/- being depreciation claimed by the assessee on civil work of factory building.
2. Deletion of addition made by the A.O of Rs. 13,58,162/- being expenditure incurred on earning the exempt income by invoking provision of section 14A of the I.T. Act read with rule 8D.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 3,04,36,209/- for Depreciation on Civil Work:
The revenue challenged the deletion of the addition of Rs. 3,04,36,209/- made by the Assessing Officer (AO) on account of depreciation claimed by the assessee for civil work on the factory building. During the assessment proceedings, the AO had issued a notice under section 133(6) to Teracon Construction India Private Limited, which was returned un-served. The AO noted that certain payments were made to individuals rather than the said company and, due to lack of cogent evidence from the assessee, disallowed the depreciation.

The assessee, in its defense before the Commissioner of Income-Tax (Appeals) [CIT(A)], provided comprehensive details including Income Tax Returns, Registrar of Companies data, cheque clearance certificates, and photographs to substantiate the genuineness of the expenditure. The CIT(A) was convinced by these submissions and deleted the addition. However, the revenue contended that these additional evidences were not confronted to the AO, violating principles of natural justice. The Tribunal agreed with the revenue’s contention and remitted the matter back to the AO for re-evaluation, allowing the revenue’s appeal for statistical purposes.

2. Deletion of Addition of Rs. 13,58,162/- under Section 14A:
The AO disallowed Rs. 13,58,162/- under section 14A read with Rule 8D, comprising of Rs. 12,33,162/- for interest and Rs. 1,25,000/- for expenses, as the assessee had investments of Rs. 5 crores but did not make any suo-moto disallowance. The AO applied Rule 8D despite the assessee not earning any exempt income during the year.

The CIT(A) deleted this disallowance, noting that the assessee had sufficient own funds to cover the investments and no exempt income was earned. The Tribunal upheld the CIT(A)’s decision, referencing the Delhi High Court’s judgment in PCIT Vs. IL&FS Energy Development Co. Ltd., which clarified that disallowance under Section 14A is not applicable if no exempt income is earned during the year. The Tribunal emphasized that the revenue did not dispute these facts and dismissed the revenue’s appeal on this ground.

Cross Objection by the Assessee:
The assessee’s cross objection supported the CIT(A)’s order regarding the disallowance under Section 14A. Since the Tribunal dismissed the revenue’s appeal on this ground, the cross objection was deemed infructuous and dismissed in limine.

Conclusion:
The revenue’s appeal was partly allowed for statistical purposes concerning the depreciation on civil work, as the matter was remitted back to the AO. The appeal regarding the disallowance under Section 14A was dismissed, and the assessee’s cross objection was also dismissed. The order was pronounced in the open court on 08th November, 2017.