2019 (3) TMI 1917 - AT - Income Tax

Disallowance u/s. 80IA - whether the amalgamating company i.e. Shanti Processing Ltd. was eligible for claiming u/s. 80IA? - HELD THAT - 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. As demonstrated from the above facts and circumstances that the assessing officer has disallowed the claim of the assessee on presumption basis that addition 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.14A - assessee had submitted that it had not used borrowed fund for making investment and accordingly no part of interest was required to be disallowed by invoking the provision of section 14A - HELD THAT - After consideration of above facts and detailed findings in the order of the CIT(A), we are of the view that CIT(A) has rightly held that assessee was having ample interest free fund, therefore, no disallowance in respect of interest expenditure is to be made in the case of assessee by invoking the provision of section 14A of the act. CIT(A) has restricted the disallowance out of administrative expenditure to the extent of ₹ 2 lacs after taking into consideration the claim of the assessee that no administrative expenditure has been incurred in earing the exempt income. On this issue during the course of appellate proceedings before us, the ld. counsel has also placed reliance on the decision of Pr. CIT vs. Sintex Industries Ltd. 2018 (3) TMI 1448 - SC ORDER - we observe that ld. CIT(A) has rightly restricted the disallowance of administrative expenditure to the amount of ₹ 2 lacs after taking into consideration the nature of investment made by the assessee and the nature of expenses incurred. Accordingly, we do not find any merit in this ground of appeal of the Revenue, therefore, the same is dismissed.

Summary

Issues Involved:
1. Disallowance of deduction under Section 80IA.
2. Disallowance under Section 14A.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80IA:

The primary issue revolves around the disallowance of a deduction claimed under Section 80IA of ?3,96,92,887/-. The assessing officer noted that the power plant was not new and was formed by transferring old and previously used machinery, which constituted more than 90% of the total value of the plant. Consequently, the assessing officer disallowed the claim, arguing that the power plant was already used by Shanti Processing Ltd., which had amalgamated with the assessee company.

Upon appeal, the CIT(A) allowed the assessee's claim, noting that the plant and machinery were new and purchased by Shanti Processor Ltd. before amalgamation. The CIT(A) emphasized that the assessing officer did not provide evidence to substantiate his claim that the machinery was old. The CIT(A) also noted that similar deductions were allowed in previous assessment years (2009-10 and 2010-11), indicating consistency in the assessee's eligibility for the deduction.

The ITAT upheld the CIT(A)'s decision, referencing a previous decision by the Co-ordinate Bench of the ITAT, which found that the entire plant was new and the machinery was purchased by Shanti Processor Ltd. before 01/04/2005. The ITAT reiterated that the assessing officer's disallowance was based on presumption without evidence. The ITAT concluded that the provisions of Section 80IA(12) apply, allowing the amalgamated company to claim the deduction as if the amalgamation had not occurred, provided the amalgamating company was eligible for the deduction.

2. Disallowance under Section 14A:

The second issue concerns the disallowance of ?94,21,047/- under Section 14A, which was restricted to ?2,00,000/- by the CIT(A). The assessing officer observed that the assessee received dividend income of ?2,13,32,018/-, which was exempt from tax, and did not show any expenses incurred to earn this income. The assessee argued that the investments were made from owned funds, and no disallowance was necessary.

The CIT(A) partly allowed the appeal, restricting the disallowance to ?2,00,000/- for administrative expenses, considering that the assessee had ample interest-free funds (?263.96 crores in share capital and reserves) compared to the investment in shares (?34.26 crores). The CIT(A) concluded that no interest expenditure disallowance was warranted under Section 14A.

The ITAT upheld the CIT(A)'s decision, noting that the assessee had sufficient interest-free funds, and no part of the interest expenditure needed disallowance. The ITAT agreed with the CIT(A)'s restriction of the disallowance to ?2,00,000/- for administrative expenses, considering the nature of the investment and expenses incurred. The ITAT also referenced the Supreme Court decision in Pr. CIT vs. Sintex Industries Ltd., supporting the CIT(A)'s findings.

Conclusion:

The ITAT dismissed the revenue's appeal on both issues, affirming the CIT(A)'s decisions. The ITAT found no infirmity in the CIT(A)'s conclusions regarding the eligibility for deduction under Section 80IA and the restriction of disallowance under Section 14A. The judgment was pronounced in open court on 27-03-2019.