2018 (5) TMI 957 - AT - Income Tax

Disallowance u/s 14A r.w.r.8D - computation of claim - Held that - Lower authorities having ignored the computation of disallowance u/s 14A of the Act given by the assessee, and having proceeded to invoke that provision of Rule 8D(2) for arriving at the disallowance figure u/s 14A of the Act, cannot again make further addition of ₹ 65,537/- (i.e. working given by the assessee). At any stretch of imagination the said specified items cannot be construed as direct expenses incurred for earning dividend income as stated by the ld. CIT(A). Hence we direct the ld. AO to delete the disallowance u/s 14A of the Act to the tune of ₹ 65,537/- made in the first limb of Rule 8D(2) of the rules. With regard to the disallowance made under the third limb of Rule 8D, we direct the ld. AO to consider only those investments that had yielded dividend income in consonance with the decision rendered by this Tribunal in the case of REI Agro Ltd reported in 2013 (9) TMI 156 - ITAT KOLKATA. Accordingly the grounds raised by the assessee for A.Y.2008- 09 are allowed for statistical purposes. Deduction u/s 10A - apportionment of common expenses - Held that - Business of PBC Software (10A unit) is also carried on in the same business premises where other business are carried on. Hence we hold that the ld. CIT(A) had rightly apportioned the common expenses by identifying certain specific expenses thereon and had apportioned the same to 10A unit which in turn had resulted in corresponding reduction in the claim of deduction u/s 10A of the Act. We find no infirmity in the order of the ld. CIT(A) in this regard.

Summary

Issues Involved:
1. Applicability of CBDT Circular No. 21/2015 regarding monetary limits for filing appeals.
2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D.
3. Deduction under Section 10A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of CBDT Circular No. 21/2015:
The primary issue addressed is whether the appeals filed by the Department are maintainable in light of the monetary limits set by CBDT Circular No. 21/2015. The Circular specifies that appeals should not be filed if the tax effect does not exceed ?10,00,000 before the Appellate Tribunal, ?20,00,000 before the High Court, and ?25,00,000 before the Supreme Court. The Circular applies retrospectively to pending appeals. As the tax effect in the Department’s appeals is less than ?10,00,000, the appeals are dismissed as not maintainable. The Tribunal also notes that the Circular is binding on the Revenue, as affirmed by the Supreme Court in the case of Commissioner of Customs vs. Indian Oil Corporation Ltd.

2. Disallowance under Section 14A read with Rule 8D:
The assessee challenged the disallowance made by the Assessing Officer (AO) under Section 14A read with Rule 8D, which pertains to expenses incurred for earning exempt income. The AO had made a disallowance of ?4,16,882 under the third limb of Rule 8D(2). The assessee argued that this disallowance pertains to its 10A unit and should increase the deduction claim under Section 10A. The CIT(A) enhanced the disallowance by an additional ?65,537 identified as direct expenses. The Tribunal found that the lower authorities ignored the assessee’s computation and directed the AO to delete the disallowance of ?65,537 and to consider only those investments that yielded dividend income, in line with the Tribunal’s decision in REI Agro Ltd.

3. Deduction under Section 10A:
The assessee claimed a deduction under Section 10A for its software development and online recruitment service unit, recognized by the Software Technology Parks of India (STPI). The AO observed that common expenses were not properly apportioned between the taxable unit and the 10A unit and computed the deduction using a specific formula. The CIT(A) identified certain common expenses and apportioned them based on the turnover of each unit, reducing the deduction claim. The Tribunal upheld the CIT(A)’s decision, noting that the business of the 10A unit was carried on in the same premises using the same infrastructure as the regular business, justifying the apportionment of common expenses. The Tribunal dismissed the assessee’s appeal on this ground, finding no infirmity in the CIT(A)’s order.

Conclusion:
The Tribunal dismissed the Department’s appeals as not maintainable due to the monetary limits specified in CBDT Circular No. 21/2015. The assessee’s appeals were partly allowed for statistical purposes, with specific directions to the AO regarding the disallowance under Section 14A and the deduction under Section 10A. The decision for the assessment year 2008-09 was applied with equal force to the assessment years 2009-10 and 2010-11, except for variances in figures. The Tribunal pronounced the order on 15.05.2018.