2019 (2) TMI 981 - AT - Income Tax

Deduction u/s 80IC and deduction u/s 80IB denied - reopening of assessment - whether when the deductions under section 80IC as well as under section 80IB of the Act have been granted in the initial assessment years, the same could not be rejected for the subsequent assessment years unless the relief allowed for the initial year was withdrawn? - Held that - Once deduction is granted in the initial assessment year, the same would continue for the period of ten consecutive years unless the relief for initial assessment year is also withdrawn. We are conscious of the fact that in coming to such decision, the SIMPLE FOOD PRODUCTS PVT. LTD. VERSUS COMMISSIONER OF INCOME TAX-II, NAGPUR 2017 (8) TMI 646 - BOMBAY HIGH COURT did notice the absence of the Revenue to establish that for the subsequent assessment years in dispute, the facts were different from the facts on which the claim for deduction in the initial year was allowed. Clearly, in the instant year when the claim of deduction is rejected by the Assessing Officer, the relief allowed in the initial assessment year has not been withdrawn. Mere initiation of proceedings under Section 148 of the Act to reopen the assessment of the past year cannot be understood to mean that the claim is withdrawn . Therefore, in our view, the Assessing Officer could not have rejected the claim for deduction under Sections 80IB as well as 80IC of the Act in the subject assessment order because the relief allowed in the initial assessment year was not withdrawn at the time of such rejection in the instant year. Disallowance u/s 14A - Held that - Disallowance under Section 14A of the Act cannot exceed the exempt income is being generally accepted by the Benches of the Tribunal. The learned representative for the respondent-assessee submitted that the respondent does not wish to press its Cross-objection once the view taken by the CIT(A) is accepted. We find no reasons to distract from the stand taken by the CIT(A) on this aspect, which is in conformity with the judgment of the Hon ble Delhi High Court in the case of Cheminvest Ltd. vs CIT 2015 (9) TMI 238 - DELHI HIGH COURT . MAT - direction by the CIT(A) not to include the disallowance u/s. 14A for the purpose of computing tax liability u/s. 115JB - Held that - This decision of the CIT(A) is consistent with the decision of the Special Bench of the Tribunal in the case of Vireet Investment (P.) Ltd., 2017 (6) TMI 1124 - ITAT DELHI

Summary

Issues Involved:
1. Deduction under Section 80IC of the Income Tax Act.
2. Deduction under Section 80IB of the Income Tax Act.
3. Disallowance under Section 14A read with Rule 8D.
4. Inclusion of disallowance under Section 14A for computing tax liability under Section 115JB.

Issue-wise Detailed Analysis:

1. Deduction under Section 80IC:
The Revenue challenged the CIT(A)'s decision to allow the deduction under Section 80IC, arguing that the preparation of Ujala Supreme by diluting Acid Violet 49 Dye with water does not constitute manufacturing or producing an article with a different chemical composition or integral structure as defined under Section 2(29)(BA) of the Act. The Assessing Officer had denied the deduction on the grounds that the activity did not amount to 'manufacture' and that the product was specified in Schedule XIII, making it ineligible for deduction. However, the Tribunal upheld the CIT(A)'s decision, emphasizing that the deductions granted in the initial assessment years could not be rejected in subsequent years unless the relief allowed for the initial year was withdrawn. This principle was supported by the Bombay High Court's judgment in Simple Food Products (P) Ltd. vs. CIT, which stated that once a deduction is granted in the initial assessment year, it continues for the specified period unless the relief for the initial year is withdrawn.

2. Deduction under Section 80IB:
The Revenue also contested the CIT(A)'s decision to allow the deduction under Section 80IB, arguing that the preparation of Ujala Supreme did not amount to manufacturing or producing an article or thing. The Assessing Officer had denied the deduction for the Wayanad and Himachal units on similar grounds as those for Section 80IC. The Tribunal upheld the CIT(A)'s decision, reiterating the principle that deductions granted in the initial assessment years could not be rejected in subsequent years unless the relief for the initial year was withdrawn. The Tribunal noted that the initial assessment years for these claims had not been disturbed, and thus, the deductions could not be denied in the current year.

3. Disallowance under Section 14A read with Rule 8D:
The Revenue appealed against the CIT(A)'s decision to restrict the disallowance under Section 14A read with Rule 8D to ?8,84,988, which was the amount of exempt income earned, instead of the Assessing Officer's disallowance of ?34,15,155. The Tribunal supported the CIT(A)'s decision, agreeing that the disallowance under Section 14A cannot exceed the exempt income earned, in line with the Delhi High Court's judgment in Cheminvest Ltd. vs. CIT.

4. Inclusion of Disallowance under Section 14A for Computing Tax Liability under Section 115JB:
The Revenue raised an additional ground, arguing that the CIT(A) erred in directing the Assessing Officer not to include the disallowance under Section 14A for computing tax liability under Section 115JB, relying on the Bombay High Court's decision in CIT vs. JSW Energy Ltd. The Tribunal upheld the CIT(A)'s decision, consistent with the Special Bench's decision in Vireet Investment (P.) Ltd., which stated that disallowance under Section 14A should not be added back for computing book profits under Section 115JB.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The deductions under Sections 80IC and 80IB were allowed, the disallowance under Section 14A was restricted to the amount of exempt income, and the disallowance under Section 14A was not included for computing tax liability under Section 115JB. The order was pronounced in the open court on 30th November 2018.