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2019 (6) TMI 594 - AT - Income TaxDisallowance u/s.80-IA - AO found that there was no profit of such eligible unit in the year under consideration - Whether the assessee was required to carry forward the loss of the eligible unit incurred by it before the initial assessment year for the set off against the profit of the subsequent year of such eligible unit if any? - HELD THAT - A plain reading of the above provisions reveals that the assessee can claim the set off of the loss incurred by it in respect of eligible unit before the initial assessment year against the income of non-eligible units as per the provisions of law. Thus there remains no ambiguity that the assessee was not required to carry forward losses of the eligible unit before the initial assessment year to claim the set off such losses against the income of the subsequent assessment years. See VELAYUDHASWAMY SPINNING MILLS P. LTD. 2010 (3) TMI 860 - MADRAS HIGH COURT loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business, as no such mandate is provided in section 80-IA(5) Allocate the interest expense incurred by it to the unit eligible for deduction u/s 80-IA - HELD THAT - We note that the assessee s own fund exceeds the amount invested in the eligible unit. This fact can be verified from the financial statement of the assessee, which is available. Therefore it can be presumed that the assessee has invested own fund in the eligible unit. Accordingly, there cannot be any question of allocation of the interest cost incurred by the assessee in respect of other non-eligible units to eligible unit. No interest expense claimed by the assessee can be allocated to the unit eligible for deduction u/s 80-IA. Accordingly, we are of the view that the order passed by the learned CIT (A) does not require any interference. Accordingly, we uphold the same. Hence the ground of appeal of the Revenue is dismissed. Disallowance u/s 14A - HELD THAT - We hold that the disallowances in the present case u/s14-A read with rule 8D cannot exceed the amount of dividend income for ₹ 1,28,529.00 only. Hence we do not find any infirmity in the order of the learned CIT (A). Thus the ground of appeal of the Revenue is dismissed. Addition u/s 36(1)(iii) - interest expenses attributable to capital working progress - HELD THAT - Identical issue was decided by this tribunal in favor of the assessee in its own case in 2018 (12) TMI 1654 - ITAT AHMEDABAD no disallowance of interest expense claimed by the assessee can be made on account of fund invested in the capital work in progress as discussed above. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made
Issues Involved:
1. Deletion of addition on account of disallowance under section 80-IA of the Income Tax Act. 2. Deletion of addition on account of disallowance of deduction under section 14A of the Income Tax Act. 3. Deletion of addition on account of interest on Capital Work in Progress (CWIP) under section 36(1)(iii) of the Income Tax Act. Detailed Analysis: Issue 1: Deletion of Addition on Account of Disallowance under Section 80-IA The Revenue contended that the CIT(A) erred in deleting the addition of ?45,87,046 made by the AO for not allowing the deduction under section 80-IA of the Act. The AO disallowed the deduction on the grounds that there was no profit from the eligible unit in the year under consideration after setting off the brought forward losses and not allocating interest costs to the eligible unit. The CIT(A) reversed the AO's decision, relying on the order of his predecessor for the assessment year 2011-12. The Tribunal upheld the CIT(A)'s order, referencing section 80-IA(5) of the Act and the judgment of the Hon’ble Madras High Court in Velayudhaswamy Spinning Mills (P.) Ltd. v. Assistant Commissioner of Income-tax, which clarified that losses before the initial assessment year should not be carried forward for set-off against subsequent profits. The Tribunal also noted that the assessee's own funds exceeded the investments in the eligible unit, thus no interest cost allocation was required, supported by the judgment of the Hon’ble Bombay High Court in Reliance Utilities and Power Ltd. Issue 2: Deletion of Addition on Account of Disallowance of Deduction under Section 14A The Revenue argued that the CIT(A) erred in deleting the addition of ?35,27,007 made by the AO under section 14A of the Act. The AO had invoked Rule 8D of the Income Tax Rules to disallow expenses related to exempt dividend income of ?1,28,529. The CIT(A) deleted the addition in part, upholding the disallowance only to the extent of the dividend income shown by the assessee. The Tribunal upheld the CIT(A)'s decision, referencing the Tribunal's own ruling in Sagar Yeswantrai Mehta Vs. ACIT, which held that disallowance under section 14A read with Rule 8D cannot exceed the amount of exempt income. The Tribunal also noted that the assessee's own funds exceeded the investments, thus no interest expense disallowance was warranted, supported by judgments from the Hon’ble Bombay High Court in CIT vs. HDFC Bank Ltd and the Hon’ble Gujarat High Court in UTI Bank Ltd. Issue 3: Deletion of Addition on Account of Interest on CWIP under Section 36(1)(iii) The Revenue contended that the CIT(A) erred in deleting the addition of ?1,63,739 made by the AO under section 36(1)(iii) of the Act, attributable to interest expenses on CWIP. The AO had observed that the assessee did not allocate interest expenses to CWIP. The CIT(A) deleted the addition, noting that the assessee's own funds exceeded the amount of CWIP. The Tribunal upheld the CIT(A)'s decision, referencing its own earlier ruling in the assessee's case for the assessment year 2011-12, and supported by judgments from the Hon’ble Bombay High Court in Reliance Utilities and Power Ltd and CIT vs. HDFC Bank Ltd, and the Hon’ble Gujarat High Court in UTI Bank Ltd. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletions of the additions made by the AO under sections 80-IA, 14A, and 36(1)(iii) of the Income Tax Act. The Tribunal's decisions were supported by relevant judicial precedents and the financial position of the assessee.
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