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2020 (3) TMI 232 - HC - Income TaxAddition u/s 14A - computing book profit under Section 115JB - HELD THAT - No addition in the book profit can be made on the basis of the calculations worked out under section 14A - See GUJARAT STATE FERTILIZERS CHEMICALS LTD. 2013 (7) TMI 701 - GUJARAT HIGH COURT and GUJARAT FLUOROCHEMICALS LTD 2019 (7) TMI 541 - GUJARAT HIGH COURT Grant of subsidy - Claim of depreciation - HELD THAT - We are in agreement with the concurrent finding of fact arrived at by the CIT(A) as well as the Tribunal as the assessee did not acquire any fixed assets on which depreciation has been claimed and therefore grants cannot be reduced from cost of fixed asset of the assessee. Therefore appeal stands dismissed qua question No.2 c proposed by the Revenue. Interest income - business instead OR income from other sources - HELD THAT - Interest earned by the assessee was directly related to the business.
Issues Involved:
1. Remanding the proceedings for fresh consideration of disallowance under Section 14A of the Income Tax Act, 1961. 2. Deleting the addition under Section 14A while computing book profit under Section 115JB. 3. Deleting the addition of ?3750 Lacs on account of capital grant. 4. Treating interest income of ?187.91 Lacs as business income instead of income from other sources. Issue 1: Remanding the Proceedings for Fresh Consideration of Disallowance under Section 14A The Revenue questioned whether the Income Tax Appellate Tribunal (ITAT) was justified in remanding the proceedings to the Assessing Officer (AO) for fresh consideration of disallowance under Section 14A, with a direction that if disallowance is to be made, it should not exceed the exempt income earned by the assessee during the year. This issue was admitted as a similar question had been admitted in the assessee's own case for the assessment year 2007-08. Issue 2: Deleting the Addition under Section 14A while Computing Book Profit under Section 115JB The AO added the disallowance under Section 14A to the book profit while computing taxable income under Section 115JB. The CIT(A) deleted this addition based on the decision in Alembic Ltd., stating that provisions of Section 14A cannot be applied to clause (f) of Explanation to Section 115JB. The ITAT upheld this decision, relying on the Special Bench decision in ACIT vs. Vineet Investment and the decision in Alembic Ltd. The High Court confirmed that no addition to book profit can be made based on Section 14A calculations, referencing the case of Principal Commissioner of Income Tax vs. Gujarat Fluorochemicals Ltd. Consequently, this appeal issue was dismissed. Issue 3: Deleting the Addition of ?3750 Lacs on Account of Capital Grant The AO estimated 15% of the grant of ?2500 Lacs, amounting to ?3750 Lacs, as income, asserting that the grant received in earlier years should be considered as income. The CIT(A) deleted this addition, stating that the assessee did not acquire any fixed assets on which depreciation was claimed, thus such grants cannot be reduced from the cost of fixed assets. The ITAT upheld this decision, noting that the grants received were apportioned among subsidiary companies and converted into equity share capital by the State Government. The High Court agreed with the concurrent findings, dismissing the appeal on this issue. Issue 4: Treating Interest Income of ?187.91 Lacs as Business Income Instead of Income from Other Sources The AO treated the interest income as income from other sources. However, the CIT(A) and ITAT held that the interest income should be treated as business income, as it was directly related to the business activities of the assessee. The ITAT noted that the interest earned was from loans and advances related to the business. The High Court found no substantial question of law arising from this finding and dismissed the appeal on this issue. Conclusion The appeal was admitted only for the issue concerning the remanding of proceedings for fresh consideration of disallowance under Section 14A. The other issues were dismissed based on the findings and precedents referenced by the CIT(A) and ITAT. The matter is to be heard with Tax Appeal No.548 of 2017.
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