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2020 (12) TMI 871 - AT - Income TaxDeduction u/s 80IA - Profit from business of operating and maintaining an infrastructure facility for supply of drinking water - HELD THAT - As decided in own case 2017 (12) TMI 567 - ITAT AHMEDABAD initial assessment year is A.Y. 2005-06 and after thorough examination, the claim of deduction was allowed by the Department. In our understanding of the law without disturbing the claim of the initial assessment year, a similar claim cannot be denied in the subsequent assessment years. Thus we direct the A.O. to allow the claim of deduction u/s. 80IA of the Act. See Katira Construction Ltd. case 2013 (3) TMI 416 - GUJARAT HIGH COURT . Disallowance u/s 14A - Addition of dividend income - HELD THAT - As we can see, assessee has dividend income of ₹ 9,500/- and it is well settled law that no addition can be made more than dividend income. At it is held in the matter of CIT vs. Vision Finstock Ltd. 2017 (7) TMI 1277 - GUJARAT HIGH COURT wherein Jurisdictional High Court has held that disallowance cannot be made more than dividend income - Decided in favour of assessee.
Issues Involved:
1. Entitlement for deduction under Section 80IA of the Income Tax Act. 2. Disallowance of administrative expenses under Section 14A of the Income Tax Act. Detailed Analysis: 1. Entitlement for Deduction under Section 80IA: The primary issue was whether the assessee was entitled to a deduction under Section 80IA of the Income Tax Act. The assessee claimed a deduction for profits derived from the business of operating and maintaining an infrastructure facility for the supply of drinking water. The Assessing Officer (A.O.) denied this claim, asserting that the assessee was merely executing a works contract awarded by the State Government and thus was not eligible for the deduction. This denial was confirmed by the Commissioner of Income Tax (CIT(A)). The assessee argued that the deduction was allowed in the initial assessment year (A.Y. 2005-06) and should continue in subsequent years. The Tribunal referred to the Gujarat High Court's decision in Katira Construction Ltd., which clarified that the amended provisions of Section 80IA(4) did not retrospectively exclude works contracts from eligibility for deductions. The Tribunal concluded that without disturbing the initial year's claim, similar claims cannot be denied in subsequent years. Thus, the A.O. was directed to allow the deduction of ?3,09,59,258/- under Section 80IA. 2. Disallowance of Administrative Expenses under Section 14A: The second issue involved the disallowance of administrative expenses amounting to ?11,93,763/- under Section 14A. The A.O. applied Rule 8D to disallow the expenditure related to earning exempt income. The assessee contended that no borrowed funds were used for making investments that generated exempt income and that sufficient own funds were available to cover these investments. The assessee also argued that the disallowance should not exceed the actual exempt income, citing the Gujarat High Court's decision in CIT vs. Vision Finstock Ltd., which held that disallowance cannot exceed the exempt income earned. The Tribunal noted that the assessee had earned a dividend income of ?9,500/- and, following the precedent set by the Gujarat High Court, ruled that the disallowance under Section 14A cannot exceed the exempt income. Consequently, the Tribunal allowed this ground of appeal and restricted the disallowance to the amount of exempt income earned. Conclusion: The Tribunal ruled in favor of the assessee on both issues. For the deduction under Section 80IA, the Tribunal directed the A.O. to allow the claim, adhering to the principle that once a deduction is allowed in the initial year, it cannot be denied in subsequent years without disturbing the initial assessment. For the disallowance under Section 14A, the Tribunal limited the disallowance to the actual exempt income earned, aligning with the Gujarat High Court's ruling that disallowance cannot exceed the exempt income. The appeal filed by the assessee was allowed in its entirety.
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