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2021 (3) TMI 176 - HC - Income TaxDisallowance u/s 14A r.w.r. 8D - ITAT deleted the addition made holding that disallowances made u/s 14A cannot exceed the exempt income - whether ITAT is right in not appreciating the CBDT Circular No. 5/2014 wherein it's clarified that, disallowance u/s 14A r.w.r 8D has to be made even if the tax payer in a particular year not earned any exempt income? - HELD THAT - Substantial questions of law raised by the Revenue in these appeals have been decided against the Revenue in M/s.Tidel Park Limited. 2020 (7) TMI 339 - MADRAS HIGH COURT AO must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the AO must be arrived at on an objective basis. It is only when the AO is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. Sub-s. (3) of s. 14A provides for the application of sub-s. (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. See GODREJ AND BOYCE MFG. CO. LTD 2010 (8) TMI 77 - BOMBAY HIGH COURT - Decided in favour of assessee.
Issues:
1. Disallowance under section 14A of the Income Tax Act. 2. Tax treatment of income derived from letting out property in an industrial park/SEZ. Issue 1: Disallowance under section 14A of the Income Tax Act: The Revenue challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance made under section 14A of the Act. The Revenue contended that the ITAT erred in deleting the addition under section 14A, arguing that disallowances cannot exceed the exempt income, contrary to the provisions of the Act and Rule 8D. The High Court referred to previous judgments, including one by the Delhi High Court, which emphasized the need for a proximate cause for disallowance and the correct determination of expenditure incurred in relation to income not forming part of the total income. The Court highlighted the importance of the Assessing Officer's satisfaction based on the accounts of the assessee before applying the prescribed method under section 14A. The Court upheld the ITAT's decision, stating that the legal position was correctly followed, and dismissed the Revenue's appeal. Issue 2: Tax treatment of income derived from letting out property in an industrial park/SEZ: The second substantial question of law revolved around whether income from letting out property in an industrial park/SEZ should be considered as business income. The CBDT Circular No. 16 of 2017 clarified that such income should be taxed under the head 'Profits and Gains of Business.' The Court noted that the emphasis was on letting out premises along with other facilities in an industrial park/SEZ. Referring to previous decisions, including one by the Division Bench of the Court, the Court held that income derived from letting out property with amenities and facilities constitutes business income and not income from house property or other sources. The Court also mentioned that the revenue's appeal against a similar decision was dismissed by the Supreme Court. Considering the legal precedents and the CBDT circular, the Court answered the substantial question of law in favor of the assessee and against the Revenue, ultimately dismissing the Tax Case Appeals. In conclusion, the High Court of Madras upheld the ITAT's decision, dismissing the Revenue's appeals related to disallowance under section 14A and the tax treatment of income from letting out property in an industrial park/SEZ. The Court's detailed analysis emphasized the correct application of legal principles and precedents in determining the tax implications of these issues.
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