2021 (7) TMI 981 - AT - Income Tax

Disallowance u/s 14A - HELD THAT - We find that during the year, no exempted income was received by the assessee and therefore, following the finding of case of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT the Ld. CIT(A) deleted the disallowance. In our opinion, there is no infirmity in the order of the Ld. CIT(A) on the issue in dispute and accordingly we uphold the same. The ground of the appeal of the Revenue is accordingly dismissed. Prior period expenses disallowance - CIT(A) has allowed relief in respect of expenses of store and spares and expenses in respect of the contract holding that same were crystallised in the year under consideration - assessee has demonstrated that liability has been crystallised in the year under consideration and therefore, the Learned CIT(A) is justified in deleting the disallowance - HELD THAT - We uphold the finding of the Learned CIT(A) on the issue in dispute. The grounds of the appeal of the Revenue are dismissed.

Summary

Issues Involved:

1. Validity of the CIT(A)'s order.
2. Disallowance under Section 14A of the Income-tax Act.
3. Disallowance of prior period expenses.

Issue-wise Detailed Analysis:

1. Validity of the CIT(A)'s order:

The first ground of appeal raised by the Revenue was that "The impugned order of the CIT(A) is bad in law as well as on facts of the case." This ground was dismissed as it was general in nature and did not require adjudication.

2. Disallowance under Section 14A of the Income-tax Act:

The second ground of appeal pertained to the disallowance of ?3,96,72,870/- under Section 14A of the Income-tax Act. The CIT(A) deleted this disallowance based on the observation that the appellant company did not earn any exempt income during the year under reference. The CIT(A) noted that for making disallowance under Section 14A, there should be a nexus between the exempt income and the expenditure incurred. Since no exempt income was received, the provision of Section 14A could not be invoked. The CIT(A) relied on the judgment of the Hon'ble jurisdictional High Court in the case of Cheminvest Ltd. vs CIT-VI, which held that Section 14A would not apply if no exempt income is received or receivable during the relevant previous year.

The Tribunal upheld the CIT(A)'s decision, agreeing that there was no infirmity in the order since no exempted income was received by the assessee during the year. Consequently, the ground of appeal by the Revenue was dismissed.

3. Disallowance of prior period expenses:

The third ground of appeal related to the disallowance of prior period expenses, where the CIT(A) reduced the disallowance from ?8,17,696/- to ?2,87,351/-. The CIT(A) deleted part of the disallowance, noting that the appellant had offered prior period income of ?34,33,802/- and claimed expenses of ?8,17,696/-, resulting in a net income of ?26,16,106/- on account of prior period adjustment. The CIT(A) allowed expenses amounting to ?3,74,490/- related to work contract tax and ?1,55,855/- for stores and spares, as these were justified and crystallized in the year under consideration. However, the CIT(A) confirmed the disallowance of ?2,87,351/- for other expenses which were not justified by the appellant.

The Tribunal upheld the CIT(A)'s decision, noting that the liability for the allowed expenses had been demonstrated to have crystallized in the year under consideration. The Tribunal also referenced a similar issue decided in favor of the assessee by the Tribunal in ITA No. 4129/Del/2011 for the assessment year 2005-06. The Tribunal found no reason to overturn the CIT(A)'s findings and dismissed the Revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s order in entirety. The grounds of appeal concerning the disallowance under Section 14A and prior period expenses were found to be without merit, and the CIT(A)'s decisions on these issues were affirmed. The order was pronounced in the open court on 16th July 2021.