2021 (7) TMI 1242 - AT - Income Tax

Deduction u/s 80IC - existence of multiple initial assessment years - AO has disallowed the claim of deduction of 100% u/s. 80IC of the Act on the ground that the initial assessment year is A.Y. 2004-05 and therefore, for the year under consideration the assessee is eligible for only 30% deduction - HELD THAT - We find that the AO has simply misunderstood the amendment brought u/s. 80IC and further misunderstood the substantial expansion brought by the assessee from A.Y.2009-10. In our considered opinion in the light of the notification issued by the Ministry of Commerce and Industry and in the light of the amendment brought in the Act u/s. 80IC of the Act, the eligibility of 100% deduction would start from initial A.Y. 2009-10. We further find that the AO has allowed the deduction from A.Y.2009-10 to 2012-13 which is evident from the assessment orders of the relevant assessment years on record. In our considered view the AO was not correct in disturbing the claim in the 5th year when earlier assessment years has not been disturbed. Hon ble Supreme Court in the case of PCIT Vs. Aarham Softronics 2019 (2) TMI 1285 - SUPREME COURT has decided this controversy in favour of the assessee and against the revenue. Disallowance u/s.14A - sufficiency of own funds - CIT(A) found that assessee had sufficient own funds to meet the investment and therefore, there was no reason for the disallowance of interest on borrowed capital and accordingly deleted the disallowance - HELD THAT - As interest free funds (own funds) available with the assessee is far in excess of the investment in share. Therefore, following the ratio laid-down in the case of HDFC Bank Limited 2014 (8) TMI 119 - BOMBAY HIGH COURT and Reliance Utilities and Power Limited 2009 (1) TMI 4 - BOMBAY HIGH COURT , we do not find any error or infirmity in the findings of the CIT(A) ground No. 3 and 5 are dismissed.

Summary

Issues:
1. Interpretation of section 80IC of the Income Tax Act, 1961 regarding multiple initial assessment years for deduction eligibility.
2. Whether the interpretation by CIT(A) amounts to rewriting the law for deduction allowance.
3. Failure of CIT(A) to consider relevant decisions of the Hon'ble Supreme Court.
4. Failure of CIT(A) to consider Circular No. 5/2014 of Ministry of Finance CBDT.
5. Correctness of the CIT(A) order in law and facts.
6. Grounds for appeal amendment by the appellant.

Analysis:

Issue 1:
The AO restricted the deduction claim under section 80IC to 30% instead of 100%, citing the initial assessment year as A.Y. 2004-05. However, the ITAT Delhi observed that the eligibility for 100% deduction should start from the initial A.Y. 2009-10 based on the amendment and substantial expansion by the assessee. The ITAT highlighted the notification by the Ministry of Commerce and Industry supporting the 100% deduction eligibility from A.Y. 2009-10.

Issue 2:
The ITAT disagreed with the AO's interpretation and found that the amendment to section 80IC allowed for 100% deduction from A.Y. 2009-10 due to substantial expansion. The ITAT referenced a Supreme Court judgment in PCIT Vs. Aarham Softronics, which clarified the definition of the initial assessment year and supported the assessee's claim for 100% deduction.

Issue 3:
The ITAT considered the Supreme Court's decision in PCIT Vs. Aarham Softronics, emphasizing that the judgment in Classic Binding Industries case did not correctly interpret the law. The ITAT concluded that the substantial expansion by the assessee entitled them to 100% deduction from the year of expansion, in this case, A.Y. 2009-10.

Issue 4:
Regarding the disallowance under section 14A, the ITAT upheld the CIT(A)'s decision to delete the disallowance. The ITAT noted that the assessee had sufficient own funds to cover investments, following precedents set by the Hon'ble Bombay High Court.

Issue 5:
The ITAT dismissed the revenue's appeal, affirming the CIT(A)'s decision on both deduction eligibility under section 80IC and the disallowance under section 14A. The ITAT relied on legal interpretations, amendments, and judicial precedents to support its decision.

Issue 6:
The ITAT dismissed the grounds for appeal amendment, maintaining the decision based on the legal analysis and precedents discussed in the judgment. The ITAT announced the decision in the presence of both representatives on 29.07.2021.