2021 (8) TMI 846 - AT - Income Tax

Addition u/s.14A r.w.r. 8D - HELD THAT - During the course of assessment, the ld. CIT(A) has held that in view of the ratio of various case laws in set aside proceedings with specific directions, the Assessing Officer cannot exceed the disallowance and addition made in the original assessment order as reduced by the ld. CIT(A) which was subject matter before the ITAT. CIT(A) has also referred the decision of ITAT Bombay Special Bench in the case of Daga Capital and Management Ltd. 2008 (10) TMI 383 - ITAT MUMBAI that the applicability of rule 8D is prospective w.e.f. 1st April, 2008 and for earlier years the disallowance has to be made reasonably on fact of the case. Taking into consideration, the aforesaid facts and judicial finding, the ld. CIT(A) has stated that in the original order, the Assessing Officer has adopted a reasonable view on the basis of proportion of dividend income to total sales i.e. 0.83 lacs, director s remuneration, travelling expenditure of ₹ 501.33 lacs and other administrative and miscellaneous expenditure of ₹ 3219.29 lacs which required disallowance to the amount of ₹ 30,88,115/-. With the assistance of ld. representatives, we have also perused the decision in CIT Ahmedabad vs. S. R. Tele Holding Pvt. Ltd. 2017 (5) TMI 1160 - GUJARAT HIGH COURT wherein it is held that rule 8D is prospective in operation and cannot be applied to any assessment year prior to assessment year 2008-09. After taking into consideration the decision of Hon ble Supreme Court as referred above and findings of ld. CIT(A) as elaborated above, we do not find any infirmity in the finding of ld. CIT(A), therefore, the appeal of the revenue is dismissed. Disallowance u/s. 80IC - HELD THAT - After considering the decision of Co-ordinate Bench of the ITAT Ahmedabad in the case of the assessee itself pertaining to the assessment year 2010-11 and 2011-12 on identical issue and facts, we do not find any infirmity in the decision of ld. CIT(A) on allocating common interest and financial charges on the basis of investment and deleting the addition of common head expenses and administrative/corporate division expenses made on sale basis. Therefore, we do not find any merit in this ground of appeal of the revenue and the same stands dismissed. Addition u/s 14A - As no expenditure has been incurred for earning exempt income no disallowance to be made.

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act for A.Y. 2007-08.
2. Deletion of disallowance under Section 80IC of the Income Tax Act for A.Y. 2012-13.
3. Deletion of disallowance under Section 14A of the Income Tax Act for A.Y. 2012-13.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 14A for A.Y. 2007-08:
The revenue appealed against the CIT(A)'s order which deleted ?1,65,41,164 out of the total disallowance of ?1,96,29,279 made under Section 14A of the Income Tax Act. The original assessment resulted in a disallowance of ?3,08,01,115 under Section 14A, which was partially allowed by CIT(A). The ITAT remanded the issue back to the Assessing Officer (AO) for fresh adjudication. The AO, considering judgments from non-jurisdictional High Courts, computed the disallowance at ?1,92,13,175. Upon appeal, CIT(A) restricted the disallowance to ?30,88,115, reasoning that the AO could not exceed the original disallowance as reduced by CIT(A) and that Rule 8D was not applicable retrospectively. The ITAT upheld CIT(A)'s decision, noting that the AO's application of Rule 8D was incorrect for the assessment year in question and that the disallowance should be reasonable based on facts.

2. Deletion of Disallowance under Section 80IC for A.Y. 2012-13:
The revenue contested CIT(A)'s deletion of disallowances related to interest and finance charges, salary expenses, common expenses, and expenses of the corporate and plastic division for the Nalagarh unit. The AO had proportionately allocated these expenses based on sales ratios, leading to additional disallowances. CIT(A) followed the ITAT's decisions for previous years (2009-10 and 2010-11), which favored the assessee's method of allocation based on investment ratios. The ITAT confirmed CIT(A)'s decision, noting that the assessee's method of allocating expenses was justified and consistent with earlier rulings. The ITAT emphasized that the AO's allocation based on sales ratios was not a scientific method and upheld the deletion of additional disallowances.

3. Deletion of Disallowance under Section 14A for A.Y. 2012-13:
The revenue challenged CIT(A)'s deletion of the disallowance of ?24,36,72,136 made by the AO under Section 14A. The AO had applied Rule 8D, resulting in a substantial disallowance, which the assessee contested, arguing that investments were made from surplus funds and not borrowed funds. CIT(A) deleted the disallowance, referencing ITAT's decisions for previous years and recognizing that the assessee had sufficient surplus funds. The ITAT upheld CIT(A)'s decision, reiterating that Rule 8D could not be applied retrospectively and that the AO had not demonstrated dissatisfaction with the assessee's claim. The ITAT noted that the assessee's method of calculating disallowance was reasonable and consistent with judicial precedents.

Conclusion:
The ITAT dismissed both appeals filed by the revenue, affirming CIT(A)'s decisions on all issues. The judgments emphasized the importance of reasonable and fact-based disallowances, adherence to judicial precedents, and the non-retrospective application of Rule 8D. The ITAT's rulings were consistent with previous decisions in similar cases involving the same assessee.