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2023 (5) TMI 957 - AT - Income TaxDeduction u/s 35(2AB) - 100% of capital expenditure incurred on in-house R D facility - Assessee unable to substantiate its claim that the capital expenditure pertained to Research and Development - HELD THAT - CIT(A) has given a categorical finding of fact, while denying assesses claim of 100% capital expenditure incurred on research and development as per section 35(1)(iv) assessee was unable to substantiate its claim of having incurred capital expenditure for Research and Development. In the absence of any representation on behalf of the assessee, the said finding of fact by the CIT(A) has remained uncontroverted before us. No reason to interfere in the order of the Ld.CIT(A) denying assesses claim of 100% deduction of capital expenses incurred on Research and development u/s 35(1)(iv) - Also since the assesses claim of having incurred capital expense is not established its alternate claim of allowance of depreciation on the same also is not tenable. Decided against assessee. Disallowance u/s 14A r.w.r. 8D - HELD THAT - DR was unable to either controvert the facts relating to the issue that the exempt income earned by the assessee nor was he able to controvert the legal proposition that disallowance u/s 14A of the Act could not exceed exempt income. As noted the decision of Corrtech Energy Ld. 2014 (3) TMI 856 - GUJARAT HIGH COURT , disallowance u/s 14A of the Act cannot exceed the exempt income - in the absence of the ld.DR being able to controvert the finding of the ld.CIT(A), either on facts or in law, we therefore, see no reason to interfere in order of the ld.CIT(A) deleting the disallowance u/s 14A to the extent of Rs.1,58,643/-. Disallowance of prior period expenses - CIT-A deleted the addition noting that the AO has not doubted genuineness of the expenditure, and if it is not allowable in the impugned year, it is to be allowed in the earlier year and the entire exercise is revenue neutral - HELD THAT - DR was unable to distinguish the decisions relied upon by the ld.CIT(A)for the proposition that the disallowance of prior period expenses being a tax neutral exercise no disallowance was warranted, while deleting the disallowance - in the absence of the ld.DR being able to controvert the finding of the ld.CIT(A), either on facts or in law, we see no reason to interfere in order of the ld.CIT(A) deleting the disallowance of prior period expenses. Disallowance of deduction u/s.80JJA - whether assessee fulfilled the conditions required under the law for claiming deduction under section 80JJA, i.e. whether it used bio-degradable waste for producing biological agents as claimed by the assessee? - CIT-A allowed entire claim of deduction - HELD THAT - DR has been unable to point out any infirmity in the finding of the ld.CIT(A) that items purchased by the assessee, classified as bio-feed, did qualify as biodegradable waste as defined in section 80JJA and item produced by the assessee from these bio-feed i.e. enzymes, qualified as biological agents as required by section 80JJA, and that the basis of allocation of expenditure by the assessee between the units and eligible for deduction under section 80JJA of the Act and not eligible for deduction 80JJA adopted by the assessee was consistent and correct. The ld.DR having unable to disturb the finding of the ld.CIT(A) either on facts and or in law, we see no reason to interfere in the order of the ld.CI(A) allowing the assessee s entire claim of deduction under section 80JJA of the Act. MAT - disallowance made under section 14A while computing MAT income as per the provisions of section 115JB - HELD THAT - We find that the issue on hand is no more remain res integra because in the case of ACIT vs. Vireet Investments (P.) Ltd 2017 (6) TMI 1124 - ITAT DELHI held that disallowance under section 14A of the Act shall not apply to MAT computation. In holding so, the Tribunal has relied upon the decision of Hon ble Delhi High Court in the case of Bhushan Steel Ltd 2015 (9) TMI 1424 - DELHI HIGH COURT where it has been held that the computation under the MAT provisions is to be made without resorting to the computation as contemplated under section 14A read with Rule 8D of the Income Tax Rules. Disallowance of interest u/s.36(1)(iii) - Sufficiency of own funds - CIT-A deleted the addition - HELD THAT - Undoubtedly, there is no evidence with the AO to controvert that the borrowed money was utilised for the purpose of advance for nonbusiness purposes. We are satisfied that the assessee has substantial amount own funds in the form of reserve/ surplus which the assessee could utilise for giving advances. In the absence of any contrary material with the AO to negate the claim of the assessee, we are unable to disturb the finding of the ld.CIT(A) on the above. Assessee s claim of expenditure under section 36(1)(iii) of the Act is to be allowed. Decided against revenue.
Issues Involved:
1. Disallowance of expenses under Section 14A of the Act. 2. Disallowance of deduction under Section 80JJA of the Act. 3. Disallowance of prior period expenses. 4. Disallowance of interest under Section 36(1)(iii) of the Act. 5. Claim of deduction under Section 35(1)(iv) of the Act. 6. Addition under Section 115JB of the Act. Summary: 1. Disallowance of Expenses under Section 14A of the Act: The Revenue's appeal challenged the deletion of the disallowance of expenses pertaining to earning of exempt income under Section 14A. The CIT(A) had restricted the disallowance to the amount of exempt income earned by the assessee, which was Rs.87,700/-, and deleted the balance disallowance. The Tribunal upheld the CIT(A)'s decision, citing that disallowance under Section 14A cannot exceed the exempt income earned, as per the decision of the Hon'ble Gujarat High Court in CIT Vs. Corrtech Energy Ltd., 372 ITR 97. 2. Disallowance of Deduction under Section 80JJA of the Act: The Revenue's appeal contested the deletion of the disallowance of deduction under Section 80JJA. The CIT(A) found that the assessee used biodegradable waste to produce biological agents, fulfilling the criteria under Section 80JJA. The Tribunal upheld the CIT(A)'s findings, noting that the assessee's process and products met the requirements of the section, and the allocation of expenses between eligible and non-eligible units was consistent and correct. 3. Disallowance of Prior Period Expenses: The Revenue's appeal challenged the deletion of the disallowance of prior period expenses. The CIT(A) deleted the disallowance, noting that the AO had not doubted the genuineness of the expenses and that the entire exercise was revenue neutral. The Tribunal upheld the CIT(A)'s decision, citing that disallowance of prior period expenses is tax neutral and supported by various judicial precedents. 4. Disallowance of Interest under Section 36(1)(iii) of the Act: The Revenue's appeal contested the deletion of the disallowance of interest under Section 36(1)(iii). The CIT(A) found that the assessee had sufficient own funds to cover the interest-free advances, and the presumption was that such advances were made out of own funds. The Tribunal upheld the CIT(A)'s decision, noting that the AO had no evidence to prove that borrowed funds were used for non-business purposes. 5. Claim of Deduction under Section 35(1)(iv) of the Act: The assessee's appeal challenged the disallowance of the claim of deduction under Section 35(1)(iv). The CIT(A) denied the deduction, noting that the assessee failed to substantiate its claim of having incurred capital expenditure for Research and Development. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the denial of the deduction. 6. Addition under Section 115JB of the Act: The Revenue's appeal challenged the deletion of the addition made under Section 115JB. The Tribunal, following the decision of the Special Bench ITAT, Delhi in ACIT vs. Vireet Investments (P.) Ltd, held that disallowance under Section 14A shall not apply to MAT computation, and upheld the CIT(A)'s order deleting the addition. Conclusion: All the appeals of the Revenue and the appeal of the assessee were dismissed. The Tribunal upheld the CIT(A)'s decisions on all issues, finding no reason to interfere with the findings and conclusions reached by the CIT(A).
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