9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (2) TMI 1390 - AT - Income TaxAddition made u/s 14A - Expenditure incurred in relation to income not includible in total income - AO has made disallowance of administrative expenses which was deleted by CIT(A) - HELD THAT - Admittedly the assessee has made huge investments and has earned exempted income to the tune of Rs. 1, 29, 82, 706/- only. The decision for making the investments in the shares is a very complex decision which are generally taken by the top management. Likewise a lot of research is done before taking the decision for making the investments which is generally carried out by the staff. Similarly in a board meeting the expenses on refreshment travelling patrol and stationary are generally incurred. The services of the accountants are also used to record the necessary transactions in the books of accounts. The books of accounts are generally audited and therefore the services of the auditors also utilized inrelation to the investment made by the company. Thus the argument of the learned AR is not acceptable that there was no expense incurred with respect to the impugned investments. Accordingly we hold that the disallowance made by the AO on account of administrative expenses in pursuance of the provisions of rule 8D is correct and as per the provisions of law. The investments which have yielded the dividend income in the year under consideration should only be considered for the purpose of making the disallowance under section 14A read with rule 8D of Income Tax Rule. We draw support and guidance from the judgement of Vision Finstock Ltd. 2017 (7) TMI 1277 - GUJARAT HIGH COURT - Decided against assessee. Addition on account of preliminary expenses u/s 35D - AO was found that the assessee has claimed deduction on account of preliminary expenses amortized for the issue of QIP shares - HELD THAT - As relying on Metrocom Industries Ltd. 2016 (7) TMI 1374 - GUJARAT HIGH COURT we hold that the expenses claimed by the assessee are eligible u/s 35D of the Act. Hence the ground of appeal of the Revenue is hereby dismissed. Disallowance of deduction u/s 80-IA(4) - whether the assessee is acting as a developer or works contractor? - HELD THAT -Assessee who is only engaged in the activity of development of infrastructure facility is eligible to claim the deduction u/s 80IA(4) We have analyzed one contract/agreement with the government on sample basis. However the reasons given in the contract before us shall also be applied in all the contracts which was subject to the deduction under section 80-IA(4) of the Act. In view of the above the grounds of appeal of the Revenue with respect to the admissibility of the claim of the assessee under section 80-IA (4) of the Act are hereby dismissed. Principle of consistency - Once the revenue admitted assessee as developer under the same facts and circumstances then in subsequent year on same fact and circumstances principal of consistency should be applied. Whether interest income is to be excluded on gross basis or net basis while the computing the deduction u/s 80IA(4) ? - We hold that only net interest income should be excluded while the computing the eligible income u/s 80IA(4) of the Act. Hence the ground of appeal of the Revenue is hereby dismissed. CIT(A) confirming the action of learned AO in re-computing deduction u/s. 80IA(4) by allocating expenditure of head office etc to different eligible units - Hon ble Supreme Court held in the case of CIT vs. Sterling Foods 1999 (4) TMI 1 - SUPREME COURT that there must be for the application of the words derived from a direct nexus between the profits and gains and an industrial undertaking. Sections 80-I and 80-IA also use the expression derived from . If there must be a direct nexus between the profits and gains and an industrial undertaking it must follow equally that there must be a direct nexus between an industrial undertaking and the expenses which are sought to be apportioned/attributable to it. Expenses which do not relate to an industrial undertaking/unit under consideration and they relate to other units or to the head office of the assessee cannot be taken into consideration while computing the deduction under the said provisions. There is no specific finding by the AO and the Ld. CIT(A) about the nexus of allocated expenses with the eligible unit. In the absence of any nexus between the allocated expenses with the eligible unit the AO cannot allocate such expenses. Hence the CO of the assessee is allowed. Estimation of income - bogus purchase - CIT(A) confirming/restricting 25% disallowance - HELD THAT - As in case of non- existent parties from whom the purchases are shown to have been made the most logical approach would be that only part of such purchases can be disallowed in the cases where the corresponding sales are treated as genuine or alternatively the profit embedded in such sales can only be brought to tax. Therefore what can be taxed in such transactions is profit element embedded in such alleged non genuine purchases and the entire or peak amount of such purchases cannot be treated as bogus. Thus we find that it is fair and just to restrict the addition to an extent being 12.5% of the bogus purchases. See case of Ratangiri Stainless(p) Ltd. 2017 (4) TMI 402 - ITAT MUMBAI Addition on account of ESOP expenses - assessee has issued 25, 00, 000 equity shares at a price of Rs. 50/- per share to the eligible employee of the company as per the ESOP scheme - AO disallowed the same by observing that expenses on ESOP debited to Profit loss accounts is not an expenditure incurred wholly and exclusively for the purpose of the business - HELD THAT - We have carefully considered the order passed in the case of Biocon Ltd. 2013 (8) TMI 629 - ITAT BANGALORE where it has been held that ESOP compensation expenditure is not a notional expenditure but an allowable expenditure under Section 37(1) - object of issuing of shares at a lower issue price than the market price to the employees under ESOP must be taken into consideration and thereby it cannot be treated as short receipt of securities premium but a cost on account of compensation to the employees. Thus principally the claim on account of deduction of ESOP compensation is allowable. Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal issues considered in the judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Disallowance under Section 14A: The relevant legal framework involves Section 14A of the Income Tax Act, which disallows expenses incurred in relation to exempt income. The Court analyzed whether the Assessing Officer (AO) was justified in making a disallowance under Rule 8D of the Income Tax Rules. The Court found that the AO did not record proper satisfaction regarding the correctness of the assessee's claim that no expenditure was incurred. Consequently, the disallowance was not justified. Deduction under Section 35D: Section 35D allows amortization of certain preliminary expenses. The Court examined whether the expenses related to Qualified Institutional Placements (QIP) were eligible under this section. The Court relied on precedents that treated QIP expenses as eligible for deduction under Section 35D, thereby allowing the deduction. Deduction under Section 80IA(4): The Court considered whether the assessee was eligible for deduction under Section 80IA(4) for infrastructure development. The AO had denied the deduction, citing the explanation to Section 80IA(13), which excludes works contracts. The Court analyzed the nature of the assessee's activities, concluding that the assessee was a developer, not merely a contractor. The Court emphasized the importance of the assessee undertaking risks and responsibilities typical of a developer, thus allowing the deduction. Allocation of Head Office Expenses: The Court examined whether the allocation of head office expenses to eligible units was appropriate. The Court found no specific nexus between the allocated expenses and the eligible units. Therefore, the allocation of such expenses was not justified, and the assessee's claim was upheld. ESOP Expenses: The Court evaluated whether ESOP expenses were allowable as a deduction. It relied on the Special Bench decision in the case of Biocon Ltd., which held that ESOP expenses are deductible under Section 37(1) as they represent a form of employee compensation. Consequently, the deduction was allowed. Disallowance of Alleged Bogus Purchases: The Court addressed the issue of disallowance of alleged bogus purchases. The AO had disallowed the entire amount, but the CIT(A) reduced it to 25%. The Court noted that only the profit element embedded in such purchases should be taxed, not the entire amount. It directed a further reduction in the disallowance to 12.5%, aligning with judicial precedents. 3. SIGNIFICANT HOLDINGS Section 14A: "The disallowance under Rule 8D is not justified in the absence of the AO's satisfaction regarding the correctness of the assessee's claim." Section 35D: "Expenses related to QIP are eligible for deduction under Section 35D, as supported by precedents." Section 80IA(4): "The assessee, being a developer undertaking significant risks and responsibilities, is entitled to deduction under Section 80IA(4)." ESOP Expenses: "ESOP expenses constitute employee compensation and are deductible under Section 37(1), as established in Biocon Ltd." Alleged Bogus Purchases: "Only the profit element in alleged bogus purchases should be taxed, not the entire purchase amount." The judgment provides a comprehensive analysis of the issues, applying relevant legal principles and precedents to determine the appropriate tax treatment for each matter. The Court's reasoning emphasizes the importance of aligning tax assessments with the substantive nature of business activities and transactions.
|
