2016 (2) TMI 749 - AT - Income Tax

Deduction under Section 10A - non filing of Return of income - Held that - On perusal of the assessment order, it appears that for the assessment year 2006-07, the assessee filed return of income on 30.11.2006. It is not known what was the due date for filing return of income for the assessment year 2006-07. Similarly, for other assessment year also it is not clear from the orders of the lower authorities the due date for filing return of income under Section 139(1) of the Act specified by the CBDT. Therefore, the order of the CIT(Appeals) is set aside on this issue and the matter is remitted back to the file of the Assessing Officer to verify the due date for filing return of income under Section 139(1) for the respective assessment years. After verification, if the Assessing Officer found that the return of income was filed within the due date specified under Section 139(1), then the assessee is eligible for deduction under Section 10A of the Act. If, for any reason, if the Assessing Officer came to a conclusion that the return of income was not filed under Section 139(1), then the assessee is not eligible for deduction under Section 10A of the Act. Therefore, for a limited purpose of verifying the due date for filing the return of income under Section 139(1) of the Act, the matter is remitted back to the file of the Assessing Officer. Disallowance under Section 14A - CIT(A) allowed the claim - Held that - For the assessment years 2006-07 and 2008-09, the investments were made in 100% foreign subsidiary companies. No fresh investment had been made in the financial years 2008-09 and 2009-10. Since the investment was made in the subsidiary companies in the form of equity, the CIT(Appeals) corectly found that such investment is outside the scope of Section 14A of the Act. When the assessee invested the funds in subsidiary companies, as rightly submitted by the Ld.counsel for the assessee, the intention is not for earning the exempt income but because of commercial expediency. Therefore, as rightly found by the CIT(Appeals), the provisions of Section 14A would not be applicable for the assessment year 2006-07 and 2008-09. In view of this, we find no reason to interfere with the order of the CIT(Appeals) and accordingly, the same is confirmed. - Decided against revenue

Summary

Issues:
1. Deduction claimed under Section 10A of the Income-tax Act.
2. Disallowance made under Section 14A of the Act.

Issue 1: Deduction claimed under Section 10A of the Income-tax Act:

The judgment addressed the deduction claimed by the assessee under Section 10A of the Income-tax Act for the assessment years 2006-07, 2008-09, 2009-10, and 2010-11. The Departmental Representative argued that the assessee must file the return of income within the specified time under Section 139(1) to claim deduction under Section 10A. The Counsel for the assessee contended that the returns were filed within the due date for certain years and referenced a Special Bench decision supporting the exclusion of foreign currency expenses from total turnover. The Tribunal emphasized that for claiming deduction under Section 10A, the return must be filed within the time prescribed under Section 139(1), not under Section 139(4). Citing previous judgments, the Tribunal held that the 5th proviso to Section 10A is mandatory, and filing within the due date under Section 139(1) is crucial for eligibility. The Tribunal remitted the issue back to the Assessing Officer to verify the due dates for filing returns under Section 139(1) for the respective assessment years.

Issue 2: Disallowance made under Section 14A of the Act:

The second issue involved the disallowance made by the Assessing Officer under Section 14A of the Act. The Departmental Representative argued that the expenditure related to earning income from investments in shares and mutual funds was disallowed. The Counsel for the assessee explained that the investments were in 100% subsidiary companies, primarily for commercial expediency rather than earning dividend income. The CIT(Appeals) directed the Assessing Officer to compute disallowances for specific years using Rule 8D of the Income-tax Rules, resulting in partial disallowances. The Tribunal upheld the CIT(Appeals)' decision, noting that for certain years, investments in foreign subsidiary companies were made for commercial reasons, not to earn exempt income, thus falling outside the scope of Section 14A. Consequently, the Tribunal confirmed the CIT(Appeals) order regarding the disallowances made under Section 14A.

In conclusion, the Tribunal partially allowed the appeals filed by the Revenue for statistical purposes, addressing issues related to deduction claims under Section 10A and disallowances under Section 14A of the Income-tax Act. The judgment provided detailed analysis and interpretations of relevant legal provisions and previous decisions to arrive at its conclusions.