2016 (4) TMI 849 - AT - Income Tax

Disallowance u/s 14A - Held that - earlier noticed that the dividend received/receivable from PCIL and VBL alone are exempt. These investments have been made in the earlier years and further the investment made in PCIL was a strategic investment. The assessee has received dividend income of ₹ 2,000/- only during the year under consideration and the said dividend income has also been directly credited to the bank account of the assessee. Considering the smallness of the dividend income and also considering the fact, that the investment in shares have been made in the earlier years, we are of the view that there is merit in the contentions of the assessee that it did not incur any expenditure in relation to the dividend income. Further, as contended by Ld A.R, the AO did not reject the contentions of the assessee by having regard to the accounts of the assessee. Hence, we find no reason for invoking the provisions of Rule 8D of the I.T. Rules in the hands of the assessee for the year under consideration. Accordingly, we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to delete the disallowance made u/s. 14A - Decided in favour of assessee Rejection of deduction claimed u/s. 80IA - Held that - We have earlier noticed that both the AO as well as the Ld CIT(A) has made some more observations to support the rejection of the claim for deduction u/s 80IA of the Act. The Ld A.R submitted that the assessee shall be in a position to satisfy the AO with regard to those observations also. Accordingly, we are of the view that the entire matters relating to the deduction u/s 80IA including the various adverse features noted down by the AO/CIT(A) requires fresh examination.

Summary

Issues Involved:
1. Disallowance made under section 14A of the Income Tax Act
2. Rejection of deduction claimed under section 80IA of the Income Tax Act

Analysis:

Issue 1: Disallowance under section 14A of the Income Tax Act
The assessee challenged the disallowance made under section 14A of the Income Tax Act for the assessment year 2008-09. The Assessing Officer disallowed a sum of Rs. 19,20,787 under Rule 8D of the IT Rules, which was confirmed by the CIT(A). The assessee argued that no expenditure was incurred to earn the exempt dividend income of Rs. 2,000 from shares in Vijaya Bank Ltd. The investments were made in earlier years, and the dividend income was directly credited to the bank account. The ITAT found merit in the assessee's contentions, stating that the smallness of the dividend income and the nature of investments supported the claim of no expenditure incurred. The AO did not comply with the mandatory conditions before applying Rule 8D. Thus, the ITAT directed the AO to delete the disallowance under section 14A.

Issue 2: Rejection of deduction under section 80IA of the Income Tax Act
The assessee claimed a deduction under section 80IA for developing infrastructure facilities for MSW/CETP projects. The AO rejected the claim for the Roha unit as the agreement was only with a cooperative society, not a government body as required by section 80IA(4). The CIT(A) upheld the AO's decision, noting that the assessee failed to demonstrate effective maintenance of the infrastructure facility and operation under BOOT basis. The ITAT observed that the nature of the MOU between the parties was crucial. The substance of the agreement should prevail over its form, focusing on key elements like scope, consideration, responsibilities, and timeframes. The ITAT found that the tax authorities did not analyze the MOU properly and directed a fresh examination by the AO. All issues related to the deduction under section 80IA were restored to the AO for re-evaluation, with the assessee instructed to provide necessary details for a decision in accordance with the law.

In conclusion, the ITAT partially allowed the appeal filed by the assessee, setting aside the CIT(A)'s order on the rejection of the deduction under section 80IA and directing a fresh examination by the AO.