2016 (5) TMI 790 - AT - Income Tax

Disallowance made u/s 14A r.w.r 8D - Held that - The assessee does not have income which is exempt from tax. Under these circumstances no disallowance can be made u/s 14A of the Act. See Cheminvest Ltd. vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT ) - Decided in favour of assessee Disallowance made by invoking section 40(a)(ia)- Held that - The assessee should have made every effort to gather necessary evidence from the payees i.e. M/s. Yash Ram Films Pvt. Ltd. and M/s. Saregama India Ltd. that they have paid taxes on these receipts from the assesee and then sought for set aside of the case. The assessee should prima facie demonstrate that in its case the second proviso to section 40(a) (ia) is attracted before seeking set aside of the matter. As in this case the revenue has already obtained some information u/s 133(6) of the Act we are of the opinion that this issue should be set aside to the file of the AO for fresh adjudication. The assessee shall make every effort to obtain from the payees evidence that they have filed their return of income and paid taxes on these payments and furnish the same to the AO - Decided in favour of assessee for statistical purposes. Disallowance of deduction claimed u/s 80IC - Held that - Factual submissions have not been controverted by the AO or the Ld. CIT(A). The AO at page 5 records that the assessee has provided the working capital requirement of the two units. This note was rejected only of the ground that the majority of the purchases of Rudrapur Unit are made through Greater Noida unit. This is a rejection based on surmise. We find that the percentage of profit declared by Greater Noida unit are much higher than the percentage of profit declared by Rudrapur unit. The assessee has also demonstrated that the working capital required by the Rudrapur unit is much lessor that the working capital required by the Greater Noida unit. The banks which have granted loans have done so for Greater Noida unit only. Ld. DR could not controvert this factual submissions of the Ld. Counsel for the assessee. Under these circumstances we are of the considered opinion that the AO should have been consistent in his stand on allocation of expenditure in all the years in which the account of the assessee have been scrutinised. The AO should have give specific reasons as to why he does not agree with the calculations furnished by the assessee or the note on requirement of the working capital for both the units before rejecting the allocation made by the assessee. In the absence of such reasons we uphold the contentions of the assessee and set aside the order of the Ld. CIT(A) on this issue - Decided in favour of assessee

Summary

Issues Involved:
1. Assessment order legality and jurisdiction
2. Rejection of books of accounts
3. Disallowance under section 14A r.w.r 8D
4. Disallowance under section 40(a)(ia)
5. Deduction claimed under section 80IC

Detailed Analysis:

1. Assessment Order Legality and Jurisdiction:
The appeal challenged the assessment order for the assessment year 2008-09, where the AO determined the total income and made various disallowances. The appellant contended that the assessment order and additions made were illegal, bad in law, and without jurisdiction. The appellant raised multiple grounds challenging the actions of the AO and CIT(A) regarding the assessment process and the legality of the additions.

2. Rejection of Books of Accounts:
The appellant argued that the books of accounts were rejected without pointing out any defects, which was deemed as bad in law. The appellant claimed that the allocation of expenses between the two units was correctly done but was arbitrarily rejected by the revenue authorities. Detailed contentions were presented regarding the working capital requirements, profit percentages, and funding sources for each unit to justify the allocation of expenses.

3. Disallowance under Section 14A r.w.r 8D:
The issue of disallowance under section 14A r.w.r 8D was raised. It was noted that the appellant did not have any exempted income, and thus, no disallowance could be made under section 14A of the Act. The decision of the Hon'ble Delhi High Court in a similar case was cited to support the appellant's contention, leading to the allowance of this ground.

4. Disallowance under Section 40(a)(ia):
Regarding the disallowance made under section 40(a)(ia) of the Act, the appellant relied on a decision of the Hon'ble Jurisdictional High Court and argued for a fresh adjudication by the AO. The appellant was instructed to gather necessary evidence from the payees to demonstrate that the second proviso to section 40(a)(ia) was applicable before seeking a set-aside. The issue was directed to be sent back to the AO for further examination based on the evidence provided by the appellant.

5. Deduction Claimed under Section 80IC:
The last issue involved part disallowance of the deduction claimed under section 80IC of the Act. The contentions of the appellant were summarized concerning the rejection of books of accounts, allocation of expenses between units, and the consistency of treatment in previous assessment years. The AO's failure to provide specific reasons for disagreeing with the appellant's calculations led to the allowance of the appellant's grounds of appeal, setting aside the order of the CIT(A) on this issue.

In conclusion, the appeal was allowed in part, with specific grounds being upheld based on detailed arguments and evidence presented by the appellant to challenge the assessment order and various disallowances made by the tax authorities.