2017 (4) TMI 1183 - AT - Income Tax

Disallowance u/s 14A - Held that - We find that assessee has not given details as to when shares were acquired and what was the source of financing cost of acquisition of shares in the earlier year and in the current year. We observed that It is also not disputed that the assessee has earned exempt income because of which the expenditure related to earning of such income would be disallowable in terms of the provisions of sec. 14A of the act. After considering the totality of the facts of the case about availability of sufficient own funds, we exclude interest components of ₹ 88,991/- out of the total disallowance of ₹ 3,19,784/- and restrict the disallowance to ₹ 2,30,793/-. Therefore, this ground of the assessee is partly allowed. Not allowing deduction u/s. 80IA - assessee generating power for captive consumption - Held that - This issue in question was covered in favour of the assessee in the case of Alembic Ltd 2016 (7) TMI 1239 - GUJARAT HIGH COURT wherein allowed the claim of the assessee even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it would have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression derived from could have no application to the case where the provisions of section 80-IA got attracted. - Decided in favour of assessee . Disallowance of deduction u/s. 35(2AB) - expenditure on scientific research on in-house research and development facilities - AO rejected the claim of deduction for the period prior to 01-04-2008 to 31-03-2010 on the ground that in the Form No. 3CM dated 22/10/2008 giving approval u/s. 35(2AB) it was specifically mentioned that the Research and Development facilities was approved for the purpose of section 35(2AB) with effect from 01- 04-2008 to 31-03-2010 - Held that - We have perused the paper book furnished by the assessee and find that the assessee claim that application for approval of in-house research and development was made on 22-12-2006. In order to verify the same we have gone through the pages of paper book and find that as per para 43 of page no. 235 It was stated that application to the prescribed authority was made on 26-06-2008. We have further verified from page no. 162 in the paper book that a letter dated 24-10-2008 was addressed to the assessee from the Ministry of Science and Technology Department of Scientific and Industrial Research Training providing reference of the application of the assessee dated 26.06.2008. The claim of the assessee that it had applied on Dec 22, 2006 could not be substantiated in view of supporting material indicating that assessee had applied on 26/06/2008. We observed that above findings throw lights on the contentions that the facts of the case of the assessee are distinguished from the decision of the case of Claris Life Sciences Ltd. 2008 (8) TMI 579 - Gujarat High Court . we considered it will be more appropriate to restore the issue of applicability of the decision in the case of the Claris Life Sciences Ltd to the file of the assessing officer to decide a fresh

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Non-allowance of deduction under Section 80IA of the Income Tax Act, 1961.
3. Disallowance of weighted deduction under Section 35(2AB) of the Income Tax Act, 1961.
4. Charging of interest under Section 234B of the Income Tax Act, 1961.
5. Charging of interest under Section 234D of the Income Tax Act, 1961.
6. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act, 1961:
The assessee challenged the disallowance of ?3,19,784/- made by the Assessing Officer (AO) under Section 14A read with Rule 8D. The AO observed that the assessee had received dividend income and long-term capital gains, both exempt under the Act, and thus invoked Section 14A to disallow the expenditure related to earning such exempt income. The assessee argued that substantial accruals were utilized for investments and objected to the disallowance. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting that the assessee did not maintain separate accounts for funds used for investments and did not allocate any interest towards exempt income. The Tribunal, after considering the totality of facts, excluded the interest component of ?88,991/- and restricted the disallowance to ?2,30,793/-, partly allowing the assessee's appeal.

2. Non-allowance of deduction under Section 80IA of the Income Tax Act, 1961:
The assessee contended that the issue was covered in its favor by previous decisions, including those of the ITAT Ahmedabad and the Hon'ble Gujarat High Court in the case of Alembic Ltd. The Tribunal noted that the issue of eligibility for deduction under Section 80IA(4) for generating power for captive consumption was already decided in favor of the assessee by the Gujarat High Court. The Tribunal followed the High Court's judgment, allowing the assessee's claim for deduction under Section 80IA(4) at the rate of selling price charged by the Gujarat State Electricity Board, and thus allowed this ground of the assessee.

3. Disallowance of weighted deduction under Section 35(2AB) of the Income Tax Act, 1961:
The AO rejected the assessee's claim for weighted deduction under Section 35(2AB) for the period before 01-04-2008, as the approval for the Research and Development (R&D) facility was effective from 01-04-2008 to 31-03-2010. The CIT(A) upheld the AO's decision, distinguishing the assessee's case from the Claris Life Sciences Ltd. case, where the approval was granted during the relevant assessment year. The Tribunal observed conflicting claims regarding the application date for approval and found it appropriate to remand the issue back to the AO for verification of facts and re-examination, providing due opportunities to the assessee.

4. Charging of interest under Section 234B of the Income Tax Act, 1961:
The issue of charging interest under Section 234B was not specifically detailed in the judgment. However, the Tribunal's decision on this matter implicitly followed the outcomes of the primary issues discussed.

5. Charging of interest under Section 234D of the Income Tax Act, 1961:
Similar to Section 234B, the specific details regarding the charging of interest under Section 234D were not elaborated. The Tribunal's decision on this matter was contingent on the primary issues.

6. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961:
The Tribunal did not provide specific details on the initiation of penalty proceedings under Section 271(1)(c). The resolution of this issue would depend on the final outcomes of the primary issues upon reassessment and verification by the AO.

Conclusion:
The Tribunal partly allowed the assessee's appeal, providing relief on the disallowance under Section 14A and fully allowing the deduction under Section 80IA. The issue regarding the weighted deduction under Section 35(2AB) was remanded back to the AO for further verification. The decisions on interest charges under Sections 234B and 234D, and the penalty proceedings under Section 271(1)(c), were dependent on the final outcomes of the reassessed primary issues.