2018 (4) TMI 1511 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - suo moto disallowance - Held that - We find that the assessee itself has disallowed ₹ 30,57,783/- u/s 14A by duly considering the direct expenditure and also indirect expenditure in terms of Rule 8D(2)(iii) of the Rules. Against the disallowance deleted by the Ld. CIT(A) under Rule 8D(2)(ii), the revenue is not in appeal before us. AO had not looked into the workings given by the assessee having regard to the accounts and had to record satisfaction as to why the calculation made by the assessee is incorrect and as to why he is ignoring the same and proceeding to invoke the computation mechanism provided in Rule 8D(2) of the Rules. Thus we hold that no disallowance is to be made u/s 14A over and above ₹ 30,57,783/- which has already been disallowed by the assessee. - Decided in favour of assessee Denial of deduction u/s 80IE - assessee is engaged in the business of growing and manufacturing of tea, manufacturing chemical and fertilizers, trading of tea, warehousing and development of real estate - substantial expansion - Held that - As find that the expression substantial expansion is also defined in 80IE(7)(iii) wherein, it should result in increase in investment of plant and machinery by at least 25% of the book value of plant and machinery. This factual aspect as to whether the assessee had indeed invested in plant and machinery more than 25% of the book value of plant and machinery (before depreciation in any year); as on the first day of the previous year in which substantial expansion is undertaken, was not verified by the authorities below. Thus remand this issue to the file of the AO, for this limited purpose of verification of quantum of investment in plant and machinery so as to satisfy the definition of substantial expansion within the meaning of 80IE(7)(iii) of the Act. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Disallowance u/s 14A of the Income Tax Act read with Rule 8D of the Rules.
2. Denial of deduction u/s 80IE of the Income Tax Act.

Issue 1: Disallowance u/s 14A of the Income Tax Act read with Rule 8D of the Rules:

The appeal arose from the order of the Commissioner of Income Tax (Appeals) regarding the disallowance under Rule 8D of the Income Tax Act. The assessee had claimed exemption for dividend income but disallowed a sum under Rule 8D(2)(iii). The Assessing Officer recomputed the disallowance under Rule 8D, leading to a dispute. The Commissioner partially confirmed the disallowance, prompting the appeal. The Appellate Tribunal noted that the assessee had already disallowed a certain amount under Rule 8D(2)(iii) and found that the Assessing Officer did not provide reasons for disregarding the assessee's calculations. Citing a relevant High Court case, the Tribunal held that no further disallowance was warranted beyond what the assessee had already disallowed. Therefore, the ground raised by the assessee was allowed.

Issue 2: Denial of deduction u/s 80IE of the Income Tax Act:

The second issue revolved around the denial of deduction under Section 80IE of the Income Tax Act. The assessee, engaged in various businesses, claimed a deduction for units in North-Eastern States. The Assessing Officer disallowed the deduction without discussion, which was upheld by the Commissioner based on the completion timeline of substantial expansion. The Tribunal observed that the Assessing Officer failed to address the deduction claim in the assessment order. It clarified that Section 80IE allows deductions for substantial expansions completed within the Initial Assessment Year, without prescribing a specific completion timeline. The Tribunal highlighted that the denial of deduction based on completion within the same financial year was unfounded. However, it remanded the issue back to the Assessing Officer to verify if the investment in plant and machinery met the criteria for substantial expansion. If verified, the deduction should be allowed. Consequently, the ground raised by the assessee was allowed for statistical purposes.

In conclusion, the Appellate Tribunal allowed the appeal for statistical purposes, addressing the issues of disallowance under Rule 8D and denial of deduction under Section 80IE of the Income Tax Act. The Tribunal provided detailed reasoning for its decision, emphasizing the importance of proper assessment and adherence to statutory provisions in tax matters.