2018 (5) TMI 124 - AT - Income Tax

Disallowance u/s.14A - Held that - AO is directed to restrict the disallowance u/s.14A to the exempt income earned in line with the decision of the Hon ble Delhi High Court in the case of M/s.Joint Investments Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT . For the AY 2011-12, as it is noticed that the disallowance u/s.14A as computed is lower than the exempt income earned, the disallowance as confirmed by the Ld.CIT(A) stands upheld. In regard to the computation of the book profits u/s.115J, as it is noticed that the issue is squarely covered by the decision in the case of M/s.Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI the AO is directed not to include the disallowance u/s.14A when computing the book profits u/s.115J. Hire charges paid by the assessee company in respect of chartered flight in respect of the travel of the Managing Director of the assessee company - Held that - The details in respect of the expenditure incurred for hiring of the Chartered flight was produced before the AO only on the last day of the assessment. This being so, in the interest of natural justice, this issue is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity to substantiate its case Expenditure incurred in respect of the expansion of the assessee s business - Held that - AO is directed to allow the expenditure as Revenue expenditure. See COMMISSIONER OF INCOME-TAX Versus RANE (MADRAS) LTD. 2007 (6) TMI 25 - HIGH COURT, MADRAS Carry forward of the unabsorbed depreciation - as per AO 08 years limitation in respect of the carry forward of the depreciation had expired - Held that - As it is noticed that the issue under appeal is squarely covered by the principles laid down by the Hon ble Gujarat High Court in the case of Gujarat Themis Biosyn Ltd. 2014 (5) TMI 194 - GUJARAT HIGH COURT as also the decision of the General Motors 2012 (8) TMI 714 - GUJARAT HIGH COURT , and as it is noticed that the Ld.CIT(A) has followed the principles laid down by the Hon ble Gujarat High Court in the above decisions in respect of the carry forward of the unabsorbed depreciation by treating the same as depreciation for the current year, we find no reason to interfere in the findings of the Ld.CIT(A) on this issue

Summary

Issues:
1. Disallowance under Section 14A and Rule 8D
2. Hire charges for chartered flight
3. Treatment of expenditure for business expansion
4. Carry forward of unabsorbed depreciation

Issue 1: Disallowance under Section 14A and Rule 8D:
The appeals involved disputes related to the disallowance under Section 14A. The AO had invoked Section 14A and Rule 8D to disallow expenditure in relation to exempt income, specifically dividend income. The Hon'ble Delhi High Court's decision in the case of M/s.Joint Investments Pvt. Ltd. was cited, stating that the disallowance under Section 14A cannot exceed the tax-exempt income. Additionally, the issue of disallowance under Section 14A when computing book profits under Section 115J was raised. The Hon'ble Delhi Special Bench's decision in the case of M/s.Vireet Investment Pvt. Ltd. was referenced, emphasizing that such disallowance should not be included when computing book profits under Section 115J. The Tribunal directed the AO to restrict disallowance under Section 14A to the exempt income earned and not include it when computing book profits under Section 115J.

Issue 2: Hire charges for chartered flight:
The appeals also addressed hire charges paid by the assessee for a chartered flight used by the Managing Director. The details of this expenditure were a point of contention, with the Revenue suggesting a lack of proper documentation. The issue was related to the assessment years 2013-14 and 2014-15. The Tribunal, after reviewing the assessment order and details provided, decided to restore this issue to the AO for re-adjudication, allowing the assessee an opportunity to substantiate the expenditure adequately.

Issue 3: Treatment of expenditure for business expansion:
Another issue involved expenditure incurred for expanding the assessee's business by setting up a new unit. The AO treated this expenditure as capital expenditure, while the assessee argued it should be considered revenue expenditure as it was for expanding existing products. Citing decisions from the Hon'ble Jurisdictional High Court, the Tribunal upheld the Ld.CIT(A)'s decision to treat the expenditure as revenue expenditure, allowing the same.

Issue 4: Carry forward of unabsorbed depreciation:
The matter of carrying forward unabsorbed depreciation from the assessment year 1997-98 was also disputed. The AO initially denied this benefit based on the expiration of the 8-year limitation. However, the Ld.CIT(A) allowed the carry forward claim. The Tribunal, considering relevant provisions and decisions from the Hon'ble Gujarat High Court, upheld the Ld.CIT(A)'s decision to treat the unabsorbed depreciation as depreciation for the current year, resulting in the allowance of the carry forward claim.

The Tribunal delivered specific judgments on each issue, confirming or partly allowing appeals based on the arguments presented and legal precedents cited. The detailed analysis and application of relevant legal principles ensured a comprehensive resolution of the disputes across the appeals.