2020 (1) TMI 871 - HC - Income Tax

Production activity for the purpose of 80H, 80I and 80IA - bottling of the gas into gas cylinders - whether no new production comes into existence in this process ? - HELD THAT - Decision of the Supreme Court in the case of Commissioner of Income Tax vs. Hindustan Petroleum Corporation Ltd 2017 (8) TMI 197 - SUPREME COURT is placed on record. It is a common ground that in view of this dicta of the Supreme Court, the substantial questions of law as framed will have to be answered against the Appellant Revenue. Disallowance u/s 14A - rule 8D applicability - HELD THAT - As we proceed on the basis that principle laid down under Rule 8D of the Income Tax Rules, 1962 ought to have taken into consideration and applied in the case of the Respondent Assessee. The Assessment Year in question is 2003-04. The Rule 8D is held to applicable from the assessment years 2008-09 in the case of M/S. ESSAR TELEHOLDINGS LTD. THROUGH ITS MANAGER 2018 (2) TMI 115 - SUPREME COURT - No substantial questions of law.

Summary

Issues:
1. Whether bottling of gas into gas cylinders qualifies as a production activity for tax purposes.
2. Whether the Income Tax Appellate Tribunal erred in restricting disallowances under Section 14A of the Income Tax Act.

Analysis:

Issue 1:
The Appellant challenged the order of the Income Tax Appellate Tribunal regarding the classification of bottling gas into gas cylinders as a production activity for tax benefits under sections 80H, 80I, and 80IA. The Appellant raised questions regarding the creation of new production in this process and the reliance on a specific court decision. The Supreme Court's ruling in Commissioner of Income Tax vs. Hindustan Petroleum Corporation Ltd. [2017] 396 ITR 696 (SC) was cited, leading to the conclusion that the questions raised must be answered against the Appellant. The judgment highlighted that the Appellant's arguments were not substantial in light of the Supreme Court's dicta.

Issue 2:
Regarding the disallowances under Section 14A of the Income Tax Act, the Appellant contended that the Income Tax Appellate Tribunal erred in restricting the disallowances without considering Rule 8D of the Income Tax Rules, 1962. The judgment pointed out that Rule 8D became applicable from assessment year 2008-09, as established in Commissioner of Income Tax vs. Essar Teleholdings Ltd. [2018] 401 ITR 445 (SC). Consequently, the questions of law raised by the Appellant were deemed insubstantial, leading to the disposal of the Appeal.

This judgment clarifies the interpretation of tax laws concerning production activities and disallowances under the Income Tax Act. It emphasizes the importance of legal precedents and the applicability of specific rules in determining tax liabilities.