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2020 (2) TMI 88 - AT - Income TaxAddition u/s. 35D OR section 37 - HELD THAT - Appellant has incurred the expenditure for improving its coal logistic and the genuineness whereof has not been doubted by the AO when the said expenditure is allowable as revenue expenditure in one year without differing the same for a further period of 5 years or so on. The nature of expenditure was for the improvement of regular day-to-day working of the assessee-company and wholly and exclusively for the business purpose. Entire expenditure ought to have been allowed by the AO as revenue expenditure taking into consideration the ratio laid down by the Hon ble Apex Court in the case of Taparia Tools Ltd. 2015 (3) TMI 853 - SUPREME COURT as also decision of ITAT in the case of Pan India Food Solutions P.Ltd. 2014 (7) TMI 838 - ITAT MUMBAI as relied upon by the ld.CIT(A) in the impugned order. Therefore, deletion of disallowance by the Ld. CIT(A) is, therefore, in our considered view is just and proper without any ambiguity so as to warrant our interference. Hence, the order is in the affirmative i.e. in favour of the assessee, and against the Revenue. Addition u/s 14A read with rule 8D - HELD THAT - Computation for the purpose of clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A r.w. rule 8D. Respectfully following the above decision of the Special Bench, we allow this ground of appeal and direct the AO not to make adjustments in book profit for the purpose of MAT liability on the basis of calculations made with Rule 8D of the Income Tax Rules. No justification in reversing the order passed by the CIT(A) in deleting the enhancement of book profit made by the Learned AO to the extent of exempt, hence the Revenue s appeal is found to be devoid of any merit, and therefore ground no.3 is dismissed.
Issues Involved:
1. Deletion of addition of ?4,80,00,000/- made under Section 35D of the Income Tax Act, 1961. 2. Deletion of addition of ?2,00,390/- made under Section 14A read with Rule 8D. 3. Deletion of addition of ?2,00,390/- while computing book profit under Section 115JB of the Income Tax Act. Detailed Analysis: 1. Deletion of Addition of ?4,80,00,000/- under Section 35D: - Assessment Proceedings: The Assessing Officer (AO) observed that the appellant incurred ?6,00,00,000/- on legal and professional fees for a feasibility study to improve and set up a coal logistics business. The AO deemed this expenditure as covered under Section 35D, allowing only 1/5th (?1,20,00,000/-) as a deduction for the year and amortizing the balance ?4,80,00,000/- over subsequent years. - Appellant's Argument: The appellant argued that the expenditure was for the improvement of an existing coal logistics business, not for setting up a new business, thus Section 35D was not applicable. The appellant relied on the Supreme Court judgment in Taparia Tools Ltd. (55 taxmann.com 361). - Tribunal's Findings: The Tribunal upheld the CIT(A)'s decision, noting that the appellant was already in the logistics business since 2005, including coal logistics, and the expenditure was for improvement, not expansion. The expenditure was considered genuine and wholly for business purposes, and thus allowable as revenue expenditure in one year. The Tribunal referenced the Supreme Court decision in Taparia Tools Ltd. and ITAT Mumbai's decision in Pan India Food Solutions (P) Ltd. (53 taxmann.com 520). - Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the deletion of the ?4,80,00,000/- addition. 2. Deletion of Addition of ?2,00,390/- under Section 14A read with Rule 8D: - Assessment Proceedings: The AO noted that the assessee had investments in shares and some exempt income but did not identify any expense related to this exempt income. Consequently, the AO applied Section 14A read with Rule 8D, adding ?2,00,390/-. - Appellant's Argument: The appellant contended that no exempt income was earned during the year, thus Section 14A was not applicable. The appellant cited the jurisdictional High Court decision in CIT vs. Corrtech Energy Private Ltd. (45 Taxmann.com 116). - Tribunal's Findings: The Tribunal found that the assessee had no exempt income for the year, as confirmed by the audited financial statements. The Tribunal also noted that the assessee had sufficient interest-free funds to cover the investments. The Tribunal referenced multiple judgments, including the Gujarat High Court's decision in Corrtech Energy Pvt. Ltd., which held that Section 14A could not be invoked in the absence of exempt income. - Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the deletion of the ?2,00,390/- addition. 3. Deletion of Addition of ?2,00,390/- while Computing Book Profit under Section 115JB: - Assessment Proceedings: The AO enhanced the book profit under Section 115JB by the disallowed amount under Section 14A read with Rule 8D. - Appellant's Argument: The appellant argued that adjustments to book profit under Section 115JB could not be made based on disallowances under Section 14A read with Rule 8D. The appellant relied on the Special Bench decision in ACIT vs. Vireet Investments P.Ltd. (165 ITD 27 (SB)). - Tribunal's Findings: The Tribunal referenced the Special Bench decision in Vireet Investments P.Ltd., which held that computations for Section 115JB should be made without resorting to Section 14A read with Rule 8D. - Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the deletion of the ?2,00,390/- addition while computing book profit under Section 115JB. 4. Cross Objection by the Assessee: - Proceedings: The assessee's counsel did not press the cross-objection. - Conclusion: The cross-objection was dismissed for want of prosecution. Final Order: - The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection.
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