2021 (12) TMI 821 - AT - Income Tax

Disallowance u/s.14A - whether no satisfaction has been recorded by the AO as per requirement of Rule 8D, no such disallowance is warranted ? - HELD THAT - As disallowance made by the AO and confirmed by ld. CIT(A) u/s 14A of the Act read with rule 8D of the Rules which is similar to the one involved in assessee's appeal for A.Y. 2012-13, which has already been decided by us. Since all the material facts relating to the said issue as involved in A.Y. 2014-15 2020 (12) TMI 188 - ITAT PUNE are similar to A.Y. 2012-13, we follow the conclusion drawn by us in A.Y.2012-13 and delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) u/s.14A of the Act read with rule 8D of the Rules.- Decided in favour of the assessee. Claim of the assessee u/s.80IB/80IC on sale of scrap - HELD THAT - As relying on own 2017 (12) TMI 1826 - ITAT PUNE in favour of the assessee by virtue of .Madras High Court judgment in the case of M/s Fenner India Ltd 1998 (4) TMI 67 - MADRAS HIGH COURT for the proposition that the profit on sale of scrap material since had a direct link or nexus with the industrial undertaking and therefore, it is eligible for deduction u/s 80IB, considering the similarity in language used in sections 80HH and 80IB of the Act, we are of the considered opinion that the assessee should succeed in this regard also.

Summary

Issues Involved:
1. Deletion of disallowance made under Section 14A of the Income Tax Act.
2. Allowing the claim of the assessee under Sections 80IB/80IC on income earned from the sale of scrap.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance Made Under Section 14A:
The Revenue challenged the deletion of disallowance made under Section 14A of the Income Tax Act by the CIT(A). The CIT(A) relied on the decision of the ITAT, Pune, which held that the Assessing Officer (AO) did not record the necessary satisfaction as required by Rule 8D. The Tribunal cited the Hon’ble Jurisdictional High Court's decision in the case of Pr. Commissioner of Income Tax Vs. Reliance Capital Asset Management Ltd., which emphasized that the AO must record satisfaction regarding the correctness of the assessee's claim before invoking Rule 8D.

During the assessment, the AO found that the assessee had received dividend income and claimed it as exempt under Section 10(34). The assessee made a suo moto disallowance, but the AO was not satisfied with this and made an additional disallowance under Section 14A r.w.r.8D. The CIT(A) noted that similar issues in previous assessment years were decided in favor of the assessee by the ITAT, Pune, and followed the same reasoning.

The Tribunal reiterated that the AO must first examine the correctness of the assessee's claim and record objective satisfaction before applying Rule 8D. In this case, the AO failed to do so, and thus, the disallowance was not sustainable. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

2. Allowing the Claim of the Assessee Under Sections 80IB/80IC on Income Earned from the Sale of Scrap:
The Revenue contested the CIT(A)'s decision to allow the assessee's claim under Sections 80IB/80IC on income earned from the sale of scrap, arguing that it was not derived from eligible business activities. The CIT(A) relied on the decision of the Hon’ble Madras High Court in the case of M/s. Fenner India Ltd., which held that income from the sale of scrap generated from manufacturing processes is eligible for deduction under Section 80IB.

The Tribunal noted that similar issues in previous assessment years were decided in favor of the assessee by the ITAT, Pune. The Tribunal had consistently held that the sale of scrap generated from manufacturing processes is treated as business income and eligible for deduction under Section 80IB. The Tribunal found no change in the facts and circumstances of the current assessment year and upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both the deletion of disallowance under Section 14A and the allowance of the claim under Sections 80IB/80IC on the sale of scrap. The Tribunal relied on consistent judicial precedents and the requirement for the AO to record objective satisfaction before making disallowances under Rule 8D.