2022 (1) TMI 1152 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - investments generate exempt-income in the form of dividend or share in profit from firm - whether the disallowance is attracted even when the underlying investment has not yielded any exempt-income during the relevant previous year? - CIT-A deleted the addition - HELD THAT - As section 14A / Rule 8D is not applicable at all if there is no exempt-income earned during the previous year. Reverting back to the facts of the assessee, the parties have openly accepted that there was no exempt-income earned during the year from the underlying investments. Being so, in view of above analysis of legal provisions, we observe that the Ld. CIT(A) has committed no error in deleting the disallowance made by Ld. AO u/s 14A read with Rule 8D. Therefore we dismiss the Ground No. 1 of Revenue. Not considering the decision of Hon ble Supreme Court in the case of Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT - It may be noted that in Maxopp Investment (Supra), the Hon ble Supreme Court has decided only one specific issue, of course which goes in favour of revenue and against the assessee. The Hon ble Court had turned down the argument that section 14A and Rule 8D are not applicable where the investment in shares is made as a part of strategic objective - Hence the Revenue is wrong in Ground No. 2 to urge that the Ld. CIT(A) has not considered the decision in Maxopp Investment (Supra). Therefore, this Ground No. 2 of the Revenue is dismissed. Disallowing additional claim of deduction u/s 32AC - HELD THAT - We observe that the deduction u/s 32AC is a statutory deduction. Further the purpose of deduction is to incentivize the establishment of new manufacturing industry. Hence it would be better to construe the provision in a holistic manner. In view of above we accept this claim of assessee. However, since the details of qualifying assets are required to be verified, we send the matter back to the file of Ld. AO. AO shall give an opportunity to the assessee, verify the details of qualifying assets and allow deduction. Therefore, this ground of assessee is allowed for statistical purposes. New legal claim to be entertained by judicial authorities - deduction of the Cess on income-taxes paid and DDT paid - HELD THAT - A new legal claim can be entertained by judicial authorities and the decision of Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT does not come in the way. It is for this reason that we admit this claim of assessee. However, since the details of claim is required to be verified, we send the matter back to the file of Ld. AO. AO shall verify the claim having regard to the judicial developments to be placed by assessee before him and take an appropriate conclusion. Therefore, this ground of assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance under Section 14A read with Rule 8D.
2. Consideration of the decision in Maxopp Investment Ltd.
3. Additional claim of deduction under Section 32AC.
4. Deduction of Cess on income-taxes and DDT paid.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A read with Rule 8D:
The Revenue contended that the CIT(A) erred in deleting the addition of ?2,15,04,044 made under Section 14A read with Rule 8D. The Assessee, a manufacturing company, had made substantial investments that purportedly generate exempt income. The AO argued that the investments were made from interest-bearing funds and disallowed expenses accordingly. The Assessee argued that the investments were made from its own funds and that no exempt income was earned during the year. The CIT(A) deleted the disallowance, noting that no exempt income was earned and that the Assessee had sufficient interest-free funds. The Tribunal upheld the CIT(A)'s decision, citing precedents that Section 14A and Rule 8D do not apply if no exempt income is earned during the relevant year.

2. Consideration of the decision in Maxopp Investment Ltd.:
The Revenue claimed that the CIT(A) failed to consider the Supreme Court's decision in Maxopp Investment Ltd., which ruled that Section 14A and Rule 8D apply regardless of the investment's strategic purpose. The Tribunal noted that the CIT(A) had considered this decision but found it irrelevant as the disallowance was deleted based on the absence of exempt income. Thus, this ground was dismissed.

3. Additional claim of deduction under Section 32AC:
The Assessee claimed an additional deduction of ?40,30,472 under Section 32AC, which was not initially claimed in the return but was later requested through a letter to the AO. The AO and CIT(A) disallowed this claim, citing the Supreme Court's decision in Goetze (India) Ltd., which restricts new claims through letters. The Tribunal accepted the Assessee's argument that the claim was a correction of an existing claim and not a new one. The Tribunal remanded the matter to the AO for verification and allowance of the deduction.

4. Deduction of Cess on income-taxes and DDT paid:
The Assessee claimed a deduction of ?63,48,052 for Cess on income-taxes and DDT paid, based on judicial developments. This claim was made for the first time before the Tribunal. The Tribunal admitted the claim, noting that judicial authorities could entertain new legal claims, and remanded the matter to the AO for verification and appropriate conclusion.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the Assessee's cross-objection for statistical purposes, directing the AO to verify and allow the claims as per the Tribunal's observations.

This Order was pronounced in Open Court on 27/01/2022.