2022 (10) TMI 1101 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - assessee has made suo moto disallowance - AO treated the suo moto disallowance made by the assessee as incurred directly against the earning of exempted income - HELD THAT - This finding of the AO is fallacious without any evidence on record that said expenditure was connected directly with the earning of exempted income. Further, under Rule 8D(2)(ii), AO disallowed proportionate interest expenses incurred for investment on borrowed funds in mutual funds/shares. The said disallowance has been deleted by the CIT(A) following the decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and HDFC Bank 2014 (8) TMI 119 - BOMBAY HIGH COURT as the surplus funds constituting share capital of ₹ 39.23 crores and reserve and surplus of ₹ 73.73 crores available with the assessee are found to be much more than the investment of ₹ 18.70 crores in exempted income yielding assets. Since, the Ld. CIT(A) followed binding precedent of Hon'ble Jurisdictional High Court, we do not find any error in the order of the Ld. CIT(A) on the issue-in-dispute. Disallowance under Rule 8D(2)(iii) for administrative expenses is concerned Assessing Officer has made disallowance - CIT(A), however, in view of the decision of the Hon'ble Bombay High Court in the case of Nirved Traders 2019 (4) TMI 1738 - BOMBAY HIGH COURT wherein it is held that disallowance u/s. 14A is to be limited to the extent of tax exempted income earned during the year, sustained the suo moto disallowance and deleted the remaining disallowance made by the Assessing Officer u/s. 14A of the Act. Since, the Ld. CIT(A) has followed the binding precedent of the Hon'ble Jurisdictional High Court, therefore, we do not find any error in the order of the Ld. CIT(A) on the issue-in-dispute. Accordingly, the ground No. 1 of the appeal of the Revenue is dismissed. Nature of receipt - subsidy receipt in the form of Technology Upgradation Fund (TUF) - revenue v/s capital receipt - HELD THAT - We find that the TUF scheme was launched by the Ministry of Textile of the Central Government and the Ld. CIT(A) not only relied on the various decision of the High Court but also relied on the decision in the case of Nitin Spinners Ltd. 2019 (9) TMI 1154 - RAJASTHAN HIGH COURT DR could not brought on record any contrary decision of any High Court or the Jurisdictional High Court. Therefore, we do not find any error in the order of the Ld. CIT(A) in following the decision of Nitin Spinners Ltd. (supra) wherein the interest subsidy claim under the very same scheme has been held in the nature of capital receipt. The ground No. 2 of the appeal of the Revenue is accordingly dismissed. MAT computation u/s 115JB - Exclusion of the amount of interest subsidy on TUFS fund for computing book profit u/s. 115JB - HELD THAT - The issue-in-dispute before us being identical to the issue-in-dispute before the Tribunal in the case of Shri Pushkar Chemicals Fertilizers Ltd. 2021 (8) TMI 982 - ITAT MUMBAI respectfully following the finding of the Tribunal, we set aside the order of the Ld. CIT(A) on the issue-in-dispute and direct AO to exclude the amount of interest subsidy which has also been held by us as capital receipt, from the book profit for the purpose of section 115JB of the Act. The ground No. 1 of the appeal of the assessee is accordingly allowed. Adjustment of disallowance u/s. 14A for the purpose of book profit u/s. 115JB - HELD THAT - CIT(A) followed the decision of the Special Bench of the Tribunal in the case of the Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI on the issue-in-dispute which being a binding precedent, we do not find any error in the order of the Ld. CIT(A) on the issue-in-dispute. We may also note that the disallowance made by the AO u/s. 14A has already been deleted by us. while computing income under the regular provisions of the Act. The ground No. 3 of the appeal of the Revenue is accordingly dismissed.

Issues Involved:
1. Disallowance of administrative expenses under Section 14A.
2. Reduction of interest subsidy under TUF Scheme from book profit under Section 115JB.
3. Levy of interest under Section 234C.
4. Premature initiation of penalty proceedings under Section 271(1)(c).
5. Deletion of disallowance under Rule 8D(2)(iii) by the CIT(A).
6. Treatment of Technology Upgradation Fund subsidy as capital receipt.

Detailed Analysis:

1. Disallowance of Administrative Expenses under Section 14A:
The assessee challenged the disallowance of Rs. 9,35,400 made by the AO under Section 14A, arguing that no expenditure was incurred in relation to exempt income. The CIT(A) confirmed the disallowance, but the Tribunal found that the AO's disallowance lacked evidence linking the expenditure directly to exempt income. The Tribunal upheld the CIT(A)'s deletion of proportionate interest expenses, citing sufficient surplus funds, and limited the disallowance to the exempt income earned, following the Bombay High Court's decision in Nirved Traders.

2. Reduction of Interest Subsidy under TUF Scheme from Book Profit under Section 115JB:
The assessee sought to exclude interest subsidy of Rs. 1,72,22,271 from book profit under Section 115JB, arguing it was a capital receipt. The CIT(A) allowed the exclusion from total income but denied it for book profit computation, suggesting the assessee should seek relief under Section 119(2)(b). The Tribunal, however, directed the AO to exclude the subsidy from book profit, relying on precedents such as Alok Industries Ltd. and Shree Pushkar Chemicals & Fertilizers Ltd.

3. Levy of Interest under Section 234C:
The CIT(A) held that the levy of interest under Section 234C was mandatory. The Tribunal did not find grounds to dispute this, hence, the appeal on this issue was dismissed.

4. Premature Initiation of Penalty Proceedings under Section 271(1)(c):
The CIT(A) deemed the initiation of penalty proceedings under Section 271(1)(c) as premature. The Tribunal agreed, dismissing the appeal on this ground as infructuous.

5. Deletion of Disallowance under Rule 8D(2)(iii) by the CIT(A):
The Revenue contested the CIT(A)'s deletion of disallowance under Rule 8D(2)(iii), but the Tribunal upheld the deletion, noting that the disallowance should not exceed the exempt income earned, in line with the Bombay High Court's ruling in Nirved Traders.

6. Treatment of Technology Upgradation Fund Subsidy as Capital Receipt:
The CIT(A) treated the TUF subsidy as a capital receipt, citing various judicial pronouncements. The Tribunal upheld this treatment, noting no contrary decisions were presented by the Revenue. The Tribunal also directed the exclusion of this subsidy from book profit computation, following decisions in similar cases.

Conclusion:
The Tribunal partly allowed the assessee's appeals and dismissed the Revenue's appeals, providing detailed reasoning for each issue based on judicial precedents and the specifics of the case. The judgment emphasized adherence to established legal principles and precedents, ensuring consistency in the application of tax laws.

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