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2023 (3) TMI 709 - AT - Income TaxRevision u/s 263 - deduction allowed u/s 80IA - According to PCIT, brought forward unabsorbed depreciation should have been deducted from the profits generated before computing deduction u/s 80IA - HELD THAT - In the instant case, we notice that the method of claiming deduction u/s 80IA without adjusting losses of the years prior to the initial year would get support from the decision rendered by Ahmedabad bench of ITAT in the case of DCIT vs. Chhotabhai Jethabhai Patel Co. 2020 (7) TMI 525 - ITAT AHMEDABAD CBDT has clarified in the Circular referred above that the losses arising in 'eligible business', if any, subsequent to earmarking of 'initial assessment year' shall however continue to be governed by embargo placed in Section 80IA(5) of the Act, i.e., the losses incurred in the years prior to the initial year need not be adjusted while computing the deduction u/s 80IA in the initial year. Hence the view expressed by Ld PCIT goes against the Circular of CBDT referred above. There should not be any doubt that the circulars issued by CBDT are binding on the tax authorities. In the instant case, it can be noticed that the view expressed by Ld PCIT is contrary to the Circular issued by CBDT. On the contrary, the deduction allowed by the AO is in accordance with the view expressed in the Circular issued by the CBDT. The view expressed by Ld PCIT with regard to the computation of deduction u/s 80IA cannot be sustained. Accordingly, we quash the impugned revision order passed by Ld PCIT on this issue. Exemption allowed to the assessee u/s 10(38) of the Act in respect of gains arising on sale of JM Arbitrage Advantage Annual Bonus Plan - We notice that the AO has issued notice u/s 142(1) of the Act, wherein he has called for details of exempt income and also the details of expenses incurred in relation to the above said exempt income. If so claimed, the justification for claiming it was also called for. AO has asked for justification for various exemptions and deduction claimed in the return of income including the profit on sale of investments, being securities chargeable to STT. In reply to thereto, the assessee has furnished the break-up details of exempt income, which included exemption of long term capital gain claimed u/s 10(38) of the Act to the tune of Rs.1.42 crores (as against Rs.5.77 crores mentioned by AO). Be that as it may, before Ld PCIT, the assessee has also submitted that the JM Arbitrage advantage fund is a equity oriented fund and the sale transactions have suffered STT, which is the condition for claiming exemption u/s 10(38) of the Act. The said submission has not been examined by Ld PCIT. Accordingly, we are of the view that the Ld PCIT was not justified in initiating revision proceedings on this issue. Accordingly, we quash his order passed on this issue. Disallowance to be made u/s 14A - In the notice issued u/s 142(1), AO has asked break-up details of long term investments, the expenses incurred in relation to exempt income, details of availability of non-interest bearing funds. Further, vide notice u/s 142(1) dated 09-08-2019, the AO has asked clarification on the note given by tax auditor as under on the expenses related to exempt income - Hence, the AO has asked explanations on the above said observation. The assessee replied that it has not earned any expenditure relating to exempt income. With regard to the interest expenses, perusal of the Balance sheet would show that the assessee is having capital balance of Rs.229.34 crores, as against the investments of around Rs.130 crores. Hence no part of interest expenses is liable to be disallowed in terms of the decision rendered by Hon ble Bombay High Court in the case of HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT The foregoing discussions would show that the AO has made enquiries during the course of assessment proceedings with regard to the disallowance to be made u/s 14A of the Act. Further, since the assessee is having enough own funds, no disallowance out of interest expenses is also called for. On these reasoning, the order passed by Ld PCIT on this issue is also liable to be quashed. Appeal of the assessee is allowed.
Issues Involved:
1. Deduction allowed under section 80IA. 2. Exemption granted under section 10(38) of the Act. 3. Disallowance of expenses under section 14A of the Act. Issue-wise Detailed Analysis: 1. Deduction allowed under section 80IA: The assessee claimed deduction under section 80IA for two wind mills, M-77 and DLG-95, taking AY 2017-18 as the initial year. The Principal Commissioner of Income Tax (PCIT) noted that the assessee had brought forward unabsorbed depreciation from AY 2015-16 and 2016-17, which should have been deducted from the profits of M-77 before computing the deduction under section 80IA. The assessee argued that losses from years prior to the initial year need not be adjusted as per the decision in DCIT vs. Chhotabhai Jethabhai Patel & Co. The Tribunal noted that the CBDT Circular No.1 of 2016 supports the assessee's view that losses prior to the initial year need not be adjusted. The Tribunal found that the PCIT's view was contrary to the CBDT Circular and quashed the revision order on this issue. 2. Exemption granted under section 10(38) of the Act: The PCIT contended that the AO allowed exemption under section 10(38) for gains from the sale of JM Arbitrage Advantage Annual Bonus Plan without proper examination. The assessee argued that the plan is an equity-oriented mutual fund and transactions suffered STT, making the gains exempt. The Tribunal found that the AO had issued a notice under section 142(1) asking for details of exempt income and that the assessee had provided the necessary information. The PCIT did not examine the assessee's submission. The Tribunal held that the PCIT was not justified in initiating revision proceedings on this issue and quashed the order. 3. Disallowance of expenses under section 14A of the Act: The PCIT argued that the AO should have disallowed interest expenses under section 14A. The AO had asked for details of expenses related to exempt income and the availability of non-interest bearing funds. The assessee responded that it had not incurred any expenses related to exempt income and that its own funds exceeded the value of investments. The Tribunal noted that the AO had made inquiries and that the assessee had sufficient own funds, making disallowance of interest expenses unnecessary as per the decision in HDFC Bank Ltd. The Tribunal quashed the PCIT's order on this issue. Conclusion: The Tribunal allowed the appeal of the assessee on all three issues, quashing the revision order passed by the PCIT. The Tribunal emphasized that the AO had made necessary inquiries and that the views taken were supported by legal precedents and CBDT Circulars. The appeal was pronounced on 17-01-2023.
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