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2023 (5) TMI 112 - AT - Income TaxDisallowance u/s. 14A r.w.r. 8D - Whether no exempt income was earned by the assessee? - HELD THAT - As in the case of Era Infrastructure 2022 (7) TMI 1093 - DELHI HIGH COURT and also various high courts and tribunals decisions on similar facts, wherein it has been held that no disallowance could be made u/s. 14A r.w.r. 8 if no exempt income was earned by the assessee. We are of the considered view that it is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income or in excess of income claimed to be exempt. Disallowances made under section 14A read with rule 8D could not exceed amount of exempt income earned by assessee during year - Decided in favour of assessee. Nature of expenditure - Addition on account of R D expenditure - revenue or capital expenditure - AO held that entire R D expenditure is of capital nature and disallowed the sum - CIT-A deleted the addition - HELD THAT - As the case of the assessee is covered in its favour in view of the decision of Ahmedabad ITAT in assessee s own case for assessment year 2013-14 2020 (10) TMI 404 - ITAT AHMEDABAD which was rendered on identical set of facts. Further, the counsel for the assessee submitted that ld. CIT(A) allowed the appeal of the assessee with respect to this ground of appeal by placing reliance on the aforesaid decision of ITAT Ahmedabad for assessment year 2013-14. No infirmity in the order of ld. CIT(A) in allowing the assessee s appeal with respect to this ground of appeal, so as to call for any interference. Decided against revenue.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Addition of R&D Expenditure as Capital Expenditure. Summary: Issue 1: Disallowance under Section 14A of the Income Tax Act Ground No. 1 Disallowance of Rs. 25,02,096/- u/s. 14A of the Act The Assessing Officer disallowed Rs. 25,02,096/- under Section 14A of the Act r.w.r. 8D, citing investments in shares. The CIT(A) deleted this disallowance, noting that the assessee did not derive any exempt income during the year, and similar relief was granted in prior years (2013-14 and 2014-15). The Tribunal upheld the CIT(A)'s decision, referencing multiple judicial precedents, including the Delhi High Court's ruling in Era Infrastructure India Ltd., which stated that no disallowance under Section 14A is permissible if no exempt income was earned. Issue 2: Addition of R&D Expenditure as Capital ExpenditureGround No. 2 CIT(A) erred in deleting addition of Rs. 20,77,01,000/- made on account of R&D expenditure The Assessing Officer classified the R&D expenditure of Rs. 20,77,01,000/- as capital expenditure. The CIT(A) reversed this, treating it as revenue expenditure, citing the ITAT's earlier decision in the assessee's favor for the assessment year 2013-14. The Tribunal confirmed the CIT(A)'s decision, noting that the R&D expenses were for developing products as per customer specifications and were not of a capital nature. Assessment Year 2014-15Ground No. 1: CIT(A) erred in deleting the addition of Rs. 11,61,96,094/- made on account of R&D expenditure The Tribunal dismissed this ground, following its rationale for the assessment year 2016-17, where similar facts and issues were involved. Assessment Year 2017-18Ground No. 1 CIT(A) erred in deleting the disallowance of Rs. 13,39,050/- u/s. 14A of the Act r.w.r. 8D Ground No. 2: CIT(A) erred in deleting addition of Rs. 20,17,60,000/- on account of R&D expenditure The Tribunal dismissed both grounds, reiterating its findings from the assessment year 2016-17. In conclusion, the appeals of the Department for assessment years 2014-15, 2015-16 & 2016-17 were dismissed.
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