2023 (7) TMI 400 - AT - Income Tax

Disallowance u/s 14A - Mandation of recording satisfaction - suo motu disallowance made by assessee - HELD THAT - After taking into consideration the nature of business of the assessee and the expenditure, the Bench is of considered view that the findings arrived by the Co-ordinate Bench in 2022 (10) TMI 82 - ITAT DELHI are squarely applicable as held where suo motu disallowance has been made, the Assessing Officer is required to form satisfaction in terms of Section 14A of the Act for higher disallowance which has not been made and thus the formula provided for quantification of disallowance under Rule 8D would not automatically apply . Disallowance cannot exceed the actual expenditure incurred in relation to the earning of the exempt income - Decided in favour of the assessee. Computation of the book profits u/s 115JB of the Act by invoking provisions of Section 14A - Revenue could not dispute the settled proposition of law that the disallowance u/s 14A of the Act is a notional disallowance and therefore, by taking recourse to Section 14A of the Act the amount cannot be added back to book profits under clause (f) of section 115JB of the Act - See Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI and Sobha Developers Ltd. 2021 (1) TMI 378 - KARNATAKA HIGH COURT - Decided in favour of the assessee. Allowability of the deduction u/s 80-IAB with regard to car parking rental - HELD THAT - As decided in M/s. Unitech Developers and Projects Ltd. 2022 (10) TMI 82 - ITAT DELHI in the light of documentary evidences placed by way of notifications and instructions from competent authorities, it is manifest that car parking rentals have been reckoned as authorized operation in SEZ. In the light of express guidelines issued by the Government as referred to and relied upon, we are of the view that the income from car parking rental would squarely qualify for deduction u/s 80IAB - Decided in favour of the assessee. Allowability of 80-IAB reduction on interest income is claimed by the assessee - HELD THAT - This issue covered in favour of the assessee by the judgment of Meghalaya Steels Ltd. 2016 (3) TMI 375 - SUPREME COURT - The assessee has claimed that the fixed deposit receipts were created as the Collateral security which are covered by the aforesaid observations and there appears to be no denial to aforesaid arguments and accordingly the grounds arising out of this issue stand decided in favour of the assessee.

Summary

Issues Involved:

1. Disallowance under Section 14A.
2. Increase in book profits under Section 115JB by disallowance of expenses under Section 14A.
3. Denial of deduction under Section 80-IAB on car parking rentals.
4. Denial of deduction under Section 80-IAB on interest income.
5. Disallowance of brokerage expenses.
6. Dismissal of appeal for non-prosecution without passing speaking orders on merits.

Summary:

Issue 1: Disallowance under Section 14A

The Tribunal found that the Assessing Officer (AO) did not record satisfaction as required under Section 14A(2) regarding the suo moto disallowances made by the assessee. Citing the Supreme Court judgment in Maxopp Investment Ltd. vs. CIT, the Tribunal emphasized that disallowance cannot exceed the actual expenditure incurred in relation to earning exempt income. The Tribunal directed the AO to restore the position claimed by the assessee, thus deciding the issue in favor of the assessee.

Issue 2: Increase in Book Profits under Section 115JB by Disallowance of Expenses under Section 14A

The Tribunal held that the disallowance under Section 14A is a notional disallowance and cannot be added back to book profits under clause (f) of Section 115JB. The Tribunal referred to the judgment of the Delhi Tribunal in Vireet Investment (P.) Ltd. vs. ACIT and the Karnataka High Court in Sobha Developers Ltd. vs. DCIT. Consequently, the Tribunal decided this issue in favor of the assessee.

Issue 3: Denial of Deduction under Section 80-IAB on Car Parking Rentals

The Tribunal noted that the issue of car parking rentals being part of authorized operations in SEZs was previously decided in favor of the assessee in the case of Unitech Developers and Projects Ltd., which merged with the appellant. The Tribunal reiterated that car parking rentals qualify for deduction under Section 80-IAB, deciding the issue in favor of the assessee.

Issue 4: Denial of Deduction under Section 80-IAB on Interest Income

The Tribunal referred to the Supreme Court judgment in Meghalaya Steels Ltd. vs. CIT, which established that subsidies directly related to the business operations qualify for deductions. The Tribunal accepted the assessee's claim that fixed deposit receipts created as collateral security fall under this category, deciding the issue in favor of the assessee.

Issue 5: Disallowance of Brokerage Expenses

The Tribunal observed that the invoices and lease deeds provided by the assessee sufficiently demonstrated that brokerage expenses were incurred in the ordinary course of business. The Tribunal also noted that the entire income of the assessee is tax-free under Section 80-IAB, making the disallowance revenue-neutral. Thus, the Tribunal decided this issue in favor of the assessee.

Issue 6: Dismissal of Appeal for Non-Prosecution without Passing Speaking Orders on Merits

The Tribunal held that the CIT(A) is required to decide the grounds on merits even in the absence of the appellant. The Tribunal restored the issues to the files of the CIT(A) for a decision on merits, thus deciding this issue in favor of the assessee.

Conclusion:

All the grounds raised by the assessee were decided in their favor, and the appeals were allowed.