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TMI Blog2025 (1) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... was earned during the relevant year. Revised computation of income furnished by it during the assessment proceedings - payment of the GST as Input Credit on asset side of the Balance Sheet (not routed through the Profit Loss Account), has decided to claim the same (GST Input Credit) as expenditure against the Income (to route through the Profit Loss Account) - HELD THAT:- The claim of GST Input Credit is held allowable if the effect of such GST Input Credit is resulting revenue receipts chargeable to tax; otherwise not. The corollary of the same is that the said GST input credit is not embedded in the cost of goods and or services constituting the stock-in-trade and or similar entries on the credit side of the Profit Loss Account of the appellant/assessee. Undisputedly, the income has to be charged to tax; not a single penny more not a single penny less. The GST paid by the appellant/assessee has to be allowed subject to the above and in accordance with the provisions of section 30 to 43D of the Act. Since the GST of INR 28,979,544 was not routed through the Profit Loss Account of the appellant/assessee; therefore, it cannot be ruled out that the effect of the GST of INR 28,979,544 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, Bangladesh and Nepal. The core activity of the assessee is to provide connectivity to the system by creation/modification/up-gradation of computer programmes online through Data Processing Center to its AE. The Transfer Pricing Officer (TPO)/AO has held that the assessee, by incurring substantial expenditure on Advertisement, Marketing Promotion, has benefitted its AE by creating marketing in tangible. However, the AE has not suitably compensated the assessee. In the draft assessment order, the AO proposed protective addition of INR 146,700,000 applying bright line test method and substantive addition of INR 157,440,000. Further, the AO also proposed the disallowance of expenditure of INR 37,034,806 under section 14A of the Act r.w.r. 8D of the I. T. Rules. Aggrieved with the AO s draft order, the assessee raised the matter before the Dispute Resolution Penal (hereinafter, the DRP ). However, the DRP upheld the finding of the AO. Consequentially, the final assessment order was passed by the AO. 3.1 The AO further held that the assessee had made investments in its subsidiaries which could generate income non-chargeable to tax. Hence, the AO held that the direct indirect expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stricted to exempt income 9. Dominant purpose of investment is irrelevant 10. The basis on which disallowance is to be determined in the case of shares held as stock-in-trade. The Panel further takes a cognizance that the mandate of Sec- 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee. It is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed. The basic principle of taxation is to tax net income which applies even for the purposes of Sec-14A and expenses towards non- taxable income must be excluded. Once a proximate cause for disallowance is established - which is the relationship of the expenditure with income which does not form part of the total income - a disallowance has to be effected. The Panel also takes a note that in the recent judgment vide order dated-09-09-2021 in THE SUPREME COURT OF INDIA in civil appeal no 9606 OF 2011 SOUTH INDIAN BANK LTD. APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX RESPONDENT(S) WITH civil appeal no. OF 2021 [Arising out of SLP(C) No. 32761 OF 2018), the Hon'ble Court has inter-alia ruled that nexus needs to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent case. Further, it was also submitted that the assessee had made strategic investments, in its AEs/subsidiaries, out of its own fund and nothing from the borrowed fund. Hence, disallowance of interest under section 14A of the Act thereon did not arise. 4.2 The Ld. AR placed reliance on various decisions; such as, UTI Bank Ltd. [2022] 142 taxmann.com 136/289 Taxman 238 (SC), Shapoorji Pallonji Co. Ltd. [2022] 141 taxmann.com 509/288 Taxman 661 (SC); South Indian Bank Ltd. [2021] 130 taxmann.com 178/283 Taxman 178 (SC),Maxopp Investments Ltd. v. CIT [2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 (SC), etc. He submitted that the broad principles laid down in all such cases were found mentioned in the DRP s order. However, the DRP did not adhere to those while issuing directions to the AO. He drew our attention to the above highlighted portion on page 12 of the DRP s order. 4.3 Vide ground No.10 and 10.1, the appellant/assessee had requested for acceptance of revised computation of income furnished by it during the assessment proceedings vide email dated 30.11.2020. The Ld. AR submitted that the GST input/Cenvat credit of INR 28,979,544, which was shown as asset as prior peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to exempt income means that the disallowance cannot be done if there is no exempt income. Admittedly, there was NO EXEMPT INCOME. We are of the considered view that if there is no exempt income, no disallowance under section 14A of the Act can be made upto AY 2021-22. However, after insertion of Explanation to section 14A of the Act from AY 2022-23, the disallowance under section 14A of the Act relating to exempt income can be made even though no exempt income was earned during the relevant year. Therefore, following the reasoning given in the decisions of the Hon ble Supreme Court in the cases cited on page 12 of the DRP s order, we are of the considered view that no disallowance under section 14A of the Act is called for. Therefore, we delete the disallowance of INR 37,034,806/- made under section 14A of the Act. Consequently, the ground No. 9 9.2 are allowed as above. 8. Vide ground No.10 10.1, the appellant/assessee had requested for acceptance of revised computation of income furnished by it during the assessment proceedings. The reasoning for the revised computation of income filed by the assessee is that the assessee, who shown the payment of the GST as Input Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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