NAHAR COLOURS AND COATING PRIVATE LIMITED ,UDAIPUR vs. ACIT,C-2 UDAIPUR, UDAIPUR

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ITA 929/JODH/2024Status: DisposedITAT Jodhpur12 June 2026AY 2016-1712 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that disallowance under Section 14A is not permissible in the absence of any exempt income earned, and the amendment was prospective. Regarding Section 36(1)(va), a one-day delay in PF deposit was condoned due to practical reasons, allowing the deduction. For Section 80IA, the disallowance was deleted as the AO failed to establish a nexus between common expenses and eligible units, and the deduction had been consistently allowed in prior years.

What were the facts?

The assessee challenged additions made under Section 14A and Section 36(1)(va) for AY 2017-18, and disallowance under Section 80IA for AY 2016-17. The primary dispute for Section 14A involved the applicability of Rule 8D when no exempt income was earned and the retrospective application of a Finance Act amendment. For Section 36(1)(va), the issue was a one-day delay in depositing employee PF contributions.

What were the issues?

Whether disallowance under Section 14A is valid without exempt income and if a recent amendment applies retrospectively. Whether a one-day delay in PF deposit warrants disallowance under Section 36(1)(va). Whether disallowance under Section 80IA is justified without establishing a nexus for common expenses.

Which sections of the Income-tax Act were involved?

Section 14A,Section 36(1)(va),Section 139(1),Section 80IA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR

Before: DR. MITHA LAL MEENA, HON’BLE & SHRI SUDHIR PAREEK, HON’BLE

For Appellant: Shri Amit Kothari, CA (Physical)
For Respondent: Shri Arvind Kumar Gehlot, Addl. CIT-DR

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE DR. MITHA LAL MEENA, HON’BLE ACCOUNTANT MEMBER AND SHRI SUDHIR PAREEK, HON’BLE JUDICIAL MEMBER ITA Nos. 921 & 929/Jodh/2024 (Assessment Years – 2017-18 & 2016-17) Nahar Colours and Coating Pvt. ACIT, C-2, Ltd. Udaipur G-1, 90-93, Udyog Vihar, Sukher, Udaipur-313001 PAN No. AAACN 6942 K Assessee by Shri Amit Kothari, CA (Physical) Revenue by Shri Arvind Kumar Gehlot, Addl. CIT-DR (Virtual) Date of Hearing 03 / 06 / 2026. Date of Pronouncement 12 / 06 / 2026. ORDER PER BENCH: These appeals by assessee are filed against the order of National Faceless Appeal Centre Delhi [hereinafter referred to as NFAC/CIT(A)] even dated 23.10.2024 with respect to Assessment Years 2017-18 & 2016-17.

ITA No. 921/Jodh/2024, Assessment Year: 2017-18

2.

The appellant has raised following grounds of appeal:

1.

The Id. CIT(A) has erred in upholding the order passed by Id. AO u/s 143(3) r.w.s 263. The order so made is bad in law and bad on facts and is contrary to the principles of natural justice. 2. The Id. CIT(A), has erred in upholding additions of Rs 37,01,903/- under section 14A which is bad in law and bad on facts. The Id. CIT(A) has erred in not properly

2 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 appreciating the facts and circumstances and the addition so sustained is bad in law and bad on facts. 3. The Id. CIT(A), has erred in upholding additions of Rs 11,45,705/- under section 36(1)(va) which is bad in law and bad on facts. The ld. CIT(A) has erred in not properly appreciating the facts and circumstances and the addition so sustained is bad in law and bad on facts. 4. The appellant craves liberty to add, alter, amend or vary from the above the above grounds of appeal at or before the time of hearing.

3.

In ground no. 2, the appellant has challenged that the Ld. CIT(A) erred in upholding addition of Rs. 37,01,903/- u/s 14A without appreciating the facts of the case.

4.

At the outset, the Ld. Counsel for the assessee had submitted that Ld. CIT(A) has not been justified in sustaining the disallowance made u/s 14A by the Assessing Officer (in short “the AO”) alleging that investment made as capital contribution in partnership firm could yield exempt share income and, therefore, Rule 8D was applicable. The AR contended that the appellant assessee had substantially owned interest-free funds in the form of share capital and reserves. The assessee specifically submitted before lower authorities that own funds were Rs. 65.39 crores at the beginning of the year and Rs. 84.88 crores at year end whereas the investment in the firms was only Rs. 16.83 crores and there were no borrowed funds were utilized for investment in firms.

3 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 4.1 The ld. AR contended that there was no nexus between the borrowed funds and the investments in partnership firms. He argued that it is settled law where own funds exceed investments, presumption arises that investments are made out of own funds and no disallowance of interest can be made. He placed reliance on the following judgments:

 CIT Vs. Reliance Utilities & Power Ltd. (313 ITR 340) (Bom)  South Indian Bank Ltd. Vs. CIT (438 ITR 1) (SC)  CIT Vs. HDFC Bank Ltd. (366 ITR 505) (Bom)  Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT (394 ITR 449) (SC)

4.2 The AR has submitted that assessment order merely proceeds on general observations without examining accounts or demonstrating nexus of expenditure with alleged exempt income. Hence invocation of Rule 8D itself is invalid. In support he placed reliance on the judgment delivered by Hon’ble Supreme Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT (supra). The AR argued that assessee had specifically submitted that there was no exempt income had actually accrued or arisen during the year. The Ld. CIT(A) has heavily relied upon amendment inserted by Finance Act, 2022 and Explanation to Section 14A. However, the amendment brought by Finance Act, 2022 is prospective and cannot be applied retrospectively to A.Y. 2017-18. In support he placed reliance on the following judgments:

4 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17  PCIT Vs. Era Infrastructure India Ltd. (2022) 327 CTR (Del) 489  CIT Vs. Chettinad Logistics Pvt. Ltd. (2017) 248 Taxman 55 (Mad)  CIT Vs. Corrtech Energy Pvt. Ltd. (327 ITR 97) (Guj)

4.3 Thus, the Ld. AR pleaded that the disallowances made are arbitrary and contrary to the settled law. Accordingly, he pleaded that addition of Rs. 37,01,903/- deserves to be deleted.

5.

On the other hand the Ld. DR relied on the impugned order.

6.

We have heard both the sides, perused the material on record, impugned order and case law cited before us. Admittedly, there was no exempt income actually accrued or arisen to the assessee during the assessment year under consideration. The AO has passed the assessment order merely based on general observation without examining accounts or demonstrating nexus of the expenditure with alleged exempt income. Meaning thereby, invocation of Rule 8D itself is invalid in the present case. The Ld. CIT(A) has wrongly placed reliance on the amendment inserted by Finance Act, 2022 and explanation to Section 14A because the amendment has been brought by the Finance Act is prospective and cannot be applied retrospectively to the assessment year under consideration.

7.

In the case of PCIT Vs. Era Infrastructure India Ltd. (supra), the Hon’ble Delhi High Court has observed that business expenditure disallowed u/s 14A in

5 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 absence of exempt income is not permissible under Section 14A. No disallowance u/s 14A can be made if the assessee had not earned any exempt income – Insertion of Explanation of Section 14A by the Finance Act, 2022 which is “for removal of doubts” cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood.

8.

In another case of CIT Vs. Chettinad Logistics Pvt. Ltd. (supra), the Hon’ble Madras High Court has held that business expenditure disallowed u/s 14A read with Rule 8D, the applicability of Section 14A read with Rule 8D where assessee having no dividend income to form part of its total income, no disallowance can be made u/s 14A and in such a case, Rule 8D could not be applied to a case which do not fall within the scope of Section 14A. The CBDT Circular No. 5 of 2014 dated 11th February, 2014 cannot be interpreted in a manner that even in absence of any exempt income, provision of Section 14A read with Rule 8D could be invoked. The assessee having no exempt dividend income in the relevant previous year, disallowed made by the AO by invoking Section 14A read with Rule 8D CBDT Circular No. 5 of 2014 dated 11th February, 2014 could not be sustained. Again in the case of CIT Vs. Corrtech Energy Pvt. Ltd. (supra), Hon’ble Gujarat High Court has held that business expenditure disallowance u/s 14A where no claim for

6 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 exemption of income having been made by the assessee, no disallowance u/s 14A could be made.

9.

From the record, it is evident that assessee has specifically submitted that interest and remuneration from the firms are taxable in the hands of partners and only share of profit is exempt. Further, investments were strategic business investments and not investments made for earning exempt income. There was no expenditure whatsoever was incurred for earning exempt income. We find that the entire approach of the AO was based merely on possibility of future exempt income and not actual expenditure incurred in relation thereto.

10.

In view of the above discussion and the judicial precedents, we hold that Ld. CIT(A) decision is infirm and perverse to the facts on record in retrospectively applying the provisions of Finance Act, 2022 for the year under consideration. Accordingly, the addition made by the AO in arbitrary manner and contrary to the settled principle of law on the issue of Section 14A of the Act. Accordingly, the addition of Rs. 37,01,903/- made by the AO u/s 14A is deleted.

11.

In ground no. 3, the appellant has challenged disallowance pertaining to employees PF contribution deposited, merely one day delay beyond due dates prescribed under PF Act. The details are as under:

7 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 Amount Due Date Date of Deposit Rs. 5,68,130/- 15.01.2017 16.01.2017 Rs. 5,77,575/- 15.02.2017 16.02.2017

12.

The AR for the assessee has submitted that the employees contribution were admittedly deposited before due date of filing the return u/s 139(1) but one day delay to the date prescribed under the PF Act due to practical and technical reason such as banking or internet issues as specifically explained before the authorities below. The AR contended that there was no mala fide intention and no prejudice caused to the revenue authorities or employees. The provision being penal in nature deserves liberal interpretation particularly where payments stand fully deposited.

12.1 The AR further submitted that an amendment has been brought by the Finance Act, 2026 in parallel Section 29(1) of the Income Tax Act, 2025, by Finance Act, 2026 in which the said Section has been amended by inserting clause e(i) which states that if the amount of employee’s contribution is paid before due date of filing return of income than no addition will be made for such default. The AR has further submitted that same Finance Act, 2026 amendment made introducing clarificatory provisions into IT Act with regard to notice issues by JAO. The Hon’ble Supreme Court in Diary No. 32669/2025 in their order dated 10th

8 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 April, 2026 have held that such provisions being clarificatory in nature will apply retrospectively. Accordingly, he contended that the similar clarificatory amendment made in the provision may be applied to pending assessments.

13.

Having heard both the sides and perusal of record, we find that the CPC has rejected the application filed by the assessee u/s 36(1)(va) to grant relief on account of delayed payment of employees contribution to PF even brushing aside the unprecedented disruption caused due to practical and technical reasons such as banking or internet issues. The claim of deduction on deposit of employees contribution to PF before the due date of filing return income u/s 139(1) but delay of one day is clarified by the amendment in I.T. Act, 2025 and Hon’ble Apex Court judgment (supra) on clarificatory provision, we hold that appellant deserve the claim of deduction u/s 36(1)(va) of the act.

14.

Accordingly, we hold that the impugned order of the Ld. CIT(A) in rejecting the application of the assessee filed u/s 36(1)(va) of the Income Tax Act is perverse to the facts on record.

15.

In the above view, we accept the grievance of the assessee as genuine and as such, delete the addition of Rs. 11,45,705/-.

9 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 ITA No. 929/Jodh/2024, Assessment Year: 2016-17

16.

The appellant has raised following grounds of appeal:

1.

The Id. CIT(A) has erred in upholding the order passed by ld. AO u/s 147 r.w.s.144B. The order so made is bad in law and bad on facts and is contrary to the principles of natural justice. 2. The Id. CIT(A) has erred in sustaining an addition of Rs 7,75,943/- u/s 80IA without considering facts of the case. The addition so sustained is on assumption, without any basis, bad in law and bad on facts. 3. The ld. CIT(A) has erred in sustaining wrong computation of taxes in calculation sheet and sustaining huge demand of Rs 44,77,740/-against an addition of Rs 7,75,943. 4. The appellant craves liberty to add, alter, amend or vary from the above the above grounds of appeal at or before the time of hearing.

17.

In ground no. 2 and 3, the appellant has challenged disallowance of Rs. 7,75,943/- u/s 80IA of the Income Tax Act, 1961 and wrong tax computation by the Ld. CIT(A) at Rs. 44,77,740/-.

18.

At the outset, the Ld. Counsel for the assessee submitted that the disallowance made by the AO and sustained by Ld. CIT(A) is not justified being made merely based on proportionate establishment, financial and administrative expenses to the windmill units claiming deduction u/s 80IA. The Ld. AR contended that the authorities below, however, has not given any basis for allocation, nor provided any basis of such allocation, and that no working of disallowance has been produced. Even no defect in the books of account has been pointed out. The AR further contended that the AO did not find or record adverse findings that any

10 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 expenditure actually related to the eligible units. The AR submitted that appellant maintained complete books of account for each eligible undertaking. The windmill units are independently operated and maintained by Suzlon and all expenses relating to operation, maintenance and administration are directly debited to respective units. The counsel argued that apart from expenses directly attributable to the units, no other expenditure was incurred for the windmill division and once separate books are maintained and direct expenses are already debited to eligible units, there remains no justification for artificial allocation of unrelated common expenses. The Ld. CIT(A) failed to appreciate the fact that deduction u/s 80IA had been consistently allowed in earlier years scrutiny assessments. The assessee specifically submitted that from Assessment Year 2010-11 onwards, similar claims were examined and accepted by the department. He pleaded that claim of the deduction u/s 80IA of the assessee may be allowed. He placed reliance on the following judgments:

 CIT Vs. Meghalaya Steels Ltd. (383 ITR 217) (SC)  CIT Vs. Dewan Kraft Systems Pvt. Ltd. (297 ITR 305) (Del)  ACIT Vs. P I Industries (2012) 144 TTj (Jd) 353

19.

On the other hand, the Ld. DR relied on the impugned order.

11 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 20. Having heard both the sides and perusal of material on record, we find that the appellant assessee’s claim of deduction u/s 80IA has been consistently allowed since assessment year 2010-11 onwards by the department. On similar facts, the AO without giving any adverse observation to what has been given in earlier assessment years, such disallowances made on assumption basis by way of arbitrary allocation of common corporate expenses without establishing nexus, is not permissible in law.

21.

In case of CIT Vs. Meghalaya Steels Ltd. (supra), the Hon’ble Apex Court following its own judgment in the case of Sterling Foods (supra) lays down a very important test in order to determine whether profits and gains are derived from business or an industrial undertaking. The Hon’ble Court has stated that there should be direct nexus between such profits and gains and the industrial undertaking or business. Such nexus cannot be only incidental.

22.

In the present case, since the AO failed to establish any nexus between the alleged common expenses and eligible units, therefore, disallowances of Rs. 7,75,943/- made u/s 80IA of the Income Tax Act would liable to be deleted and that the tax on such disallowance had been computed by the Ld. CIT(A) of Rs. 44,77,740/- held to be apparently incorrect.

12 ITA No. 921 & 929/Jodh/2024 Asst. Years: 2017-18 & 2016-17 23. In view of the above discussion and the judicial precedents, we hold that impugned order of the Ld. CIT(A) is perverse to the facts on record. We, therefore, delete the addition of Rs. 7,75,943/- made by the AO u/s 80IA of the Income Tax Act and direct the AO to compute the correct tax on the income while giving the appeal effect.

24.

In the result, both these appeals of the assessee are allowed.

Order pronounced on 12/06/2026 under Rule 34(4), in accordance with the Income Tax (Appellate Tribunal) Rules, 1963. Sd/- Sd/- (SUDHIR PAREEK) (DR. MITHA LAL MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 12/06/2026. Nimisha Sr. PS True Copy Copies to : (1) The appellant. (2) The respondent. (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File BY ORDER,

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