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Income Tax Appellate Tribunal, MUMBAI BENCHES “L”, MUMBAI
Before: Shri Shamim Yahya & Shri Sandeep Gosain
Date of Hearing :26.10.2017 Date of Pronouncement: 08.11.2017 O R D E R
Per Sandeep Gosain, Judicial Member
This appeal is by the Revenue against the order of CIT(A)-12, Mumbai, dated 22.03.2016 for assessment year 2010-11.
Brief facts of the case are that the assessee company is engaged in the business of generation of power. The assessee filed its return of income on 1.03.2013, declaring total income of ` 6,93,105/-. The assessment order u/s. 143(3) of the Income tax Act was passed on 01.03.2013, thereby making disallowance of ` 2,27,23,436/- u/s. 14A read with Rule 8D. Aggrieved, the assessee preferred appeal before the CIT(A). The learned CIT(A) deleted the disallowance and, thus, the Revenue is before us challenging the order of the CIT(A) in deleting the disallowance made u/. 14A read with Rule 8D of ` 2,27,23,436/- ignoring the fact that the assessee has failed to establish that the entire loan on which it claimed interest expenses was wholly and exclusively utilized for the work in progress.
We have heard the counsels for both the parties and perused the orders of the revenue authorities. Before we decide the merits of this ground, it is necessary to evaluate the order passed by the CIT(A) while dealing with this ground. The CIT(A) has dealt with this issue in para no.9 and the operative portion is reproduced below:
I have considered the submission of the appellant as well as the observations of the A.O. There is no dispute to the fact that the appellant company has not commenced its business operations and thus all the expenses and income pertaining to the setting up of the power plant has been added/ reduced from the balance of the CWIP. This is as per the treatment pronounced under the Accounting Standards issued by the ICAI which the appellant company is required to mandatorily follow in the preparation and presentation of its financial statements. The appellant company has undoubtedly made investments in the mutual funds during the year under consideration. Since these investments were made out of the funds availed for the setting up of the power plant, the income earned therefrom has been reduced from the CWIP by the appellant company as per the accounting policies generally followed in India. The reply of the appellant company as to why the provisions of section 14A read with Rule 8D shall not be applied in the present case has been dealt with by the A.O. at para 5(iv) of the assessment order. After perusal of the same/ it is clear beyond any doubt that the provision of section 14A provides for disallowance of expenditure claimed in relation to the exempt income earned by the appellant. In the appellant's case/'the expenditure towards interest has been capitalized under the capital WIP and thus no expense has been claimed by the appellant company during the year under consideration. Since the appellant has not claimed any expenditure in its profit and loss account during the year under consideration/ the provisions of section 14A cannot be made applicable in the appellant's case. I am satisfied with the contention of the appellant and agree that/the provisions of section 14A are inapplicable in the present case. Further/ the expenditure to be disallowed cannot exceed the exempt income based on the various decisions relied upon by the appellant. Thus, in view of the various decision cited by the appellant, (which needs to be followed as a matter of judicial discipline) I am of the opinion that the claim of expenditure has already been disallowed to the extent of the exempt income reduced from the figure of capital WIP. Thus, in view of the above no further disallowance is warranted. Thus, I agree with the claim of the appellant and direct that the disallowance u/s 14A read with Rule 8D of Rs.2,27,23,436/- be deleted.
We find that the CIT(A) while considering the facts of the present case has noticed that the expenditure towards interest has been capitalized under the capital WIP and, thus, no expense has been claimed by the assessee during the year under consideration. The learned CIT(A) has also considered the fact that the assessee has not claimed any expenditure in its profit & loss account therefore, in such circumstances, provisions of section 14A were not found to be applicable. Even otherwise, in this case, the claim of expenditure has already been disallowed to the extent of the exempt income reduced from the figure of capital work in progress. Under these facts and circumstances and in the absence of any new evidence on record, we see no reason to interfere with the order of the CIT(A). It is accordingly, upheld.