DCIT, CENTRAL CIRCLE, NOIDA vs. INTERNATIONAL CYLINDERS P. LTD., NEW DELHI

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ITA 3765/DEL/2018Status: DisposedITAT Delhi29 July 2021AY 2013-147 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the assessee was eligible for 100% deduction under Section 80IC due to substantial expansion and a revised initial assessment year. The Tribunal also upheld the deletion of disallowance under Section 14A, finding sufficient own funds for investments.

What were the facts?

The assessee claimed a deduction under Section 80IC of the Income Tax Act. The Assessing Officer (AO) restricted the deduction to 30% based on the initial assessment year of business establishment. The AO also made a disallowance under Section 14A.

What were the issues?

The primary issues were the correct eligibility and quantum of deduction under Section 80IC following business expansion and the validity of disallowance under Section 14A.

Which sections of the Income-tax Act were involved?

Section 80IC,Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(4)Show list

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Income Tax Appellate Tribunal, DELHI BENCH ‘C’, NEW DELHI

Before: SH. N. K. BILLAIYA & SHRI K.NARASIMHA CHARY

For Appellant: Ms. Anima Barnwal, SR. DR
Hearing: 29/07/2021Pronounced: 29/07/2021

This appeal by the revenue is preferred against the order of the CIT(A)-4, Delhi dated 15.01.2018 pertaining to A.Y.2013-14.

2.

The grievance of the revenue read as under :-

1 Whether, the Ld CIT(A) was correct in holding that the provision of section 80IC of the I.T. Act, 1961 allowed existence of multiple “initial assessment years” and consequently deduction @ 100% of the profit where, it was otherwise allowable @ 30% only. 2 Whether, the interpretation of section 80IC of I.T. Act, by the Ld CIT(A)does not amount to re-writing the provision of law so as to allow the deduction to an undertaking existing and achieving substantial expansion during the previous year. 3 The Ld CIT(A) failed to appreciate the decisions of Hon’ble Supreme Court in the case of M/s CIT vs United General Trust Ltd 200ITR 488/SC) in which it was held that expenditure in relation to earning of the exempt income are embedded in the indirect expenditures. 4 The Ld CIT(A) failed to appreciate that Circular No 5/2014 of Ministry of Finance CBDT which provides for disallowance of expenditure even where tax payer in the particular year has not earned any exempt income. 5 That the order of the Ld. CIT (A) being erroneous in law and on facts which needs to be vacated and the order of the AO be restored. 6 That the appellant craves leave to add or amend any one or more of the ground of the appeal as stated above as and when need for doing so may arise.

3.

Briefly stated the facts of the case are that during the course of the scrutiny assessment proceedings the AO noticed that the assessee has claimed deduction u/s. 80IC of the Act amounting to Rs.95273997/-. While examining the details the AO noticed that the business of manufacturing and trading of LPG Cylinders has been established in the year 2003-04 relevant to A.Y.04-05.

The AO was of the firm belief that the assessee is entitled for 100% deduction u/s.80IC of the Act for initial five years i.e. 04-05 to 08-09 and thereafter for another five years i.e. A.Y. 2009-10 to 13-14 @ 30%. The AO accordingly restricted the claim of deduction to 30% and disallowed Rs.65691800/-.

4.

Proceeding further the AO noticed that the assessee has earned exempt income on which expenses need to be disallowed u/s.14A r.w.r. 8D. Accordingly the AO computed the disallowance at Rs.1343086/-.

5.

The assessee assailed the additions before the CIT(A). It was brought to the notice of the CIT(A) that due to substantial expansion in A.Y.2009-10 the assessee became eligible for 100% deduction u/s. 80IC of the Act for five years staring from A.Y.2009-10. The assessee explained the amended provisions of section 80IC and strongly contended for 100% deduction.

6.

The CIT(A) after considering the facts and the submissions and drawing support from various judicial decisions allowed the claim of 100% deduction.

7.

On the disallowance made u/s. 14A of the Act the CIT(A) found that assessee had sufficient own funds to meet the investment and therefore, there was no reason for the disallowance of interest on borrowed capital and accordingly deleted the disallowance.

8.

Before us the DR strongly supported the assessment order. It is the say of the DR that there cannot be two initial assessment years for the eligibility of deduction u/s. 80IC of the Act. On the disallowance made u/s. 14A, the DR read the relevant findings of the AO.

9.

The Counsel for the assessee reiterated what has been stated before the lower authorities.

10.

We have carefully considered the orders of the authorities below. We find that the AO has disallowed the claim of deduction of 100% u/s. 80IC of the Act on the ground that the initial assessment year is A.Y. 2004-05 and therefore, for the year under consideration the assessee is eligible for only 30% deduction. We find that the AO has simply misunderstood the amendment brought u/s. 80IC and further misunderstood “the substantial expansion” brought by the assessee from A.Y.2009-10. In our considered opinion in the light of the notification issued by the Ministry of Commerce and Industry and in the light of the amendment brought in the Act u/s. 80IC of the Act, the eligibility of 100% deduction would start from initial A.Y. 2009-10.

11.

We further find that the AO has allowed the deduction from A.Y.2009-10 to 2012-13 which is evident from the assessment orders of the relevant assessment years on record. In our considered view the AO was not correct in disturbing the claim in the 5th year when earlier assessment years has not been disturbed.

12.

Moreover, the Hon’ble Supreme Court in the case of PCIT Vs. Aarham Softronics (2019) 102 taxman.com 343 has decided this controversy in favour of the assessee and against the revenue. The operative part of the judgment is extracted as under :-

13.

Respectfully following the decision of the Hon’ble Supreme Court (supra) we decline to interfere with the findings of the CIT(A), ground No. 1 and 2 taken together are dismissed.

14.

Coming to the grievance relating to the deletion of the disallowance u/s.14A of the Act we find that the interest free funds (own funds) available with the assessee is far in excess of the investment in share. Therefore, following the ratio laid-down by the Hon’ble Bombay High Court in the case of HDFC Bank Limited 366 ITR 505 and Reliance Utilities and Power Limited 313 ITR 340, we do not find any error or infirmity in the findings of the CIT(A) ground No. 3 and 5 are dismissed.

15.

In the result, the appeal filed by the revenue is dismissed.

16.

Decision announced in the open court in the presence of both the representatives on 29.07.2021.

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