ACIT 14(2)(1), MUMBAI vs. ITD CEMENTATION INDIA LTD, MUMBAI
What did the Tribunal hold?
The Tribunal held that the disallowance under Section 14A for administrative expenses was not justified as no expenditure was claimed against exempt income. The issues regarding book profit and MAT rate were restored to the AO for fresh adjudication.
What were the facts?
The assessee company engaged in construction activities filed its return declaring a loss. The AO made additions under Section 14A, partly confirmed by the CIT(A). The assessee also raised additional grounds regarding book profit and MAT rate.
What were the issues?
Whether disallowance under Section 14A is warranted when no expenditure is claimed against exempt income, and whether issues related to book profit and MAT rate require fresh adjudication.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�, राजे� के अनुसार/ PER Rajendra A.M.- Challenging the order,dated 17/10/2014 of the CIT(A)-21,Mumbai,the Assessing Officer (AO) and the assessee have filed cross appeals for the year under consideration.The assessee vide its application,dated 10/10/2016,made a request to admit additional grounds of appeal.It has been claimed that additional grounds raised purely question of law and that no new facts were required to be brought on record,that the additional grounds were about book profit to be computed under section 115JB and rate of MAT.During the course of hearing before us, the Authorised Representative(AR)advanced the same arguments,for admission of the additional grounds,that were part of the application made on 10/10/2016.The Departmental Representative(DR)left the issue to the discretion of the Bench.We find that both the grounds are purely legal in nature and no new factual things are to be brought on record. Therefore, additional grounds raised by the assessee are admitted. 2.Assessee-Company,engaged in the business of civil, mining ,marine,engineering and constr -uction activities,filed its return of income on 07/10/2011, declaring loss at Rs.11.39 crores. The AO completed the assessment u/s.143(3) of the Act,on 24/02/2014,determining its income at Rs.12.66 crores under normal provisions and Rs. 18.65 crores under section 115JB
ITA No.7677/MUM/2014 (A.Y. 2010-11) of the Act.During the course of hearing, the AR did not press grounds No. 1 & 4. Hence, same stand dismissed.
3.Effective ground of appeal is about partly confirming the disallowance of Rs.9.99 lakhs. During the assessment proceedings,the AO observed that assessee has made huge invest - ments,income from which was likely to be exempt as per the provisions of the Act. Accordingly,he directed the assessee to furnish the working of disallowance under section 14A read with Rule 8D of the Income Tax Rules,1962(Rules)for earning the exempt income. In its reply,the assessee argued that no expenditure had been incurred towards earning of the exempt income, that no disallowance under section 14A should be made. After considering the submission of the assessee, the AO held that making of investment and earning of exempt income required efforts. He made disallowance of Rs.1.13 crores (Rs.1.03 crores under the head ‘interest expenditure’and Rs. 9.99 lakhs under the head 0.5% of the average value of the investment)invoking the provisions of section 14A r.w.r. 8D of the Rules. He added the said disallowance to the book profit also,citing clause(f) of section 115JB of the Act. 4.Aggrieved by the order of the AO,the assessee preferred an appeal before the First appellate Authority (FAA). After considering the submission of the assessee and the assessment order, she referred to the order for the AY. 2008-09. Following the same,she deleted the interest dis -allowance of Rs. 1.03 crores. However, disallowance for administrative expenses (0.5% of the average investment) was upheld. 5.During the course of hearing before us,the AR contended that investment was made in subsidiaries companies of the group or in the JBCs, that assessee had claimed no expenditure against the exempt income,that in the AY.2009-10,entire addition made by the AO, including the addition on account of average investment,was deleted by the FAA, that the AO had not challenged deletion,that the investment in the JVC.s was made for having a control over the activities of the said entities.The DR supported the order of the FAA. 6.We have heard the rival submissions and perused the material before us.We find that the AO had made disallowance under the head administrative expenses,that the assessee had not claimed any expenditure for earning exempt income,that the investment was made in subsidia -ry companies or the JVC.s,where the assessee was the partner.Considering these facts, we are of the opinion that the FAA was not justified in upholding the addition made by the AO under section 14A r.w.r.8D.The effective ground of appeal is decided in favour of the assessee. (A.Y. 2010-11) 7.Now,we will take the first additional ground.The AR argued that the assessee had not earned any exempt income qua book profit,that the FAA had not adjudicated the issue.With reference to the additional ground No.2, he contended that AO had applied the rate of taxation at 18% as against the correct rate of 15%. The DR left the issues to the discretion of the Bench.After considering the above submission,we are of the opinion that both the issues should be restored back to the file of the AO for fresh adjudication/verification. Additional grounds raised by the assessee are allowed in its favour,in part.
ITA 82/MUM/2015 8.The solitary ground of appeal raised by the AO is about deleting the addition of Rs. 1.03 crores under the interest expenditure.The DR relied upon the order of the AO. The AR stated that in earlier assessment years, the assessee had sufficient own funds and reserve/surplus to make investment. He referred to page No.3 of the paper book.We find that investment made by the assessee was minuscule of the funds available to it for the year under consideration. In our opinion,the order of the FAA does not suffer from any legal or factual infirmity. So, concerning her order, we decide the effective ground of appeal against the AO.
As a result,appeal of the assessee is partly allowed and appeal of the AO stands dismissed. फलतःिनधा�रती �ारा दािखल क� गई अपील अंशतः मंजूर क� जाती है.िनधा�रती अिधकारी क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 4th January, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 04 जनवरी, 2017 को क� गई ।
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