2019 (8) TMI 1472 - AT - Income Tax

Disallowance of deduction u/s.80IA (4) - whether the income of container freight station is eligible for deduction u/s.80IA (4) ? - HELD THAT - Both the parties mutually agreed at the time of hearing that this issue is covered by the decision of Hon ble Supreme Court in the case of CIT vs. Container Corporation of India Ltd. 2018 (5) TMI 359 - SUPREME COURT wherein it was held that container freight station is eligible for deduction u/s. 80IA (4) of the Act. Since the facts recorded by the ld. CIT(A) in his order are not in dispute before us respectfully following the aforesaid Supreme Court decision which is also not disputed by the parties before us the grounds raised by the revenue for the A.Y.2007-08 are dismissed. Disallowance made u/s.14A r.w.r. 8D - HELD THAT - It is not in dispute that assessee has not claimed any exempt income during the year under consideration. Despite this fact the assessee had voluntarily disallowed a sum of Rs. 40, 000/- on an adhoc basis in the return of income. We find now the issue is well settled that when there is no exempt income claimed by the assessee the disallowance u/s.14A of the Act would not come into operation. Accordingly we direct the ld. AO to delete the disallowance made u/s.14A. Assessment u/s 153A - Disallowance of staff welfare expenses entertainment expenses miscellaneous expenses - original assessment completed u/s.143(3) - HELD THAT - We find that these disallowances of expenditure in the total sum of Rs. 7 lakhs were originally made by the ld. AO in the original assessment completed u/s.143(3) of the Act dated 24/05/2010. The assessment which is in challenge before us is the assessment framed u/s.143(3) r.w.s. 153A of the Act dated 07/03/2014 pursuant to the search carried out in the case of J M Baxi Group on 20/03/2012. At the time of hearing no arguments were advanced by the ld. AR with regard to these disallowances and accordingly the same are dismissed. Disallowance of deduction u/s.80IA - rental income and interest on FDR as not derived from the industrial undertaking - HELD THAT - We find that interest income of FDR s were not made with inextricable link with the business of the assessee and the ld. AR fairly stated that the same is not eligible for deduction u/s.80IA of the Act. Accordingly we uphold the action of the ld. CIT(A) in this regard. Rental income - AR fairly admitted that let this fact be examined by the ld. AO and the issue be decided accordingly. Per contra the ld. DR vehemently objected to setting aside of this issue to the file of the ld. AO as assessee itself had classified the receipt as rental income. We find that assessee had given a detailed note supra explaining the nature of transaction which requires to be examined. It is well settled that substance of the transaction would always prevail over its form. Accordingly we deem it fit and appropriate in the interest of justice and fair play to remand this issue to the file of the ld. AO for denovo adjudication.

Summary

Issues Involved:
1. Deletion of disallowance of deduction under Section 80IA(4) of the Income Tax Act.
2. Disallowance made under Section 14A of the Income Tax Act.
3. Adhoc disallowance of staff welfare expenses, entertainment expenses, and miscellaneous expenses.
4. Classification of rental income and interest on FDR in relation to Section 80IA of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of Deduction under Section 80IA(4):
The primary issue in the revenue appeals for the assessment years 2007-08, 2008-09, 2010-11, 2011-12, and 2012-13 was the deletion of disallowance of deduction under Section 80IA(4) of the Income Tax Act by the Commissioner of Income Tax (Appeals). The Tribunal found that the issue of whether the income of a container freight station is eligible for deduction under Section 80IA(4) was covered by the Supreme Court decision in CIT vs. Container Corporation of India Ltd., which held that such stations are eligible for the deduction. As the facts were not disputed, the Tribunal dismissed the revenue's appeals for these years, following the Supreme Court's decision.

2. Disallowance Made under Section 14A:
For the assessment years 2008-09, 2010-11, 2011-12, and 2012-13, the assessee challenged the disallowance made under Section 14A of the Act. The Tribunal noted that the assessee had not claimed any exempt income during the respective years. It is a settled principle that when no exempt income is claimed, disallowance under Section 14A does not apply. Therefore, the Tribunal directed the deletion of the disallowance made under Section 14A for these years.

3. Adhoc Disallowance of Staff Welfare, Entertainment, and Miscellaneous Expenses:
In the appeals for the assessment years 2008-09, 2010-11, 2011-12, and 2012-13, the assessee contested the adhoc disallowance of expenses towards staff welfare, entertainment, and miscellaneous expenses. The Tribunal noted that these disallowances were made in the original assessments, and no arguments were advanced by the assessee's representative during the hearing. Consequently, these grounds were dismissed.

4. Classification of Rental Income and Interest on FDR in Relation to Section 80IA:
For the assessment year 2009-10, the assessee challenged the disallowance of deduction under Section 80IA for rental income and interest on FDR. The Tribunal upheld the disallowance for interest on FDR, as it was not linked to the business of the assessee. Regarding the rental income, the assessee argued it represented demurrage charges related to the container freight station business. The Tribunal remanded this issue to the Assessing Officer for a fresh examination, emphasizing that the substance of the transaction should prevail over its form.

Summary of Decisions:
- Revenue appeals for assessment years 2007-08, 2008-09, 2010-11, 2011-12, and 2012-13 were dismissed.
- Assessee appeals for assessment years 2008-09, 2009-10, 2010-11, 2011-12, and 2012-13 were partly allowed for statistical purposes, with specific directions to delete disallowances under Section 14A and to re-examine the nature of rental income.

Conclusion:
The Tribunal's consolidated order addressed multiple appeals involving common issues, primarily focusing on the eligibility for deduction under Section 80IA(4), disallowance under Section 14A, and the nature of certain expenses and income. The Tribunal consistently applied the legal principles established by higher courts and provided directions for further examination where necessary.