DCIT Vs Chiripal Industries Ltd. (ITAT Ahmedabad)
Conclusion: Tribunal upheld the deletion of a disallowance of over ₹4.82 crore under Section 80-IA as the power plant was transferred as part of a court-approved amalgamation, assessee was entitled to “step into the shoes” of the amalgamating company and claim the deduction and also confirmed that disallowance under Section 14A could not exceed the actual exempt income earned during the year.
Held: Assessee was a company engaged in the manufacture and processing of textile products, filed its return of income declaring a loss of ₹12.24 crore and book profit of ₹40.62 crore under section 115JB. The case was selected for limited scrutiny. In assessment under section 143(3), AO made two disallowances: (i) section 80IA deduction of ₹4.82 crore in respect of power generation, on the ground that more than 90% of the machinery used was old and transferred from M/s Shanti Processor Ltd., thereby violating Explanation 2 to section 80IA(3); (ii) section 14A disallowance of ₹60.46 lakh, computed under Rule 8D(2)(ii), holding that expenses were incurred in relation to exempt income. On appeal, CIT(A) deleted the disallowance under section 80IA following the Tribunal’s decision in the assessee’s own case for A.Ys. 2014–15 and 2016–17, and restricted the disallowance under section 14A to ₹670, being the amount of dividend income earned. Revenue appealed against both deletions. It was held that regarding section 80-IA issue, Tribunal relied on its own earlier orders in assessee’s own cases for AYs 2014-15 and 2016-17. It held that since the power plant was transferred as part of a court-approved amalgamation, the assessee was entitled to “step into the shoes” of the amalgamating company and claim the deduction. AO had failed to disprove that the machinery was new when originally purchased by Shanti Processors or that the deduction had been routinely allowed in earlier years. Regarding the Section 14A disallowance, Tribunal concurred with the CIT(A)’s rationale that the disallowance could not exceed the actual exempt income of ₹670 (dividend earned). It upheld the deletion of the balance disallowance of over ₹60 lakh, relying on the jurisdictional High Court’s judgment in Corrtech Energy Pvt. Ltd. (2014) which capped the disallowance at the amount of exempt income. In the Cross Objection, assessee argued that it had erroneously offered as income a capital subsidy received under the Technology Upgradation Fund Scheme (TUFS). Tribunal, following its own order in the assessee’s case for AY 2014-15 and the precedent set in Jindal Worldwide Limited, admitted the additional ground and restored the issue to the AO for fresh verification. It directed the AO to examine whether the interest and power subsidies of ₹9.25 crore and ₹1.21 crore, respectively, were indeed capital receipts not chargeable to tax.
