2014 (12) TMI 974 - ITAT CHANDIGARH

Re-opening of the assessment u/s 147/148 – Held that:- In Commissioner of Income Tax Versus Kelvinator Of India Limited [2002 (4) TMI 37 - DELHI High Court] it has been held that on mere change of opinion of AO cannot be a ground for re-assessment and that amendment of sec. 147 w.e.f. 1.4.89 has not altered the position – assessee has been able to prove that assessee disclosed all primary fact before AO at the time of making original assessment order dated 26.11.2008 - the re-opening of the assessment for the year 2006-07 is thus, clearly bad in law and is to be set aside – Decided in favour of assessee.

Assessment Year 2007-08 – Held that:- In Arun Kumar Goyal Vs CIT [2012 (12) TMI 870 - PUNJAB AND HARYANA HIGH COURT] it was held that it is explicit from the post amendment decisions cited above that once there are reasons for the AO to believe, whether such reasons originate out of the record already scrutinized or otherwise, he shall be within his competence to initiate the re-assessment proceedings - Since in the assessment year under appeal, the AO has processed the return u/s 143(1) and has not formed any opinion on the material available on record - therefore, it may not be a case of quashing of re-assessment proceedings in the year under consideration i.e. assessment year 2007-08 – Decided against assessee.

Deduction on various subsidies u/s 80IB – Held that:- The assessee obtained subsidies in respect of unit No. I and II Samba which falls in territory of State of J&K and the dispute of disallowance of deduction u/s 80IB pertains to Samba unit only which is in the State of J&K - the same scheme of grant of subsidy have been considered by Hon'ble J&K High Court in the case of Shree Balaji alloys & Ors Vs CIT [2011 (1) TMI 394 - Jammu and Kashmir High Court] in which the assessee unit was also found to be situated in State of J&K and in the case of the assessee also, the units are situated at Samba (J&K), therefore, when the schemes of grant of subsidy have been considered by Hon'ble J&K High Court, the same view shall have to be adopted in the case of the present assessee for grant of deduction u/s 80IB on the identical facts in which the subsidies were held to be capital in nature – the authorities below are not justified in denying deduction u/s 80IB - assessee is also entitled for relief on alternate contention and would be entitled to set off of the expenses under the grant of subsidies – the order is set aside and the AO is directed to grant deduction to the assessee u/s 80IB – Decided in favour of assessee.

Reduction on rate of deduction from 12% to 11% u/s 80IB - Inter unit investments - interest allocation on deemed basis – Held that:- The AO has specifically noted that interest expenditure on the investments made by the Ludhiana unit in the other units located at Samba had not been allocated to respective units - The AO, therefore, correctly referred to provisions of Section 80IA(8) (10) of the Act because the assessee company was transferring funds borrowed on interest from the non eligible unit at Ludhiana to the eligible units and the corresponding interest was not being allocated which had led to the inflation in the profits of eligible units - The finding of fact recorded by AO have not been assailed through any material on record - CIT(A), perused the balance sheet of Ludhiana unit which shows that funds have been raised from financial institution on interest apart from internal accrual/capital contributions - CIT(A), therefore, observed that this would mean that in order to transfer the appropriate interest debits to the eligible units, only way out was to find out the ratio of borrowed/non-borrowed funds and in this regard, data was furnished by the assessee - Since, the data produced by the assessee clearly support the finding of CIT(A) for allocation of the interest to the three units, therefore, there should not have any grievance left for the assessee to agitate the finding of fact recorded by the CIT(A) - CIT(A) correctly allocated the interest to the three units and correctly reduced the same addition in proportion/ratio of borrowed/non-borrowed funds – Decided against assessee.

Disallowance u/s 14A – Held that:- The assessee's counsel has specifically pleaded that no investments have been made in the year under consideration and only part investments have been made in subsidiary companies - the AO has specifically observed that assessee company had made investments in shares and mutual funds on which exempt income accrued and no disallowance in respect of expenditure incurred to earn the exempt income have been made - The A.O. considering explanation of the assessee concluded that assessee had not been able to establish the claim that no expenditure had been incurred and therefore disallowance had to be worked out by applying Rule 8D of the Act - assessee earned dividend income in the year under consideration - disallowance u/s 14A has been worked out on the basis of Rule 8D which is as observed earlier applicable in case of the assessee – Decided against assessee.

Addition of 2% on advances given by assessee to BPL – Held that:- The assessee has not diverted borrowed funds for any business purposes - The AO has not brought any evidence on record to prove any nexus between borrowed funds and the funds advanced to subsidiary companies - The assessee has not given funds to the subsidiary company without any interest rather it is a fact that assessee has charged interest @ 10% on the funds given to the subsidiary companies - since the assessee has business relation with the subsidiary company and funds have been given to the subsidiary company subject to interest, therefore, AO could not examine the reasonable interest charged by the assessee - The AO cannot step into the shoe of the businessman as to how much the businessman has to earn profit out of the same transaction – CIT(A) correctly deleted the addition – Decided against revenue.