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2017 (9) TMI 1905 - AT - Income TaxDeduction u/s.80IB(3)(ii) - whether assessee will lose the benefit of said deduction when it grows into a larger Industry outside the definition of SSI unit? - HELD THAT - There is no dispute on the fact of SSI status when the assessee was incorporated and when it first claimed deduction u/s.80IB(3)(ii) of the Act in the A.Y. 2003-04. The sub-section (3) refers to the any particular undertaking notified in the Official Gazette and the undertaking refers to the Small Scale Industries. The deduction is available for 10 consecutive years beginning with the initial assessment year subjected to the fulfillment of the conditions mentioned in clause (i) (ii) of sub-section (3) of section 80IB. As decided in M/S ACE MULTI AXES SYSTEMS LTD 2014 (8) TMI 596 - KARNATAKA HIGH COURT if an SSI in the course of 10 years stabilizes early makes profits makes further investments in the business the said growth should not come in the way of its claiming benefit u/s.80IB(3)(ii) for 10 consecutive years from the initial assessment year. In our view the facts of the present case are in sink with that of the facts of the case of Ace Multi Axes Systems Ltd. (supra) - Decided in favour of assessee. Gains earned on sale of shares - short term capital gain or business income - Assessee claimed it as capital gains - HELD THAT - As assessee maintains two separate accounts i.e. investment account and stock in trade. In the past also similar dispute exists as the AO treated the short term capital gains income as the Business income of the assessee. On hearing both the parties and considering the facts we find that the need of honouring the entries in the books of account. No case is made out for disturbing the claim of the assessee. This is the case where only 55 transactions are involved and separate account for investment is maintained. Therefore there is a case for applying the Apex Court s judgement in the case of Gopal Purohit 2010 (11) TMI 222 - SC ORDER . Therefore in our view the order of the CIT(A) is required to be reversed on this issue and in favour of the assessee. Exemption u/s 14A - Suo moto disallowance by assessee - HELD THAT - We are of the opinion that it is settled legal proposition that the disallowance u/s.14A read with Rule 8D should not exceed the exempt income. Therefore we direct the AO to restrict the disallowance to the exempt income of Rs. 1, 37, 806/- after netting the suo moto disallowance of Rs. 24, 508/- discussed above. Quantum of deduction u/s 80IA - HELD THAT - Deduction u/s.80IA(4)(iv)(a) of the Act without deducting brought forward loss or unabsorbed depreciation prior to initial year on notional basis.
Issues Involved:
1. Disallowance of deduction under Section 80IB(3)(ii). 2. Treatment of Short Term Capital Gain as Business Income. 3. Disallowance of expenses under Section 14A read with Rule 8D. 4. Interpretation of Section 80IA(5) regarding the initial assessment year for deduction under Section 80IA(4). Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80IB(3)(ii): The Assessee claimed deduction under Section 80IB(3)(ii) for the Assessment Year 2010-11, which was denied by the AO and upheld by the CIT(A) based on the Tribunal's decision in the Assessee's own case for earlier years. The CIT(A) ignored the Karnataka High Court judgment in the case of Ace Multi Axes Systems Ltd. which was favorable to the Assessee. The Tribunal noted that the Karnataka High Court judgment was not available when the Tribunal decided the earlier cases. The Tribunal emphasized the principle of judicial discipline, stating that in the absence of a jurisdictional High Court judgment, the judgment of another High Court should be followed. The Tribunal allowed the Assessee's claim, stating that once the SSI status is granted, the benefit should continue for 10 consecutive years, even if the Assessee grows beyond the SSI definition. 2. Treatment of Short Term Capital Gain as Business Income: The Assessee treated gains from the sale of shares as Short Term Capital Gains, while the AO treated them as Business Income. The Tribunal noted that the Assessee maintained separate accounts for investments and stock in trade, and had a history of treating such gains as capital gains. The Tribunal found no reason to disturb the Assessee's claim and reversed the CIT(A)'s order, treating the gains as Short Term Capital Gains. 3. Disallowance of Expenses under Section 14A read with Rule 8D: The Assessee reported exempt income and disallowed a portion of expenses suo moto. The AO, applying Rule 8D, made a higher disallowance which was upheld by the CIT(A). The Tribunal held that the disallowance under Section 14A should not exceed the exempt income and directed the AO to restrict the disallowance to the exempt income after netting the suo moto disallowance. 4. Interpretation of Section 80IA(5) regarding Initial Assessment Year for Deduction under Section 80IA(4): The Revenue challenged the CIT(A)'s interpretation of the initial assessment year for claiming deduction under Section 80IA(4). The AO held that the initial assessment year should be the year in which the power generation commenced, while the CIT(A) allowed the Assessee to choose the initial assessment year. The Tribunal, following its own decision in the Assessee's case for earlier years and the judgment of the Madras High Court in Velayudhaswamy Spinning Mills P. Ltd., upheld the CIT(A)'s order, allowing the Assessee to choose the initial assessment year for claiming deduction. Conclusion: The Tribunal allowed the Assessee's appeal partly and dismissed the Revenue's appeal, providing relief to the Assessee on the disallowance of deduction under Section 80IB(3)(ii) and the treatment of Short Term Capital Gains. The Tribunal also directed a restricted disallowance under Section 14A and upheld the CIT(A)'s interpretation of the initial assessment year for deduction under Section 80IA(4). The order was pronounced on September 22, 2017.
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