TMI Blog2014 (12) TMI 974X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade - 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 busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the assessment before ld. CIT(Appeals). The assessee's submissions are reproduced in the impugned order in which the assessee briefly explained that all the facts were already available with the department and no new fact has come into existence to enable the department to re-open the case under section 147 of the Act. The assessee filed complete details for claiming deduction under section 80IB of the Act before Assessing Officer at assessment stage and it is a case of change of opinion, therefore, re-opening is not justified. The assessee also explained the justification for claiming deduction under section 80IB of the Act and Assessing Officer after examining same with application of mind, accepted the claim of assessee. Therefore, on the same facts, Assessing Officer is not permitted to reopen the assessment under section 147 of the Act. The assessee also relied upon certain judgements in support of his contentions. However, the ld. CIT(Appeals) did not agree with submissions of the assessee and relying upon the same judgements which have been relied upon by the Assessing Officer, held that the Assessing Officer cannot be said to have changed his opinion while re-open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat) . 8. On the other hand, ld. DR submitted that it is a case of valid re-opening of the assessment and relied upon decision of Hon'ble Supreme Court in the case of Kalyanji Mavji Co. V CIT 102 ITR 287 . The ld. DR submitted that no alternate plea can be taken by the assessee in the proceedings under section 148 of the Act. The ld. DR also relied upon decision in the case of A.L.A. Firm Vs CIT 189 ITR 285 (S.C) . 9. We have considered rival submissions and material available on record. The Hon'ble full Bench of Delhi High Court in the case of Kelvinator of india Ltd. 256 ITR 1 by following circular No. 549 of CBDT 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. Hon'ble Gujrat High Court in the case of Garden Silk Mills P. Ltd. 237 ITR 668 held that however wide the scope of taking action u/s 148 of IT Act, it does not confirm jurisdiction on change of the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion that there has been excessive loss or depreciation allowance or that there has been unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial to justify the conclusion that there is escapement of income. Held accordingly, dismissing the appeal, that the note forming part of the return filed for the assessment year 1999-2000 clearly mentioned and described the nature of the receipt under a non-compete agreement. The reasons for the notice under section 147 of the Income-tax Act, 1961, nowhere mentioned that the Revenue came up with any other fresh material warranting reopening of assessment. Therefore, mere conclusion of the proceedings under section 143(1) ipso facto did not permit invocation of powers for reopening the assessment. 12. Hon'ble Rajasthan High Court in the case of CIT V Vardhman Industries 363 ITR 625 held as under : The essential and inviolable condition precedent for reassessment is the reason to believe that any income chargeable to tax has escaped assessment. Such a reason has to be essentially traceable to discoveries and satisfaction from new and hitherto unexplored sources and materials and not to a view of the Assessing Officer differentially oriented on the basis of the same inputs, once considered and applied. Held accordingly, that a perusal of the original assessment order m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incomes which have been credited for claiming such deduction. The explanation of the assessee is noted in the original assessment order and the issue of subsidy which is considered in re-opening of the assessment was considered in the line of judgement of the Hon'ble Supreme Court in the case of Sterling Foods (supra), decision of Hon'ble Punjab Haryana High Court in the case of M/s Nahar Exports Ltd. (supra), decision of Hon'ble Supreme Court in the case of Pandian Chemicals V CIT 262 ITR 278 and decision of the Hon'ble Punjab Haryana High Court in the case of Liberty India V CIT (supra) and substantial claim of assessee has been accepted except minor disallowance made about issue of deduction u/s 80IB of the Act in respect of Unit-I and Unit-II at Samba. 16. The ld. counsel for the assessee referred to audit report for claiming deduction under section 80IB of the Act, copies of which are filed in the Paper Book in which assessee disclosed all complete facts for receipt of subsidy for the purpose of deduction in respect of unit No. I and unit No. II at Samba. The replies of the assessee are also referred to during the course of arguments in PB- 34 and PB-43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to insurance account Interest of WC 1290372/- credited to WC account Total 9645259/- The assessee has, treated the above receipts as profits derived from the business of the assessee and claimed deduction u/s 801A/1B. But these receipts can at best be treated as profits attributable to the business of the assessee because there is no direct nexus between these receipts and the business of the assessee. The Hon'ble Supreme Court in the case of CIT Vs Sterling Foods 237 ITR 579 has held that the word derived from is distinct from the word attributable to which has a broader import and could include receipts from sources other than the ones derived from the business of industrial undertaking. The dictionaries state that the word derived is usually followed by the word from and it means; get or trace from a source; arise from, originate in, so the origin or formation of. When the word derived from is used, to explain that one word is derived from another it basically means that source of that word is another word. The Hon'ble Supreme Court in the case of M/s Liber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that Assessing Officer is not justified in re-opening the assessment on mere change of opinion. The ld. counsel for the assessee, on the basis of the replies filed before Assessing Officer at the original assessment proceedings has been able to prove that assessee disclosed all primary fact before Assessing Officer at the time of making original assessment order dated 26.11.2008. The Assessing Officer, after examining the replies and details on record, accepted the substantial claim of assessee of deduction under section 80IB in respect of units at Samba. Thus, the Assessing Officer formed the opinion on the basis of the facts and material on record by accepting the claim of assessee on the same issue on which assessment was reopened. The decision cited by ld. DR would not support the case of the revenue because of the findings recorded above. 19. Considering the above discussion, we do not find any justification for the authorities below to justify the re-opening of the assessment. The re-opening of the assessee is thus, clearly bad in law and is liable to be quashed. We, accordingly set aside the orders of the authorities below in assessment year 2006-07 and quash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 2 (Deduction under section 80IB - Subsidies) 22. This issue of deduction under section 80IB on various subsidies arises in all the assessment years under appeals in the appeals filed by the assessee. Both the parties mainly argued in assessment year 2006-07 on this issue and stated that the order in that case may be followed in other years, therefore, for the purpose of disposal of all the assessee's appeals on this issue, the facts and findings are taken from assessment year 2006-07. 23. The assessee contended before ld. CIT(Appeals) that Assessing Officer has wrongly denied the claim of deduction under section 80IB of the Act on account of various subsidies by not treating the same as part of profits. The Assessing Officer, in this regard has observed that the assessee company had received subsidy from State Government on account of freight, insurance and interest on working capital and the same were claimed to be in the nature of capital receipts in view of recent judgement of Hon'ble Jammu Kashmir High Court in the case of Shree Balaji alloys 333 ITR 335 . The Assessing Officer, however relied upon judgement of Hon'ble Apex Court in the case of CIT V S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to Rs, 33,60,093/- for Unit-I and ₹ 71,45,259/- for Unit-II by holding that the subsidy receipts are not eligible for deduction u/s 80-IB of the Act. At the outset it is submitted that all these receipts in the nature of subsidies and benefits are capita} receipts not chargeable to tax and there is no question of any disallowance of deduction U/s 80-IB on receipts. The various subsidies are received only in pursuance to Industrial Policy and other Concessions announced for the Jammu and Kashmir vide Government of india, Ministry of Commerce and Industry (Department of industrial Policy and Promotion)'s Office Memorandum of June 14, 2002. It is submitted that as per the policy of Jammu Kashmir Government the various incentives would become available to industrial units entitled thereto from the date of commencement of commercial production and the fact that these were not granted for creation of new assets cannot be the sole criteria for determining the nature of subsidy. The fact that such incentives were provided to achieve a public purpose should also be considered to determine the nature of subsidy and hence, such subsidy could not be construed as a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judgment it is submitted that there cannot be question of disallowance of deduction U/s 80-1B of the Act. The total Income of the appellant is to be computed by excluding the above capital receipts and thereafter deduction U/s 80IB is to be allowed to the Appellant, Since, these receipts are not forming part of the total income, there Is no question of making any kind of disallowance. Without to our submissions, even if we consider the various subsidies received by the assessee as revenue subsidies there is no justification for disallowance of deduction U/s 80-IB of the Act as there is no net Income arising to the on account of receipt of above subsidies as it only goes to reduce the relevant expenditure where such subsidy income is credited by the assessee. The accounting treatment of the various subsidies is clearly mentioned in Annexure P of the Tax Audit report and the same is forming part of the paper book, It has been clearly stated that the subsidy received is duly credited in that account for which the same has been received. Further it is also submitted that the copy of account of District Industrial Centre wherein the various subsidies received by the are shown alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A no 977/CHD/2007 (ITAT Chd Bench) Having considered the rival submissions and the precedent relied upon by the assessee, we direct the Assessing Officer to recompute the deduction under section 8Q-IA/IB by excluding the sum of freight subsidy calculated after setting off .the expenses which are directly linked to it, The Hon'ble Bench has placed reliance on the Judgment of Shri Dinesh Kumar (supra) at the time of giving the said decision, Judgement of the Hon'ble ITAT, Chandigarh Bench in ITA no. 293/Chd/2010 in the case of same person above i.e Shri Sunil Gupta wherein it has been clearly held as under; The assessee during the year under consideration had received subsidy of Rs, 12,33,836/- as against expenditure on freight paid ₹ 23,02,756/-. After setting off of the freight subsidy received against the expenditure incurred on the same, the resultant is a loss and accordingly no adjustment is required to be made in the profits of business eligible for deduction under section 80-IA/80IB. of the Act. Even in the case of the assessee, the facts are similar and under such circumstances the expenses which are directly attributable to the subsidies rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re cannot be any disallowance of deduction under section 80IB of the Act as the assessee has not claimed any deduction on account of the subsidies as there is no net income from the various subsidies received by the assessee. 25. The ld. CIT(Appeals), however did not accept contention of the assessee and dismissed this ground of appeal of the assessee. His findings in para 10 to 11 of the appellate order are reproduced as under : 10. I have considered the basis of addition made by the Assessing Officer and the arguments of the AR on the issue, The first issue to be decided here is that whether the amounts received by the appellant in the form of freight, insurance and interest subsidy are in the nature of capital or revenue receipt. The Hon'ble J K High Court in the case of Sh. Balaji Alloys 333 ITR 335 has very categorically held the impugned subsidies to be capital in nature and not chargeable to tax. The Assessing Officer however has obviated the necessity to rebut the assessee's claim in this regard, The Hon'ble ITAT Chandigarh Bench in the of Dinesh Kumar Vs. ITO has dealt with and referred to the observation of the Hon'ble Tribunal in the case of IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y receipts by way of reimbursement of such duties are inextricably linked with the' cost of production which has to be reflected in the profit and loss account of the assessee, Therefore, duty drawback was derived from'1' the industrial undertaking and eligible for deduction u/s 80J of the Act. Hon'ble Madras High Court, however, in the of CIT Vs. Jameel Leathers and uppers (2000) 216 ITR 97 (Mad) have expressed the view in favour of the revenue. Subsequently the same High Court has reiterated the view in the case of CIT Vs. Viswanathan Co, (2003) 261 ITR 737 (Mad.) It is evident that there are conflicting views available in respect of the issue involved in this case, Since the decision of Chandigarh of the-Tribunal is in favour of the which is also supported by Hon'ble Gujrat High Court, I respectfully follow the same preference to the decision of Hon'ble Madras High Court and Hon'ble Delhi Bench of the Tribunal (Supra) and hold that amount of ₹ 1,18,402/- has got to be set off against the freight incurred by the assessee and accordingly the assessee would be entitled to deduction. of profits derived from the Industrial undertaking so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble ITAT relied upon by the Assessing Officer also concurs with the view expressed by Hon'ble Jurisdictional High Court on the issue, However the direction by the Hon'ble ITAT in the said case to the Assessing Officer to allow setting off of expenses on freight against the subsidy received seems to be contrary to the main judgement in the case, It is clear that the Hon'ble Jurisdictional High Court has held the freight subsidy to be revenue in nature as well as not eligible for deduction under section 80IA/80IB and therefore respectfully following the same, the action of the Assessing Officer in disallowing the deduction is confirmed. 26. The ld. counsel for the assessee reiterated submissions made before ld. CIT(Appeals) and also filed brief synopsis and copies of various judgements in support of his contention and submitted that unit-I and II of the assessee for which subsidies have been received, are situated in Samba (State of J K) and filed copies of the industrial policies of State of J K as per Central policy and State policy wit all notifications and submitted that the same industrial policy has been considered by Hon'ble J K High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue in nature, one has to go to the scheme of subsidy and purpose for which subsidies have been given. 30. It is not in dispute that the assessee obtained subsidies in question 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 under section 80IB pertains to Samba unit only which is in the State of J K. The scheme has not been disputed by the revenue department and the said scheme provides incentives to new industrial units and specially expansion of existing units generate employment through acceleration of industrial development in public interest. 31. The Hon'ble J K High Court in the case of Shree Balaji alloys others Vs CIT (supra) have discussed in detail the new Industrial policy for the State of J K dated 14.06.2002 which is also matter in issue in the case of the present assessee and by virtue of the same policy, the subsidies have been received by the assessee because the assessee's units are also located in Samba (J K). Therefore the facts and policy of granting subsidies in the case of the assessee and in the case of Shree Balaji alloys others (supra) are same and have been analy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions would be available only on production of certificate from General Manager of the concerned District Industry Centre to the jurisdictional Dy. CCE or the Asstt. CCE, as the case may be, to the effect that the unit had created required additional regular employment, which would not, however, include employment provided by the industrial units to daily wagers or casual employees engaged in the units. A close reading of the Office Memorandum and the amendment introduced thereto with para No. 3 appearing in the Central Excise Notification Nos. 56 and 57 of 11th Nov., 2002, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu Kashmir and the generation of employment, so contemplated, was not only casual or temporary; but was on the other hand, of permanent nature. Considered thus, the paramount consideration of the Central Government in providing the incentives to the new industrial units and substantial expansion of the existing units, was the generation of employment through acceleration of industrial development, to deal with the social problem of unemployment in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Mepco Industries Ltd. vs. CIT (2009) 227 CTR (SC) 313 : (2009) 31 DTR (SC) 305 : 2009 (7) SCC 564 and Sahney Steel Press Works Ltd. Etc. vs. CIT (1997) 142 CTR (SC) 261 : (1997) 228 ITR 253 (SC) relied on; Shree Balaji Alloys vs. ITO (2010) 127 TTJ (Asr) 129 : (2010) 33 DTR (Asr)(Trib) 67 set aside. 32. The ITAT Amritsar Special Bench in the case of Shri Vinod Kumar Jain Vs ITO ors in ITA No. 65/2010 vide order dated 26.10.2012 considering the identical question, decided the issue in favour of the assessee by following judgement of the Hon'ble J K High Court in the case of Shree Balaji alloys Ors Vs CIT (supra) and held in para 4 to 6 as under : 4. We have considered the rival submissions carefully in the light of material on records as well as decisions cited by the parties. In this case, assessee had received excise duty refund amounting to ₹ 19,98,09,716/-and has claimed deduction u/s 80IB of the Income-tax Act, 1961 on the income corresponding to the receipt of the said refund. The AO after detailed discussion rejected the claim of the assessee. On appeal, additional ground was taken before the ld. CIT(A) that receipt of excise duty refund should be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inagar on April 19, 2003, was, for creation of one lakh employment and self-employment opportunities in Jammu and Kashmir State. 28 To achieve the purpose and objective referred to hereinabove, it was, inter alia, provided in the central excise notifications that the exemptions contained in the notifications would be available only on production of certificate from general manager of the concerned District Industries Centre to the jurisdictional Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, to the effect that the unit had created required additional regular employment, which would not, however, include employment provided by the industrial units to daily wagers or casual employees engaged in the units. 29 A close reading of the Office Memorandum and the amendment introduced thereto with paragraph No. 3 appearing in the Central Excise Notification Nos. 56 and 57 of November 11, 2002, thus, makes it amply clear that the acceleration of development of industries in the State was contemplated with the object of generation of employment in the State of Jammu and Kashmir and the generation of employment, so, contemplated, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n determine the incentives as production incentives may not be decisive to determining the character of the incentive subsidies, when it is found, as demonstrated in the Office Memorandum, amendment introduced thereto and the statutory notification too that the incentives were provided with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the State by accelerated industrial development. 5. On the basis of the above observations, the Hon'ble J K High Court has held as under : 35. For all what has been said above, the finding of the Tribunal on the first issue that the excise duty refund, interest subsidy and insurance subsidy were production incentives, hence revenue receipt, cannot be sustained, being against the law laid down by the Hon'ble Supreme Court of india in Sahney Steel Case (1997) 228 ITR 253 and Ponni Sugars case (2008) 306 ITR 392 . 36. The finding of the Tribunal that the incentives were revenue receipt is, accordingly, set aside holding the incentives to the capital receipt in the hands of the assesses. 6. In view of the above decision, which is binding in nature on this Special Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgement of the Hon'ble J K High Court in the case of Shree Balaji alloys Ors Vs CIT (supra), the Tribunal had taken the same view in favour of the assessee. The copies of the said orders of different Benches of the Tribunal are placed on record in the name of M/s R.N. Knitfab Pvt. Ltd., M/s Fine Aromatics, M/s Hari Nagar Sugar Mills, M/s Singla Cables, Shri Amit Jain, Prop. M/s J.K. Polypack, M/s Shivam Metal Shaper Industries and M/s Trimurti Menthol Industries. In all the orders, it was held that different subsidies received by assessee are capital in nature and allowed deduction under section 80IB. Considering the above discussion and judgements cited above, it is clear that the various subsidies received by assessee are capital subsidies and are not liable to be taxed. 36. The ld. counsel for the assessee has also raised alternate plea that said subsidy had been credited to the respective expense account and specific cost to the assessee got reduced and for that purpose, netting is allowed which has been held to be so in favour of the assessee by ITAT Chandigarh Bench in various decisions in the cases of Dinesh Kumar Vs ITO, Sunil Kumar Vs ITO which relates to transp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore for following the same reason for decision as have been given in assessment year 2006-07, the orders of authorities below in remaining assessment years under appeals are also set aside and it is directed that assessee would be entitled for deduction under section 80IB of the Act. 40. In the result, all the appeals of the assessee on the issue of deduction under section 80IB of the Act are allowed. Issue No. 3 (Issue of Section 80IB on inter unit investments - interest allocation on deemed basis) 41. This issue arises in assessment year 2008-09 and 2009-10 in assessee's appeal as well as in departmental appeal. In assessment year 2008-09, assessee raised ground No. 2 challenging the order of the ld. CIT(Appeals) in upholding the part addition as made by Assessing Officer by reducing the claim of deduction under section 80IB on account of interest @ 11% on inter-unit investment as against 12% charged by the Assessing Officer. The revenue on ground No. 1 in their appeal challenged order of ld. CIT(Appeals) in reducing the disallowance of deduction under section 80IB of the Act. 42. The Assessing Officer on this issue observed that the interest expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of making disallowance. There cannot be any disallowance under section 80IB on account of notional expenditure not incurred. The Assessing Officer has totally ignored the fact that there is no nexus between the amount borrowed by the Ludhiana unit and the amount invested by the unit with other inter-units. The assessee also made additional submissions before ld. CIT(Appeals) reiterating the same stand that all funds finalized from the bank were utilized for the fixed assets being land and building and machinery and all working capital borrowed has been utilized for the purpose of business. Therefore, addition is unjustified. 44. It was further submitted that Assessing Officer has erred in applying the rate of 12% by assuming that all investments made by the Ludhiana unit in unit No. I and II are out of borrowed funds. Moreover, if any addition has to be made, it cannot be made @ 12% as the average borrowings of the assessee company are @ 11% which can also be verified. The complete details were submitted in this regard. 45. The ld. CIT(Appeals), considering explanation of the assessee in principle, confirmed the order of Assessing Officer. However, interest alloc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Proportionate capital invested out of borrowed funds 30961708 3,38,34,461 2,30,32,644 8,78,28,813 Interest rate (Average) 11% 11% 11% Interest to be allocated 34,05,788 37,21,791 25,33,591 96,61,170 Therefore, the interest to be allocated to the three units comes to ₹ 34,05,788/-, ₹ 37,21,7917- and ₹ 25,33,591/- respectively. The addition made by the Assessing Officer is therefore confirmed to the extent mentioned above. 46. The ld. counsel for the assessee reiterated the submissions made before authorities below. He has submitted that assessee has own capital and reserves and interest free funds with Ludhiana unit and no borrowed funds had been transferred to the unit at J K. Therefore, addition is wholly unjustified. 47. On the other hand, ld. DR relied upon order of the Assessing Officer. 48. We have considered rival submissions and material available on record. The Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , considering the material before him correctly allowed the claim of the assessee partly on which no further interference is required. The ground No. 2 of appeal of assessee and ground No. 1 of departmental appeal are accordingly, dismissed. 51. In assessment year 2009-10, assessee raised similar ground No. 2 on the same issue and revenue raised ground No. 1 in their departmental appeal on the identical issue. following the order for assessment year 2008-09, both the grounds of appeal are dismissed. 52. In the result, appeals of assessee and departmental appeals on this issue in assessment year 2008-09 and 2009-10 are dismissed. Issue No. 4 (Disallowance under section 14A of the Income Tax Act) 53. This issue arises in assessment year 2008-09 in appeal of the assessee on which assessee raised ground No. 3 challenging the addition of ₹ 7,09,562/- by applying provisions of Section 14A read with rule 8D of the Income Tax Act. The Assessing Officer 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 assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larified that interest paid on term loans availed by the assessee is duly capitalized and all the working capitallimits have been utilized by the assessee for smooth functioning of the business. The assessee relied upon several decisions including the decision in the case of CIT V Hero Cycles 323 ITR 518 (P H) in which it was held disallowance under section 14A requires finding of incurring of expenditure, where it is found that for earning exempted income, no expenditure has been incurred, disallowance under section 14A cannot stand. It was, therefore, submitted that since Assessing Officer has not recorded any satisfaction of incurring of any expenditure by assessee, therefore, addition is wholly unjustified. 54. The ld. CIT(Appeals), however, did not accept contention of the assessee and dismissed this ground of appeal of the assessee and confirmed the addition. The ld. CIT(Appeals) further observed that the decision cited by the assessee are clearly distinguishable on facts. 55. The ld. counsel for the assessee reiterated the submissions made before ld. CIT(Appeals). He has submitted that at the time of making addition, the authorities below have considered the amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It is also not in dispute that assessee earned dividend income in the year under consideration. The ITAT Chandigarh Bench in the case of M/s Chadha Super Cars P.Ltd. Vs ACIT in ITA 1241/2011 etc. by considering Section 10(2A) in the light of various decisions on the matter in issue including the judgement in the case of Hero Cycles (supra) and judgement of Hon'ble Punjab Haryana High Court in the case of CIT Vs Punjab State Industrial Development Corporation Ltd. dated 18.07.2011 and Memorandum explaining Section 14A in the light of Rule 8D of IT Rules held as under : Thus above rule was found to be valid and rational. Coming back to the case in hand, the perusal of the assessment order shows as observed earlier, no where before the Assessing Officer or the ld. CIT(A), the assessee has made a specific mention to show which particular funds were borrowed for which parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and funds have been given for the purpose of commercial exigency on which proper interest has been charged. It is not a case where funds have been advanced without any exigency. The complete details of utilization of funds were furnished at the assessment stage and all funds have been used only for the purpose of business. The assessee relied upon decision of the Apex Court in the case of M/s S.A. Builders 288 ITR 1 . It was submitted that decision in the case of M/s Abhishek Industries (supra) is not applicable to the facts of the case. It was further submitted that assessee has sufficient interest free funds and there is no nexus between the borrowed funds and the amounts advanced to the above company. The assessee relied upon several decisions in support of contention that addition is unjustified. 60. The ld. CIT(Appeals) accepted contention of the assessee and noted that the Assessing Officer has wrongly applied ratio of the judgment of the Hon'ble Punjab Haryana High Court in the case of Abhishek Industries (supra) as this is not a case where assessee had diverted funds to the sister concern without charging any interest, rather interest has been duly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(Appeals) in allowing deduction under section 80IB at ₹ 45,35,176/- in respect of unit No. II, Samba which was not claimed as per revised return. The Assessing Officer, in this regard has observed that he cannot entertain claim of deduction otherwise than by filing revised return. The Assessing Officer applied the ratio of the decision of the Supreme Court in the case of Goetze (India) Ltd. V CIT 284 ITR 323 to hold that claim of assessee cannot be accepted. The assessee challenged before ld. CIT(Appeals) that Assessing Officer has erred in not allowing claim of deduction under section 80IB of ₹ 45,35,176/- in respect of Unit II, Samba which was claimed as less due to inadvertent error. The assessee's written submission is incorporated in the appellate order in which the assessee has explained that a lesser claim was made of deduction under section 80IB in respect of unit II Samba while preparing return inadvertently. The computation of income and other details clearly show the proper claim of assessee. It was submitted that at the assessment stage, assessee filed application before Assessing Officer for allowing proper claim under section 80IB of the Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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