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2015 (5) TMI 389 - ITAT LUCKNOW

2015 (5) TMI 389 - ITAT LUCKNOW - TMI - Deduction u/s 80IB of Jorhat Unit - allocation of expenses, from Head Office to Jorhat Unit - Held that:- We do not find any merit in the contentions of assessee because even if the assessee has made some allocation in the present year, it has to be seen that such allocation is in line with the allocation made in earlier years as per the direction of the Tribunal. Regarding this contention that plea was not taken before the Tribunal in assessment year 2004 .....

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ging Director of the company - Held that:- in the absence of any evidence regarding invitation to the spouse of the Directors of the company or their participation in any social engagements in the foreign country visited by them along with the Directors of the assessee company, we do not find any reason to interfere in the order of CIT(A) on this issue. Decided against the assessee.

Enhancement of book profit U/s 115JB - Held that:- The authorities below have applied Explanation (1), .....

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case, by virtue of the “share holding being hold beyond a specified period” any incidental income has been earned, it cannot be said that the expenditure was relatable to any exempt income. Therefore, no part of the expenses could have been considered to be disallowable, so as to call for adjustment in book profit computed under section 115JB.Wholly without prejudice to the said submissions, it is stated that estimate of ₹ 10,00,000/- in relation to the income earned through direct investm .....

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/- is much too high and excessive.

Disallowance of dividend - Held that:- As it is noted by CIT(A) that out of total dividend income of ₹ 11.2 crores earned by the assessee, the earning of dividend income through PMS is ₹ 169.35 lac and therefore, earning of dividend income from self-investment is more than ₹ 10 crore - Held that:- CIT(A) has reproduced clause (f) to the Explanation 1 of section 115JB and as per this clause (f), any expenditure relatable to any incom .....

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expenses incurred in relation to total dividend income whereas as per the decision of CIT(A), he has bifurcated such disallowance in two parts because the dividend income earned by the assessee of ₹ 1182.21 lac is in two categories i.e. partly from PMS investment to the extent of ₹ 169.39 lac and the balance in excess of ₹ 10 crore is on account of direct investment. Considering all these facts, we do not find any reason to interfere in the order of CIT(A) on this issue because .....

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order of CIT(A)

Disallowance u/s 14A r.w.r. 8D - Held that:- None of the judgments cited by assessee is applicable because in all these judgments, the assessment year is prior to assessment year 2008-09 when Rule 8D was not applicable whereas in the present case, Rule 8D is applicable and therefore, in the facts of the present case, we find no infirmity in the order of authorities below and decline to interfere in the order of CIT(A). - Decided against assessee. - ITA No.210/LKW/2012 .....

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for assessment year 2007-08 and dated 14/03/2012 for assessment year 2008-09. All the appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. First we take up the cross appeals for the assessment year 2007-08. In the written submissions filed by Learned A.R. of the assessee, it is submitted that in both these appeals, only three issues are involved. Issue no. 1 is regarding reduction in the claim of the assessee u/s 80IB in relation to J .....

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on u/s 80IB of the Act of Jorhat Unit, written submissions of Learned A.R. of the assessee are as per Para No. 4.1 to 13, which are reproduced below for the sake of ready reference:- 4.1 As per the information already on record, the assessee company has been carrying out manufacturing from its industrial undertaking situated at Kanpur since long. It was only w.e.f. 12.9.2000 that it had set up an industrial undertaking at Jorhat; the first assessment year being 2001-02. It is undisputed that the .....

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ssing Officer himself, while completing the assessment under section 143(3), resorted to further allocation of expenses, from Head Office to Jorhat Unit, with the result that income of Jorhat Unit got reduced and there was consequent reduction in the question of exemption admissible under section 80-IB. The matter was contested in appeal before the Hon ble ITAT being ITA No.1003/LUC/2006 which along with the appeal for the assessment year 2004-05 was decided by the Tribunal, vide a common order .....

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nits, as per audited accounts could not be said to be sacrosanct so as to prohibit the Assessing Officer from making adjustment therein. The claim of the assessee is that since books of Jorhat Unit are audited, the Assessing Officer could not have made any adjustment by allocating a portion of Head Office expenses incurred on advertisement and publicity. We however do not agree. If profit of the eligible unit has to be worked out treating it as independent source of income, then such profits hav .....

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t to arrive at correct profit which is reasonably deemed to have been derived by the assessee from that unit. Similar power for adjustment is available to the Assessing Officer by virtue of such section (8) and (10) of section 80-IA which are so far as may be, applicable to the legible business u/s 80-IB. We, therefore reject the argument of Ld. A.R. of the assessee that such adjustment is not possible merely because accounts of the Jorhat Unit are audited. In fact auditing of the accounts is on .....

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the Kanpur Head Office by way of advertisement and publicity and other expenses and therefore, they are required to be adjusted in the Jorhat Unit for computing profits of that unit which is eligible for deduction u/s 80-IB. Accordingly this argument of the assessee is rejected. However, we note that Tribunal in the case of the assessee for the assessment year 2002-2003 in ITA No.385/Luc/05 referred to above, has held in Para 29 and elsewhere in that order that distribution of pro rata expenses .....

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ard to the assessee. ITA No.1147/Luc/2006 for the Assessment Year 2004-05 4.4 In this year, the Hon ble ITAT has affirmed the view that had been taken by it in the assessment year 2002-03 (supra). The findings are given in paras 20 and 21 which are reproduced hereunder:- 20. In this case the assessee has raised the following issues: (i) Allocation of part of Head Office expenses to Jorhat Unit (ii) Notwithstanding the method of allocation being on turnover basis was not justified. (iii) Deductio .....

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d after giving opportunity of being heard to the assessee. 4.5. Coming to the year under appeal, the assessee had submitted that no such allocation was called for, for the reasons that Jorhat Unit was liable to be treated as the independent assessee for which books of account had been separately maintained in regular course. The expenses incurred at Head Office as were attributable to the Jorhat Unit had already been accounted for in its books of account, by making appropriate allocation and no .....

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in pages 9, 10 and 11 of the assessment order is as under (quote from the assessment order):- Another reply was filed, relevant part of which is being reproduced as under:- a) Yours honour has, like in earlier years required us to show cause as to why part of the expenses of Kanpur unit may not be allocated to the Jorhat unit on the basis of sales. As regards the same a detailed reply expense-wise has already been submitted to your honour during the earlier years wherein it has categorically bee .....

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Unit to the Jorhat unit, terming them as common expenses, thereby reducing the profits eligible for deduction u/s. 80- IB incorrect. In this regard it is further submitted that: i) The appellant started its Jorhat Unit in September, 2000, to cater to the market in Hyderabad & Trichi. ii) That the unit in Kanpur is very very old and these expenses were being incurred therein much before the Jorhat unit was put up implying therefore that these expenses were irrespective of the fact that there .....

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ts the details of which have already been brought to your honour s notice. vi) Therefore, all expenditure attributable to the Jorhat Unit, whether it be on account of advertisement, audit fees, freight etc. was fully taken in to account in arriving at the profit at the Unit. vii) That separate Financial Statements for each Unit were prepared and also submitted along with the Return of Income and were duly audited. The financial statements of the Jorhat Unit were also audited in terms of section .....

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bifurcation of activities, which implies that expenses of an administrative nature, as well, are incurred and also recorded separately. x) The above basis is only a presumption and not in fact any specific finding. xi) It is also most respectfully submitted that certain expenditure in the nature of ROC expenses, Kanpur office repair expenses, motor vehicle expenses etc. A.G.M. expenses, security guard is essential expenditure which was being incurred by the company even before the Unit at Jorha .....

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of the above it is submitted that no allocation of expenses be made. 4.6. The Assessing Officer, after discussing the matter in paras 4 and 4.1 of the assessment order, which read as under: Deduction u/s.80-IB 4. It is seen that assessee company has claimed deduction under section 80-IB of I.T.Act at ₹ 20,63,46,403/- in respect of net profit of Jorhat unit which is claimed to be industrial undertaking in backward area as mentioned in eighth schedule. The assessee has set up a unit a Jorhat .....

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B that provisions contained in sub-section(5) and subsection (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible business under this section. The provisions of sub-section (5) of section 80-IA as it stood in the relevant assessment year in the case of assessee are reproduced as under:- Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection( 1) apply shall, for the purposes .....

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rted production on 12.09.2000. Thus it is seen that in view of provisions of section 80-IA(5) of the Income Tax Act, 1961, profits & gains of and eligible business shall be computed as if such eligible business were the only source of income during the previous year. Here, assessee means industrial undertaking which is eligible for deduction under section 80-IA. Assessee has maintained and produced separate accounts for various units. The accounts of so called Kanpur units also includes Head .....

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assessee carrying on the eligible business to which this section applies and any other person, or for any other reasons, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might expected to arise in such eligible business, the assessing officer shall, in computing the profits and gains of such eligible business for the purpose of deduction under this section, take the amount of profit as may .....

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ustifiable to allocate expenses of head office of the assessee company to Jorhat unit on appropriate basis. The expenses was specifically asked to explain this position and as to why these expenses in the ratio as discussed in the chart furnished to it, may not be distributed in Kanpur unit, Jorhat unit and Beverage division, while computing the net profit of Jorhat unit and deduction u/s 80-IB thereafter. It was verbally stated that these expenses would have to be incurred even if Jorhat unit d .....

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fice expenses, to the Jorhat Unit. As a result of such allocation of expenses, the profit of Jorhat unit got reduced by sums aggregating ₹ 1,31,28,476/- and there was consequent reduction in the claim under section 80-IB. 5. In the 1st appeal, the ld. CIT(A) has discussed the issue in paras 4.2, 4.3, 4.3.1 and 4.3.2 which are reproduced hereunder for the sake of instant reference:- 4.2 In this regard, it has been submitted and argued by the Ld. A.R. that: In this regard it is most humbly s .....

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ss arranged between them. e) That the appellant has sumoto, while finalizing the accounts of Jorhat unit transferred the following Head Office expenses to Jorhat before arriving at the correct profit of the Jorhat unit. Particulars Total Expenses incurred at H.O. Amount Allocated to Jorhat Unit Basis Advertisement Expenses 113338041.49 70515502.00 Amount allocated in the ratio of Turnover Directors Remuneration 3180000.00 1950058.75 Amount allocated in the ratio of Profit of the units Directors .....

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nit 139592117.44 92525354.23 (emphasis provided) 4.3 I have considered the facts and circumstances of the case, submissions and arguments of the Ld. AR which have been briefly summarised above. The issue of allocation of the expenses was subject matter of appeal in earlier years and the Hon ble Tribunal in ITA No.1003/Luc/2006 vide its order dated 28.9.2007 in the case of the appellant itself for A.Y.2004-05 has decided this issue in the following manner:- We note that tribunal in the case asses .....

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t statistical purposes and Assessing Officer will decide the issue in the light of the discussion made herein above and offer an opportunity of being heard to the assessee 4.3.1 Pursuance to the said decision of the Hon ble Tribunal, the department has passed an order u/s 143(3)/251/254 dated 31.12.2008 wherein the AO has examined this issue as per the direction of the Hon ble Tribunal and passed the order by holding that I have carefully considered the chart of allocation submitted by the asses .....

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,269/- [11403232 - 11305963] is further allocated to Jorhat unit. 4.3.2 The chart submitted by the appellant during the reassessment proceedings (for A.Y. 2004-05) which was accepted by the AO on this issue (as mentioned in the said assessment order) shows that the expenses on account of advertisement, directors travelling and dealers conference have been allocated to Jorhat unit in the ratio of turnover. Director remuneration, directors sitting fees and commission is allocated to Jorhat Unit in .....

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.Y. 2006-07 (after the CIT(A) s order). This ground of appeal is disposed off accordingly. from where it is seen that the CIT(A) has simply followed the Tribunal s order dated 28.09.2007 passed in ITA No.1003/Luc/2006 for the assessment year 2002-03, supra and did not appreciate the facts of the case and perception of law as had been pleaded before him. 10. In the background the assessee s submissions are that even though the CIT(A) has followed the order of the Hon ble Tribunal in the assessee .....

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been reproduced in Para 5 [4.2 (e)] hereinfore. (ii) The Jorhat Unit was liable to be treated as if it was an assessee as per the submission s made before the Assessing Officer, which finds reproduction in Para 4.6 hereinfore. It is a matter of record, undisputed as the same is, that for Jorhat Unit separate books of account had been maintained. In order to increase the expenses in the said unit (so as to reduce its profits eligible for deduction under section 80-IB) by further allocation from t .....

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fits and gains of an eligible business to which the provisions of subsection( 1) apply shall, for the purposes of determining the quantum of deduction the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. xxxx xxxx .....

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eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom (iv) Further the Jorhat Unit is not another person as envisaged in sub-section (5) of section 80IA as has been reproduced in sub-Para (iii) above. Therefore, neither sub-section (5) nor sub-section (10) are applicable here which means an assessable entity under section 2(31) of the Act. (v) During the assessment years 2002-03 and 2004-05 t .....

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5 for which appeals have been decided vide order dated 28.09.2007. 11. Although decision of a Coordinate Bench needs to be followed and it is more so in a case where such a decision has been rendered in the assessee s own case, but there is an exception to this principle. In case new facts or provision of law which had not been considered in an earlier decision, are brought on record, a departure is called for. Reliance in this regard is placed on the decision of Hon ble Apex Court in the case o .....

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77) and in view of the said proposition of law, it is respectfully prayed that your honours be pleased to accept the assessee s contention and allow the Issue No.I in its favour. 12. It is further submitted that in the Income tax Act only express provision of law is to be considered and rule of strict interpretation thereof has to be applied as has been held by the Hon ble Allahabad High Court in the case of CIT vs. Sahara India Savings and Investment Corpn. Ltd. reported in (2003) 264 ITR 646, .....

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In other words, in a taxing statute we have to go by the letter of the law, and not its spirit or intent. The said principle of law has since been upheld by the Hon ble Supreme Court also in the case of CIT Vs. Sahara India Savings and Investment Corporation Ltd. reported in (2010)321 ITR 371(SC). 13. Applying the said rule in the instant case, it is submitted that adjustment/allocation is called not for only where there is arrangement with any other person i.e. with any other assessee . In the .....

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ke of ready reference:- 4.3 Decision: I have considered the facts and circumstances of the case, submission and arguments of the Ld. AR which have been briefly summarized above. The issue of allocation of the expenses was subject matter of appeal in earlier years and the Hon'ble Tribunal in ITA No.1003/Luc/2006 vide its order dated 28.9.2007 in the case of the appellant itself for A.Y. 2004-05 has decided this issue in the following manner :- " We note that tribunal in the case assessee .....

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ut for statistical purposes and Assessing Officer will decide the issue in the light of the discussion made herein above and offer an opportunity of being heart to the assessee". 4.3.1 Pursuant to the said decision of the Hon'ble Tribunal, the department has passed an order u/s 143(3)/251/254 dated 31.12.2008 wherein the AO has examined this issue as per the direction of the Hon'ble Tribunal and passed the order by holding that- "I have carefully considered the chart of allocat .....

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ce of these two i. e. ₹ 97,269/- [11403232- 11305963] is further allocated to Jorhat unit. 4.3.2 The chart submitted by the appellant during the reassessment proceedings (for A.Y. 2004-05) which was accepted by the AO on this issue (as mentioned in the said assessment order) shows that the expenses on account of advertisement, directors' travelling and dealers conference have been allocated to Jorhat unit in the ratio of turnover. Director remuneration, directors sitting fees and commi .....

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ethod as adopted in A.Y. 2004-05 & A.Y. 2006-07 (after the CIT(A)'s order. This ground of appeal is disposed off accordingly. 5.1 From the above paras from the order of CIT(A), we find that CIT(A) has noted down the decision of the Tribunal in assessee s own case for assessment year 2004-05 and subsequent order passed by the Assessing Officer u/s 143(3)/251/254 on 31/12/2008 and thereafter, it is held by CIT(A) that he is deciding the issue on the basis of the order passed by the Assessi .....

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r passed by the Assessing Officer as per the direction of the Tribunal in that year. Now this is claimed by Learned A.R. of the assessee before us that the matter requires reconsideration for the reason that in the present year, the assessee has taken into consideration the expenses that have been allotted from the Head Office. The second reasoning given by the Learned A.R. of the assessee is that the plea to the effect that there was absence of business arrangement between the assessee and othe .....

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sessee and any other person, we find that there is no merit in this contention also because it is noted by the Tribunal in the order for assessment year 2004-05 that power for adjustment is available to the Assessing Officer by virtue of sub section (8) and (10) of section 80IA. As per sub section (10) of section 80IA, if it appears to the Assessing Officer that owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person .....

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the scope of sub section (10) of section 80IA is very vide because it prescribes the situation as for any other reason and since the Tribunal has duly considered sub section (10) of section 80IA, we find no merit in this contention that the departure should be made from the Tribunal order in the assessee s own case for assessment year 2004-05. Since the order of CIT(A) on this issue is in line with the Tribunal order for the assessment year 2004-05 and as per the consequential order passed by t .....

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wed by the CIT(A) on this issue. The written submissions of the assessee on this issue are contained in Para 14 to 17 of the written submissions, which are reproduced below for the sake of ready reference:- 14. The discussion appears in Para 5 of the assessment order. The facts in brief are that the directors of the company undertook foreign trips and it is not in dispute that such foreign trips has been undertaken for the purposes of business of the assessee company, as expenses attributable to .....

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f business . It is submitted that in the modern age, it is a matter of custom and usage that directors/senior executives of a company are accompanied by their spouse(s) because it has got an essential social aspect also, as it helps in making a report with the counter parts in the overseas market. Thus, it becomes a matter of necessity that senior executives or directors are accompanied by his/her/their spouse (s) while on foreign tour. This aspect of the matter was duly recognized by the Tribun .....

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closed as ANNEXURE-I hereto. 16. Reliance in this regard is also placed on the decision of Hon ble Madras High Court in the case of CIT vs. Clayton Ltd. reported in (1999) 240 ITR 271 wherein it has been held that visit of directors of the company to a foreign country is to facilitate the carrying on and improving the business of the assessee. Accordingly the expenditure incurred on foreign travel of their wives should be held to be governed by commercial expediency and therefore allowable as su .....

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ot have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. No doubt, as held in Madhav Prasad Jatia v. CIT (1979) 118 ITR 200 (SC), if the borrowed amount was donated for some sentimental or personal reasons and not on the ground of commercial expediency, the interest thereon could not have been allowed under section 36(1)(iii) of the Act. In Madhav Prasad s case (1979) 118 ITR 200 (SC), the borrowed .....

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er section 36(1)(iii) of the Act. Page 8 xxx xxx xxx xxx xxx xxx xxx xxx xxx We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. (2002) 254 ITR 377 that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors and assume t .....

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of commercial expediency and not from the point of view whether the amount was advanced for earning profits. page 9 7. Learned D. R. of the Revenue supported the orders of the authorities below. 8. We have considered the rival submissions. We find that the disallowance was made by the Assessing Officer in respect of the expenses incurred on the spouse of the Chairman and Managing Director of the company. A clear finding has been given by CIT(A) that the assessee company has not demonstrated as .....

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that in that case, it was noted by the Tribunal in Para 17 that Chairman and Chief Executive of Glaxo had extended invitation to Mr. & Mrs. Bhoothalingam and that the wife was accompanying her husband as a number of social engagements were included in the programme. In the present case, no such evidence was brought on record by the Learned A.R. of the assessee that spouse of the directors of the assessee company were also invited and were supposed to participate in various social engagements .....

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s incurred on foreign travel of the wife of the Directors is covered by commercial expediency and therefore, allowable as revenue expenditure but in the absence of any evidence in this regard that the spouse of the Directors of the assessee company were also invited and were also participating in social engagements in the foreign country, these judgments also do not help the assessee in the present case because business expediency is not established. 9. As per above discussion, we have seen that .....

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in Para 18 to 24, which are reproduced below for the sake of ready reference:- 18. In the present case return of income was filed declaring an income of ₹ 35,51,71,770/-. However, the book profit was ₹ 81,91,99,448/- as was declared taxable under section 115JB and taxes were also paid on that basis. As the income assessed as per normal provision of law (after incorporation various disallowances worked out to ₹ 35,55,45,000/- the Assessing Officer completed the assessment as per .....

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ividend of ₹ 11,82,21,258/- which was claimed exempt and the same was excluded while computing the book profit. As per explanation - f to section 115JB, the expenditure relatable to exempt income is to be added to the book profit. Vide order sheet entry dated 18.06.2008, the assessee was asked to explain as to why the proportionate expenditure amounting to ₹ 48,71,190/- may not be added to the profit while computing book profit u/s 115JB. The relevant part of order sheet entry dated .....

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een that an amount of ₹ 37083608/- was incurred as exps. On PMS. Total amount given for PMS was ₹ 90 crores. Accordingly, proportionate expenditure amounting to ₹ 48,71,190/- (Rs.3,70,83,608 x 11,82,21,258/ 90,00,00,000/-) is proposed to be disallowed/added while computing book profit . No convincing reply was filed by the assessee. Accordingly, an amount of ₹ 48,71,190/- is being added in the computation of book profit as per explanation-f to section 115JB of I.T. act, 1 .....

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e being reproduced hereunder:- It is seen that an amount of ₹ 37083608/- was incurred as expenses on PMS. The total amount given on PMS was ₹ 90 crores. Accordingly, proportionate expenditure amounting to ₹ 48,71,190 (Rs.3,70,83,608 x 11,82,21,258/ 90,00,00,000) is proposed to be disallowed/added while computing the Book Profit 6.2 The Ld. AR has vehemently argued that the AO was not empowered to make any adjustments to the profit as per the Profit & Loss account. Reference .....

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reads as under:- (f)the amount or amounts of expenditure relatable to any income to which section 10(other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or] 6.3 Therefore, once the dividend income is excluded, any expenditure related to the same ought to be excluded. As regards the quantum of the disallowances, the appellant has stated as under:- Without prejudice it may be submitted that: 1. That while working out the disallowance, the entire dividend .....

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hrough the PMS, i.e. ₹ 1,69,35,903/- 6.4 On perusal of details, it is seen that out of total dividend of ₹ 11.82 crores earned by the appellant, it has earned dividend of only ₹ 1,69,35,903/- through the PMS and the balance amount of dividend has been earned on investments which had been made by the company directly. It is also seen that the assessee company has paid considerable PMS charges on its portfolio of investment managed by PMS. Such PMS charges have been allocated to .....

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ards dividend income generated through self investment, it is seen that such earning of dividend income is more than ₹ 10 crores. The number of transactions that have contributed to the earning of such dividends are large. This means that considerable time, effort and expenditure was required on part of the management and supporting staff of the HQ to carry out such transaction which resulted in earning of such huge dividends. I estimate such expenditure to be ₹ 10,00,000/- per annum .....

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se (f) an sub-clause (ii) appearing below clause (i) of Explanation (1). It is submitted that on the facts of the present case where the investment in shares either directly or through PMS has yielded huge income in the form of short term capital gain which is taxable, it cannot be said that there was any expenditure that could be identified and said to be related to the exempted income. The expenditure was essentially been incurred for the purposes of earning income which is taxable and in case .....

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nt (other than PMS) is much too high and excessive. The dividend income, apart from incidental to the investment in shares, the decision making process cannot be said to be entailing such a huge expenditure. 21. In this view of the matter the assessee s submission is that first of all no disallowance should have been made (which may affect the computation of book profit under section 115JB) and in any case and without prejudice to the said submission the estimate of expenditure at ₹ 10,00, .....

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ncerned, this is an issue involved in the assessee s appeal also. Whereas, the assessee is aggrieved by the quantum of allocation as had been sustained by the CIT(A) following the decision of the Hon ble ITAT in the assessee s own case for the assessment year 2002-03 and 2004- 05. The is aggrieved by the relief given by the 1st Appellate Authority, by following the decision of the Hon ble ITAT for the said very assessment years. Assessee s contention as raised by it in its appeal, to the effect .....

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ss appeal on which assessee as well as revenue have come in appeals before your honours. The submissions made by the assessee, in its appeal fully cover the issue raised by the revenue. It is worthy of mention here that the CIT(A), over and above the formula laid down by him for disallowance of expenses on PMS, has further held that a sum of ₹ 10,00,000/- should be disallowed out of expenses incurred on direct investment (other than PMS charges). No such disallowance had been made by the A .....

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observed that the appellant has earned dividend income of ₹ 11,82,21,258.00 during the year under appeal. The AO's remarks in the Assessment Order are being reproduced here under: "It is seen that an amount of ₹ 37083608/- was incurred as expenses on PMS. The total amount given on PMS'was ₹ 90 crores. Accordingly, proportionate expenditure amounting to ₹ 48,71,190 (Rs.3,70,83,608 x 11,82,21,258/ 90,00,00,000) is proposed to be disallowed/ added while computi .....

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s for this very reason that the dividend income of ₹ 11.82 crores has been excluded in working out the book profits. Clause (f) to the Explanation 1 of the section is very clear on this and reads as under: (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or] 6.3 Therefore, once the dividend income is excluded, any expenditure related to the same ought to be ex .....

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being on investments made directly by the appellant. 3. That if at all such a disallowance was to be made, the same ought to be made by considering the dividend earned by the appellant only on investments through the PMS, i.e ₹ 1,69,35,903/-." 6.4 On perusal of details, it is seen that out of total dividend of ₹ 11.82 crores earned by the appellant, it has earned dividend of only ₹ 1,69,35,903/- through the PMS and the balance amount of dividend has been earned on investm .....

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harges to the earning of dividend would be as under: Dividend Income (Rs.1,69,39,903)- X Total PMS charges (Rs....) =Total Income (Capital Gain+ Dividend) 6.5 The A.O is directed to compute this amount. 6.6 As regards dividend income generated through self investment, it is seen that such earning of dividend income is more than Rs, 10 crores. The number of transactions that have contributed to the earning of such dividends are large. This means that considerable time, effort and expenditure was .....

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to the Book Profit for computation of tax liability u/s 115JB of the Act. In result, Ground Nos. 10 is partly allowed. 12.1 From the above paras from the order of CIT(A), we find that CIT(A) has reproduced clause (f) to the Explanation 1 of section 115JB and as per this clause (f), any expenditure relatable to any income to which section 10 is applicable, is to be added back. The CIT(A) has directed the A.O. to compute the amount of expenditure incurred for earning dividend income in proportion .....

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self-investment is more than ₹ 10 crore. He has also noted that the number of transactions that have contributed to such earning are large and therefore, in the opinion of CIT(A), considerable time, effort and expenditure was required on the part of the management and supporting staff of the assessee to carry out such transaction, which resulted in earning of such huge dividends. The CIT(A) has estimated such expenditure at ₹ 10 crore per annum which is around 1% of the dividend inco .....

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ding expenses for earning dividend income out of direct investment is around 1% of such income and therefore, the estimation of CIT(A) is not excessive and unreasonable. Regarding this contention that no disallowance was made by the Assessing Officer in relation to such dividend income on direct investment, we find that it is noted by CIT(A) in Para 6.1 of his order, as reproduced above, that for working out the disallowance in respect of PMS expenditure, the Assessing Officer has considered the .....

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ect investment. Considering all these facts, we do not find any reason to interfere in the order of CIT(A) on this issue because when dividend income from PMS is only ₹ 169.35 lac, the entire dividend income of ₹ 1182.21 lac cannot be considered for making disallowance out of expenses incurred on PMS and therefore, part relief allowed by CIT(A) is justified. At the same time, CIT(A) has covered up this aspect of earning dividend income of more than ₹ 10 crores out of direct inv .....

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in Jorhat Unit on account of further allocation of expenses to that unit, disallowance out of foreign travelling expenses and disallowance u/s 14A read with Rule 8D(2) in assessee s appeal whereas there is only one issue raised by the Revenue regarding part relief allowed by CIT(A) in respect of reduction in the disallowance u/s 80IB in respect of Jorhat Unit. Both the sides agreed that these issues are identical to issues raised in assessment year 2007-08 except disallowance u/s 14A read with .....

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section 14A is concerned, which is the IIIrd issue , the assessee begs to submit that while filing the return , it itself had worked out such a disallowance of ₹ 37,44,169/- as has been noted by the Assessing Officer also on page 19 of the assessment order, relevant portion of which is reproduced hereunder:- During the year under consideration, the assessee has made investment through Portfolio Management Scheme (PMS) and paid PMS fee amounting to ₹ 37,44,169/. Subsequently, assesse .....

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as mechanically applied Rule 8D(ii) without adverting to the requirement of law as contained in sub-section (1) of section 14A. It is a law well settled by long line of decisions that in the absence of any finding, as envisaged in sub-section (1) of section 14A, being recorded by the Assessing Officer, he cannot invoke the provision of sub-section (2) of section 14A and Rule 8D(ii). 6. In appeal before the ld. CIT(A) the assessee had made extensive submissions, copy of which appear at pages 54 t .....

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or allocation of expenses. Further, the onus is on the AO to show that expenditure has been incurred by the assessee for earning tax=-free income. Without discharging the onus, the AO is not entitled to make an adhoc disallowance. A clear finding of incurring of expenditure is necessary. No disallowance can be made on the basis of presumptions. The case also draws reference from several earlier decisions including (a) CIT vs. Hero Cycles 323 ITR 158 (PH) (b) ACIT vs. Eicher Ltd., 101 TTJ (Del) .....

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Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with such method as may be prescribed . Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now st .....

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f such expenditure by the assessing officer would arise Therefore no further disallowance u/s 14A is called for. and the factual matrix as contained on pages 60 and 61 thereof. 7. In view of the case laws and other material referred to above, it is submitted that the enhancement in disallowance under section 14A was wholly uncalled for and the CIT(A) has erred in sustaining the same. 15. Learned D.R. of the Revenue supported the assessment order. 16. We have considered the rival submissions. Reg .....

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t this issue was decided by learned CIT(A) as per Para 6.2.2 of his order, which is reproduced below for the sake of ready reference:- 6.2.2 Decision The AO has correctly appreciated the facts of the case. No doubt, the appellant company has used the services of PMS for managing its investments. But as the records show, considerable amount of investment has also been managed by the company by itself and which has resulted into considerable income (running into Crores) through dividend and capita .....

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utive(s) of the company had been considered by the assessee company. It is a common knowledge that managing and decision making for such a large portfolio of investment (which can result into profits/loans running into crores), top-executive(s) of the company are always involved [Refer to the decision of Southern Petro Chemicals vs. DCIT (93 TTJ Chennai 161) in this regard. Once the computation done by the assessee in this regard is not acceptable, the AO has no choice but to invoke the provisio .....

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estment by way of PMS and therefore, Rule 8D is applicable. The disallowance made by the Assessing Officer is justified because it is as per Rule 8D. In the light of above facts, we examine the applicability of various judgments cited by Learned A.R. of the assessee, as reproduced above. 17.2 The first judgment cited by Learned A.R. of the assessee is a Tribunal decision in the case of DCIT vs. Jindal Photo Limtied in I.T.A. No.4539/Del/10, copy of the Tribunal decision is not made available but .....

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