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2015 (11) TMI 1011 - ITAT LUCKNOW

2015 (11) TMI 1011 - ITAT LUCKNOW - TMI - Entitlement for benefit of section 10B - Held that:- Identical issue was examined by the Hon'ble High Court in earlier assessment year, in which it has been categorically held that the assessee is a manufacturer and is entitled for benefit of section 10B of the Income-tax Act, 1961 - Decided in favour of assessee.

Disallowance of interest incurred on investment in shares of foreign companies - CIT(A) deleted the addition - Held that:- CIT(A) h .....

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ar, the ld. CIT(A) has simply followed his aforesaid order. Therefore, we are of the view that once the Revenue has accepted the contention of the assessee with regard to the availability of surplus funds for investment in domestic companies, no further disallowance can be made in succeeding years. We accordingly confirm the order of the ld. CIT(A) on this issue. - Decided in favour of assessee.

Disallowance under section 35D - CIT(A) deleted the disallowance -Held that:- A similar di .....

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ferent grounds. Under these circumstances, we are of the view that the ld. CIT(A) has decided the issue following his earlier order which attained the finality - Decided in favour of assessee.

Disallowance payment of bonus - CIT(A) deleted the disallowance - Held that:- Now the Revenue is in appeal before the Tribunal, but could not point out any specific defect in the order of the ld. CIT(A). Since payment of bonus was made in time, no disallowance is called for, as the Assessing Off .....

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the relief of ₹ 5,81,95,611/- without appreciating the facts that the conditions of exemption u/s, 10B were not satisfied and the Department is in appeal before the Hon'ble ITAT in A.Y.2008-09 & 2009-10 2. That the CIT (A) has erred in law and on facts by not appreciating the fact that the 100% EOU has been formed by splitting and reconstruction of old business carried by the assessee group in the name of MKU Armours Pvt. Ltd. 3. That the CIT (A) has erred in law and facts in allo .....

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n law and facts in allowing the relief of ₹ 4,27,342/-towards Bonus without appreciating the facts that the AO has not made any addition on this issue and assessee itself added back this amount in the computation of income during the assessment proceedings, 6. That the order of the CIT(A), Kanpur being erroneous, unjust and bad in law be vacated and the order of the AO be restored. 2. The assessee has also filed cross objection against the disallowance of expenditure under rule 8D(2)(ii) o .....

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High Court is placed on record. 5. The ld. D.R. did not dispute this factual aspect. 6. Identical issue was examined by the Hon'ble High Court in earlier assessment year, in which it has been categorically held that the assessee is a manufacturer and is entitled for benefit of section 10B of the Income-tax Act, 1961 (hereinafter called in short "the Act"). We, however, for the sake of reference extract the relevant portion of the judgment of the Hon'ble High Court as under:- & .....

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ufacturer' of the products for which it had been approved as 100 per cent EOU. Accordingly it cannot be denied the benefit of exemption under s. 10B of the Act. In the instant case, a new product has come out at final stage. It is not the case of changing the label or the cover of the product. When totally new product came into existence after the entire process then we are of the view that the assessee is entitled to the benefit of s. 10B of the Act. We set aside the impugned order passed b .....

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Ltd. the same cannot be allowed to the successor i.e. MKU (P) Ltd. This objection of the Tribunal, gets overturned in view of our finding that MKU (Armours) (P) Ltd. are entitled for exemption under s. 10B of the IT Act." 7. Since the controversy with regard to the eligibility of deduction under section 10B of the Act has been set at rest by the Hon'ble High court in the assessee's own case in assessment years 2008-09 and 2009-10, we decide this issue following the aforesaid judgme .....

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t no expense of any kind was incurred and investment was made out of own surplus fund available in the form of share capital reserve and surplus. The ld. CIT(A), following his earlier order for assessment year 2009-10, in which identical issue was decided in favour of the assessee, has deleted the addition. 10. Aggrieved, the Revenue is in appeal before the Tribunal and has placed reliance upon the order of the Assessing Officer, whereas the ld. counsel for the assessee has invited our attention .....

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which has attained the finality, there is no infirmity or illegality in the order of the ld. CIT(A), therefore, it deserves to be confirmed. 11. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the Assessing Officer has invoked the provisions of section 14A of the Act and made disallowance having applied rule 8D(2) of the Rules with respect to the investment made in domestic companies. Since the dividend income generated on invest .....

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s deleted the disallowances made as per rule 8D(2) of the Rules and he followed his earlier order for assessment year 2009-10 in which similar disallowances made by the Assessing Officer was deleted by the ld. CIT(A) on the same ground which has been raised in this appeal. Copy of the order of the ld. CIT(A) is placed at pages 121 to 130 of the compilation of the assessee. The ld. CIT(A) has deleted the disallowance made under section 14A of the Act having invoked rule 8D(2) of the Rules on the .....

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um of ₹ 123327.00 (0.5% of ₹ 24665352.00 has been disallowance under section 14A as per ruled 8D. Further the Assessing Officer has made a disallowance of ₹ 1814528.00 being interest an average investment as per rule 8D(2)(II) of the Act. The total disallowance therefore has being worked out at ₹ 1937855.00 (123327.00 + 1814528.00). The relevant para 5.6 of the assessment order is reproduced as under: "5.6 Further, it is observed that the assessee has made payment of .....

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which does not form part of the total income and "C" stands for the average of total assets as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. The total expenditure of interest which is not directly attributable to any particular income in the case of the assessee comes to ₹ 43159795/- (A) whereas average investment is ₹ 24665352/- (B) and average of total assets comes to ₹ 586682412/- (Rs.511712345 + ₹ 661 .....

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anation given the appellant in the written submission is reproduced as under:- "About the disallowance of ₹ 1937855/-. This disallowance has been discussed by the Assessing Officer in para 5.1 to 5.6 of the assessment order. The disallowance has been made on account of investment of ₹ 49275705.00 in shares. The Assessing Officer has disallowed a sum of ₹ 123327.00 under Rule 8D and further sum of ₹ 1814528/- has been disallowed on account of Intt. About this disallow .....

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ment no expenses of any kind was incurred. The investment was made out of own surplus fund available as share capital and reserves and surplus. No disallowance of intt on such investment was called for. About the investment of ₹ 45420735/- it may be stated that such investment was also not in respect of any exempted income. It was for the taking over of the company M/s AST Security Equipment GMBH, Germany. In this connection reference of the note given by the Auditor in their Audit report .....

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port Import Bank of Indian. The share so acquired has been pledged to Exim Bank towards the security of said loan. The company had duly observed exchange control regulation under FEMA & other applicable rules regulations concerning such acquisition. The Management is of the opinion that the acquisition of AST Security Equipment GMBH is strategic in nature and shall given due benefits to the company in the international market in the times to come." About the disallowance of interest on .....

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377; 4197645.00) and during the year under consideration no interest was either paid or claimed on such loan. In this connection we had clarified this position in reply to query No.12 vide our letter dated 14.12.2011 which reads as under:- "REPLY QR NO 12 That no interest has been paid on the term loan during the year under consideration. The amount of 12.00 lakhs Euro has been disbursed by the bank as per following details 25.3.2008 784000 Euro 11.9.2009 416000 " 1200000 That the paym .....

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vailability of its own sufficient funds and no interest having being paid an amount of loan of ₹ 49392000.00, no interest under section 14A was disallowable. Reliance is placed on following decisions:- Decisions Held 1. Bunge Agribusiness (India) (P) vs. Dy. CIT (2011) 142 TTJ (Mumbai) 817 "if there were fund available both interest free and interest bearing then a presumption would arise that interest free funds have been generated for investments - No disallowance. 2. G.D. Metsteel .....

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unds were utilized for the purpose of investment in share for earning dividend income which has not been negated by lower authorities - There is no linkage or nexus between the funds borrowed by assessee and the impugned investments - Hence no interest expenditure can be disallowed by mechanically applying the provisions of r. 8D. In view of these facts it is requested that the disallowance made by Assessing Officer under section 14A may kindly be deleted." I have considered the facts of th .....

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ade as per provisions of Rule 8D(2) of IT Rules on above investment related to exempted income. About such disallowance I do not agree with the submission of the learned AR as the disallowance has been made as per prescribed Rules. Hence the disallowance of ₹ 123327/- is confirmed. The other disallowance of ₹ 1814528/- has been made in respect of disallowance of Intt on above Investment in shares. The Assessing Officer has given the working of such disallowance in Para 5-6 of the ass .....

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t of Intt disallowed on above investment I agree with the learned AR that ini view of the availability of huge Intt free funds available with them and there being no nexus of investment with borrowed funds, no disallowance of Intt on such investment is called for. The case laws cited by the learned AR fully applicable. Moreover the Assessing Officer has also not proved the nexus of borrowed funds taken on intt to the investment in shares. I therefore hold that disallowance of Intt on such invest .....

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ning to such loan of Exim Bank has not been claimed during the year. Therefore, the disallowance of intt on investment in these shares is also not justified." 13. The Revenue has preferred an appeal against the order of the ld. CIT(A) on different grounds, but deletion of disallowance was not challenged before the Tribunal. Therefore, the order of the ld. CIT(A) has attained the finality and in the instant assessment year, the ld. CIT(A) has simply followed his aforesaid order. Therefore, w .....

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us Expenses' annexed to and forming part of profit and loss account and balance sheet that the assessee has claimed ₹ 4,38,322/- towards bad debts and claims written off covered under section 35D as against ₹ 9,65,072/- claimed in the immediately preceding year following his earlier order for assessment year 2009-10. 15. Before the ld. CIT(A), the assessee has challenged the disallowance and being convinced with the explanations of the assessee, the ld. CIT(A) has deleted the dis .....

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as placed reliance upon the order of the Assessing Officer; whereas the ld. counsel for the assessee has contended that the ld. CIT(A) has decided the issue following his earlier order, therefore, there is no infirmity in it. 17. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that a similar disallowance was made by the Assessing Officer in assessment year 2009-10, but it was deleted by the ld. CIT(A) and the Assessing Officer in the i .....

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