TMI Blog2016 (6) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... quite substantial. The ld. CIT(A) has passed a detailed order, which is reproduced hereinabove. In view of the above, we are unable to accept that only the expenditure of ₹.26,45,886/- would have incurred to handle the investment of huge magnitude of ₹. 338.98 crores. Under the above facts and circumstances, the Assessing Officer has rightly applied Rule 8D and worked out the expenditure relatable to earning of exempt income, which was confirmed by the ld. CIT(A) and we find no infirmity in the order passed by the ld. CIT(A). - Decided against assessee. Disallowance u/s 14A - Held that:- The Department has not disputed over the quantum of investment made by the assessee to the extent of ₹.338.96 crores and receipt of exempt income amounting to ₹.11.70 crores. The value of investment was ₹.344.74 crores and ₹.338.96 crores as on 31.3.2007 and 31.3.2008 respectively. The investment as on 31.3.2008 was ₹ 338.96 crores. The sale proceeds of investments during the year was ₹.964.52 crores, which was higher by ₹.5.78 crores than purchase of investments of ₹.958.74 crores. There is no dispute on the free reserve and surplu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 40(a)(i) - non-deduction of tax at source on the foreign remittances made for agency commission - Held that:- With regard to the issue as to whether the TDS has to be deducted or not when the commission payment made to the overseas agents, the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Faizan Shoes Pvt. Ltd. [2014 (8) TMI 170 - MADRAS HIGH COURT ] wherein held the services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services - Section 9 of the Act is not applicable to the case on hand and section 195 of the Act does not come into play – Decided against Revenue. Set off of the loss of 80IC units against the income of other units - Held that:- With regard to set off of losses of 80IC unit against the profit of other units, we find that the Hon’ble Delhi High Court in the case of CIT v. KEI Industries Ltd.(2015 (3) TMI 618 - DELHI HIGH COURT) has held that loss suffered by the assessee in a unit entitled to exemption under section 10B of the Income-tax Act, 1961 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atistical purposes. 4. Aggrieved, the assessee is in appeal before the Tribunal. 5. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The assessee has challenged confirmation of disallowance under section 14A of the Act. In the assessment order, the Assessing Officer has observed that the assessee has derived following exempt income under section 10 of the Act: (i) Dividend income ₹. 3,51,88,070/- (ii) Agricultural income ₹. 2,37,808/- (iii) UTI tax-free bonds ₹. 90,51,559/- (iv) Long term capital gains ₹. 7,26,05,371/- As the assessee has not allocated any expenditure relatable to these incomes, the Assessing Officer applied Rule 8D and worked out the quantum of expenditure relatable to the above exempt incomes and quantified the disallowance at ₹.3,66,11,461/- and added the same to the total income of the assessee. With regard to the above disallowance, the AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account interest expenditure of ₹ 9,26,30,134/- for computing the above disallowance. The ld.AR, on the other hand, has explained with details of profit and loss accounts, net profits of the last six years including the current year, increase in investments in those years, sale of investments, balance-sheet etc that interest-bearing loans were not utilized for making investments which has given tax-free income. The investment as on 31.3.2008 was ₹ 338.96 crores. The sale proceeds of investments during the year was ₹ 964.52 crores, which was higher by ₹ 5.78 crores than purchase of investments of ₹ 958.74 crores. The free reserve and surplus were ₹ 791.40 crores. The Hon'ble ITAT, Mumbai, in the case of HDFC Ltd., v. DCIT (ITA No,4529,3650,3651, 4059,991/Mum dated 29.6.2011) has held that if assessee's own fund and non-interest bearing funds are more than the investment in tax-free securities, then there is no basis for deeming that the assessee has used the borrowed funds for investment in tax-free securities. Further, Hon'ble Bombay High Court in CIT v. Reliance Utilities and Power Ltd (213 ITR 340) has held that if there be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is prospective in operation. In this case, the assessment year under consideration is 2008-09 and with regard to application of Rule 8D, the Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. DCIT [(2010) 328 ITR 81] has held as under: . However, unless expressly or by necessary implication, a contrary provision is made, no retrospective effect is to be given to any rule so as to prejudicially affect the interests of the assessee. The rules were notified to come into force on March 24, 2008. It is a trite principle of law that the law which would apply to an assessment year is the law prevailing on the first day of April. Consequently, rule 8D which has been notified on March 24, 2008, would apply with effect from assessment year 2008-09 . 7. In view of the above law laid down by of the Hon ble Mumbai High Court that the application of provisions of Rule 8D notified with effect from 24.03.2008 would apply with effect from assessment year 2008-09, which was not found to have been reversed by the Higher Court, the question of restriction of disallowance @ 2% as well as application of the above said notification whether from retrospectively or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee relates to disallowance under section 14A. The Assessing Officer made disallowance of ₹ .22,58,62,431/- under section 14A of the Act and computed in accordance with Rule 8D in respect of the tax free income. On appeal, after considering the submissions of the assessee, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer by observing that the claim of the assessee that 2 per cent of exempt income can be taken as expenditure incurred to earn tax free income cannot be accepted. When the Act has prescribed a method for quantifying the disallowance where the Assessing officer has not satisfied with the disallowance made by the assessee, the same cannot be overlooked. In the assessee s case, the securities are held as stock-in-trade. 83. After hearing both sides, we have carefully perused the orders of authorities below. In view of the decision of the Hon ble Mumbai High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. DCIT (supra) that Rule 8D is applicable from the assessment year 2008-09, when the Act has prescribed a method for quantifying the disallowance, the same cannot be overlooked. Since Rule 8D is not applicable prior to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 81), it is very clear that the application of provisions of Rule 8D, which has been notified with effect from 24.03.2008, shall apply with effect from assessment year 2008-09 onwards. 8. The assessee has relied on the decision of the Hon ble Delhi High Court in the case of ACIT v. Sun Investments P. Ltd. 8 ITR (Tri) 33, wherein it was held that unless the Assessing Officer establishes that specific expenditure has been incurred by the assessee for earning exempt income there can be no disallowance under section 14A of the Act, has no application to the facts of the present case because in that case the assessment year relates to 2005-06 and the Assessing Officer disallowed 2% of the dividend income as expenses attributable for earning it. 9. In the present case, the assessment year under consideration is 2008-09 and in view of the decision in the case of Godrej Boyce Mfg. Co. Ltd v. DCIT(supra), the application of provisions of Rule 8D, which has been notified with effect from 24.03.2008, shall apply with effect from assessment year 2008-09 onwards. Since the assessee has not maintained any separate sets of books for the investment activity and the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/- under clause (ii) of rule 8D(2). With regard to the above component, being the expenditure by way of interest which is not directly attributable to any particular income or receipt, the Assessing Officer has determined the amount at ₹.1,95,18,961/-. The Assessing Officer has taken into account the interest expenditure of ₹.9,26,30,134/- for computing the above disallowance. 13. Before the ld. CIT(A), the AR of the assessee contended that no borrowed fund was utilized for making investment which yielded exempt income. After perusing the profit and loss account, balance-sheet and other details submitted by the assessee, the ld. CIT(A) has observed that there is no dispute regarding the quantum of investment made by the assessee to the extent of ₹.338.96 crores and receipt of exempt amounting to ₹.11.70 crores. The value of investment was ₹.344.74 crores and ₹.338.96 crores as on 31.3.2007 and 31.3.2008 respectively. The investment as on 31.3.2008 was ₹.338.96 crores. The sale proceeds of investments during the year was ₹.964.52 crores, which was higher by ₹.5.78 crores than purchase of investments of ₹.958.74 crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase of investments of ₹.958.74 crores. There is no dispute on the free reserve and surplus funds available with the assessee of ₹.791.40 crores. When the assessee got its own fund and non-interest bearing funds more than the investment in tax-free securities, then there is no question of deeming that the assessee has used the borrowed funds for investment in tax-free securities. By following the decision of the ITAT, Mumbai in the case of HDFC Bank Ltd. v. DCIT (supra), wherein it was held that if assessee s own fund and non-interest bearing funds are more than the investment in tax-free securities, then there is no basis for deeming that the assessee has used the borrowed funds for investment in tax-free securities, the ld. CIT(A) has held that the assessee had sufficient interest-free funds of its own to make investment in tax-free territory and hence no interest can be disallowed under Rule 8D(2)(ii). The finding of the Mumbai Benches of the Tribunal in the case of HDFC Bank Ltd. v. DCIT (supra) was duly confirmed by the Hon ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505. The ld. DR could not controvert the above findings of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09-10/A-lll dated 21.02.2011 wherein the ground has been allowed. Under the above facts and circumstances, the ld. CIT(A) has held as under: 6.2 I have carefully considered the facts of the case and the submission of the Id. AR. I have also gone through the orders of the Hon'ble Tribunal in appellant's own case for AYs. 2003-04 and 2001- 02 2005-06 wherein the issue has been decided in favour of the appellant. In the ruling for AY. 2000-01 and 2005-06 in ITA No.697 657/Mds/2009 and ITA Nos. 976 1017/Mds/2009 dated 22.12.2010, the Hon'ble Tribunal held that expenditure on replacement of dyes and moulds was of revenue nature and accordingly, it rejected the ground of the revenue. Following the decisions of the Hon'ble ITAT, the CIT(A) has also allowed the appeal of the appellant for AY. 2007-08 in ITA No.469/09-10/AIII dated 21.02.2011. Following the reasons given in the above orders, the ground is allowed. 20. Since the ld. DR could not file and decision of the higher Courts having modified or reversed the findings of the Tribunal, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground raised by the Revenue is dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submissions of the assessee and facts of the case, the ld. CIT(A), by passing a detailed order, deleted the disallowance made by the Assessing Officer. 23. The Revenue is in appeal before the Tribunal. 24. With regard to claim of product launch expenditure, after considering the submissions of the assessee and also considering various decisions, the ld. CIT(A) has observed that there is no dispute regarding the fact that the assessee had incurred expenditure of ₹.51,07,57,162/-. However, the Assessing Officer restricted the claim to ₹.9,79,41,411/- only as that amount was charged to the profit and loss account and disallowed the remaining expenses of ₹.41,28,15,721/- by holding that the differential treatment for books and income tax purpose is not acceptable. By relying various decisions, the ld. CIT(A) has held that the expenditure on product launch, advertisement and sales promotion is allowable as revenue expenditure under section 37(1) of the Act and moreover, amortization of the impugned expenditure under section 35D is also not warranted. The only contention raised by the ld. DR before the Tribunal is that the Department has not accepted the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said sum is not taxable in India. The Assessing Officer has also relied on the decision in the case of M/s. Transmission Corporation of Andhra Pradesh reported in 239 ITR 589 (SC). Thereafter, he applied provisions of sec 40(a)(i) of the Act for non-compliance the provisions of sec 195(1) of the Act in respect of commission paid to nonresidents and disallowed the entire sum of ₹ 12,60,58,838/-. 26. Before the ld. CIT(A), the AR of the assessee has submitted that CBDT Circular No. 786 dated 07.02.2000 clarified that export agency commission is not taxable in India and hence no tax needs to be deducted at source and moreover, the CBDT Circular No.7/2009 dated 22.10.2009 withdrawing the above circular is only prospective and not retrospective. He also relied on the decision in assessee s own case for the assessment years 2005-06 and 2007-08 and pleaded that no tax need to be deducted at source and the disallowance made u/s 40(a)(i) was deleted. After considering the submissions of the assessee and also orders of the ld. CIT(A) in the assessment years 2005-06 and 2007-08, the ld. CIT(A) allowed the ground raised by the assessee by following the decision of the Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable. He stated that provisions of section 80-IA(5) of the Act will apply to the units eligible for deduction under section 80-IC of the Act in view of the provisions contained in sub-section (7) of sec 80-IC of the Act. He held that the eligible income or loss derived by the Himachal unit is not eligible for set off with any other unit. The income or loss of the unit is to be treated as if it is the only source of income to the assessee which means that the income or loss of this unit cannot be clubbed with the income or loss from any other source from the same head. Therefore, set off of loss is not allowable as per section 70(1) of the Act. He, accordingly, disallowed the set off of loss of the Himachal unit and allowed the above loss of ₹.32,78,84,171/- to be carried forward for set off against the income of the same unit in the subsequent years. 30. Before the ld. CIT(A), the AR of the assessee vehemently contended against the denial of set off of loss of the Himachal unit against the profits of other units, by relying on the decision of the jurisdictional Tribunal in the case of Mohan Breweries and Distilleries Ltd (311 ITR 346) and also various other decisions, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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