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2017 (7) TMI 433 - ITAT MUMBAI

2017 (7) TMI 433 - ITAT MUMBAI - Tmi - Deduction u/s 80HHC - Held that:- We restore the matter to the file of the AO for computing deduction allowable to the assessee u/s 80HHC of the Act in accordance with law . The assessee is directed to appear before the AO and produce all relevant evidences and explanations in support of its contentions. The AO shall provide proper and reasonable opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justi .....

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ance of expenditure incurred in relation to earning of exempt income having regards to the accounts of the assessee in accordance with mandate of Section 14A(2) of the Act. The assessee is directed to appear before the AO and produce all relevant evidences and explanations in support of its contentions. The AO shall provide proper and reasonable opportunity of being heard to the assessee in accordance with law in accordance with principles of natural justice. - I.T.A. No.4056/Mum/2011, I .T.A. N .....

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Out of these eight appeals, four appeals by the assessees being ITA Nos. 4056/Mum/11, 4121/Mum/11,4185/Mum/11 and 4110/Mum/11 and other four appeals by the Revenue being ITA Nos. 5534/Mum/11, 5548/Mum/11, 5518/Mum/11 and 5533/Mum/11 are cross appeals for the assessment years 2002-03 to 2004-05 which are directed against separate appellate orders passed by the learned Commissioner of Income Tax(Appeal), Mumbai (hereinafter called the CIT(A) ). The issues involved in all these appeals are common; .....

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, a Trading House, had made a profit on the sale of goods purchased from the Appellant, a Supporting Manufacturer, as was evident from the Form No 10CCAB filed with the Assessing Officer. The assessee has also raised following additional grounds of appeal:- Without prejudice to the Appellant's contention [which has been accepted by the Commissioner of Income Tax (Appeals)] that its claim for deduction u/s 80HHC as a Supporting Manufacturer is not dependant on the outcome of claim made by All .....

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the Writ Petition filed by Allanasons Ltd. [156/2006 renumbered as 10187/2012] and the judgment of the Hon'ble Supreme Court in Topman Exports reported at 342 ITR 49 and delivered on 08/02/2012. We pray that the above ground be kindly admitted since it emanates from the order of the Commissioner of Income Tax (Appeals). 3. The learned counsel for the assessee submitted that these additional grounds of appeal are legal grounds and it goes to the root of the matter and need to be admitted in .....

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porting manufacturer, got a disclaimer certificate from the export house as prescribed under sub section 4A(b) of Section 80 HHC of the Act. The assessee had claimed deduction u/s 80HHC of the Act on disclaimed turnover of ₹ 39,07,97,779/- . The assessee has made claim of deduction u/s 80 HHC of the Act on the profit arose to the assessee on the sales to the export house of its manufactured goods which was specified as assessee s turnover in the disclaimer certificate issued by the export .....

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n the assessee being supporting manufacturer cannot claim any deduction u/s. 80HHC of the Act on the export turnover disclaimed by the export house. It is pertinent to note at this stage that loss of Allana Sons Limited from export of trading goods is much more than profits earned by it on export of manufactured goods. The assessee was , however, allowed deduction u/s 80HHC of the Act on the direct export turnover made by the assessee. The AO passed assessment order dated 17-03-2005 u/s. 143(3) .....

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t export incentives as provided in the said proviso, and that a deduction u/s 80HHC of the Act would be allowable against the balance profit. It was submitted that the assessee being supporting manufacturer should be allowed deduction u/s 80HHC of the Act on profits made by it on goods supplied to export house , Allanasons Limited for which it hold disclaimer certificate from Allana Sons Limited. It was submitted that the decision of Hon ble Supreme Court in the case of Ipca Laboratories Limited .....

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port house has made profits or not . The ld. CIT(A) observed that as per the ratio of law laid down by the Hon ble Supreme Court in the case of IPCA Laboratories Ltd. (supra) the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken in to consideration before allowing deduction u/s 80HHC of the Act which shall be allowed only when there is positive profit after adjusting losses, if any. Thus as per learned CIT(A), the losse .....

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house , then the export house cannot pass on or give credit of such non existing deduction to a supporting manufacture . The ld. CIT (A) further observed the assessee has complied with all the necessary provisions of Sec. 80 HHC (1A) r.w.s. 3A, 4A of the Act for claiming deduction as envisaged in proviso to section 80HHC(l) and hence the AO was not correct in denying the claim of the deduction made by the assessee in view of the following facts:- (i) Admittedly the appellant was a supporting ma .....

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house had not claimed deduction under Section 80HHC(1) on the export of trading goods effected on manufacturing goods of the appellant. (iv) The appellant has also filed a certificate in prescribed proforma i.e. form no. 10CCAC as per Rule 18BBA(3) in terms of sub clause (a) of sub section (4A) of Section 80HHC. 6. Aggrieved by the appellate order dated 15-03-2011 passed by learned CIT(A) , the assessee filed second appeal before the Tribunal because Allana Sons Limited was having net loss after .....

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has earned profits on sales made to the export house Allana Sons Limited which were exported by Allana Sons Limited and against which disclaimer certificate is issued by Allana Sons Limited. The assessee had filed Form No. 10CCAB as per Rule 18BBA(2) of the Income-tax Rules, 1962. The ld. Counsel submitted that the deduction was disallowed to the assessee by the authorities below keeping in view the decision of Hon ble Supreme Court in the case of IPCA Laboratories Ltd. (supra) on the ground tha .....

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shall become eligible for deduction u/s 80HHC of the Act as the export incentives received by Allana Sons Limited and retained by them shall become eligible to be set off to the extent of 90% against loss from export activities and if the net result after above adjustments is positive profit entitling Allana Sons Limited to get deduction u/s 80HHC of the Act . Thus, it was submitted that the assessee being supporting manufacturer is also entitled for deduction u/s 80HHC of the Act as it hold dis .....

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of the Act was inserted. The assessee vide its paper book has filed the order giving effect to the aforestated tribunals order in ITA No. 6344/Mum/2013 , vide appeal effect order dated 23rd May, 2016 passed by the AO wherein the A.O. allowed the deduction of ₹ 3,52,20,045/- u/s 80HHC of the Act to Allana Sons Limited. The said orders are placed in file. The ld. Counsel submitted that in view of the decision of the tribunal in the case of Allana Sons Limited (supra), the assessee s claim sh .....

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of the Act, by holding as under:- In any view of the matter, the stand of the petitioner on with regard to interest income being included while computing claim for deduction under Section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to Section 80HHC (3) of the Act by addition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, .....

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her supporting manufacturer namely Frigorifico Allana Limited in cross appeals ACIT v. Frigorifico Allana Limited and ors. vide ITA No. 5513/Mum/2011 and ors. for the assessment years 2002-03 to 2004-05 vide common orders dated 27th July, 2016 has also allowed the claim of deduction under section 80HHC of the Act to other supporting manufacturer of Allanasons Limited namely Frigorifico Allana Limited and ors. , keeping in view insertion of fifth proviso to Section 80HHC(3) of the Act by the intr .....

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Doss & Shri E. Shreedhar, Departmental Representatives (DRs) on behalf of the Revenue. First we shall take up appeals of the Assessee & Revenue in the case of Frigerio Conserva Allana Ltd in ITA No.4195/Mum/2011 & ITA No. 5528/Mum/2011, respectively, for A.Y. 2000-01: 3. Ground Nos 1 & 2 of assessee s appeal and Ground No.2 of Revenue s appeal involve identical issue with regard to denial of deduction u/s 80HHC to the assessee on the ground that deduction u/s 80HHC was denied to .....

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assessee claimed benefit of deduction u/s 80HHC on the amount of turnover made by the assessee to the export company. During the course of reassessment proceedings, the AO noted that the said export house has been denied the benefit of deduction u/s 80HHC on the ground that the said export house company namely M/s. Allana Sons Ltd. ( here in after referred to as ASL in short) had incurred loss in case the amount of incentive is not included in its export profits. Accordingly, the AO of the asse .....

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. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and made exhaustive submissions on various grounds to agitate this addition. Ld. CIT(A) accepted the submissions of the assessee in part and allowed the benefit of deduction u/s 80HHC to the assessee on the ground that the assessee is entitled for benefit of deduction u/s 80HHC without depending upon actual allowability of deduction u/s 80HHC in the hands of export house and he further held that in any case the export house ha .....

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n the benefit of deduction u/s 80HHC by way of issue of disclaimer certificate u/s 80HHC (4)(a) to the supporting manufacturer. 3.4. Before us, the Ld. Counsel of the assessee defended and justified the order of Ld. CIT(A) for allowing deduction u/s 80HHC on many grounds. His first argument was that deduction has been actually allowed to the export house i.e. ASL by the Tribunal and order of the Tribunal has been upheld by the Hon ble Bombay High Court wherein the reopening done by the AO of the .....

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DTR (Bang)(Trib) 269 which has been subsequently upheld by the Hon ble Karnataka High Court by vide its order dated 12th January 2015 in ITA No. 10/2009 by holding that deduction u/s 80HHC to the supporting manufacturer is allowable independent of actual allowing of deduction in the hands of main exporter. The third argument made by the Ld. Counsel was that reopening was done in the case of the assessee by the AO on the issue of disallowance u/s 40A(3) only and no issue was raised in the Reasons .....

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idered the entire matrix and facts of this case and copies of judgment placed before us. Before going deeper in details, it has been noted by us at the outset that deduction u/s 80HHC in the hands of ASL (i.e. export house) has been found to be allowable by Hon ble Bombay High Court in the case of M/s. Allana Sons Ltd. v. DCIT writ petition No.802 of 2005 dated 22nd July 2014 wherein it was held that reopening of the assessment in the hands of M/s. Allana Sons Ltd. was not valid as per law and t .....

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ding under section 143(3) of the Act. In this case, the Assessing Officer had during the proceeding under section 143(3) of the Act raised queries to the petitioner specifically with regard to petitioner s claim for deduction under section 80HHC of the Act and the petitioner s response to the same was considered by the Assessing Officer while passing the assessment order. Therefore, the impugned notice and the grounds in support thereof are in fact a change of pinion on the part of the Assessing .....

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aim for deduction under section 80HHC of the Act has been upheld not only by the CIT(A) but also by the Tribunal in its order dated 22 November 2006. Besides the amendment to section 80HHC(3) of the Act by addition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing Officer would be bound by the orders of the Tribunal. Moreover .....

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ent made by Taxation Laws (Amendment) Act 2005 in section 80HHC to curtail the benefit of u/s 80HHC on the amount of incentive received by the main exporters would not operate retrospective. Thus, if we consider on facts the case of ASL on merits also, it is noted that after including amount of incentives there would arise positive amount of profit. Thus, viewed from any angle, and keeping in view the fact that when deduction u/s 80HHC has been actually allowed in the hands of ASL i.e. export ho .....

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re, we are not dealing with the same at this stage. As a result, grounds raised by the revenue in this appeal are dismissed and grounds raised by the assessee may be treated as allowed. 7. The ld. D.R., in the other hand, relied on the order of the Ahmedabad Bench of the Tribunal in the case of ITO v. Shri Rameshchandra S. Patel in ITA No. 505/Ahd/2008 for assessment year 2004-05 dated 27th August, 2010 whereby the Tribunal vide para 20 to 22 of its order has held as under:- Thus, from a reading .....

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o made a profit on export of trading goods. The Learned Assessing Officer disallowed the claim in view of his reading of the decision of the Hon'ble Supreme Court in the case of IPCA Laboratory Ltd., (supra). We find that in the case of IPCA Laboratory Ltd., (supra) the Hon'ble Supreme Court was confronted with the case of an Export House. The assessee there was an Export House. That assessee suffered a loss on export of trading goods. While computing deduction allowable under section 80 .....

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- HHC by issuing a disclaimer certificate but the assessee cannot increase the amount of deduction otherwise allowable under section 80 HHC by issuing a disclaimer certificate. 21. The decision is an Authority for the proposition that an Export House or Trading House cannot increase the deduction otherwise allowable under section 80HHC by issuing a certificate under sub-section (4A)(b) of the Act in respect of certain turnover. 22. However, on consideration of the facts of the case, we are of th .....

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port House M/s. Clariant India Ltd., has incurred losses in trading goods therefore, claim of the assessee have to be rejected by applying the decision in the case of IPCA Laboratories. The findings of the Learned Assessing Officer thus cannot be approved in this way but we may also note here that at page-7 of the Assessment' Order the Learned Assessing Officer mentioned that the Learned Assessing Officer of M/s. Clariant India Ltd., has pointed out that the return for Assessment Year 2004-0 .....

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inding on the issue agreed with the assessee's submission. The order of the Learned Commissioner of Income Tax (Appeals) is thus not on facts and is in clear violation of section 250(6) of the I.T. Act. Since the entire facts have not been brought on record and considered either by the Learned Assessing Officer or by the Learned Commissioner of Income Tax(Appeals}, we are of view the matter requires reconsideration by the Learned Assessing Officer. We accordingly, set aside the orders of the .....

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s a manufacturer of frozen foodstuffs who exported large parts of its production through an export house namely Allana Sons Limited. The assessee being a supporting manufacturer, got a disclaimer certificate from the export house as prescribed under sub section 4A(b) of Section 80 HHC of the Act. The assessee had claimed deduction u/s 80HHC of the Act on disclaimed turnover of ₹ 39,07,97,779/- . The assessee has made claim of deduction u/s 80 HHC of the Act on the profit arose to the asses .....

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nasons Limited in view of the aforestated amendment brought in by Taxation Laws (Amendment) Act, 2005 w.e.f. 01-04-1992 as now there is no loss from export activities in the hands of Allana Sons Limited if 90% export incentives retained by Allana Sons Limited are duly considered while computing profits eligible for deduction u/s 80HHC of the Act as now M/s Allana Sons has positive profits after adjusting loss from export of traded goods with the profits from export of manufactured goods after fa .....

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cturer holding disclaimer certificate issued by Allana Sons Limited is also entitled for deduction u/s 80 HHC of the Act. The Hon ble Bombay High Court has also upheld the allowability of deduction u/s 80 HHC of the Act to Allana Sons Limited on merits keeping in view insertion of fifth proviso to Section 80HHC(3) of the Act by Taxation Laws(Amendment) Act, 2005 w.e.f. 01-04-1992. The Hon ble Bombay High Court in the case of M/s Allana Sons Ltd. v. DCIT vide Writ Petition No. 802 of 2005 vide or .....

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dition of fifth proviso thereto with retrospective effect will work to the benefit of the petitioner. In the above view of the matter, allowing reassessment proceedings would be a mere academic exercise only because the Assessing officer would bound by the orders of the Tribunal. Moreover, the very basis of the impugned notice dated 10 January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice dated 10 January 2005. The Mumbai Bench of the Tribunal i .....

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ith effect from 01-04-1992 , whereby the Tribunal has held as under:- These appeals belong to different assessees of same group arising in different assessment years involving identical issues and therefore these were heard together and being disposed by this common order. 2. During the course of hearing, arguments were made by Shri P.J. Pardiwalla & Ms. Vasanti Patel, Authorised Representatives (ARs) on behalf of the Assessee and by Shri G.M. Doss & Shri E. Shreedhar, Departmental Repre .....

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supporting manufacturer) had sold its goods. 3.1. We have heard both the parties on this issue in detail and also gone through the orders of the lower authorities as well as copies of judgment placed before us. The brief background of this case is that assessee is supporting manufacturer, selling its goods to the export house namely M/s. Allana Sons Ltd, who had issued disclaimer certificate in favour of the assessee u/s 80HHC and accordingly, the assessee claimed benefit of deduction u/s 80HHC .....

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/s 80HHC in the case of present assessee also solely on the ground when the main exporter i.e. ASL as itself being denied the benefit of deduction u/s 80HHC, therefore, consequently, the assessee should also be denied the benefit of deduction u/s 80HHC. Accordingly, the claim made by the assessee u/s 80HHC for ₹ 16,87,12,722/- on the turnover of ₹ 97,59,61,941/- (disclaimed by ASL in favour of the assessee) was withdrawn by the AO. 3.2. Being aggrieved, the assessee filed an appeal b .....

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and therefore, on facts also the assessee is entitled for deduction u/s 80HHC. 3.3. Being aggrieved, the revenue filed an appeal before the Tribunal on the ground that Ld. CIT(A) ought not to have allowed the benefit of deduction u/s 80HHC in the light of judgment of Hon ble Supreme Court in the CIT v. IPCA Laboratories Ltd. 266 ITR 521 (SC) wherein it was held that in case there was loss from export activities, then the export house cannot pass on the benefit of deduction u/s 80HHC by way of is .....

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High Court had found that deduction u/s 80HHC was allowable in the hands of ASL as per law and facts. Thus, the whole premise on which the deduction was disallowed in the hands of the assessee ceases to exist and therefore the deduction has to be allowed to the assessee. Second argument made by the assessee was that this controversy has been resolved in the judgment of Hon ble Banglore Bench in the case of Shamanur Kallappa & Sons vs. ACIT 23 DTR (Bang)(Trib) 269 which has been subsequently .....

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e disallowance made u/s 40A(3) has been deleted by the Ld. CIT(A) against which revenue has not filed any appeal. Thus, main issue on which Reasons were recorded has been settled and therefore, no other disallowance would be sustainable as reopening would become bad in law. 3.4. Per contra, Ld. DR relied upon the judgment of Hon ble Supreme Court in the case of IPCA Laboratories Ltd. v. CIT (supra) and relied upon the order of the AO. We have considered the entire matrix and facts of this case a .....

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We have considered the rival submission. It is well settled that a notice to reopen the assessment under section 148 of the Act can only be issued if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This reason to believe on the part of the Assessing Officer has not to be on the basis of change of opinion i.e. where Assessing Officer has had occasion to consider an issue during the assessment proceeding under section 143(3) of the Act. In this cas .....

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e impugned notice is not sustainable. 3.5. It is further noted by us that, on merits also Hon ble High Court observed that deduction u/s 80HHC was actually allowable to the said export house the observations of the Hon ble High Court are very useful and these are reproduced hereunder for the sake of ready reference: In any view of the matter, the stand of the petitioner on merits with regard to interest income being included while computing the claim for deduction under section 80HHC of the Act .....

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January 2005 will not be sustainable. In view of all the above reasons, we set aside the impugned notice date 10th January 2005. 3.6. Thus, it is noted by us that the Hon ble High Court has not only quashed the reassessment order but also held that deduction u/s 80HHC is actually allowable to ASL. It is further noted by us that it has been held by Hon ble Gujarat High Court in the case of Avani Exports & Others dated 02.07.2012 that the amendment made by Taxation Laws (Amendment) Act 2005 in .....

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d upon which the deduction was denied to the assessee, ceases to exist. Under these facts and circumstances, we find that Ld. CIT(A) has rightly allowed the benefit of deduction u/s 80HHC to the assessee and therefore, we find nothing wrong in the order of Ld. CIT(A) and therefore, the same is upheld. Since, we have allowed the relief to the assessee on the first argument itself therefore, we treat other arguments as academic in nature and therefore, we are not dealing with the same at this stag .....

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e are satisfied that cases of exporters having a turnover below and those above 10 crore should be treated similarly. This order is in substitution of the judgment in Appeal. Thus in light of our detailed discussions as set out above, we restore the matter to the file of the AO for computing deduction allowable to the assessee u/s 80HHC of the Act in accordance with law . The assessee is directed to appear before the AO and produce all relevant evidences and explanations in support of its conten .....

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1 for assessment year 2002-03 10. Our above decision in ITA no. 4056/Mum/2011 for assessment year 2002-03 in preceding para shall apply mutatis mutandis to the Revenues appeal in ITA no. 5534/Mum/2011 as identical issue is involved. Thus, Revenue appeal in ITA no. 5534/Mum/2011 for assessment year 2002-03 is allowed for statistical purposes. We order accordingly. 11. In the result , Revenue appeal in ITA no. 5534/Mum/2011 for assessment year 2002-03 is allowed for statistical purposes. Assessee .....

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/Mum/2011 as identical issues are involved. Thus, both the assessees appeal in ITA No. 4121/Mum/2011 and Revenue appeal in ITA no. 5548/Mum/2011 for assessment year 2003-04 are allowed for statistical purposes. We order accordingly. 13. In the result , both the assessees appeal in ITA no. 4121/Mum/2011 and Revenue appeal in ITA no. 5548/Mum/2011 for assessment year 2003- 04 are allowed for statistical purposes. Assessee s Appeal in the case of Allana Cold Storage Limited v. DCIT in ITA no. 4110/ .....

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in ITA no. 5518/Mum/2011 as identical issues are involved. Thus, both the assessees appeal in ITA No. 4110/Mum/2011 and Revenue appeal in ITA no. 5518/Mum/2011 for assessment year 2004-05 are allowed for statistical purposes, so far as allowability of deduction u/s 80HHC of the Act to a supporting manufacturer is concerned. We order accordingly. 15. The Revenue in ITA No 5518/Mum/2011 is also aggrieved by the decision of the learned CIT(A) in restoring the issue of disallowance of expenditure o .....

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sing Officer's file and directing that disallowance to be as per immediate preceding year in the light of observation of jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT 234 ITR 1 (Bom.) as the decision of Hon'ble Bombay High Court is not accepted by the Department . 16. The assessee has earned dividend income of ₹ 19,61,241/- and claimed exemption u/s 10(34) of the Act. The assessee has not shown any expenditure on the earning of the dividend income. Th .....

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as difficult to ascertain to what extent the expenses debited to P&L account related to earning of dividend income, the A.O. disallowed an amount of expenditure of ₹ 2,00,000/- on ad-hoc basis (for assessment year 2004-05) incurred in relation to earning of exempt income u/s 14A of the Act, vide assessment order dated 26-12-2006 passed u/s 143(3) of the Act. 17. Aggrieved by the assessment order dated 26-12-2006 passed by the A.O., the assessee filed its first appeal before the ld. CIT .....

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llowance as per clause (iii) of rule 8D(2) of the Incometax Rules, 1962. The ld. CIT(A) held that the A.O. is not justified in making the disallowance on ad-hoc lump-sum basis keeping in view the decision of the Hon ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd.(supra), whereby Rule 8D is applicable from assessment year 2008-09 onwards. The ld. CIT(A) held that the A.O. should give reasonable opportunity to the assessee for working out the disallowance of expenditure incur .....

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e Revenue filed this appeal before the Tribunal. 19. The ld. D.R. submitted that the A.O. has rightly made the disallowance of ₹ 2,00,000/- on lump-sum ad-hoc basis u/s 14A of the Act in assessee s case. 20. The ld. Counsel for the assessee submitted and conceded that this matter can be set aside to the file of the A.O. who can make disallowance having regards to the assessee s account as per mandate of Section 14A of the Act. It was submitted that Rule 8D of Income-tax Rules, 1962 is not .....

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ance of ₹ 2,00,000/- towards expenditure incurred in relation to earning of exempt income , without having regards to the accounts of the assessee as per mandate of Section 14A(2) of the Act. We are of the considered view that the appeal under consideration is prior to assessment year 2008-09 and hence Rule 8D of Income-tax Rules, 1962 is not applicable to the impugned assessment year under appeal. Keeping in view the decision of the Hon ble Bombay High Court in the case of Godrej & Bo .....

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