TMI Blog2017 (11) TMI 1595X X X X Extracts X X X X X X X X Extracts X X X X ..... on the interpretation of the expression 'derived from' can have no application to the case where the provisions of section 80-IA get attracted.- Decided in favour of the assessee Disallowance u/s 14A - Held that:- In this case, we find that the ld.CIT(A) partly allowed the ground of the assessee by deleting the addition of ₹ 40,84,000/- on account of interest under rule 8D(2)(ii) by considering the facts that the assessee‟s own funds in the business of assessee were far more than the investments from which tax free dividend income was earned to the tune of ₹ 422.79 crores following the decision in the case of HDFC Bank Ltd. V. DCIT (2016 (3) TMI 755 - BOMBAY HIGH COURT) and also the decision in assessee's own case for the assessment years 2008-09 and 2009-10. In our considered view, the issue is squarely covered by the ratio in favour of the assessee Provision for slow and non moving stock disallowed - method of accounting or valuation of stock - unascertainable expenditure allowance - Held that:- The assessee itself has duly disclosed all the facts qua stock written off during the year in its audited accounts. Moreover, the stock register was prepared and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax (Appeals) erred in confirming disallowance of ₹ 63.98 lakhs under Section 14A r.w. Rule 8D(2)(iii). 2. Without prejudice to ground No. 1 above, the Appellant submits that the disallowance under Section 14A is highly excessive and arbitrary, and requires to be reduced substantially. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of the claim of the Appellant for deduction under Section 80IA in respect of its power generation plant ₹ 71,69,109/-. 4. The learned Commissioner of Income Tax (Appeals) failed to consider that the case of the Appellant was one of captive consumption , which is permissible, and recognized within Section 80IA itself. 4. The common issue raised in grounds no.1 and 2 is against the confirmation of disallowance of ₹ 63.98 lakhs u/s 14A of the Act r.w.rule 8D(2)(iii) by the ld. CIT(A). 5. The facts in brief are that the assessee during the year earned a dividend income to the tune of ₹ 4,45,56,700/- and claimed the same as exempt under section 10(34) of the Act. In the tax audit report filed along with return, the tax auditors have quantified the disallowance u/s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rule 8D(2)(iii) is concerned, it is the contention of the assessee that one of the employee is looking after the investment activity. Therefore, the salary cost of the employee has already been disallowed by the assessee. We have noted, in assessment year 2007 08, the Tribunal in assessee‟s own case has held 2% of the dividend income earned by the assessee to be a reasonable disallowance under section 14A. Applying the same principle, we direct the Assessing Officer to disallow 2% of the dividend income under section 14A. These grounds are partly allowed. Taking a consistent view with the earlier years Tribunal order, we direct the AO to disallow 2% of the dividend income u/s 14A of the Act. Accordingly, these grounds are partly allowed. 7. Grounds of appeal no.3 and 4 are against the confirmation of disallowance of the claim of the appellant u/s 80IA of the Act in respect of its power generation plant amounting to ₹ 71,69,109/- by the ld. CIT(A). 8. Facts in brief are that the AO during the course of assessment proceedings, noticed that the assessee has claimed deduction u/s 80IA the Act to the tune of ₹ 71,69,109 on account of captive consumption o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and thus the entire power generated was consumed captively and no power was sold to the third party. The ld. AR while referring to the provisions of section 80IA(8) of the Act submitted that the section itself provides for a situation of captive consumption. The ld. AR further contended that even at the time of contemplation by the legislature, the explanation of captive consumption was specifically provided in the section itself. The ld. AR further stated that during year the total electricity generated by the said plant was 51,65,720/- units. The ld. AR also took us through the various documents to prove payment of the excise duty to Gujarat Electricity Board at the rate of 40Ps per unit and thus total power duty was worked out to ₹ 20,66,288/-. The ld. AR in defense of his argument relied upon the following case laws: (a) Tamil Nadu Petro Products Ltd. v. ACIT - 338 ITR 643 (Mad.) (b) CIT v. M/s. Orient Abrasive Ltd. - 49 taxmann.com 174 (Del. HC) (c) Dismissal of SLP (C) No. 18537 of 2009 filed by the revenue - 319 ITR (St) 8 (d) West Coast Paper Mills Ltd. v. ACIT 28 61TR (AT) 252 (Mum) (e) Assessee's own case for Assessment Year 2009-10 (IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the appellant. The appeals stand allowed and the impugned orders are set aside. Consequently, connected miscellaneous petitions are closed. No costs. 11.1. Similarly in the case of M/s. Orient Abrasive Ltd (supra), it has been held that the profit derived from the power generation unit would be eligible for deduction u/s 80IA as separate undertaking u/s 80IA where the power consumption of electricity was made by the assessee without selling to third party. 11.2. In the case of West Coast Paper Mills Ltd.(supra) it has been held that the assessee is eligible to claim deduction under section 80-IA with regard to unit-6 also as a standalone power generating undertaking. 11.3. Even in the assessee‟s own case the issue decided in favour of the assessee for the assessment year 2009-10 vide order dated 16.12.2013 the relevant para 7 of ITA No.401/Mum/2013 (AY-2009-10) is reproduced below: 7. We have considered the submissions of the parties and perused the material available on record. As far as eligibility to claim deduction under section 80IA, for the electricity generation unit at Ankleshwar is concerned, we agree with the learned Commissioner (Appeals) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd deserves to be treated as capital expenditure. 4. Whether on the facts circumstances of the case and in law, the Id CIT(A) has erred in directing the Assessing Officer to treat the expenditure on account of implementing Project Eagle as revenue expenditure without appreciating the fact that implementation of the said project has enduring benefit to the assessee and deserves to be treated as capital expenditure. 12. The issue raised in ground no.1 is in respect of deletion of disallowance u/s 14A of the Act rule 8D(2)(ii) of ₹ 40,84,000/- by the ld. CIT(A). 13. The facts in brief of the issue have already been stated in para 5 of this order. 14. We have considered the rival submissions and perused the material placed before us. In this case, we find that the ld.CIT(A) partly allowed the ground of the assessee by deleting the addition of ₹ 40,84,000/- on account of interest under rule 8D(2)(ii) by considering the facts that the assessee‟s own funds in the business of assessee were far more than the investments from which tax free dividend income was earned to the tune of ₹ 422.79 crores following the decision in the case of HDFC Bank Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these are wastages in stock due to evaporation and reduced efficacy is mere general statement backed up by no evidence whatsoever. In fact all evaporation and wastage losses during the manufacturing process would ipso facto be accounted for the consumption of raw-material in the manufacturing process. This submission of the assessee goes against the very grain of creating provision for slow and non-moving stock. In the appellate proceedings, the ld.CIT(A) deleted the addition after taking into consideration the various contentions and submissions of the assessee by observing and holding as under : 11. GROUND NOS. 6 to 8 - DISALLOWANCE ON ACCOUNT OF PROVISION FOR SLOW AND NON-MOVING STOCK: The appellant during the year under consideration has made provision for slow, non-moving and damaged stocks of ₹ 59,97,000/-. It was stated that the appellant follows AS-2 whereby stores/inventories are valued at cost or market value whichever is lower. This principle has also been upheld by the Hon'ble Supreme Court on numerous occasions, one of them being its judgment in the case of CIT vs. Hindustan Zinc. Ltd (2007) (291 ITR 391). He also referred to section 145A an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayed that such depreciation are not admissible under the Act and therefore should not be allowed. The ld. DR relied on the decision of the Hon‟ble Delhi High Court in the case of CIT V/s Hughes communication India Ltd reported in (2013) 215 Taxman 0136 beside relying on the following case laws: a) CIT v. Hotline Teletube Components Ltd. -175 Taxman 286 (Del. HC) b) CIT v. Hughes Communication India Ltd.- 33 taxmann.com 95 (Del HC) c) CIT v. IBM India Ltd. - 55 taxmann.com 515 (Kar.) d) CIT v. Indian Rare Earths Ltd. - 375 ITR 276 jBom.) e) Alfa Laval India Ltd. v. DCIT - 2661TR 418 {80m.) f) IAC v. Consolidated Pneumatic Tool Co. (ind). Ltd.-15 ITD 564 Mum Finally, the ld.DR prayed before us that by following the ratio laid down in the aforementioned decisions, the order of the ld.CIT(A) be set aside and that of AO be upheld. 18. The ld.AR relied heavily on the order of ld.CIT(A) by submitting that the assessee is a manufacturer of critical chemicals, powders and pesticides which are highly toxic and the raw materials used are in the form of liquids and powders of various which are highly vaporable and susceptible to damage and are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been examined and found to be not applicable to the present facts. Accordingly, we affirm his order and reject the ground taken by the Revenue. 20. The grounds of appeal No.3 and 4 are in respect of directing the AO by the ld.CIT(A) to treat the expenditure on account of implementing Project Disha as revenue expenditure without appreciating the fact that implementation of the said project has enduring benefit to the assessee and deserves to be treated as capital expenditure. 21. Facts in brief are that the assessee incurred an expenditure of ₹ 1,06,52,800/- on account of legal and professional fee incurred for increasing the business operation efficiency and the same were shown under the head Project Disha (Driving Innovative Solution for Hyper Achievements). This project was carried out with the help of an external consultant Ernst and Young to whom this amount was paid. The said project was undertaken to bring in several improvements in the operations of business which were divided into three phases: Phase I:Improving area of manufacturing and procurement; Phase II:-Improving areas of Sales and Marketing and ; Phase III: Optimizing the fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 216 Taxman 114 (Mad); CIT V/s Carborandum Universal Ltd (2008) 219 CTR 202 (Mad), the AO is directed to treat the expenditure on account of legal and professional fees amounting to ₹ 1,06,52,800/- 22. The ld. DR vehemently submitted before us that the order of ld.CIT(A) is apparently wrong in deleting the addition of expenses of capital nature incurred on the project to increase efficiency of business operations which was of a long term nature resulting into benefits of enduring nature and the benefit were going to last over longer period of time than one year. Thus, the expenditure incurred by the assessee was of capital nature and the AO has rightly disallowed 75% by allowing 25% of the said expenditure to be written off in the current year and proposing to allow it in the next three years the remaining amount. The ld. DR relied on the decision of AO and stated that the ld.CIT(A) has wrongly followed the decision of the Hon‟ble Supreme Court rendered in the case of In Alembic Chemical Works Vs.CIT 177 ITR 377 (SC) without any discussion. The ld.DR finally prayed that the order of the AO be restored and that of ld.CIT(A) be set aside. 23. On the other hand, t ..... 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