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2018 (3) TMI 468

n assessee's own case [2017 (4) TMI 1316 - ITAT KOLKATA] in the light of the admitted factual position that the income in question had direct nexus with the business of the assessee, the same was rightly held by CIT(A) to be eligible for the purpose of claiming deduction u/s 80IB(5). We do not find any ground to interfere with the order of CIT(A). - Disallowance of expenses u/s.14A r.w.r. 8D(2)(ii) & (iii) - Held that:- As far as disallowance under Rule 8D(2)(iii) is concerned, we are of the view that it is only the investment which yield dividend income that should be considered for the purpose of applying the formula as confirmed in in the case of REI Agro Ltd. [2014 (4) TMI 713 - CALCUTTA HIGH COURT]. - As far as investments made in subsidiaries is concerned, such investments made in subsidiaries would fall under the category of strategic investments as they are admittedly made only for the purpose of obtaining controlling interest in the said companies and not for the purpose of earning dividend income which is exempt. Hence they would stand differently from other regular investments. - Decided against revenue - ITA No 2300/Kol/2016 - Dated:- 1-3-2018 - Hon'ble Sri .....

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Revenue is with regard to the issue as to whether the CIT(A) was justified in allowing the claim of the Assessee for deduction u/s.80IB(5) of the Income Tax Act, 1961 (Act) on the profits derived by the Assessee from manufacture and sale of poultry feed. 4. At the time of hearing it was submitted by the learned counsel for the Assessee that the aforesaid issue regarding the eligibility of the Assessee for deduction u/s 80IB(5) of the Act has already been decided by the ITAT Kolkata bench in Assessee s own case for AY 2007-08 & AY.2010-11 in ITA No. 2227/Kol/2010 order dated 20.3.2013 & ITA(SS)No.131/Kol/2016 order dated 5.4.2017 and this Tribunal following the decision rendered in the case of M/s.Amrit Feeds in ITA No.1505/Kol/2007 for AY 2003-04 decided the issue in favour of the Assessee holding that the profit derived from the activity of manufacture of poultry feed was entitled to deduction u/s.80IB(5) of the Act. 5. It was the plea of the Assessee that the process of producing poultry feed involved mechanical, chemical & electrical processes for which the Assessee used sophisticated Plant & Machinery. In the course of production of poultry feed raw- materials w .....

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of an article to be eligible for deduction under section 80IB. This issue has duly been decided by this Bench in assessee's own case in ITA(SS)A No.131/Kol/2016 in Assessee s own case and this Tribunal while deciding the similar issue, this Tribunal observed as under: 9. We have heard the rival submissions. The issue to be decided is as to whether the assessee is engaged in the manufacture of a production of an article to be eligible for deduction under section 80IB. This issue has duly been decided by this Bench in assessee's sister concern in ITA No.1505/Kol/2007 in the case of ACIT-vs- Amrit Feeds Ltd., Kolkata, in which, the similar issue has arisen. While deciding the similar issue, this Tribunal observed as under vide para 15 to 18 of its order. "15. Sec 801B (2) (iii) requires the eligible Industrial undertaking to be engaged in 'manufacture of production of an article'. The said section however, does not define the expression "manufacture or production of an article". In fact this expression is not defined in the Act also. The Ld. CIT (A) extensively analysed meaning of the said expression with reference to judicial decisions discussed in his .....

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10 years' as against period of 5 years available to other backwards states. In Notification No. SO 627 (E) dated 04.08.1999 the Central Government has recognised poultry and cattle feed industry, to be an eligible industry u/s 80 IB (4). Once the Central Government notified the poultry 'feed industry u/s 80 IB (4) then there is a tacit admission that it is engaged in "manufacture or production of an article". This is so because unless poultry feed industry does not manufacture an article; no deduction can be permissible u/s 80IB. Once the Central Govt. accepted in principle that poultry feed is an eligible industry u/s 80IB(4); then the very same industry cannot be considered as non manufacturing industry under sub sections (3) and (5) ' of Sec 801B. With reference to same set of facts the revenue cannot hold the poultry .feed industry as manufacturing industry if situated in North Eastern states and a 'processing industry" if situated in any other states Such an interpretation will only lead to an absurd legal position. 18. For the reasons as set out herein before therefore we do not find any infirmity in the order of CIT(A) holding the assessee to b .....

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roduct were the same and therefore what the Assessee does is only Processing and not Manufacture . For an activity to be called Manufacture one of the important criteria is that the end product of the manufacturing process is to be completely different from the ingredients, as regards its chemical composition, integral structure or its use and such factor is missing in the case of the Assessee. It was also submitted that the activity carried out by the Assessee was mere mixing together of different ingredients, without involving any change in the chemical composition of the ingredients and therefore, the decisions rendered on this issue have overlooked this aspect. It was submitted that the decision rendered in Assessee s own case did not consider the decision of the Hyderabad Bench of ITAT in the case of Venkateswara Feeds (supra) and therefore the decision requires reconsideration. 13. The learned counsel for the Assessee while relying on the order of the CIT(A) and decision of the Tribunal in Assessee s own case in AY 2005-06 also submitted that in the case of Amrit Feeds (supra), the Hon ble ITAT had considered and distinguished the decision rendered in the case of Venkateswara .....

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income was earned on FDRs which were offered as security for various credit facilities availed by the Assessee from Banks and used for the purpose of business of the Assessee. The interest income had nexus with the business of the Assessee and therefore had to be regarded as income from business. The following were the findings of the CIT(A): I have considered the finding of the AO in the assessment order and the written submission filed by the AR along with different case laws on this issue. I have considered the Hon 'ble Supreme Court's decision in the Pandian Chemical's case (supra) and I have also considered the decision of the Supreme Court in the case of ACG Associated Capsules (P) Ltd vs CIT (343 ITR 89. I think, even though the said decision was rendered in the context of provisions of section 80HHC, yet in my opinion the principle laid down in that decision has equal application in the assessee's case as well. I further find that on similar facts the ITAT, Kolkata in the case of DCIT vs BMW Industries Limit (TA No.2115/Kol/2007) dated 29th February 2008 had similarly held that for the purpose of computation of deduction u/s 8IB, the interest income was lia .....

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f ₹ 87,09,632/- as interest on secured loan, which was utilize for specific purposes as the Term and Conditions of loan. Hence, payment of interest on secured loan not considered for calculation of disallowance u/s 14A. (i) Àmount of Direct Expenditure NIL (ii) A Amount Expenditure of Interest 39,822 B Average Investment Value of 25,74,500 As on 01.04.2012 25,74,500 As on 31.03.2013 25,74,500 C Average of Total Assets 30,48,44,037 As on 01.04.2012 25,70,92,556 As on 31.03.2013 35,25,95,519 A x B/C 336 (iii) ½% of Average Value of Investment i.e. B 12,872 Total (i+ii+iii) 13,208 Amount already disallowed by assessee in computation NIL Disallowance u/s 14A r.w.s. 8D(2)(ii) 13,208 4.2 Assessee had received certain incomes during the year such as Dividend income which are exempt income in the hands of assessee. Assessee also claimed various expenses under the head Profit and Gain of Business or Profession. As, it is not possible to segregate portion of these expenses incurred for earning exempt income i.e. Dividend and others, hence it has been decided that provisions of section 14A would apply in the case of the assessee for the assessment year 2013-14. The next qu .....

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tment in shares of the group associate companies has not produced tax-free dividend income in all cases. The Jurisdictional Calcutta High Court in the case of CIT vs REI Agro Ltd (ITA No.220 of 2013) has held that no disallowance u/s 14A is permissible where the investments have produced any tax free income during the relevant previous year. The same view has also been expressed by the Delhi High Court in the case of CIT vs Holeim India Pvt Ltd (272 CITR 282), Gujarat High Court in the case of CIT vs Cortech Energy Pvt Ltd (223 taxman 130) & Allahabad High Court in the case of CIT vs Shivam Motors (P) Ltd (230 Taxman 63). I further find that in some cases of this group the dividend was paid only by the associate companies. The investment in these shares was made for acquiring management control and not to earn tax free dividend. The ITAT, Kolkata in the case of DCIT vs Binani Industries Limited (ITA No.443/Kol/2013) has held that no disallowance u/s 14A is warranted where the investments are made in associate & subsidiary companies for strategic business purposes. Keeping in view the ratio decided by the jurisdictional Kolkata bench of ITAT and other judicial authorities, a .....

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