TMI Blog2018 (7) TMI 1811X X X X Extracts X X X X X X X X Extracts X X X X ..... , no disallowance of interest can be made. With regard to other disallowance on account of administrative cost, we find that assessee has given a categorical explanation that no expenditure can be said to be attributable especially when all the investments were made in much earlier years and there is only one dividend cheque received during the year. In the absence of any recording of mandatory satisfaction as per Section 14A (2) r.w.s. Rule 8D (1) Assessing Officer cannot mechanically apply Rule 8D for the purpose of disallowance. Accordingly, disallowance made u/s.14 by Assessing Officer is hereby deleted. Addition as Excise duty refund (Self Cenvat Credit) treating it to be the Revenue receipt - holding this receipt as eligible for deduction u/s. 80IB - Held that:- We find that in the case of Balaji Alloys [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT], on same Govt. Notification has held that excise refund receipt in pursuance of new Industrial policy of the government is a capital receipt. Once that is so, then the entire receipt itself cannot be treated as part of taxable receipt and the entire question of allowing and disallowing the deduction u/s.80IB becomes purely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, the CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s. 14A of ₹ 82,66,124/- against the disallowance ofRs.1,06,79,240/- made by the A.O. in accordance with the provisions of Rule 8D of the Income Tax Rules. 2. On the facts and in the circumstances of the case, the CIT(A) has failed to appreciate that in view of prescribed procedure for computing the total amount of expenditure incurred in relation to such income which is binding in nature, there is no scope to take into account nexus of use of funds or the nature/purpose of holding shares. 3. On the facts and in the circumstances of the case, the CIT(A) has erred in law and on facts in holding the Excise duty refund of ₹ 2,80,82,949/- is eligible for deduction u/s. 80IB. 4. The order of the learned CIT(A) is erroneous and is not tenable on facts and in law. 2. Since, the issues involved in both these cross appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and have gone through the entire material on record and we find that the issues involved in both these cross appeals stand covered by the decision of Co-ordinate Bench of Tribunal dated 29.06.2018(supra) for the A. Yrs. 2008-09, 2009-10 and 2010-11, in the identical set of facts and circumstances. 7. As regards the first issue raised by the assessee in its appeal, we find that this issue has been decided in favour of the assessee by the Tribunal in the above order vide para 7 8, in favour of the assessee observing as under : 7. On perusal of material on record and findings given in the impugned order, we find that this precise issue whether the royalty expenses pertain to Jammu unit or not has been dealt by the Tribunal in assessee s own case for the Assessment Year 2006-07. The relevant finding on this issue reads as under:- 4.2 The Ld. AR submitted that the Ld. CIT (A) has allowed the netting of the amount to be considered while determining the deduction under section 80 IB in respect of the Jammu unit. The Ld.AR placed is reliance on the decision of Hon'ble Bombay High Court in the case of Zandu Pharmaceuticals Works Ltd. Vs. CIT reported in 259 CTR 253. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the received from the sale of import entitlements could not be included in the income of the assessee for the purpose of computing the relief under section 80 HHC of the IT Act, 1961? 12 The question is to be charged regardless of this, and the question is whether the intervention of the raw NAPTHA would justify the finding that the said products are not derived from refining of crude petroleum. The refining of crude petroleum produces various products at different stages. Row naphta is one such stage the further refining, or cracking of raw naphta results in the said products. The source of the said products is crude petroleum the said products must therefore be held to have been derived from crude petroleum. 13. We do not think that the source of the import entitlements can be said to be the industrial undertaking of the assessee. The source of the import entitlements can, in circumstances, only be said to be the export promotion scheme of the Central government parent that the export entitlements become available. There must be, for the application of the words derived from, a direct nexus between the profits and gains and the industrial undertaking. In the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the excess along with other corporate expenses has been rightly been allocated to the 3 manufacturing units by the assessee. 8. Since, the entire basis for adverse inference by the Assessing Officer as well as of ld. CIT (A) is upon the assessment order and first appellate order given in the Assessment Year 2006-07, which the Tribunal has reversed by holding that assessee has rightly shown the payment of licence fee/royalty under the corporate unit; therefore, respectfully, following the precedence of the earlier year, we also give the same direction that the licence fee, royalty payment of ₹ 6 crore has rightly been shown under the Corporate Division and accordingly, the finding of the ld. CIT(A) is reversed. There being no contrary material and no change in the facts and circumstances of the case, we decide this issue in favour of the assessee. Accordingly, ground No. 1 raised by the assessee deserves to be allowed. 8. Similarly, the second issue, raised by the assessee vide grounds Nos. 2 to 4 and also agitated by Revenue vide ground No.1, has been decided by the Tribunal in the aforesaid order in para 23 to 28, which read as under : 23. Coming to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on account of interest. 26. On the other hand, learned DR strongly relied upon the order of the Assessing Officer and ld. CIT (A) and submitted that, once the assessee has a dividend income which is claimed as exempt then expenditure needs to be attributable. 27. After considering the aforesaid submissions and on perusal of the relevant finding given in the impugned orders as well as material referred to before us, we find that in so far as disallowance of interest expenditure is concern, the same has rightly been deleted by the ld. CIT (A) after due verification of the records that none of the investments have been made out of borrowed funds and has been made by assessee s own fund. In view of such a clear cut finding, no disallowance of interest can be made. With regard to other disallowance on account of administrative cost, we find that assessee has given a categorical explanation that no expenditure can be said to be attributable especially when all the investments were made in much earlier years and there is only one dividend cheque received during the year. Once assessee has produced all the relevant books of account, explained the nature of expenses debited an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso be not part of Section 115JB. First of all, we find that the Revenue has also raised the similar issue in ground no.1 and 2, that is, firstly, disallowance of claim for deduction at ₹ 1,31,01,284/- on account of Self Cenvat Credit Availment u/s.80IB; and secondly, challenging the finding that Excise refund is a capital receipt in nature and not liable to tax. 10. The facts in brief qua this issue are that Assessing Officer noted that in the P L account of the Jammu Unit, assessee has credited an amount of ₹ 1,31,01,284 on account of Self Cenvat Credit to Jammu unit. The assessee has received refund of Excise duty by the Excise Department. The Government of India, Ministry of Commerce Industry, and Department of Industrial Policy Promotion vide its Office Memo dated 14th June 2002 has formulated a special package of incentives for the development of industries in the State of J K. Such Office Memorandum states that the special package for the State of J K is on the same lines which were earlier formulated by the Government of India for the North Eastern States, notified vide OM No. EA/1/2/96-IPD dated 24th December 1997. With a view to accelerate industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the excise refund has been treated as capital receipt, then the same has to be followed as such. He further pointed out that this decision of Hon'ble Jammu Kashmir High Court has been affirmed by the Hon'ble Supreme Court vide order dated 19th April, 2016, wherein Hon'ble Apex Court following the ratio of CIT vs. Ponni Sugars Chemicals Ltd., reported in (2008) 9 SCC 337 has confirmed the order of the High Court and dismissed the Revenue s appeal. Thus, in view of such binding precedence the refund amount has to be treated as capital receipt. 13. On the other hand, learned DR relied upon the order of the Assessing Officer. 14. After considering the relevant finding given in the impugned orders as well as the judgment relied upon before us, we find that Assessing Officer has held that the excise refund on account of Self Cenvat Credit Availment is not eligible for deduction u/s.80IB and for this he has relied upon the various decisions of Hon'ble Supreme Court on the point that such excise refund cannot be held as business receipt derived from the eligible undertaking. Hence he denied the assessee s claim for deduction u/s.80IB. Before the ld. CIT (A), a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ein all the decisions on this issue has been discussed and analysed and on similar capital receipt, ITAT Mumbai Bench in the case has held that such capital receipt cannot be part of book profit. Thus, he submitted that once a receipt itself is not taxable within the provision of the Act, then same cannot be held to be includable while computing the book profit u/s.115JB. 19. On the other hand, learned Department Representative submitted that once the assessee has itself credited to the P L account then it cannot be claimed that it should be removed while computing the book profit u/s. 115JB. He thus strongly relied upon the order of the ld. CIT (A). 20. After considering the rival submissions and perusal of the judgment relied upon by the learned counsel, we find that from the stage of the ld. CIT(A) it has been held that excise duty refund of ₹ 1,31,01,284/- is a capital receipt not chargeable to tax under the provision of the Act. Such a receipt being a capital in nature stands upheld from the stage of the Hon'ble Supreme Court also. Once receipt itself has been treated as capital in nature it cannot be brought to tax, then same cannot be held to be includable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts, one are accounting compulsions and second are disclosure compulsions. The accounting compulsion comes into play since there is a double entry system of accounting, for instance, when a loan amount is waived, a debit goes to the liability account and a credit has to go to any of the liability/ reserve account, which in the present case has been taken to the Profit and Loss account. The disclosure compulsions merely require the assessee to disclose the material items in the Profit Loss account. A mere disclosure of an extraordinary item in the profit loss account statement does not mean that the said item represents the 'working result' of the company, when the accounting standard, especially AS-9 clearly provides that remission of a liability is not to be recognized as revenue, then it has to be reckoned that it cannot be treated as revenue for the purpose of either net profit or consequently book profit. The primary purpose of preparing the Profit Loss account in Part II of the Companies Act is to find out the result of the company, during the period covered by the profit loss account and the exceptional nature items are required to be disclosed separately s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'capital reserve' that it must be accounted directly to the credit of the capital reserve account instead of being credited to the profit loss account so as to ensure that it is not left for being distributed through the profit loss account. 16. From our above analysis and discussion of the various provisions of the Companies Act as well as Accounting Standards it can be ostensibly deduced that an item of 'capital surplus' can ever be a part of profit loss account albeit it is a part of a capital reserve as the waiver of a loan taken for acquisition of a capital asset is a capital receipt falling within the category of cap :a surplus which is non-recurring and exceptional item which to be disclosed as per the requirement of the Companies Act. Further it is quite pertinent to note that, clause (ii) of Explanation -1 of section 115JB is also an indicator of the intention of the legislature and also the scheme of the section that the incomes which are treated as exempt under the Income Tax Act are to be excluded from the profit loss account. The said clause excludes; Xxxxxxxx 17. From the above discussion we are of the opinion that surplus re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of ₹ 86,01,30,698 had not been allowed as a deduction in earlier years due to the provisions of Section 43B of the Act and consequently, the write-back of this amount is not considered as a taxable income in this year Accordingly, the loss computed has been increased to the extent of the provision writtenback. In connection with the above contentions, the Company relies on the following decisions:- Tirunelveli Motor Bus Service Co. P Ltd. v. CIT 78 ITR 55(SC) CIT V. Chetan Chemicals (P) Ltd. 188 CTR572(Guj Mahindra Mahindra Ltd v CIT 261 ITR 501 (Bom) CIT v. Usha Ranjan Bhadra 126 ITR 44 (Gauhati) Then again in note no.10.1 (the relevant portion of which has already been incorporated above) the assessee specifically gave a caveat that this amount on account of waiver of loan is not includable in the 'book profit' and same has been included only out of abundant precaution as the assessee company reserves the right to exclude such sum and contest during the course of assessment proceedings. Thus, at the very initial stage itself the assessee had disclosed all the particulars and had also given a detailed note as to why the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon'ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd., (2012) 349 ITR 336 (Bom.). It is also equally a salutary principle of tax laws that entries in the books of account or in the profit loss account is not a determinative factor for taxing the income because income can be taxed only by the express provisions of law. We have already discussed in detail in our earlier part of the order that waiver of a loan is a capital receipt which is part of the capital reserve and cannot be reckoned as working result of the company and therefore, it does not form part of the net profit as per the profit loss account. Thus, such a capital receipt cannot be taxed as 'book profit' as envisaged in terms of section 115JB. 19. As regard the decision of the Hon'ble Apex Court in the case of Apollo Tyres (supra), as relied upon the Ld. CIT D.R., we do not find that this judgment in any way envisages that a receipt which is not taxable as book profit nor reckoned as part of net profit as per profit loss account should be taxed under u/s 115JB, just because it has been credited to profit loss account which too has been qua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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