TMI Blog2018 (8) TMI 979X X X X Extracts X X X X X X X X Extracts X X X X ..... Same is also not found as the mandatory conditions for deduction. Therefore, we do not approve the approach of the assessing officer in rejecting the claim of the assessee at the threshold merely on the basis that no separate books of accounts are maintained even when the assessee has submitted the audit report of the accounts of the industrial undertaking which was the requirement of subsection 7 - Deduction allowed - Decided in favor of assessee. Assessment u/s 144C - Disallowance u/s 14A r.w.rule 8D - built-in cost in the investment activity - appropriation of cost of composite funds needed to be allocated towards earning of exempt income - expenses having direct/ proximate nexus with earning of the dividend income - failure on the part of DRP/AO to record satisfaction for the purpose of section 14A - Nature of expenses incurred on repair of cost tank - revenue or capital expenditure - Held that:- before invoking the provisions of rule 8D the Ld. assessing officer has failed in his duty as per the provisions laid out under section 14 A read with rule 8D to point out any discrepancy in the claim made by the assessee having regard to its accounts. It is further the fact that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was cost in-built into such investment activity. 2.2 That the DRP / assessing officer erred on facts and in law in holding that, the appropriate cost of composite funds needed to be allocated towards earning of exempt income. 2.3 That the DRP / assessing officer erred on facts and in law in not appreciating that apportionment of expenses is not allowed under section 14A of the Act and only expenses having direct/ proximate nexus with earning of the dividend income could be disallowed. 2.4 That the DRP / assessing officer erred on facts and in law in not appreciating that only expenses to the extent of ₹ 3, 17, 216/- were incurred for earning the aforesaid dividend income from the investment made in mutual funds. 2.5 That the DRP / assessing officer erred on facts and in law in holding that the onus to prove that the expenditure was incurred in the taxable business operations and not the exempt income is upon the assessee and not of the revenue. 2 6 Without prejudice, that the DRP / assessing officer erred on facts and in law in applying sub-section (2) of section 14A without recording his satisfaction about the correctness of the claim of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iating the process of generation and transmission of power vis-a-vis recognition of revenue by the appellant in respect of the Windmill undertakings. 4.4 That the assessing officer erred on facts and in law in not appreciating that there is no requirement in the Act which makes it mandatory for the appellant to recognize revenue on the basis of a sales invoice and not on the basis of a credit note which was issued by a third party viz. Gujarat Electricity Board ( GEB ) being the nodal agency of Gujarat Government. 3. The revenue has raised the following grounds of appeal:- 1. Whether Hon ble DRP was correct on facts and circumstances of the case and in law in deleting the addition of ₹ 4425571/- made by the AO on account of disallowance of claim towards deduction under section 80IA of the draft order. 2. Whether the Hon ble DRP is right directing the Assessing Officer to delete the disallowance made out of misc expenditure being horticulture expenditure, Horticulture expenditure colony, Computer Supply (peripherals), software purchase expenditure and security services colony. 4. The brief facts of the case is that assessee is a company who filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2nd ground of appeal divided into 6 segments with respect to the disallowance under section 14 A of the income tax act. During the year the assessee has earned dividend income of ₹ 7, 10, 41, 503/ . During the course of assessment proceedings, the assessee was asked to file the details of the expenditure incurred for earning dividend income and applicability of the provisions of section 14 A as well as rule 8D. The assessee submitted that it had made investment only in Debt mutual funds to earn income by way of dividend. It was further stated that assessee has no borrowings and investments in mutual funds were made out of own funds. The assessee further suo Motu disallowed ₹ 3, 17, 216/ being 20% of the salary of one accounting person along with 5% remuneration of the finance director. The assessee further submitted the working of the aforesaid disallowance made. The Ld. assessing officer rejected the explanation of the assessee and stated that disallowance is to be made according to the provisions of section 14 A read with rule 8 D of the income tax rules. Consequent to that the Ld. assessing officer worked out the total disallowance of ₹ 93, 61, 712 and as as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure relates directly/ indirectly to the investments made in various mutual funds. Tax Auditor has certified/ quantified the disallowance under section 14A of the Act at ₹ 3, 17, 126/- as referred above. Coming to other expenses, it will kindly be noticed that the assessee had on a reasonable basis apportioned the salary cost of employee and finance director looking after investment positions towards earning of dividend income and disallowed the same. The balance expenses were incurred in relation to Mutual funds are governed by SEBI regulations. The Mutual Funds charge fund management charges, as permitted by SEBI under the scheme. Out of the income earned by the Fund, fund management charges are deducted and net income is available for distribution to unit holders. During the year under consideration, only the net income of ₹ 7, 10, 41, 503 (after deduction of fund management charges) was received by the appellant. other business functions carried on by the appellant and no portion thereof can be attributed towards the earning of dividend income. Reliance in this regard is placed on the decision of Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT: 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing the ratio laid down by the Hon ble Jurisdictional High Court of Delhi in the case of Maxopp Investments Ltd. (supra) was justified in holding that the Assessing Officer was not right in rejecting the claim of the assessee in a summary manner without verifying the reasonableness of disallowance of ₹ 3, 04, 866/- made by the assessee itself towards the expenses incurred in the form of administrative cost, in the form of any fraction of the salary of the concerned employees were also performing other duties in the finance section and whose job was not exclusively to make investments, keep finance section and whose job was not exclusively to make investments, keep record of it and deposit the income in the bank as well as the important aspect that the dividend received in the mutual funds were deposited in the bank account of the assessee through ECS facility. The view taken by the CIT (Appeals) is well supported by several decision cited by the learned AR hereinabove including the decision of Hon ble Jurisdictional High Court of Delhi in the case of Maxopp Investment Ltd. (supra) holding that the lack of satisfaction of the Assessing officer should of cogent reasons. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance made by the Ld. assessing officer has also worked out the disallowance of interest of ₹ 992176/ and amount of expenditure at the rate of 0.5% of the average value of investment of ₹ 8369536/ . The total disallowance were worked by the Ld. assessing officer applying the provisions of rule 8D was ₹ 9 361712/ . The main claim of the assessee is that it has the surplus fund amounting to ₹ 4, 24, 06, 75, 537/ in the form of share capital and reserve and surplus and the total investment made by the assessee is only of ₹ 1, 67, 84, 06, 403/ . Therefore, there cannot be any disallowance on account of interest expenses. It was further the contention of the assessee that it has been investing surplus fund in the date mutual funds on which dividend income was on an during the year the assessee has earned dividend of ₹ 7, 10, 41, 503/ from the investment in surplus funds in mutual funds which is exempt and not chargeable to income tax act. The first contention of the assessee is that the Ld. assessing officer has not recorded the satisfaction to show that why the working shown by the assessee for the disallowance under section 14 a is erroneous. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for old tank repair. The appellant had revised the return of income before the assessing officer wide letter dated 27/11/2011 claiming only ₹ 8 1, 94, 914/ as revenue expenditure and suo Moto capitalizing the balance amount of ₹ 5, 03, 40, 184/ . In the assessment order, the Ld. assessing officer disallowed the same treating the same as capital expenditure. The Ld. DRP also held that entire amount of ₹ 5 853 5098 to be capital in nature and observed that the appellant had claimed depreciation at the rate of 15% amounting to ₹ 81, 94, 914/ on the said expenditure. The Ld. DRP did not noticed that assessee had bifurcated the said expenditure being 14% of engineering fees amounting to ₹ 8 194914/ is revenue in nature and balance amount as capital expenditure. Therefore the claim of the assessee as that engineering fees paid of ₹ 8 1, 94, 914/ is revenue in nature. 12. The Ld. authorized representative submitted that the appellant company commenced commercial production in March 1993. It is a leading glass producer and has a manufacturing facility at Ankleshwar, Gujarat. One of the most important sections of float glass manufacturing line is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Agreement: a) Engineering design services b) Equipment supply services c) Project financial control services d) Purchasing services e) Heat up services The detail of work done under the aforesaid services is explained in the Agreement, which was submitted during the assessment proceedings. These services were rendered to prepare the appellant to undertake cold tank repair in the subsequent year. Further, Article 3.2 of the Agreement provides the milestones for making payment of the agreed engineering fees, as under: a) First installment [USD 1.25 million] after signing of the Agreement; b) Second installment [USD 1.25 million] after Guardian has delivered and the appellant has accepted the detailed drawings and specifications; c) Third installment [USD 1.25 million] after commercial production commences; d) Fourth installment [USD 1.25 million] after the completion of the performance test. It was the endeavor of the company to take maximum life from the existing furnace and best efforts were made to operate the furnace to the extent technically advisable. During the financial year 2010-11, it was decided to carry out actual Cold Repair. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is placed on Para-12 of Accounting Standard-10 Accounting for Fixed Assets issued by the Institute of Chartered Accountants of India, the premier accounting body of India, which deals with the accounting treatment of improvements and repairs carried out with respect to Fixed Assets. As per para 12.1 thereof, only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g. an increase in capacity. AR further placed reliance in this regard on the following decisions: Empire Jute Co. Ltd. v. CIT: 124 ITR 1 (SC) CIT vs. Mahalakshmi Textile Mills 66 ITR 710 (SC) CIT v. Sarvana Spinning Mills P. Ltd. : 293 ITR 201 (SC) Comfort Living Hotels (P.) Ltd. vs. CIT: 363 ITR 182 (Del) CIT vs. Volga Restaurant: 253 ITR 405 (Del) CIT vs. Delhi Press Samachar Patra P. Ltd.: 322 ITR 590 CIT v. Bharat Cinema : 121 ITR 165 (HC) (P H) CIT Anr. vs. Sagar Talkies : 217 CTR 74 (HC) (Kar) Tuticorin Spinning Mills Ltd. vs. CIT : 261 ITR 291 (HC) (Mad) CIT vs. Ooty Dasaprakash: 237 ITR 902 (HC) (Mad) CIT vs Lake Palace Hotel and Motels P. Ltd.: 258 ITR 562 (H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer as under:- 21. Having gone through the orders of the authorities below, we find that the Ld. CIT (A) has decided the issue of disallowance of the portion of engineering fees claimed as revenue expenditure to the extent of ₹ 6 9, 04, 582/ under factual premises, besides other that the assessee had not received drawings and specifications, and, therefore 2nd installment of payment of US dollar 1.2 5, 000, 000 to the Guardian had not become due. The factual observation of the Ld. CIT A is disputed by the Ld. authorized representative is incorrect that the submission that the claim of the assessee that the above amount was revenue in nature is supported by the evidence that the invoice for 2nd installment was raised on 1/12/2009 and the expenditure was charged to the profit and loss account in the subsequent financial year 2009 10 only i.e. the year under consideration. The same therefore has no impact on the allowability of the first internal installment of engineering fees. The further contention of the Ld. AR remained that there cannot be doubt or ambiguity about rendering of engineering services before 31st March, 2009 and accordingly 15% of the expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing facility for transmission of electricity to its manufacturing facility located at Bharuch . For this purpose, the assessee company entered into wheeling of electricity agreement with the Gujarat energy transmission Corporation Ltd. The Ld. assessing officer based on the agreement noted that Assessee Company is using banking facility only for consumption of electricity for its own manufacturing activities. Revenue is booked only on the basis of the credit notes of units issued by GETCO. Since the company according to the AO is not deriving any profits and gains from the so-called windmill undertaking or enterprise the assessee company was required to show cause as to why the deduction claimed under section 80 IA of ₹ 1 8351 0398 been disallowed. The assessee submitted that that it is maintaining separate books of accounts for both the units, which are duly audited by a chartered accountant in form No. 10 CCB. In addition, it is further stated that deduction is allowable to the assessee. The Ld. assessing officer was of the view that Assessee Company is not deriving any profit gain from the enterprise to claim deduction. It was further held by him that as the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hereunder: The detail of power generated and revenue recorded there from in Wind power projects I II is summarized below: Unit Gross generation 4% Wheeling Charge Net generation Revenue Remarks (in units) (in Rs.) I 20, 674, 006 826, 960 19, 847, 046 118, 647, 716 Recorded as 'revenue from generation' in the accounts, certified by Tralsawala Associates, Chartered Accountants II 18, 215, 575 728, 623 17, 486, 952 104, 538, 829 38, 889, 581 1, 555, 583 37, 333, 998 223, 186, 545 The power generated at the appellant s wind farms are injected in GETCO grid s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. it will be kindly appreciated that the provisions of section 80IA only requires that accounts of the undertaking for the relevant previous year to be audited by a Chartered Accountant and also requires the assessee to furnish report of such audit in prescribed Form No.10CCB along with the return of income. In this regard, it is respectfully submitted that the appellant, during the year under consideration, had maintained separate books of accounts with respect to both the Windmill undertakings. Such books of accounts have been duly audited by an independent auditor viz. Tralsawala Associates, Chartered Accountants and such report of the auditor has been filed before your Honour. The relevant extracts of the audit report have been reproduced hereunder as reference: We have checked the books of accounts and other records maintained by M/S Gujarat Guardian Ltd, State Highway 13, Village Kondh, Taluka Valia, District Bharuch, Gujarat in respect of the following undertakings set up by the company for generation of Wind Power; Name of undertaking Year of Setting up 1. Wind Power Project I (Satapar, Gujarat) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, being the fair market value of the power supplied, and the statement of profitability for the windmill units were prepared on that basis.It is further submitted that on the basis of unit wise accounts prepared, the appellant claims deduction under section 80IA of the Act, which is duly supported by certificate of the Chartered Accountant. Further, the computation of profits for the purpose of deduction under sections 80IA of the Act is duly certified by the auditors and has been provided as part of the audit report in Form 10CCB. Under the provisions of section 80-IA/ 80-IB of the Act, there is, in fact, no provision/ requirement of maintenance of separate books of account in respect of each eligible undertaking. What is only required is that the assessee has to furnish report of a Chartered Accountant in the prescribed Form No.10CCB certifying that deduction has been rightly computed in respect of profit derived from the undertaking. Reliance in this regard is also placed in the decision of the Punjab and Haryana High Court in the case of CIT v. Micro Instruments Co.: 388 ITR 46 (dated 02.09.2016) wherein issue of requirement of separate books of account in respect of units el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of account is, therefore, rejected. ( emphasis supplied) The Delhi Bench of the Tribunal in the case of Ranbaxy Laboratories ITA No. 196/Del/2013 dated 25.04.2016/ [2016] 68 taxmann.com 322 also, inter alia, held that there is no mandatory requirement to maintain separate books of account for the purpose of claiming deductions under sections 80-IB and 80-IC of the Act. To the similar effect are the following decisions: Banaskantha District Cooperative Milk Producers Union: ITA No.3599/Ahd/2009 Revenue s Appeal dismissed in Tax Appeal No. 1813 of 2010 (Guj.) CIT v. Sabarkantha District Co-operative Milk Producers Union Ltd.: Tax Appeal No. 473 of 2014 (Guj.) Ajanta (P.) Ltd. v. DCIT: [2017] 77 taxmann.com 227 (Guj.) Reference in this regard is also made to the decision of the Delhi Bench of the Tribunal in the case of DCIT v. NIIT: ITA No. 1112/Del/2012 wherein books maintained in ERP software accounting system was held to be sufficient compliance for the purpose of claiming deduction under section 10B of the Act. It is pertinent to mention here that appeal filed by the Revenue against the order of the Tribunal the aforesaid issue raised was not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fundamental facts. Reliance, in this regard, is placed on the following observations made in the following decisions: - Saurashtra Cement Chemical Industries v. CIT: 123 ITR 669 (Guj) No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the Income-tax Officer cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted. - CIT v. Paul Brothers: 216 ITR 548 (Bom.) Either in section80HH or in section80J, there is no provision for withdrawal of special deduction for the subsequent years for breach of certain conditions. Hence unless the relief granted for the assessment year 1980-81 was withdrawn, the Income-tax Officer could not have withheld the relief for the subsequent years. (See Gujarat High Court decision in the case of Saurashtra Cement v. CIT: 123 ITR 669. Hence, the approach of the Tribunal on all the counts has been perfectly legal. - CIT v Gujarat State Fertilizers Co. Ltd: 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accepted is withdrawn or set aside, the Income Tax officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the acts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted under Section10A of the Act to SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis a vis the claim to exemption under section10A of the Act. Therefore, it is not open to the department to deny the benefit of Section10A for subsequent assessment yearsi. e. assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of Income Tax (Appeals) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit. To the same effect is the decision of the Hon ble Bombay High Court in Direct Information Private Ltd. vs. ITO: 349 ITR 150 and the following decisions of the Delhi High Court: - CIT vs. Escorts Ltd : 338 ITR 435 - CIT vs. Delhi Press Patra Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the preceding year, the same stand ought not to be changed/ modified, during the year under consideration, even on the principle of consistency, particularly, when no new fact/ information has been brought on record for the same. 18. Ld. departmental representative also supported the order of the Ld. assessing officer and stated that subsection 7 shows that the books of accounts are required to be maintained by the assessee for such unit which claimed deduction under that section. He further submitted that no details has been produced by the assessee before the assessing officer. 19. In the rejoinder, the Ld. authorized representative submitted that details were filed before the Ld. assessing officer and it were placed at the paper book page No. 78 onwards. 20. We have carefully considered the rival contention and perused the orders of the lower authorities. The brief background of the issue shows that assessee has set up two windmills for its captive consumption. On the same assessee claimed deduction under section 80 IA. Before the assessing officer the assessee submitted the audit report in form No. 10 CCB. The assessee started generating power from assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit revenue generated from the industrial undertaking. While paying the electricity bill of the manufacturing unit, such number of units, which were generated by the industrial undertaking such as windmill, was granted as deduction and only the net units charged to the assessee. The assessee has recorded the revenue involved in those units generated by the windmill based on the rate at which power that is supplied to the assessee for the manufacturing unit. According to the subsection 7 of section 80 IA the only requirement is that, the accounts of the undertaking are required to be audited. In the present case, the assessee has submitted the audited accounts. If the auditor has not qualified those audited accounts, there is no reason to reject them at the threshold without making further verification. The Ld. assessing officer should have verified whether the assessee has properly computed the income derived from the industrial undertaking or not. If the assessing officer finds that such working is not proper then only he can say that that the audited accounts of the assessee are not reliable. In the present case the revenue has been recorded by the assessee by deriving the unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that during the year under consideration the assessee revised its claim for deduction under that section with respect to the wind power undertaking. The assessee did not set-off claim notionally by brought forward losses of the eligible undertaking for the earlier years. The aforesaid treatment was given by the assessee by way of revised returns filed before the assessing officer. The assessee has also submitted the working of the same before the AO. The Ld. assessing officer in the draft order rejected the revised claim of the appellant on the ground that for granting deduction under section 80 IA that 1st brought forward losses were to be set off against the profit of the eligible unit and the deduction is allowed in respect of balance of profit if any. Accordingly the AO rejected the claim of enhancement of deduction claimed by the assessee from ₹ 1 8, 35, 10, 398/ ₹ 22, 77, 66, 107/ . On objection filed by the assessee before the Ld. Dispute resolution panel the above disallowance was deleted. Against these directions the assessing officer is in appeal before us. 24. The Ld. departmental representative relied upon the orders of the Ld. assessing officer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The brief facts of the case are that during the year under consideration the assessee has incurred expenditure aggregating to ₹ 2, 97, 20, 756/ and out of the said expenditure the assessing officer disallowed the expenditure on account of horticulture expenditure incurred by the assessee at plant, horticulture expenditure incurred by the assessee at its residential colony, purchases of the computer supply, software purchase expenses and security services charges paid at the colony. Ld AO held them to be capital expenditure. The Ld. Dispute resolution panel directed the Ld. AO to delete the above disallowance and therefore this ground of appeal. 28. The Ld. departmental representative relied upon the order of the Ld. AO. 29. The Ld. authorized representative submitted that identical issue has been covered in favour of the assessee by the decision of the coordinate bench in assessee s own case for assessment year 2007 08 and 2008 09 in ITA No. 3215/del/2013 and 3214/del/2014. He further stated that for assessment year 2009 10 in ITA No. 3554 and 3596 and 3595/del/2014 this issue is also been decided in favour of the assessee it was further submitted that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we reach to a conclusion that the expenditure of security for staff colony is squarely covered in favour of the assessee by the earlier/preceding AY 2007-08 order of CIT(A) and in the present case, the CIT(A) was right in deleting the addition. Hence, we are unable to see any ambiguity or perversity in the impugned order or any other valid reason to interfere with the same. 40. On the issue of computer peripherals supply expenses, ld. DR submitted that as per claim of the assessee, the assessee incurred expenditure of ₹ 18, 24, 903 towards purchase of printer cartridges, computer peripherals like CD disks etc. and other consumables for maintenance of computers and printers but the assessee has not furnished any details/evidence to support this claim. Therefore, the AO rightly treated the same as capital nature expenditure and allowed depreciation @15% and disallowed the remaining balance of ₹ 15, 51, 168. The DR further contended that the CIT(A) granted relief for the assessee on wrong basis, hence the impugned order may be set aside by restoring that of the AO. 41. Ld. Counsel of the assessee replied that (i) the nature of aforesaid expenses incurred on co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment expenses is decided in favour of the assessee and the same is partly dismissed on above four issues and on the issue of computer supplies part ground of the revenue is deemed to be allowed by restoring the issue to the file of the AO with the directions as indicated above. 31. Further for assessment year 2009 10 the coordinate bench has decided on the issue of the plantation and horticulture expenditure for plant and colony as under - 30. Having gone through the orders of the authorities below, on the issue we find that the condonation of the assessee in support of the claimed expenditure on plantation remained that it was set up in a remote area in the State of Gujarat which is semi dessert State. It was thus required to have dust free environment for the proper manufacturing of the product of the assessee i.e. glass and such expenses were incurred within the factory premises in order to provide necessary landscape and making the environment green and eco friendly. It was submitted that horticulture expenses were also incurred for the staff colony which is in the immediate vicinity of plant and security thereof was also held to be of the same nature. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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