TMI Blog2019 (4) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that he had earned exempt income only to the extent of ₹ 2,725/-. However, the assessee has not declared in his written submission before the CIT(A) nor before us whether said exempt income was received by the assessee in A.Y. 2010-11 or not. Once, the assessee had earned substantial exempt income out of investments made in the partnership firm, the contention of the assessee that he had earned exempt income of ₹ 2725/- is nothing but misleading one. Adverting to the calculations made u/r. 8D(2)(ii), we find that the assessee had substantial mixed funds comprising of internal and external funds to take care of the impugned investments. Therefore, the ld. CIT(A) was justified to delete the disallowances made as per Rule 8D(2)(ii). However, while going through the calculation of disallowance made u/r. 8D(2)(iii) by the AO, it is not clear whether average value of investment taken pertains to such investment, from which the assessee had earned exempt income or not. Whether the investment made in the partnership firm for earning exempt income is considered in it or not. In presence of these facts, this issue also deserves to be remitted back to the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of assessee that in case disallowance out of expenses incurred relating to the unit eligible for deduction u/s. 80IC is sustained, then the deduction u/s. 80IC may be considered with regard to enhanced profit as per Circular No. 37/2016 dated 02.11.2016. Excess depreciation claimed @ 60% by the assessee on computer UPS - HELD THAT:- This issue stand already decided by Hon ble Jurisdictional High Court in the case CIT vs. BSES Rajdhani Powers Ltd. [ 2010 (8) TMI 58 - DELHI HIGH COURT] . Respectfully following the decision of Hon ble Court, we do not find any justification to interfere with the order of CIT(A) on this count. Foreign traveling expenditure incurred by Managing director Shri S.C. Sehgal along with Mr. Praveen Kumar Ms. Neeta, employee of the company - AO disallowed these expenditures on the premise that the assessee failed to establish any business exigency in this regard - HELD THAT:- We find substance in the contention of assessee. It is not the case of the AO that the impugned expenditure were not supported by any evidence or were not open for verification. Secondly, the submissions made before the CIT(A) were also that the assessee had invested in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO for fresh decision. Therefore, while deciding that issue, the AO is directed to reduce this payment of ₹ 5,22,05,896/- from the total Sales Promotion expenses of ₹ 16,18,96,408/- and then if any disallowance is made with respect to the eligible unit of assessee, the resultant enhanced profit of such eligible unit may be considered for deduction u/s. 80IC - Appeals of assessee are allowed for statistical purposes and those of Revenue are partly allowed for statistical purposes. - ITA Nos. 2935, 2936 & 2937/Del/2015, ITA Nos. 3770, 3771 & 3772/Del/2015 - - - Dated:- 15-4-2019 - Shri Amit Shukla, Judicial Member And Shri L.P. Sahu, Accountant Member For the Assessee : S/Sh. Rakesh Gupta Somil Aggarwal, Adv. For the Revenue : Sh. Surender Pal, Sr. DR ORDER PER BENCH: The aforesaid cross appeals filed by the assessee and the Revenue are directed against separate orders of ld. CIT(A)-7, New Delhi all dated 03.03.2015 for the assessment years 2008-09, 2009-10 and 2010-11 respectively. The grounds raised by both the parties in their respective appeals read as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deleting the disallowance of ₹ 10,55,810/- fully as made by Ld. AO u/s 14A read with Rule 8D and has further erred in sustaining the disallowance to the extent of ₹ 1,55,707/- under Rule 8D(2)(iii) of Income Tax Rules, 1962. 4. That in any case and in any view of the matter, action of Ld. CIT(A) in not deleting the disallowance of ₹ 10,55,810/- fully as made by Ld. AO u/s 14A read with Rule 8D and has further erred in sustaining the disallowance to the extent of ₹ 1,55,707/- under Rule 8D(2)(iii) is bad in law and against the facts and circumstances of the case. 5. Without prejudice to the above ground and having regard to the facts and circumstances of the case, deduction u/s 80IC should have been allowed on the amount of income assessed by Ld. AO. A.Y. 2010-11: 1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in reducing the claim of deduction u/s 80IC to the extent of ₹ 34,70,235/- instead of ₹ 1,45,58,026/- as claimed by the assessee in its return of income and that too by record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deduction u/s. 80IC 56,78,153 1,09,81,936 1,10,87,971 Deduction u/s. 14A - 10,55,810 1,09,400 Disallowance of intt. On FNCR - - 18,24,490 Grounds Raised by Revenue: A.Y. 2008-09: 1. On the facts and in the circumstances of the case, the Ld CIT(A) has erred in deleting the addition of ₹ 1,11,55,261/- made by the AO on account of 'sales promotion expenses' without appreciating the facts that the assessee failed to submit the details material with evidence and the bills/vouchers relating to sales promotion expenses were not furnished in full. 2. On the facts and in the circumstances of the case, the Id CIT(A) has erred in deleting the disallowance of depreciation of ₹ 82,200/- claimed at a higher rate of 60% on UPS by assessee company without appreciating the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on account of 'Sale promotion expenses' claimed in the name of sister concerns without appreciating the facts that the assessee company has not established that the expenditure on sale promotion with reference to the fair market value of services for which the payment has been made to sister concern of the assessee company. 3. The Revenue by way of aforesaid grounds, has challenged the impugned orders for deletion of following additions in all these years under consideration : 2008-09 2009-10 2010-11 Sales Promotion Expenses 1,11,55,261 1,22,37,690 1,21,42,231 Sales Promotion Expenses in name of sister concern - - 52,20,590 Excess Depreciation On UPS 82,200 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Before us, the ld. counsel for the assessee, reiterating the submissions made before the ld. CIT(A), submitted that the aforesaid amounts pertain to the business activities of the assessee carried out at Guwahati and as such the denial of deduction u/s. 80IC on such incomes is not justified. However, the ld. AR of the assessee further submitted in his written synopsis on this issue as under : In this regard, it is respectfully submitted that deduction under section 80IC of the Act has been disallowed in respect of the other incomes of the appellant, however, it includes interest subsidy, insurance subsidy and similar incomes which are inextricably linked to the business of the appellant and are eligible for deduction u/s 80IC as held in the decision of Hon ble Supreme court of India in case of CIT vs. Meghalaya Steels Ltd. 383 ITR 217(SC) dated 09.03.2016, It is pertinent to submit that Hon ble Apex Court in the aforesaid decision have considered their lordships earlier decision in the case of Liberty India vs. CIT (2009) 317 ITR 218 (SC) and accordingly, it is submitted that since the aforesaid judgment was not available when the orders of the lower aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Penalty interest income Rs.2,99,791/- Tax remission Assam Account Rs.9,11,729/- Testing charges Income Rs.28,81,625/- Rs.54,65,328/- A perusal of the assessment order, as also contended on behalf of the assessee, we find that the Assessing Officer has not examined these incomes as detailed above. In presence of all these facts, and in view of our aforesaid discussion, we think it appropriate to restore this issue to the file of Assessing Officer to decide the same afresh after examining all the details of income and in the light of recent decision of Hon ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd. (supra). Needless to say, the assessee shall be given reasonable opportunity of being heard. Accordingly, Grounds Nos. 1 2 in all the three appeals of the assessee for A.Yrs. 2008-09, 2009-10 and 2010-11 are allowed for statistical purposes. Ground No.3 raised in A.Y. 2008-09 is misconceived as no disallowance of expenditure is made during this year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtial relief to the assessee without considering the findings reached by the Assessing Officer on this score. It was submitted that in order to make investment and to manage it, it requires high skilled personnel and decisions and therefore, management expenditure incurred in such investments cannot be ruled out. The assessee had failed to the details to substantiate its contention that only own fund was utilized in the investments. The assessee has also paid interest during the year, therefore, the AO has rightly disallowed expenditure u/s. 14A by applying the provisions of Rule 8D. 12. We have heard the rival submissions and have gone through the entire material on record. We noted from the order of the ld. CIT(A) that the assessee had invested in shares etc., income from which does not form part of the total income. It is also noticed from assessee s submissions made before CIT(A) that assessee has also earned ₹ 28,73,189.85 as profit from partnership firm, namely M/s. Ozone Architectural Products from investment of ₹ 1,83,87,130/- in A.Y. 2009-10. The share of profit from firm falls u/s. 10 and exempt from tax. This fact has not been considered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on FCNR loan was paid on 09.08.2010, i.e., before due date of filing of return of income and accordingly, this amount may be allowed as per section 43B of the Act and necessary directions may be given for verification by the Assessing Officer. He also sought relief as per CBDT Circular No. 37/2016 dated 02.11.2016 in case any disallowance with respect to eligible unit is sustained. 15. The ld. DR supported the orders of the lower authorities. 16. After hearing both the sides and perusing the record, we find that as per assessee the interest on FCNR was paid on 09.08.2010 before filing the return of income (date of filing of return mentioned in asst. order as 31.03.2012) and as such, this amount is allowable u/s. 43B of the Act. This fact requires verification at the stage of AO. In case the contention of the assessee is found correct, then this amount would be allowable u/s. 43B of the Act and in case it is found otherwise, the AO shall examine the disallowance on the anvil of CBDT Circular No. 37/2016 dated 02.11.2016, as contended by the assessee also in alternate. Accordingly, this issue is also restored to the file of AO to decide it afresh after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t prove actual expenditure incurred for the business purposes. 21. The ld. AR of the assessee, on the other hand, reiterated the submissions made before the ld. CIT(A) and supported the impugned order. He also submitted written synopsis before us, stating that the expenditure is wholly and exclusively for the purpose of business and identical disallowance was made in assessee s own case in A.Y. 2006-07 and the Tribunal deleted the disallowance. In alternate, it was submitted that in case disallowance out of expenses incurred relating to the unit eligible for deduction u/s. 80IC is sustained, deduction u/s. 80IC may be allowed with regard to the enhanced profit as per Circular No. 37/2016 dated 02.11.2016. 22. After hearing both the parties we find that before the ld. CIT(A), it was emphatically submitted by the ld. Counsel for the assessee that complete books of accounts along with complete bills and vouchers were produced before the AO. However, on perusal of the assessment order, it reveals that the AO has categorically averred that complete bills/vouchers were not produced. It was also stated before the ld. CIT(A) that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee of the company. The AO disallowed these expenditures on the premise that the assessee failed to establish any business exigency in this regard. The ld. CIT(A) deleted the addition on the reasoning that the AO did not specify the expenditure without any bill/voucher. 25. The ld. DR submitted that since the assessee failed to prove any business exigency to conduct foreign travel with other employees, the AO was justified to disallow the same. 26. The ld. AR, on the other hand, reiterated the submissions made before the ld. CIT(A) and supported the impugned order. In alternate, it was submitted that in case these expenditures are disallowed, the assessee s enhanced profit for eligible unit may be considered for deduction u/s. 80IC as per CBDT Circular No. 37/2016 dated 02.11.2016. 27. After considering the submissions of both the parties, we find substance in the contention of assessee. It is not the case of the AO that the impugned expenditure were not supported by any evidence or were not open for verification. Secondly, the submissions made before the ld. CIT(A) were also that the assessee had invested in M/s. Ozone Research Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have heard both the parties and perused the entire material on record. The submissions made before the ld. CIT(A) on behalf of the assessee on this issue read as under : GROUND NO. 4 and 5 - Deals with the grievance of the appellant against the action of the Ld. AO in further reducing the deduction claimed by the assessee u/s 80IC by an amount of ₹ 13,86,656/- on the ground that deduction cannot be allowed on trading activity carried on by the appellant company for the medicines purchased from its sister concern M/s Ozone Ayurvedics as trading activity is not eligible for deduction u/s 80IC of the Act. In this regard, it is respectfully submitted that Assessee Company is engaged in manufacturing of medicines as well as in trading of medicines. Assessee Company claims deduction u/s 80IC on the profits earned by its manufacturing unit situated at Guhawati. Besides having its manufacturing unit in Guwahati, Assessee Company is also engaged in business of trading in medicines. For the purposes of trading, appellant company makes purchases from different parties and in turn books sales of these medicines in its trading unit only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales were made in the trading unit of assessee and not in the account of eligible unit of assessee. This fact needs verification at the stage of Assessing Officer. In case the above purchase and sales of manufactured medicine is found to have been made by assessee s trading unit, no disallowance can be made on the profit of eligible unit on this count, but if it is found otherwise, the AO shall be at liberty to decide the issue in accordance with law, as it is an admitted fact that the impugned purchases and sale pertain to the Ayurvedic Medicines which were not manufactured by assessee, but by its sister concern M/s. Ozone Ayurvedics. Accordingly, this issue is remitted back to the AO for deciding it afresh in the light of above verification. Needless to say, the assessee shall be given reasonable opportunity of being heard. 33. The last issue involved in appeal of the Revenue for A.Y. 2010-11 is with respect to Sales Promotion Expenses in the name of sister concern amounting to ₹ 52,20,590/- made by the AO and deleted by the ld. CIT(A). The brief facts relating to this issue are that in the assessment proceedings, the AO noted that the assessee had claimed s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all it is submitted that the addition made of ₹ 52,20,590/- may first be reduced on pro rata basis which works out (Rs.52,20,590 X ₹ 12,82,16,537/-)/RS.16,18,96,408/- = ₹ 41,34,533/- in respect of Guhawati unit. Whereas, the fact is that no excess payment of any nature is made in respect of these expenses incurred which is evident from the following fact and evidences placed in the paper book. Respectfully submitted that assesses company incurred an expenditure on advertisement, purchase of magazines, and designing work and made payment to its Associated concerns as under:- In this regard, it is further submitted that items purchased by the appellant company from its associated concern are not sold by these associated concerns to any other party. 1) M/s Ozone Ayurvedics - ₹ 3,75,02,642/-. Items purchased from M/s Ozone Ayurvedics are either the items of sales promotion or the items for trading which are exclusively for the assessee company. No such items purchased either as sample or for trading or for sales promotion are sold by M/s Ozone Ayurvedics to any third party. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market price of any item is for the Ld. AO to prove. No disallowance can be made just on presumptions and whims and surmises and just for the purpose that the same have been purchased by the assessee from its sister concern, that too when no such item is available in the open market and it has been exclusively manufactured as per the specifications and formula of the appellant company. In view of the above, the disallowance made at 10% in an ad hoc manner is contrary to law and facts of the case and may kindly be directed to be deleted. PB 54 - 55 is assessee's letter dated 08-03-2013 filed before Ld. AO giving submissions on the above aspect. Without prejudice to the above submissions, it is respectfully submitted that if disallowance of expenses u/s 40A(2)(b) is confirmed then we may please be allowed deduction u/s 80IC vis- a-vis that amount. The ld. CIT(A), after considering the aforesaid written submissions deleted the addition, observing that the expenditure incurred was neither excessive nor unreasonable having regarding to the fair market value of services for which payments were made. It was also obser ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
