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TMI Blog2019 (6) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier years. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 35,27,007/- on account of disallowance of deduction u/s. 14A of the Act. 3. The CIT(A) has erred in law and on facts in deleting the addition of Rs. 1,63,739/- made on account of interest on CWIP u/s.36(l)(iii) of the Act. 3.1 The Ld. CIT(A) has erred in law and on facts in not appreciating that the assessee has claimed interest on loans borrowed in earlier years to acquire fixed assets which were not put to use during the year. 4. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored. The 1st issue raised by the Revenue in ground No. 1 is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 45,87,046.00 for not allowing the deduction under section 80-IA of the Act. 2. Briefly stated facts are that the assessee in the present case is a limited company and engaged in the business of manufacturing aluminum foil. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward the loss of the eligible unit incurred by it before the initial assessment year for the set off against the profit of the subsequent year of such eligible unit if any. Issue 2 Whether the assessee was required to allocate the interest expense incurred by it to the unit eligible for deduction under section 80-IA of the Act in the present facts of the case. 5.4 To decide the issue No. 1, we find important to refer the provisions of section 80-IA(5) of the Act which reads as under: Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.2 3 80-IA. 4[(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.] XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. Thus, loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business, as no such mandate is provided in section 80-IA(5)." 5.7 In view of the above, we disagree with the finding of the AO and upheld the order of the learned CIT-A. Issue 2 6. Regarding thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue in ground No. 2 is that learned CIT (A) erred in deleting the addition made by the AO for Rs. 35,27,007.00 on account of disallowance of deduction under section 14A of the Act. 7. The assessee in the year under consideration has shown divided income of Rs. 1,28,529.00, which was claimed as exempt under section 10(34) of the Act. However, the assessee has not made any disallowance of expenses under section 14-A of the Act against such exempted income. Therefore the AO invoked the provisions of rule 8D of Income Tax Rule and made the following disallowances: i. Direct expenses NIL ii. interest expenses 27,45,127.00 iii. administrative expenses 7,81,879.00 total 35,27,007. 00 7.1 The AO made the disallowance of Rs. 35,27,007.00 under section 14- read with rule 8-D of Income Tax Rule and added to the total income of the assessee. 7.2 The assessee carried the matter to the learned CIT (A) who deleted the addition made by the AO in part for Rs. 33,98,478.00 and upheld the addition to the extent of dividend income shown by the assessee. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 8. Before us, both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act should not exceed more than dividend income itself. In the case of Joint Investments Pvt.Ltd. vs. CIT (ITA No.ll7/Ahd/2015 decided on 25/02/2015), the Hon'ble Delhi High Court has observed that by no stretch of imagination section 14A or Rule 8D could be interpreted so as to mean -that entire tax-free income is to be disallowed. The ITAT Ahmedabad has restricted the disallowance equivalent to exempt income (a reference could be made to ITA No,3266/Ahd/2015 decided on 7/12/2016 and ITA No.750/Ahd/2016 in the case of CIT vs. Nirma Chemical Works Pvt.Ltd. decided on 03/12/2018). 6. Following the above, we are of the view that ends of justice would meet if we restrict the disallowance equivalent to the tax-free income shown by the assessee i.e. Rs. 22,697/-. This ground is accordingly partly allowed. The Ld.AO consider the disallowance at Rs. 22,697/- instead of Rs. 8,05,856/-. 9.2 In view of the above, we hold that the disallowances in the present case under section 14-A read with rule 8D cannot exceed the amount of dividend income for Rs. 1,28,529.00 only. Hence we do not find any infirmity in the order of the learned CIT (A). Thus the ground of appeal of the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resumption is established considering the findings of fact both by the CIT(A) and Tribunal". 22.1. Similarly, we also rely on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:- "Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A. " 22.2. Similarly, we also find support from the judgment of Hon'ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : "If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A ". 22.3 In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of fund invested in the capital work in progress a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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