TMI Blog2019 (6) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the eligible business, as no such mandate is provided in section 80-IA(5) Allocate the interest expense incurred by it to the unit eligible for deduction u/s 80-IA - HELD THAT:- We note that the assessee s own fund exceeds the amount invested in the eligible unit. This fact can be verified from the financial statement of the assessee, which is available. Therefore it can be presumed that the assessee has invested own fund in the eligible unit. Accordingly, there cannot be any question of allocation of the interest cost incurred by the assessee in respect of other non-eligible units to eligible unit. No interest expense claimed by the assessee can be allocated to the unit eligible for deduction u/s 80-IA. Accordingly, we are of the view that the order passed by the learned CIT (A) does not require any interference. Accordingly, we uphold the same. Hence the ground of appeal of the Revenue is dismissed. Disallowance u/s 14A - HELD THAT:- We hold that the disallowances in the present case u/s14-A read with rule 8D cannot exceed the amount of dividend income for ₹ 1,28,529.00 only. Hence we do not find any infirmity in the order of the learned CIT (A). Thus the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ₹ 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 assessee in the year under consideration has claimed the deduction in respect of its eligible unit for ₹ 45,87,046.00 under section 80-IA of the Act. However, the AO found that there was no profit of such eligible unit in the year under consideration. Accordingly, he disallowed the deduction claimed by the assessee under section 80-IA of the Act. 3. The aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO after having a reliance on the order of his predecessor for the assessment year 2011-12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.] XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection (1) apply shall, for the purposes of determining the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 this, we note that the assessee s own fund exceeds the amount invested in the eligible unit. This fact ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal of the Revenue is dismissed. The 2nd issue raised by the Revenue in ground No. 2 is that learned CIT (A) erred in deleting the addition made by the AO for ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance has been worked out at ₹ 8,05,856/-. It is pertinent to observe that the Hon'ble Gujarat High Court on the issue in the case of CIT vs. Corrtech Energy Pvt.Ltd. reported in (2014) 223 Taxman 0130 and Hon'ble Delhi High Court in the case Cheminvest Ltd. vs. CIT reported in 378 ITR 033 have concurred with each other that if there is no dividend income or tax free income in a year, then no disallowance U/S.14A can be made. This explication was amplified and employed subsequently by the ITAT to construe that working of expenditure for disallowance u/s.HA of 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest-free fund available with the assessee exceeds the amount of investment made in the capital work-in-progress. Therefore, we can presume that the assessee in such capital work-in-progress invested the own fund. In holding so, we find support and guidance from the judgment of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption 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 ..... 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