TMI Blog2017 (8) TMI 1569X X X X Extracts X X X X X X X X Extracts X X X X ..... any interest expenditure was incurred for making investments by the assessee, therefore, no disallowance u/s 14A is warranted. Accordingly, ground No. 2 raised in the appeal by the assessee is allowed. Amended provisions of section 40(a)(ia) - TDS u/s 194A - disallowance u/s. 40(a) (ia) - payment of interest for delayed payments to creditors - HELD THAT:- Without going into the merits whether the interest paid by the assessee is in the nature of trade payment or payment of interest falling within the ambit of section 194A, we deem it appropriate to consider the alternate submission of the assessee. The provisions of section 40(a)(ia) have been amended by the Finance Act, 2012 w.e.f 01.04.13. The second proviso to section 40(a)(ia) have been inserted according to which no disallowance u/s 40(a)(ia) of the Act would be made if the assessee is not deemed to be an assessee in default under first proviso to section 201(1) of the Act. In the light of amended provisions of section 40(a)(ia) and case of M/S. SHREE SAI TRADERS VERSUS ITO, WARD-2, BEED [ 2016 (11) TMI 1512 - ITAT PUNE] we deem it appropriate to restore the issue back to the file of Assessing Officer with direction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance is warranted in the case of the appellant on facts prevailing in the case and as per provisions of law. The disallowance made be deleted. Just and proper relief be granted to the appellant. 4. The appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing. 3. Shri Neelesh Khandelwal appearing on behalf of the assessee submitted that assessee is engaged in the business of manufacturing of genset components and also in sheet metal fabrication work. The assessee filed its return of income for the impugned assessment year on 18.01.10 declaring total income of ₹ 10,60,50,290/-. The industrial undertaking established by the assessee at Silvasa is in industrially backward state as specified in the Eighth Schedule. The assessee is manufacturing and assembling electrical generators at Silvasa unit. The manufacturing process started at Silvasa unit before 31.03.2004. Since the assessee has complied with all the conditions, thus, the assessee is eligible for claiming deduction u/s 80IB(4) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). The Assessing Officer disallowed the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer that the activity undertaken by the assessee at Silvasa unit relating to the generators does not amount to manufacture or production of any article or thing. In our aforesaid opinion, the aforesaid issue is directly covered by the judgment of the Hon ble Delhi High Court in the case of Jackson Engineers Ltd. (supra). As per the Hon ble Delhi High Court, the activity involving assembling of various components and achieving a final product of a generator amounts to manufacture or production of an article or thing with the meaning of section 80-IB of the Act. Moreover, the Hon ble Bombay High Court in the case of Tata Locomotive and Engineering Company Limited (Supra) has also held that assembling of various components which results into a different product which is distinct then the individual components, such an activity amounts to manufacture or production. As a consequence, we therefore do not agree with the first objection of the Assessing Officer to deny assessee s claim for deduction u/s. 80-IB (4) of the Act. Thus, on this aspect assessee succeeds. The Department has not placed on record any materials contrary to the findings of the Co-ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re put to the assessee, a detailed written communication was furnished, which we have already reproduced in the earlier part of this order. The claim of the assessee was that the relevant transport bills were issued by the transporter himself and were duly signed by him. The reply furnished by the assessee clarified the position that the vehicle in question belonged to the M/s Padwal Transport, who carried two consignments from Pune to Silvassa on 28.03.2004 one belonging to M/s Kavita Industries Pvt. Ltd. and the other belonging to M/s SNA Industries. Further, the same vehicle brought back two consignments from Silvassa to Pune on 30.03.2004 one belonging to M/s Auto Mech Industries Pvt. Ltd. and other belonging to assessee's Silvassa unit. It was pointed out that not only two Bill Nos. 130 and 132 were issued by the transporter but also Bill Nos. 246 and 249 which related to M/s Padwal Transport for carrying of two consignments from Pune to Silvassa on 28.03.2004 and bringing back the consignment to Pune on 30.03.2004. It was pointed out that total transportation charges covering the four bills totalled to ₹ 7,280/- and therefore the case setup by the transporter in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable was for a cross-examination of the transporter by the assessee. On this aspect, we find that the Assessing Officer did allow an opportunity to the assessee of crossexamining the transporter. We find that in this context, the Assessing Officer required the assessee to cross-examine the transporter on 29.12.2010. The said opportunity was allowed by the Assessing Officer through a communication dated 28.12.2010, a copy of which has been placed on record. The assessee did not avail of this opportunity for the reason explained in its explanation dated 28.12.2010 to the Assessing Officer, a copy of which has been placed at pages 95-96 of the Paper Book. The assessee pointed out that earlier it had contended that due to the contradictory position taken by the transporter a report of the handwriting expert be called for to establish as to whether the signature on the transport bills were that of Shri Padwal or not. It was also asserted by the assessee that the cross-examination would not serve any purpose when the appropriate preparation was not possible at a short notice. No doubt, technically speaking, an opportunity was allowed to the assessee to crossexamine the transporter. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings thereof. Thus, we setaside the order of the CIT(A) and restore the matter back to the file of the Assessing Officer who shall make an order afresh after allowing the necessary opportunity to the assessee of being heard and keeping in mind out above directions. Thus, for assessment year 2005-06, assessee partly succeeds for statistical purposes. Thus, in view of above observation of the Co-ordinate Bench and to maintain consistency, we are of considered view that it would be just and proper to restore the issue back to the file of Assessing Officer with similar directions. We hold and direct accordingly. Thus, ground No. 1 raised in the appeal by the assessee is allowed for statistical purpose in the aforesaid terms. 8. In ground No. 2, the assessee has assailed disallowance of ₹ 4,33,500/- made u/s.14A. The ld. AR submitted that the assessee has not earned any exempt income from investments made in group concern. The assessee has made strategic investment to the tune of ₹ 867 Lakhs in Meccalte India Pvt. Ltd for acquiring 49% shares. The entire investment was made from own funds and borrowed funds were not used for making such investment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. We have also considered the various decisions cited before us. We find the AO on the basis of his finding that interest bearing funds have been diverted to holding company for acquisition of their shares made disallowance of ₹ 1,08,81,177/- u/s.14A of the I.T. Act r.w. Rule 8D of the I.T. Rules. While doing so, he rejected the contention of the assessee that the investment made in the shares of holding companies are due to commercial expediency and therefore no disallowance of interest should be made u/s.36(1)(iii) or u/s.14A. We find the Ld.CIT(A) rejecting the various submissions made before him and distinguishing the various decisions cited before him rejected the claim of the assessee that no disallowance is called for u/s.14A of the I.T. Act. 18. It is the submission of the Ld. Counsel for the assessee that since the investments are made in shares of the holding company who in turn has invested the amount in the subsidiary company and special purpose vehicle companies, for getting contracts from the PWD department of Government of Maharashtra, therefore, the investment was for commercial expediency and therefore no disallowance of interest is call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicles (SPV) in order to obtain contracts from the NHAI and the SPVs so formed engaged the assessee company as contract to execute the works awarded to them (i.e. SPVs) by the NHAI. In its profit and loss account for the year, the assessee has shown the turnover from execution of these contracts and therefore no expense and interest attributable to the investments made by the appellant in the PSVs can be disallowed u/s. 14A r.w. Rule 80 because it cannot be termed as expense/ interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum ₹ 40,556/- calculated @ 2% of the dividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals), hence we uphold the same. On going through the above observations we are of the view that this is merely a question of fact and does not involve any question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows : (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40 (a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court. Commissioner of Income-tax-IV, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 194A of the Act on payment of interest for delayed payments to creditors. The ld. AR submitted that interest paid was in the nature of trade payments, therefore, such payments do not fall within the ambit of section 194A of the Act. To support his submission, the ld. AR placed reliance on the following decisions :- 1) ITO Vs. Parag Mahasukhlal Shah, 143 TTJ (Ahd) 606. 2) Sri Venkatesh Paper Agencies (Hyd.)(P)(Ltd.) Vs. DCIT, 24 taxmann.com 52 (Hyd.) 3) Ghaziabad Development Authority Vs. Dr. N.K Gupta 258 ITR 337. The ld. AR made alternate submission that as per proviso to section 201(1) of the Act, in case the payee has considered the said income in the return of income filed, then no disallowance shall be made u/s. 40(a) (ia) of the Act. The ld. AR in support of his alternate contention placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of M/s. Shree Sai Traders Vs. ITO in ITA No. 2184/PN/2016 for assessment year 2009-10 decided on 11.11.2016. 12. On the other hand, the ld. DR submitted that once the interest has been paid, the assessee was liable to deduct tax u/s 194A of the Act. Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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