TMI Blog2019 (6) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... enhancing the income of the assessee by reducing the allocation of head office expenses to the said unit. In that view of the matter, we find it fit and proper to set aside the issue to the file of the Learned CIT(A) for verification of the same after going through the details of expenditure incurred by the head office in respect of Akrimota Power Project Unit and upon establishing linkage and/or nexus of such expenditure to that of the eligible Power Project Unit to pass the order in accordance with law keeping in view of the nature of expenditure as mentioned above. Therefore, the Learned CIT(A) should give categorical finding in respect of the expenditure which cannot be allocated to Akrimota Power Project Unit after due verification of the supporting documents provided by the assessee - Assessee s appeal is allowed for statistical purposes. Disallowance u/s 36(1)(iii) - assessee could not prove nexus of interest of interest free loans given to others with interest free fund - CIT(A) in directing to make proportionate disallowance - HELD THAT:- Only upon considering the similar details including details relating to the interest on fixed term loan pertaining to head office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Issue decided in favour of assessee as relying on own case for A.Y. 2001-02 Deduction u/s 80IA to be allowed. - I.T.A. Nos. 873 & 2951/Ahd/2015, I.T.A. No. 1369/Ahd/2015 - - - Dated:- 6-6-2019 - Shri Pramod Kumar, Vice President And Ms. Madhumita Roy, Judicial Member Appellant by: Shri S. N. Soparkar And Parin Shah, A.R. Respondent by: Ms. Aparna Agarwal, CIT-D.R. ORDER Ms. Madhumita Roy - These first two appeals filed by the assessee are directed against separate orders dated 27.02.2015 and 21.08.2015, both passed by the Commissioner of Income Tax (Appeals)-2, Ahmedabad under section 143(3) and section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to the Act ) respectively for Assessment Year 2011-12. The third appeal filed by the Revenue is directed against the order dated 27.02.2015 passed by the Learned CIT(A)-2, Ahmedabad under section 143(3) of the Act for A.Y. 2011-12. ITA No.873/Ahd/2015 for A.Y. 2011-12: 2. In this appeal the assessee challenges the enhancement of income of the appellant by ₹ 6,63,71,309/- being allocation of head office expenses to Power Project at Akrimota Unit which is subjected to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the head office was treated as a profit centre and thus there is no allocation of expenses to any of the project. On the contrary, the Learned DR relied upon the orders passed by the Learned CIT(A). 5. We have heard the respective parties, perused the relevant materials available on record. We find while reducing the allocation of head office expenses resulting into enhancement of the income of the appellant, the Learned CIT(A) observed as follows: While deciding the issue related to deduction under section 80 I-A, it was noticed, that the appellant has not computed the deduction under section 80 I-A correctly. It was noted that the common expenditure which are incurred at the head office were not allocated to the eligible units. The head office looks after the activity and control the work of all different units of the assessee appellant company. Therefore, it is logical that all the head office expenses which are not unit specific should be allocated to all the units owned by the appellant in proportion of the turnover. The criteria for locating the expenses should be based on the turnover of each different unit as that is the most scientific basis on which the expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3221469 20113 Overtime 320988 320988 20117 Salaries 69121129 69121129 20141 C.P.F. Contribution 4462593 4462593 20143 Pension Contribution 924604 924604 20145 Pf Inspection Expenses 1262188 1262188 20152 Books Periodicals 66714 66714 20155 G.S.L.I. Contribution 40529 40529 20158 L.T.C. / H.T.C Expenses 411643 411643 20160 Medical Expenses 2430373 2430373 20162 Staff Training Expenses 1027704 1027704 20164 Staff Welfare Expenses 1952584,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 411752 411752 21507 T.A.D.A. to Staff 2154977 2154977 21508 Vehicles Hire Charges 983436 983436 21601 Advertisement and Publicity 11650750 11650750 21602 Computer Stationary and 505958 505958 21603 Internet Communication 940712 940712 21604 Postage and Telegrams 2042897 2042897 21605 Satellite Communication 134723 134723 21606 Stationery Printing 1902803 1902803 21607 Telephone Expense 1227142.29 1227142.29 21703 Paid to Statutory Auditors 10000 10000 21701 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Security Expenses 12658306 12658306 22147 Service Charges Exp. 5641 5641 22146 Share Custodian Fees 723541 723541 22136 Share listing Fees 82725 82725 22137 Share Transfer Fees 15443 15443 22141 Tender Fees (Paid by 234374 234374 22182 Consultancy Charges 8951663 8951663 22183 Internal Audit Fees 248175 248175 22181 Legal and Professional Fees 6133431 6133431 22189 Professional Other charges 6910 6910 22501 Fixed Assets Written Off 188978 0 22502 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re transfer fee, seminar expense, security expenses, donation, sundry balances, telephone expenses ought not to have been allocated on the basis of the turnover to various units. They are neither required to be allocated to the Power Project Unit as well. We find no justification and/or rational as to how these expenses linked to the power project unit particularly. On the other hand though some of the expenditure pertain to the eligible unit but proper linkage has not been pointed out which should have been made by the Learned CIT(A) upon considering the concrete documents of such expenditure to the said power project unit. Neither it is ascertainable from the order that any verification during the appellate proceeding was made before enhancing the income of the assessee by reducing the allocation of head office expenses to the said unit. In that view of the matter, we find it fit and proper to set aside the issue to the file of the Learned CIT(A) for verification of the same after going through the details of expenditure incurred by the head office in respect of Akrimota Power Project Unit and upon establishing linkage and/or nexus of such expenditure to that of the eligible Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts in deleting the disallowance of ₹ 5,00,000/- towards depreciation on account of Multi Metal Project as assessee could not produce any supporting document for the assets and that the said assets had been put to use for the purpose of the business of the assessee during the period under consideration . 4. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of claim of deduction u/s 80IA of the Act for ₹ 31,15,94,168/-. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 9. Ground No.1: The revenue has challenged the order passed by the Learned CIT(A) in directing to make proportionate disallowance out of total disallowance of ₹ 47,83,671/- made u/s 36(1)(iii) of the Act. 10. The brief facts leading to this case is that during the course of assessment proceeding, it was noticed that the assessee has advanced loans and made investment in group companies. It was further noticed that proportionate interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 63,60,000/- and free Reserve Surplus of ₹ 16,06,16,98,572/- for the purpose of making of such payments. In the similar set of facts, the Learned CIT(A) since in A.Y. 2010-11 directed the Learned AO for computing the disallowance after excluding the interest having direct nexus with the purpose for which the money has been borrowed; in the year under consideration identical order has been passed. Hence, the Learned authorized representative of the assessee relied upon the order passed by the first appellate authority. Though the Learned DR relied upon the order passed by the Learned AO failed to controvert the submission made by the Learned AR in support of his case. 12. We have heard the respective parties, perused the relevant materials available on record. We find that during the appellate proceeding, the appellant company submitted following before the Learned CIT(A): 1.1. The appellant company had given advance of ₹ 7,50,000/- to Bhavnagar Energy Co. Ltd and ₹ 3,91,13,925/- to Gujarat Alluminium Bauxite Ltd during the previous years. The Ld Assessing had disallowed the amount of ₹ 47,83,671/- u/s 36(1)(iii) of the Income Tax Act,1961 consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest in respect of other Term Loans Interest on income Tax, Sales tax, Service Tax and other Miscellaneous Interest for late payments respectively, which has no connection with the Advances in question. In respect of the use of the fund borrowed for the term loan we would like to state that end use of fund are closely monitored by the Sanction authority, hence such fund cannot be used for advancing the related parties. Now if the interest of ₹ 11,34,24,434/- was directly relatable to power plant, ₹ 3,25,89,873/- for other term loan for the purchase of machineries and the remaining amount is for late payment of taxes etc., the disallowance u/s 36(1)(iii) is not justified. We have carefully considered the order passed by the Learned CIT(A) and the AO as well. It appears from the record that the Learned AO was of the view that the appellant has failed to explain the purpose of business for which the loan was given but the appellant submitted that the loan given to those companies were for the purpose of business and there was a direct nexus with those companies. It was further submitted by the appellant that most of the interest expenses incurred by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.w.r. 8D of the Income Tax Act, 1962 would not be made. In reply the assessee submitted that the assessee took loan for its wind power project and such term loan had been granted for specific project, hence such interest cost had direct nexus with such respective project. No amount of borrowed funds had been utilized for the purpose of investment. Apart from that, it was further contended that the company had sufficient funds at the time of investments in securities from which said exempt income has been generated. Since the company has not borrowed funds for the purpose of investments the question of applicability of Section 14A r.w.r. 8D does not and cannot arise at all. In support of his claim the assessee also relied upon the judgment passed by the ITAT, Mumbai Bench in the matter of Shoppers Stop Ltd.-vs-ACIT wherein it was held that when the assessee has made investments out of his own funds Section 14A will not be applied. In fact, the tax auditor of the company has already worked out disallowance u/s 14A to the tune of ₹ 51,66,612/- being 0.5% of the average value of investment to cover all incidental and administrative expenses, which has been added back to the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving the credit of the disallowance already made by the appellant, a disallowance of ₹ 42,90,471/- has been made. The appellant on the other hand has submitted that during the year, the interest expenditure which are shown and claimed in the profit and loss account have been incurred exclusively for the power plant of the appellant company. No expenditure claimed in interest is for general purpose, so that it can be located for the purpose of Rule 8D. It has also been submitted by the appellant that the investment of ₹ 52.83 crores were made prior to 01/04/2000 and at that time the appellant company was debt free. The investments made during the previous year relevant to the assessment in question were also out of the internal funds which were interest-free. The appellant company has not made any fresh borrowings during the year but made the repayments of the loan. The appellant has also submitted that in respect of the investments of ₹ 29.20 crores, the appellant has not earned any dividend income and, therefore, the same should not be considered for making the disallowance. On a careful consideration of entire facts of the case, it is noted that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rable court that, if no exemption on account of the income generated from the investment has been claimed, no disallowance under section 14A should be made. Respectfully following the judgment, the investment of ₹ 29.20 crore should be excluded for working out the disallowance out of interest, as well as, out of the administrative expenditure. However, it is noted that the appellant has itself made a disallowance of ₹ 51,66,612/- on account of administrative expenses by taking 0.5% of the average value of investment. After excluding the investment of ₹ 29.20 crores, the disallowance comes to the same amount which has been disallowed by the appellant itself. Accordingly no further disallowance on account of administrative expenditure is called for. It appears from the records that the appellant has incurred an amount of ₹ 11,53,706/- interest on Over Draft and other miscellaneous interest and interest paid to others and the same is directly not allocable to any other specific use. In the absence of any explanation rendered by the assessee that this interest has not been incurred on the funds which has been utilized for making the investment giving exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the matter is squarely covered in the assessee s own case on the identical issue by the judgment passed by the Learned Tribunal in ITA No.402/Ahd/2005 for A.Y. 2001-02. The copy whereof is also annexed to the paper book at Page 221. The Learned DR, however, failed to controvert the said contention made by the Learned AR of the assessee. 20. Heard the respective parties, perused the relevant materials available on record including the order passed by the Co-ordinate bench in favour of the assessee on the identical issue in the appeal preferred by the Revenue. The relevant portion of the said judgment is as follows: 4.1 Ground No.1 is regarding deletion of disallowance of ₹ 5 lacs being depreciation on multimodal project at Ambaji. 4.2 It was submitted by the Ld. A.R. that this issue is covered in favour of the assessee by the tribunal decision hi assessee's own ease for the assessment year 1998-99 and 1999-2000 in I.T.A. No.1392 and 1422/Ahd/2003. He farther submitted that the relevant portion of this Tribunal order is at para 19-23 which are available on page 81-82 of the' decision paper book. He further submitted that this tribunal order was followed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. There is no dispute that subsection (5) creates a fiction. The fiction mandates a notional carry forward of loss from eligible business presuming that the eligible business is the only source of income. The moot issue is the year of applicability of the fiction. For easy analysis, Ss. (5) is divided into phrases as below: (a) for the purposes of determining the quantum of deduction; (b) for the assessment year immediately succeeding the initial assessment year; (c) eligible business was the only source of income; (d) during the previous year relevant to the initial assessment year; (e) and to every subsequent assessment year up to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otionally brought forward from the said year even if the loss or unabsorbed depreciation has already been set off with the income of non-eligible business in earlier years by virtue of the provision of the Act. In this particular case, the initial year should be 2005-06 i.e. the year of commencement of eligible business. Relying upon the judgment passed by the Hon ble ITAT, Ahmedabad in the case of ACIT-vs-Goldmine Shares and Finance Pvt. Ltd. The assessee claimed for deduction of ₹ 31,15,94,168/- u/s 80IA has been disallowed and the same was added to the total income of the assessee. In appeal, the same was deleted by the Learned CIT(A). Hence, the instant appeal before us. 23. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that the issue is squarely covered by the judgment passed by the Hon ble ITAT in ITA No.997/Ahd/2015 in assessee s own case for A.Y. 2010-11. Further that, the Learned CIT(A) in his own order relied upon the order passed by him in assessee s case for the same year of 2010-11 in favour of the assessee. However, the Learned DR relied upon the order passed by the Learned AO. 24. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80IA of the Act is to be allowed without adjusting the notional brought forward losses and depreciation of earlier years is to be allowed or not, is almost legally settled now. It is noted from the perusal of various judicial pronouncements that the preponderant judicial opinion is in favour of the appellant. The leading judgment on the issue is that of honourable High Court of Madras in the case of Velayudhaswamy Spinning Mills Private Limited (supra). The judgment has subsequently been followed by several other Courts and Tribunals. The basic principle that has been laid down by various courts is that there should be no carry forward loss pertaining to the eligible unit, if the losses of eligible unit had earlier been adjusted with the losses of other units prior to the initial assessment year. The initial assessment year is the year in which the appellant make the claim for the first time and not the year in which the eligible unit commences production. As per the provisions of Act a clear option has been given to the appellant for choosing the initial years of assessment. In the case of the appellant the appellant has chosen the subsequent year later to the year in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allow the claim of the appellant as per the calculation given by him and as per the law. The ground of appeal is accordingly allowed. The initial assessment year, as held by the Learned CIT(A) is the year in which the appellant made the claim for the first time exercising option and not the year in which the eligible unit commences production as per clear provision of law. Since the appellant has chosen the subsequent year later to the year in which the production commenced no necessity was found to notionally set off the losses of that unit for allowing the deduction. In the instant case, losses have been adjusted in the earlier years prior to the initial assessment year, no unadjusted business loss or depreciation loss since not there the claim has rightly been made by the appellant as hold by the Learned CIT(A). The judgment passed in the matter of Sadbhav Engineering Ltd. passed by the Co-ordinate Bench reported in 45 taxmann.com 333 and the judgment passed by the Hon ble ITAT, Ahmedabad in the matter of Jivraj Tea Industries Ltd. reported in 42 taxmann.com 462 was also relied upon by the Learned CIT(A). We have also carefully considered the order passed by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ Manufacturing activity had commenced and are considering such first year of commencement/operation 3ic itself as the first year for granting deduction, ignoring the clear mandate provided under sub-section (2) which allows a choice to the assessee for deciding the year from which it desires to claim deduction out of the applicable slab of fifteen (or twenty) years. The matter has been examined by the Board. It is abundantly clear from sub-section (2) that an assessee who is eligible to claim deduction u/s 80-IA has the option to choose the initial/ first year from which it may desire the claim of deduction for ten consecutive years, out of a slab of fifteen (or twenty) years, as prescribed under that sub-section. It is hereby clarified that once such initial assessment year has been opted for by the assessee, he shall be entitled to claim deduction u/s 80-IA for ten consecutive years beginning from the year in respect of which he has exercised such option subject to the fulfillment of conditions prescribed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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