TMI Blog2020 (4) TMI 425X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking. CIT (A) after taking into account working given by the assessee company restricted the allocation to the tune of ₹ 68.33 lakhs. No doubt, foreign exchange loss being in the nature of indirect/non-operating expenses must not be allocated to the eligible industrial undertaking. However, when the assessee company has come up with specific working/details of suffering foreign exchange loss on account of import of raw material used at the industrial undertaking, the ld. CIT (A) has rightly thrashed the issue on facts and directed the AO to reduce such allocation to ₹ 68.33 lakhs as against ₹ 1 crore estimated by the AO. So, again we find no illegality or perversity in the findings returned by the ld. CIT(A). Addition u/s 14A - computing the book profit u/s 115JB - HELD THAT:- Amount respectively earned by the assessee as capital gain from debt oriented mutual funds cannot be placed in the category of exempt income u/s 14A of the Act and in these circumstances, Rule 8D(2) cannot be invoked. AO himself has excluded the investment from which non-exempt income has been earned by the assessee company in AY 2011-12 for purpose of computing av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s 14A can be made. Revenue itself has allowed the identical relief to the assessee company in AY 2011-12 which has not been contested before the Tribunal. So, we are of the considered view that ld. CIT (A) has rightly directed to exclude the amount of investment made by the assessee company in its subsidiary for the purpose of computation of disallowance made u/s 14A r/w Rule 8D, hence ground of Revenue s appeal for AY 2009-10 is dismissed. Exclusion of excise duty exemption in computing book profit u/s 115JB confirmed as relying on M/S. ESSAR TELEHOLDINGS LTD. VERSUS THE DCIT, MUMBAI [ 2013 (5) TMI 116 - ITAT MUMBAI] Disallowance u/s 14A read with Rule 8D while computing the book profit u/s 115JB to be deleted Exclusion of other income viz. income earned by way of scrap sales, misc. income, freight income, transport subsidy and cash discount not eligible for deduction u/s 80IC - HELD THAT:- There is direct nexus between profit and business and transport subsidy given by the Government being reimbursement of cost in production of goods as has been held by Hon ble Supreme Court in CIT vs. Meghalaya Steels Ltd. [ 2016 (3) TMI 375 - SUPREME COURT] . So, we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espectively on the grounds inter alia that :- ITA No.704/Kol./2015 FOR AY: 2009-10 (Assessee s Appeal) 1. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the action of the AO in making allocation for foreign exchange fluctuation loss to the profits and gains of business of the undertaking eligible for deduction u/ s 801e. 2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to ₹ 7,19,216/-. 3. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred by sustaining the disallowance u/s 14A r.w. Rule 8D without appreciating the fact that the no expenditure has been incurred to earn exempt income. 4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction for Education Cess on Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to ₹ 46,34,854/- in computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 87/- . 4. The Ld. CIT(A) has grossly erred both on facts and in law in confirming the action of the Ld. AO in not allowing deduction for Education Cess on Income Tax and Dividend Distribution Tax aggregating to INR 4,742,7851- in computing total income under the normal provisions of the Act. 3. Appellants, DCIT, Range 8, Kolkata DCIT, Range 23 (2), New Delhi (hereinafter referred to as the Revenue ) by filing the present appeals sought to set aside the impugned orders dated 25.03.2015 08.08.2017 passed by the CIT (A)-3, Kolkata CIT (A)-12, Kolkata in ITA No.838/Kol/2015 7483/Del/2017 qua the assessment years 2009-10 2011-12 respectively on the grounds inter alia that :- ITA No.838/Kol./2015 FOR AY : 2009-10 (Revenue s appeal) 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction under section 80IC of the Income tax Act, 1961 on the transport subsidy of ₹ 3,04,561/- as this subsidy is in nature of capital receipt and external aid, and is not directly related to manufacturing activities of the assessee. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 1961 apply. ITA No.7483/Kol./2017 AY: 2011-12 (Revenue s appeal) 1. Whether the Ld. CIT(A) was justified in deleting the addition to the extent of ₹ 15,28,408/- (transport receipt of ₹ 12,43,233/-, Misc. Income of ₹ 1,31,647/- and written back amount of ₹ 1,53,528/-) out of total addition of ₹ 39,97,952/- made by the AO on account of exclusion of other income not eligible for deduction u/s 80-IC of the LT. Act, 1961. 2. Whether the Ld. CIT(A) was justified in deleting the addition of ₹ 1,97,06,900/- made by the AO on account of apportioned indirect head office expenses e.g. advertisement and publicity expenses, Rent, Depreciation on vehicles donation and contribution paid for scientific research, not eligible for 80-IC unit. 3. Whether the Ld. CIT(A) was justified in treating the forward contract gain of ₹ 19,32,946/- as business income eligible for deduction u/s 80-IC without verifying transaction wise import of raw material/goods vis-a-vis the forward contracts executed by the assessee. In case there is no one to one nexus between the imports and the forward contracts, the profit/loss arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame back in computing the income in normal provisions of the Act as well as not computing the book profit u/s 115JB of the Act. AO also excluded the amount of ₹ 2,39,40,228/- and ₹ 3,04,561/- disallowed as claim of deduction u/s 80IC on account of excise duty exemption subsidy and transport subsidy respectively towards profit of the unit in computing the income under normal provisions of the Act as well as in computing the book profit u/s 115JB of the Act. 9. In AY 2011-12, AO made addition of ₹ 39,97,952/- (₹ 12,43,233/- + ₹ 1,31,647/- + ₹ 153,528/- on account of freight income, misc. income and provision of expenses returned back respectively) on the ground that the assessee has not furnished the details if expenses of freight is the liability of the assessee and assessee is earning the freight income as facilitator or transport agent which cannot be directly linked to the business of the undertaking and for misc. income, on the ground that these income are not having any business nexus with the assessee s business undertaking and for provision for expenses written back, on the ground that the assessee has not provided any proof and havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transport subsidy of ₹ 3,04,561/- by including the profit of Sikkim unit as a claim eligible for deduction u/s 80IC. Assessee company however excluded excise duty exemption subsidy from the book profit for the computation of income u/s 115JB of the Act. AO however excluded excise duty exemption subsidy and transport subsidy of ₹ 2,39,40,228/- and ₹ 3,04,561/- respectively for the purpose of computation of deduction eligible to the assessee under section 80IC of the Act. AO thereby computed the eligible deduction u/s 80IC at ₹ 25,48,25,717/-. 15. Ld. CIT (A) however give the relief by treating excise duty exemption subsidy and transport subsidy to be eligible for deduction u/s 80IC by including the same in profit of Sikkim unit. Ld. CIT (A) also reduced the foreign exchange loss of Sikkim unit to ₹ 68,33228/- instead of ₹ 1 crore made by the AO. Both assessee company as well as Revenue are in appeal before the Tribunal. 16. Undisputedly, assessee company being in manufacturing activities in the Estate of Sikkim received excise duty exemption subsidy transport subsidy of ₹ 2,39,40,228/- ₹ 3,04,561/- respectively. Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AR for the assessee contended that since the foreign exchange fluctuation loss is in the nature of indirect/non-operating expenses, it must be allocated to the eligible industrial undertaking. Ld. DR for the Revenue, however, relied upon assessment orders passed by AO. 19. Assessee company has brought on record detail of foreign exchange loss incurred on account of import of raw material used at the industrial undertaking, available at page 193 of the paper book. Ld. CIT (A) after taking into account working given by the assessee company at page 193 of the paper book restricted the allocation to the tune of ₹ 68.33 lakhs. No doubt, foreign exchange loss being in the nature of indirect/non-operating expenses must not be allocated to the eligible industrial undertaking. However, when the assessee company has come up with specific working/details of suffering foreign exchange loss on account of import of raw material used at the industrial undertaking, the ld. CIT (A) has rightly thrashed the issue on facts and directed the AO to reduce such allocation to ₹ 68.33 lakhs as against ₹ 1 crore estimated by the AO. So, again we find no illegality or perversity in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture has been incurred to earn the dividend income except with general observations that, a company cannot earn dividend without its existence and management. Investment decisions are very complex in nature which are generally taken by management personnel or other professional experts employed for the purpose for which administrative, managerial and administrative expenses are incurred. 22.1 To our mind, this is no satisfaction rather AO proceeded on the basis of assumptions and guesswork. In AY 2011-12, AO while invoking the provisions contained under Rule 8D recorded that, since the assessee has not maintained any separate books of account for accounting of expenses incurred in relation to income not includible in its total income the amount of expenses actually incurred cannot be ascertained from the assessee s books of account satisfactorily and proceeded to invoke the provisions contained u/s 14A of the Act r/w Rule 8D of the Rules. 23. Hon ble Apex Court in Godrej Boyce Manufacturing Company Ltd. vs. DCIT 394 ITR 449 (SC) thrashed the issue in controversy as to invoking of the provisions contained under Rule 8D of the Rules by observing as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had been invested in the shares/debentures of RUPL and although the dividend income and income from long term capital gain from the said investment was exempt from tax u/s 10(23G), perusal of the copy of relevant Notification issued u/s 10(23G) placed at page No. 24 of the paper book, shows that such exemption was initially granted only for the specific period i.e. assessment year 1999-2000 to 2001-2002. No doubt, the said exemption was further extended upto assessment year 2004-05 as submitted by the learned DR, a perusal of the copy of relevant notification placed at page No. 29 of the paper book clearly shows that such extension was granted subject to satisfaction of certain conditions. Keeping in view all these uncertainties and contingencies, we are inclined to agree with the contention of the learned counsel for the assessee that the premium paid by the assessee on redemption of premium notes (OCPN) utilized for making investment in the shares/debentures of RUPL cannot be regarded as expenditure incurred exclusively in relation to earning of exempt income so as to invoke the provisions of section 14A. Moreover, the said investment had the potential of generating taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Chambal Fertilizers and Chemicals Ltd. vs. Pr.CIT (D.B. ITA No.52/2018 judgment dated 31.07.2018) and CBDT Circular No.91/58 dated 19.05.1967. Ld. AR for the assessee further contended that cess has already been specifically excluded from section 40(a)(ii) of the Act and relied upon the CBDT circular dated 19.05.1967 (supra). He further contended that cess is not in the nature of tax. However, ld. DR for the Revenue relied upon the orders passed by the AO as well as ld. CIT (A). 32. Perusal of CBDT Circular dated 19.05.1967 (supra) is categoric enough that view of ITO disallowing the cess paid by the assessee is not correct and the Select Committee has decided to omit the word cess from the clause and its effect is that only taxes paid are to be disallowed in the assessment for the year 1962-63 and onwards. 33. This issue has been decided by Hon ble High Court of Rajasthan in case of Chambal Fertilizers and Chemicals Ltd. (supra) in the light of the interpretation of Circular dated 19.05.1967 (supra) in favour of the assessee by returning following findings :- 13. On the third issue in appeal no.52/2018, in view of the circular of CBDT where word Cess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that AO/CIT(A) have purely disallowed 50% 15% respectively of the sales promotion expenses on ad hoc basis without pointing out if any part of the business promotion expenses claimed by the assessee company have not been incurred. So, we delete the addition of ₹ 1,16,473/- being 15% of the business promotion expenses disallowed by the ld. CIT (A)., hence Ground No.4 of assessee s appeal in AY 2010-11 is determined in favour of the assessee. GROUND NO.4 OF AY 2009-10 (REVENUE S APPEAL) 37. AO for the purpose of calculation of disallowance in terms of Rule 8D(2)(iii) of the Rules considered the investment of ₹ 1.41 crores made by the assessee company in its subsidiary, namely, M/s. Newby India Pvt. Ltd.. However, ld. CIT (A) directed to exclude the said investment made by the assessee in M/s. Newby India Pvt. Ltd. for the purpose of computing disallowance under Rule 8D by relying upon the decisions rendered by the coordinate Bench of the Tribunal in case of Inter Globe Enterprises Ltd. vs. DCIT, J.M. Financial Ltd. vs. Addl. CIT ITA No.4521/Mum/2012 and UP Electronics Corpn. Ltd. vs. DCIT. 37.1 We are of the considered view that when undisputedly st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een credited in the profit and loss account and treated as income and exclusion of these incomes (sums) for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec. 115JB (2) of the Act. 22. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec. 115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee. being a company, the income- tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on Of after the 1st day of April, 200l, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec. 115JB of the Act were applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f share warrants amounting to ₹ 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon 'ble Apex Court in case of Indo Rama Synthetics (I) Ltd vs CIT 330 ITR 336 (SC), Apollo Tyres Ltd. 255 ITR 273 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. Vs. DCIT (2010) 131 TTJ (Hyd)(SB) 514, ITAT Lucknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vice versa in ITA Nos. 417 ,418 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P) Ltd. Vs. DCIT (2015) 173 TTJ (Mumbai) 238 dated 19.8.2015, came to the conclusions (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec.l15JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: 26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term income as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as incomes not included in total income for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation I to sec. 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be followed by the Revenue. When section 115JB being not a non-obstante clause having no overriding effect upon the other provisions of the Act and profit loss account for the year under assessment has been made accordingly by the assessee in accordance with the provisions of Part II III of Schedule VI to the Companies Act, no further adjustment can be made except expressly provided in the Act. So, the AO has no jurisdiction to travel beyond the net profit shown in the P L account except to the extent that profit in the Explanation to section 115JB of the Act under which disallowance u/s 14A is not covered. 43. Coordinate Bench of the Tribunal in case of M/s. Essar Teleholdings Ltd. vs. DCIT (ITA No.3850/Mum.2010 for AY 2005-06 order dated 29.07.2011) held that, no addition to the book profit shall be made on account of expenditure as per Rule 8D r/w section 14A of the Act while computing income u/s 115JB of the Act. So, in view of the matter, we are of the considered view that ld. CIT (A) has rightly deleted the disallowance u/s 14A read with Rule 8D while computing the book profit u/s 115JB. So, ground no.6 of Revenue s appeal for AY 2009-10 is dismissed. GR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s returned by the ld. CIT (A) on ground no.1, hence ground no.1 of Revenue s appeal for AY 2011-12 is decided against the Revenue. GROUND NO.2 OF AY 2011-12 (REVENUE S APPEAL) 47. AO made addition of ₹ 1,97,06,900/- (advertisement and publicity expenses ₹ 35,100/-, Rent expenses ₹ 15,90,300/-, Depreciation on vehicles ₹ 4,50,281/-, deduction u/s 35 in respect of contributions ₹ 1,53,36,000/- deduction u/s 80G in respect of donations ₹ 23,08,500/-) on proportioned indirect Head Office expenses eg. advertisement and publicity, rent, depreciation on vehicles, donation and contribution paid for scientific research being not eligible for deduction u/s 80IC of the Act. However, ld. CIT (A) deleted the proportionment of Head Office expenses made by the AO by following the decisions rendered by the coordinate Bench of the Tribunal for AY 2006-07 in assessee s own case. 48. Perusal of the order passed by the coordinate Bench of the Tribunal in AY 2006-07, available at pages 151 to 153 of the paper book, goes to prove that the identical issue has been decided in favour of the assessee by returning following findings :- 4. We have heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the forward contract gain of ₹ 19.32 lakhs as business income eligible for deduction u/s 80IC of the Act on the ground that purpose of entry into forward contract was to hedge the foreign currency exposures qua import of raw materials and finished goods for relying upon the decision of coordinate Bench of the Tribunal in case of ITO vs. LGW Ltd. (2015) 45 CCH 0103 . 50.1 In case of LGW Ltd. (supra) relying upon by the ld. CIT (A), it is held by the coordinate Bench of the Tribunal that forward contract entered to safeguard against loss arising out of fluctuation in foreign currency are not speculative transaction having been entered into normal course of business. Ld. CIT (A) thrashed the law and facts on this issue and consequently, we are of the considered view that when forward trading contract was arrived at by the assessee company merely to safeguard against loss arising out of foreign exchange in foreign currency, the same cannot be treated as speculation transaction as business income eligible for deduction u/s 80IC, so we find no ground to interfere the findings returned by the ld. CIT (A), hence ground no.3 of Revenue s appeal for AY 2011-12 is determine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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