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TMI Blog2022 (1) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... business of manufacturing of CPVC / PVC pipes. The assessee submitted return declaring a total income of Rs. 62,00,63,460/-. The Ld. AO completed assessment at a total income of Rs. 70,37,33,950/- after making various additions. Against the order of AO, the assessee filed appeal to Ld. CIT(A) who allowed partrelief. Against the order of Ld. CIT(A), the Revenue has filed this appeal before us. The assessee has also filed cross-objection. Now the parties are before us. 5. The Grounds in Revenue's Appeal are altogether different and independent from the Grounds in Assessee's Cross-Objection. We first deal with the Appeal and thereafter Cross-Objection. Revenue's Appeal: 6. The Revenue has raised following grounds: "(1) That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,15,04,044/- made on account of disallowance u/s 14A of the I.T. Act 1961 read with Rule 8D. (2) That the Ld. CIT(A) has erred in not considering the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. 402 ITR 640. (3) The appellant craves, to leave, to amend and /or to alter any ground or add a new ground which may be necessary." 7. Ground No. 1- Disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient interest-free reserves available with it. The secured loans had been taken for specific purposes and have been utilized for those purposes only and not utilized for the purpose of making investments. Hence interest expenditure is not incurred for impugned investments. (ii) The investments appearing in above Table at S.No. 1 to 4 were made in the shares of subsidiaries, at S.No. 5 was made in a Joint Venture and at S.No. 6 was made in a partnership firm. These all investments were made principally for strategic objectives of the appellant and not for earning exempt-income. (iii) During the previous year, no dividend was earned from investment in shares. As far as investment in partnership firm is concerned, the assessee got a share in loss amounting to Rs. 15,60,947/-. Thus, there was no exempt-income actually earned during the year from the impugned investments. (iv) Administrative cost and other expenses were incurred for the business of assessee and not for those investments. No disallowance can be made only on estimation that some expenditure must have been incurred for the purpose of earning exempt-income. The assessee also placed reliance on following decisions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and PCIT v/s GMM Fauider Limited in Tax Appeal No. 506 of 2017, dated 31st July, 2017, no proportionate interest disallowance under Rule 8D(2)(ii) can be made. Thus, on holistic consideration of entire facts, as Appellant has not earned any exempt income in current year, disallowance under Section 14A made by AO for Rs. 2,15,04,044/-is deleted. This ground of appeal is allowed." 7.6 Now before us, both parties have stressed their original submissions. The Ld. D/R has supported the action of AO and requested that the disallowance ought to be sustained. As against this, the Ld. A/R supported the action of CIT(A) and submitted that the disallowance is totally wrong and the same was perfectly deleted. 7.7 We have given a careful thought to the material available as also the rival contentions and submissions made by both sides. 7.8 Before proceeding further, it would be better to reproduce section 14A and Rule 8D, as it stood at the relevant time: Section 14A: "Expenditure incurred in relation to income not includible in total income. 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A r/w Rule 8D in order to ascertain whether the disallowance is attracted even when the underlying investment has not yielded any exempt-income during the relevant previous year? 7.10 For this wehave the benefit of a deep analysis given by Hon'ble ITAT, Delhi in DCIT Vs. New Delhi Vs. M/s Raglan Infrastructure Ltd. ITA No. 4720 / Del / 2014 order dated 01/09/2017, wherein the Hon'ble Bench has concluded thus: "14. In the Explanatory Memorandum to the Finance Act 2001, by which Section 14A was inserted with effect from 1st April 1962, it was clarified that "expenses incurred can be allowed only to the extent they are relatable to the earned income of taxable income". The object behind Section 14A was to provide that "no deduction shall be made in respect of any expenditure incurred by the Assessee in relation to income which does not form part of the total income under the Income Tax Act". 15. What is taxable under Section 5 of the Act is the "total income" which is neither notional nor speculative. It has to be 'real income'. The subsequent amendment to Section 14A does not particularly clarify whether the disallowance of the expenditure would apply even where no exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11th May 2014, the decision of this Court in Cheminvest Ltd. (supra) requires reconsideration. 20. In M/s. Redington (India) Ltd. v. The Additional Commissioner of Income Tax, Company Range -V, Chennai (order dated 23rd December, 2016 of the High Court of Madras in TCA No. 520 of 2016), a similar contention of the Revenue was negated. The Court there declined to apply the CBDT Circular by explaining that Section 14A is "clearly relatable to the earning of the actual income and not notional income or anticipated income." It was further explained that, "The computation of total income in terms of Rule 8D is by way of a determination involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificial method of computation on notional and assumed income. We believe thus would be carrying the artifice too far." We are consciously aware of CBDT Circular No.5 / 2014wherein it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A could have no application"" 7.12 This Hon'ble Bench of in case of Shah Alloys Ltd. [2315/Ahd/2010], dated 27/03/2015 following the decision of Corrtech Energy Pvt. Ltd. held as under: ""The Authorized Representative of the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy (P) Ltd, reported in (2014) 272 CTR 262 (Guj.)(HC), wherein It has been held that where the assessee has not made any claim for exemption of any income from payment of tax, no disallowance could be made u/s 14A of the Act. The Departmental Representative has not disputed the submission of the assessee that during the assessment years under consideration the assessee has not claimed any income as exempt from tax in its Return of Income filed. Therefore, respectfully following the decision of Hon'ble Gujarat High Court in the case of Corrtech Energy (P) Ltd (supra), we delete the disallowance of expenditure made u/s 14A read with Rule 8D of Rs. 1,60,45,775/- in the Assessment Year 2007-08 and Rs. 2,04,30,869/- in the Assessment Year 2008-09. Thus, this ground of appeal of the assessee is allowed in both the years under appeal" 7.13 From abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny specific adjudication. Assessee's Cross-Objection: 10. The Assessee has raised following grounds of cross-objection: "1. In law and in the facts and circumstances of the Respondent's case, the learned Assessing Officer has grossly erred not allowing additional claim of deduction u/s 32AC of Rs. 40,30,472/-. The Ld. CIT(A) has erred in not allowing the claim of deduction u/s 32AC. 2. On the facts and in the circumstances of the Respondent's case, in view of the decision of Rajasthan High Court in the case of Chambal Fertilizers and Chemicals wherein it was held that Cess is not disallowable u/s 40(a)(ii), the respondent would like to make a claim of cess on income taxes paid and DDT paid u/s 40(a)(iii) amounting to Rs. 63,48,052/-. 3. The respondent craves leave to add, alter, amend and / or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal." 11. Ground No.1 - Additional claim of deduction u/s 32AC - Rs. 40,30,472/: 11.1 In this Ground, the assessee claims that the Ld. AO / CIT(A) were not justified in not giving additional claim of deduction u/s 32AC of Rs. 40,30,472/-. 11.2 The assessee is a manufacturing company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should (a) Draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) Freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."" (iii) Even otherwise it is judicially held that Goetze India (Supra) prohibits a new claim before the AO but it does not prevent the judicial authorities from admitting such claim. 11.4 We also observe that the deduction u/s 32AC is a statutory deduction. Further the purpose of deduction is to incentivize the establishment of new manufacturing industry. Hence it would be better to construe the provision in a holistic manner. 11.5 In view of above we accept this claim of assessee. However, since the details of qualifying assets are required to be verified, we send the matter back to the file of Ld. AO. The Ld. AO shall give an opportunity to the assessee, verify the detai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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