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TMI Blog2023 (5) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Vs. CIT (2009) 317 ITR 218 (SC) wherein the words "derived from' is explained? 1(c) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the claim of the assessee u/s 80IC on sale of scrap, relying on the decision of the Hon'ble Madras High Court in the case of M/s Fenner India Ltd. (241 ITR 803) without appreciating the facts that the same has been rendered without taking into consideration various decision of Hon'ble Apex Court on this issue like CIT vs Sterling Food (199) 237 ITR 579 when it was not derived from the activities of the eligible business? 2(a) Whether on the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the allowances made u/s 14A of the Act by relying upon the decision of the Hon'ble ITAT, Pune wherein the Hon'ble Tribunal held that, no satisfaction has been recorded by the assessing officer as per requirement of Rule 8D, ignoring the fact that the necessary satisfaction as mandated under Sec 14A(2) of the Act has been drawn by the AO in the present case. 2(b) Whether on the facts and circumstances of the case, the Ld.CIT(A) is correct by relying upon the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 80IC of the Act. Ground No.2 comprising of (a) & (b) is with regard to deletion of disallowance by the ld. CIT(A) u/s. 14A of the Act and similarly ground No.3 comprising of (a) & (b) is with regard to TP adjustments. 4. First we would adjudicate the claim of the Revenue u/s. 80IC of the Act, which is in ground No.1 of the revised grounds of appeal. 4.1 During the relevant year, the assessee has claimed deduction u/s. 80IC for its LDC Division at Roorkee unit for an amount of Rs.1,18,08,92,057/- being 100% of the profits of Rs. 1,18,08,92,057/- of the eligible business undertaking. It was observed by the AO from the computation of the quantum of this eligible deduction u/s. 80IC that the assessee has also included scrap of sale of Rs. 7,38,53,684/-. The written explanation was asked from the assessee, which was duly complied with and which forms part of the assessment order. After considering the submission of the assessee, the AO held that as per the provision of sec.80IC, the assessee is entitled to deduction of 100% of profits and gains derived from an industrial undertaking which is engaged in manufacture or production of articles or things. It was further concluded that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A) and also placed reliance on the decision of the Pune Tribunal (supra). He further submitted that the same decision in assessee's own case was further followed by the Tribunal for A.Y. 2016-17 in ITA No. 479/PUN/2021 order dated 16/12/2021 and relief was provided to the assessee on this issue. 5. We have analyzed the facts and circumstances, heard the submissions of the parties herein and have given considerable thought to the said submissions as well as the judicial pronouncements placed before the Bench. 5.1 The AO had subtracted the value for the sale of scrap while calculating the deduction u/s. 80IC of the Act for the reason that, according to the AO, the words "derived from" pertains to sale of the goods manufactured in the eligible unit and scrap sales are not byproduct of the assessee. For this proposition, he had relied upon certain judicial pronouncements which are on record as appearing in his order. Thereafter, ld. CIT(A), allowed this issue in favour of the assessee placing reliance on the order of the Pune Tribunal (supra). We observe that the same issue had come up before the Pune Tribunal for A.Y. 2016-17 and there also, by placing reliance on the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have observed in this issue that the ld. CIT(A) while providing relief to the assessee has simply placed reliance on the order of the Tribunal in assessee's own case for A.Ys. 2008-09 to 2011-12 and then concluded since the facts for the current year are identical, therefore, issue was allowed in favour of the assessee. He has not discussed the specific facts relevant to the present year as appearing in the order of the AO, whether at all in this year, the AO has arrived at any satisfaction or not while invoking s.14A r.w.r. 8D. The principle of res judicata are not applicable in the income tax proceedings and, therefore, as a quasi-judicial authority, the ld. CIT(A) should have examined the facts for this year and then compared them with the facts in a definite manner as appearing in the Pune Tribunal's decision which was relied on by him. Such exercise has not been done as is evident in his order. On the contrary, it is evident from the order of the AO that after considering the submissions filed by the assessee, he has categorically stated why disallowance u/s. 14A is warranted in this case and that he was not satisfied with the calculation of the assessee. It is clearly evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement of cost is represented by interest. Besides, investment decisions are generally taken in the meetings of the board of directors for which administrative expenses are incurred. It is therefore not correct to say that dividend income can be earned by incurring no or nominal expenditure. All expenses connected with the exempt income have to be disallowed under s. 14A regardless of whether they are direct or indirect, fixed or variable and managerial or financial in accordance with law. In this connection, the provisions of sub-section (2) or(3)of s.14A inserted by the Finance Act, 2006 deserve to be noted". In another case of Dag Capital Management Ltd., the Hon'ble ITAT, Mumbai has been held that section 14A is a special provision which deals with disallowance of expenditure incurred by assessee in relation to income which does not form part of total income under the Act and thus, in view of specific provisions of section 14A, expenses falling under any head or section which are otherwise deductible as business expenditure or under other respective heads, would call for disallowance to extent to which those expenses have been incurred in relation to income exempt from ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. However the assessee has furnished any satisfactory explanation for the TPO's proposed to charge markup on the cost allocated to Roorkee unit @ 7.48% as mentioned in para 4 & 5 of the show cause notice. The assessee's explanation in this regard is as under:- "4. With reference to paragraph 4 of your notice, the auditors have computed the TNMM for cable industry @7.48%. The profitability of the company is in line with the comparables marked by auditors. This is overall profitability of Company. The profitability of Roorkee unit is higher due to excise exemption as explained above. 5. With reference to paragraph 5, it is humbly submitted that total expenses of 434.76 crores are expenses for company as whole and not for corporate expenses alone. The turnover of other plants (other than Roorkee) is Rs.1291.73 crores (Rs.2270.68 - Rs.978.94 crores) (Net of excise duty). The expenses of other plants also need to be considered and reduced from Rs. 434.76 crores to arrive at appropriate corporate expenses. The corporate expenses need to be allocated to all the plants. The details of direct expenses & corporate expenses is enclosed." From the above explanation of the assessee it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch allocation was not a transfer of service that requires additional markup as done by the TPO in the present case of the assessee. It was also verified by the ld. CIT(A) that no transfer pricing adjustment on this issue has been done for the subsequent A.Ys.2016-17 & 2017-18. With these observations, this issue was allowed in favour of the assessee. 13. Admittedly, in this case, the allocation of corporate expenses was done for both the units on the basis of sale for the year under consideration. It is not a case of cost allocation for rendering any services by one unit to the other, which otherwise would have required the ALP determination by applying an arm's length mark-up. Here is a case where common administrative expenses, such as, directors" salary and audit fee etc., have been shared between both the units on the basis of revenue earned by them de hors such expenses culminating into rendition or receipt of any services or property by/from one unit to another. We thus uphold the view taken by the ld. CIT(A). Accordingly, grounds No.3 including (a) & (b) of the Revenue stands dismissed. 14. In the result, appeal of the Revenue is partly allowed. Order pronounced in open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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