TMI Blog2018 (8) TMI 2133X X X X Extracts X X X X X X X X Extracts X X X X ..... ancing the scope of appeal whereas the issue before us concerns only disallowance u/s. 14A - respectfully following the order of the Tribunal [ 2018 (5) TMI 255 - ITAT KOLKATA ] for AY 2008-09, we direct the AO to delete the disallowance of proportionate interest made u/s. 14A of the Act read with Rule 8D(2)(ii) of the Rules. Addition made u/r 8D(2)(iii) - Tribunal in assessee s own case for AY 2008-09 [ 2018 (5) TMI 255 - ITAT KOLKATA ] following the decision of REI Agro Ltd. [ 2013 (9) TMI 156 - ITAT KOLKATA ] held that only dividend bearing investment in shares are to be considered for making disallowance u/s. 14A of the Act. Following the same, we remand this issue back to the file of the AO with a direction to consider only investment in shares and units held on the opening and closing date of the previous year which yielded dividend income for the purpose of computing the disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) Computation of deduction u/s. 10B and 80IA - allocation of 7.39% of directors remuneration and auditor s remuneration to be considered as deduction in arriving at the profits of the undertakings eligible for deduction u/s. 10B and 80IA - H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition - HELD THAT:- Since interest demand was raised by the payee only in the relevant year, the Ld. CIT(A) rightly held that the liability for such expenses arose and crystalised in this year only. As regards other items of expenses, CIT(A) observed that the bills for certain expenses for the FY 2007-08 were received by the assessee only in the next year i.e. the relevant FY 2008-09. Although the assessee had provided for the expenses on estimate basis in the earlier year but there was certain difference between the provisions estimated and the actual billed amount and it was this differential amount which was charged to the P L Account for the relevant year. CIT(A) correctly observed that since the bills were received after the end of the FY 2007-08 and in FY 2008-09, the differential amount had crystalised in the relevant year itself and, therefore, allowed the same. - Decided against revenue. CIT(A) in restricting the allocation of expenses on legal and professional and travelling and conveyance to the eligible undertaking u/s. 80IA and 10B - HELD THAT:- From perusal of the schedule of expenses forming part of the audited accounts, we find that legal and professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt income. The AO by applying Rule 8D of the Rules made disallowance of Rs. 23,44,12,765/- in the following manner: Rule 8D(2)(i) Direct expenses Nil Rule 8D(2)(ii) Interest Rs. 21,36,61,350/- Rule 8D(2)(iii) Administrative expenses Rs. 2,07,51,415/- Rs. 23,44,12,765/- Aggrieved by the disallowance computed by the AO, the assessee preferred an appeal before the Ld. CIT(A), who in principle confirmed the addition made by the AO u/s. 14A of the Act to the total income but rectified the errors which had crept into the computation of disallowance in terms of Rule 8D of the Rules made by the AO and hence, confirmed the addition u/s. 14A of the Act to the extent of Rs. 19,81,76,000/- which, inter-alia, included a sum of Rs. 17,99,25,000/- under Rule 8D(2)(ii) and Rs. 182.51 lacs under Rule 8D(2)(iii) of the Rules. Aggrieved against the order of Ld. CIT(A), assessee is before us. 4. We have heard rival submissions and gone through the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Rule 8D(2)(iii) upheld with the direction to allow relief of the sum already disallowed by the appellant itself. On appeal preferred by the Revenue the Tribunal held as follows:- We have heard rival submissions and gone through facts and circumstances of the case. We find that now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query Ld. Sr.DR could not controvert that the assessee has made in investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at Rs 365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT(A) on the common issue .. We find that this case has yielded concurrent finding of facts regarding expenditure incurred by the assessee for the purpose of earning the exempt income, by the Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee s own funds vis -vis in its investment in shares and units considered for disallowance u/s. 14A of the Act by the Ld. CIT(A) were as under:- Particulars 31.03.2009 (Rs.in crores) ₹ 31.03.2008 (Rs. in crores) Share capital 299.69 0.49 Reserves 1349.15 1249.15 P L A/c. balance 2176.16 1319.55 Total own funds 3825.00 2569.19 Investment in shares and securities 446.60 283.46 From the aforesaid chart we note that the assessee in fact had own funds to the tune of Rs. 3825 cr. and investment in shares and securities were only Rs. 446.60 cr. From these figures we find that the assessee had at its disposal sufficient funds to make the investment which yielded exempt income. Thus, it is noted that the facts of the case are analogous to the facts involved in the earlier AY 2008-09. 7. The Ld. DR appearing on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shares and units held on the opening and closing date of the previous year which yielded dividend income for the purpose of computing the disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) of the Rules. Needless to say, assessee should be given opportunity of hearing. Therefore, ground nos. 1 to 3 are partly allowed for. 10. Ground nos. 4 and 5 of the appeal are against the Ld. CIT(A) s action in confirming the allocation of 7.39% of directors remuneration and auditor s remuneration of Rs. 19,55,66,000/- and Rs. 29,62,000/- to be considered as deduction in arriving at the profits of the undertakings eligible for deduction u/s. 10B and 80IA of the Act. 11. Briefly stated facts are that during the relevant year the assessee had claimed deduction u/s. 80IA of the Act in respect of its Wind Power Division and u/s. 10B of the Act in respect of its 100% EOU at Khatra. In the assessment order, the AO after examining the audited accounts of the respective undertakings found that in arriving at the profit of the undertaking, the assessee had not allocated certain expenses which in his opinion related to these eligible undertakings as well. The items of the expenses consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, we note that this incentive linked sections contained both substantive provisions which are required to be satisfied for claiming deductions/exemption and the computation of profit to arrive at the sum eligible for deduction/exemption. It is noted that for computation purpose this section refer to profit derived from eligible business . The Hon ble Courts while interpreting the computation of profits derived from eligible business have held that the word derived from is narrower in connotation as compared to the word attributable to . The Hon ble Supreme Court in the case of Liberty India Vs. CIT (2009) 317 ITR 218 (SC) held that the expression derived from intends to cover sources not beyond the first degree. Meaning thereby the expression derived from signifies that only income/expenditure directly and inextricably related to eligible undertaking should be considered in computing profits of the eligible undertakings. Indirect expenditure which has no direct nexus or connection to the profits of industrial undertaking should not be considered in computing deduction u/s. 80IA/10B of the Act. We find that the foregoing proposition finds support in the following de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved in the day-to-day affairs of the company and is responsible for over-all operations of the company including the eligible undertaking. In the circumstances, the Managing Directors remuneration indeed have nexus with the functioning of the eligible undertaking and, therefore, we uphold the allocation made out of the Managing Directors remuneration to the profits of the eligible undertaking. Therefore, ground nos. 4 and 5 are partly allowed. 17. Now, revenue s appeal in ITA No. 2064/Kol/2013 for AY 2009-10. Ground nos. 1 to 3 of the appeal are against the action of the Ld. CIT(A) for allowing the deduction of prior period expenses of Rs. 89,78,073/-. 18. Briefly stated facts are that in the schedule-16 of the audited financials as well as the tax audit report, prior period expenses have been disclosed at Rs. 89,78,073/- which comprises of interest of Rs. 79,81,509/- paid to Dy. Director of Mines, Joda for delayed payments of royalty and other items of Rs. 9,96,564/-. According to AO, the assessee was unable to establish that this liability for expenses pertaining to earlier years had crystalised during the financial year and, therefore, disallowed the entire sum. On appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received after the end of the FY 2007-08 and in FY 2008-09, the differential amount had crystalised in the relevant year itself and, therefore, allowed the same. The Ld. CIT, DR appearing for the revenue was unable to point out any infirmity in the finding recorded by the Ld. CIT(A). We, therefore, do not find any reason to interfere with the order of the Ld. CIT(A). Therefore, ground nos. 1 to 3 of revenue s appeal are dismissed. 21. Coming to next ground no. 4 taken by the revenue is against the action of the Ld. CIT(A) in restricting the allocation of expenses on legal and professional and travelling and conveyance to the eligible undertaking u/s. 80IA and 10B of Rs. 30,99,000/- and Rs. 5,63,000/- as opposed to the total disallowance of Rs. 115.82 lacs made by the AO. 22. Briefly stated facts as are already discussed in the foregoing portion of this order, the assessee had claimed deduction u/s. 80IA and 10B of the Act in respect of its Wind Power Division and 100% EOU unit respectively. In the assessment order the AO had identified certain expenses which in his opinion were common and related to this eligible undertaking as well. The items of expenses, inter alia, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s. 14A read with Rule 8D of the Rules but directed the AO to consider the net interest expenditure after deducting the interest income instead of gross interest expenses for the purpose of Rule 8D(2)(ii) of the Rules. Aggrieved by the order of Ld. CIT(A), both the assessee as well as revenue are in appeal before us. 26. After considering the rival submissions and perusing the material available on record, we note that the issue involved in this ground is similar to the one involved in ground nos. 1 to 4 in assessee s appeal for AY 2009-10 which we have decided in the foregoing portions in this order. Following our conclusion drawn in AY 2009-10, we find that in the relevant year as well the assessee had sufficient own surplus funds namely Rs. 4334.36 lacs at its disposal to cover the cost of investment of Rs. 631.10 lacs. We accordingly, hold that no disallowance out of interest was warranted u/s. 14A of the Act. The AO is accordingly directed to delete the disallowance made u/s. 8D(2)(ii). As regards the disallowance made by AO under Rule 8D(2)(iii) of the Rules, we deem it fit and proper to remand the issue back to the file of the AO with a direction to consider only the i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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