TMI Blog2023 (1) TMI 1324X X X X Extracts X X X X X X X X Extracts X X X X ..... ess. The above view is also supported by the decision of the Hon'ble Bombay High Court in case of Reliance Utilities and Power Limited [ 2009 (1) TMI 4 - BOMBAY HIGH COURT ] as well as the decision of Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT ] Accordingly, ground no.1 of the appeal is allowed. Disallowance u/s 14A read with Rule 8D - assessee has earned exempt income and has also offered SUO Moto disallowance - AO Found that disallowance offered by the assessee is on ad hoc basis and without any mathematical working - CIT (A) after considering the explanation of the assessee rejected that no interest of disallowance can be made under Section 14A - HELD THAT:- We find that when non-interest bearing funds are much higher than the amount invested which yielded exempt income, there is no question of making any disallowance under Rule 8D2 (1) and 8D (2)(iii) of the Act. Such claim of the assessee before us is only with respect to the interest disallowance under Rule 8D of the Rules, Assessee succeeds on this issue. Disallowance u/s 14A imputed under the computation of book profit , we find that issue is squarely covered in favour of the assessee by the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit. Accordingly, the adjustment made by the learned Assessing Officer and confirmed by the learned CIT (A) is not correct. Ground of the appeal is allowed. Addition of provision for wealth tax to the book profit u/s 115JB - HELD THAT:- We find that this issue is squarely covered in favour of the assessee by the decision of Reliance Industries Ltd. 2019 (1) TMI 887 - BOMBAY HIGH COURT ] as held that in plain terms, the clause (a) reference to amount of income tax paid or payable or the provision made thereof. The legislator is advisably included wealth tax in the clause 40 (a) (iia) but not u/s 115 JB of the Act. Therefore, by no interpretation process the wealth tax can be included in clause (a) of explanation 1 to section 115JB of the Act. We find that the addition deserves to be deleted. Ground of the appeal is allowed. Disallowance of excise duty debited to the profit and loss account - AO held that above sum is the double deduction of excise duty expenses. According to him, the assessee claim deduction firstly, from sales in credit side of profit and loss account by showing net sales and consequently, by debiting the excise duty expenses in the profit and loss acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER BENCH: 01. These are the bunch of eight appeals of one assessee i.e., Excel Industries Ltd., pertaining to A.Ys. 2010-11 to 2015-16 involving similar ground of appeal, therefore, the parties argue all these appeals together and therefore, same are disposed of by this common order. A Y 2010-11 02. ITA No.5472/Mum/2017 is filed by Excel Industries Ltd. (the appellant/ assessee) and ITA No.5431/Mum/2017 is filed by the Dy. Commissioner of Income Tax, Central Circle 6(3), Mumbai [ the ld. AO ] for A.Y. 2010-11 against the appellate order passed by the Commissioner of Income-tax (Appeals)-54, Mumbai [the learned CIT (A)] dated 3rdMay 2017. 03. In ITA No.5472/Mum/2017 for A.Y. 2010-11, the assessee has raised following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in confirming the action of the Assessing Officer in disallowing interest amounting to Rs 41,38,397/- by treating the same as attributable towards Capital Workin-Progress (CWIP). 2. Without prejudice to the above ground of appeal, the Commissioner of Income-tax (Appeals) erred in rejecting the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to Rs. 10,15,81,117/- while computing the total income as per the normal provisions of the Act. 10. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in not allowing deduction of provision for doubtful debts written back amounting to Rs.8,54,36,354/-while computing book profits under section 115JB of the Act. 11. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in confirming the action of the Assessing Officer in adding back an amount of Rs. 1,78,75,000/- in respect of provision for current tax without netting off Minimum Alternative Tax (MAT) credit entitlement while computing the book profits as per the provisions of section 115JB of the Act. 12. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in confirming the action of the Assessing Officer in adding back an amount of Rs.2,00,000/- on account of provision for wealth tax while the computing book profits under section 115JB of the Act. 13. On the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould only be considered, overlooking the fact that the above decision has not been accepted by the revenue as the Civil Appeal No. 122/2015 has been filed against above decision and the same is pending before the Hon'ble Supreme Court. 05. Briefly, the fact shows that assessee is a company engaged in the business of manufacturing and trading of industrial chemicals, biotech and life sciences. It filed its return of income on 1 stOctober 2010 for ₹34,79,502/-. This return was revised on 28th September, 2011 at ₹ nil. The case of the assessee was picked up for scrutiny. The assessment order under Section 143(3) of the Act was passed on 20th March, 2013, determining the total income of the assessee at ₹34,90,70,420/-. The book profit income under Section 115JB of the Income-tax Act, 1961 (the Act) was offered by assessee at ₹3,90,10,127/-, which was revised at ₹14,87,59,916/-. 06. Aggrieved by the order of the learned Assessing Officer, assessee preferred the appeal before the learned CIT (A), who, vide order dated 3rdMay 2017, partly allowed the appeal of the assessee. Therefore, assessee is aggrieved against the disallowance confirmed and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that above capital work-inprogress is incurred in connection with pharma intermediate and advances given to suppliers for purchase of capital equipment. The capital work-inprogress was converted into fixed assets in the subsequent year. Therefore, the assets were put to use in the subsequent year. Assessee further submitted that there is no cost incurred on account of interest by the assessee. Further, borrowing of the company from bank was only for working capital purposes and not for acquiring any fixed assets. Therefore, no interest cost can be attributed to the work-in-progress. The learned Assessing Officer rejected the contention of the assessee as the reply of the assessee was considered general in nature. He found that interest expenditure was incurred by the assessee at the rate of 12% to 15% per annum and therefore, applying the rate of interest 12%.He computed the interest amounting to ₹41,38,397/- and disallowed the sum under Section 37(1) of the Act. The issue travelled before the learned CIT (A). The learned CIT (A) following the decision of first appellate authority in appellant s group concerns M/s Excel Crop Care Ltd for A.Y. 2009-10 confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7;2331 lacs is with respect to cash credit facilityand ₹999 lacs are with respect to working capital demand loans. Therefore, it is apparent that working capital and cash credit loans are tied up in the current assets of the company. Anyway, the alleged amount of investment in capital work-in-progress is far less than the interest free funds available with the assessee. Therefore, in absence of any nexus, it cannot be stated that interest bearing funds have been used by the assessee for acquiring the capital work-in-progress. In view of this, we do not find any reason to confirm the disallowance. Further, the presumption would always be available in favour of the assessee that non-interest bearing funds have been used for the purpose of acquisition of capital work-in-progress. The above view is also supported by the decision of the Hon'ble Bombay High Court in case of Reliance Utilities and Power Limited 313 ITR 340 as well as the decision of the Hon'ble Supreme Court in case of CIT vs. Reliance Industries Ltd. 410 ITR 466. Accordingly, ground no.1 of the appeal is allowed. 018. In view of our decision in ground no.1, ground no.2 and 3 of the appeal becomes infruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds of ₹102 crores which is far higher than the investment of ₹9.96 crores and during the year only ₹7.91 crores of investment have yielded exempt income. Therefore, as the entire investment is far lower than own noninterest bearing funds, the interest disallowance cannot be made. Further, with respect to the book profit, further increased by the disallowance under Section 115JB of the Act. It was submitted that issue is squarely covered in favour of the assessee by the decision of Vireet Investment Pvt. Ltd. 165 ITD 27. 023. The learned Departmental Representative vehemently supported the order of the lower authorities. 024. We have carefully considered the rival contentions and perused the orders of the lower authorities. The learned CIT (A) after considering the explanation of the assessee rejected that no interest of disallowance can be made under Section 14A of the Act. In the present case, we find that when non-interest bearing funds are much higher than the amount invested which yielded exempt income, there is no question of making any disallowance under Rule 8D2 (1) and 8D (2)(iii) of the Act. Such claim of the assessee before us is only with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorized Representative submitted that when the assessee has not claimed the amount of provision for doubtful debts in the year in which provisions were created, the subsequent write back cannot make the above write back credit to profit and loss account as taxable Income. To substantiate its claim, he further referred to the computation of Total income for A.Y. 2003-04 to 2009-10. He further referred to the remand report of the learned Assessing Officer, where the learned Assessing Officer himself says that Provision of doubtful debt has not been claimed by the assessee as deduction in the earlier year. With respect to the computation of book profit, it was submitted that write back of provision for doubtful debts is reduced from the book profit computation in view of clause (i) of explanation 1 to Section 115JB of the Act. At the time, when the provision was made same was added to the book profit earlier therefore, the learned Assessing Officer inadvertently added further ₹8,71,36,354/-. 030. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer and learned CIT (A). 031. We have carefully considered the rival contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive submitted that the above issue is squarely covered in favour of the assessee by the decision of co-ordinate bench in case of JK Paper Limited in ITA No.2155/Ahd/2013 and Zuari Global Ltd in ITA No.328/PNJ/2014. 035. The learned Departmental Representative relied upon the orders of the lower authorities. 036. On careful consideration we find that fact shows that while computing the book profit assessee has reduced an amount of ₹1,78,75,000/- being MAT credit from the book profit us/ 115 JB of The Act as above sum was reduced from the provision for taxation in the profit and loss account. The learned Assessing Officer was of the view that it is not permissible adjustment as per explanation 1, and therefore, same is not allowable. The assessee was of the view that MAT credit arises directly out of payment of minimum alternative tax. The MAT is an item of current tax which is specifically covered within clause (a) of explanation 1 to Section 115JB (2) of the Act. Thus, the claim of the assessee is that the amount of income tax paid or payable required to be added to the book profit is always under a MAT credit. 037. We find that identical view has been taken by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer held that above sum is the double deduction of excise duty expenses. According to him, the assessee claim deduction firstly, from sales in credit side of profit and loss account by showing net sales and consequently, by debiting the excise duty expenses in the profit and loss account. The addition made by the learned Assessing Officer was contested before the learned CIT (A) based on the decision of learned CIT (A) in case of sisters concern. 041. The learned Authorized Representative reiterated the same argument and submitted that this issue is covered in favour of the assessee by the decision of Hyundai Motors India Ltd. 19 IT(T) 778. He further referred to the annual accounts, net on accounting for excise duty report. 042. The learned Departmental Representative vehemently supported the order of the lower authorities. 043. We have carefully considered the rival contentions and perused the orders of the lower authorities. On careful consideration of note no.18 to the annual accounts which shows that excise duty on sales amounting to ₹1,322 lac has been reduced from sales in profit and loss account and excise duty on increased and decreased in stock amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. 046. The learned departmental representative imminently supported the orders of the law authorities. 047. We have carefully considered the rival contention and perused the orders of the law authorities. We find that in the case of the assessee in earlier the about disallowance has been deleted for the reason that assessee has higher interest free advances available then the amount of loan advanced to the sister concern. Therefore, the presumption would be available in favour of the assessee that the amount of loan advance to subsidiary companies without charging interest is out of interest-free funds available with the assessee . Above fact also remains prevalent in this year. It was not shown by the learned departmental authorities that assessee has diverted its interest-bearing funds for giving advance to its subsidiaries free of interest. Accordingly, respectfully following the decision of the coordinate bench in assessee s own case, we allow ground number 14 of the appeal and direct the learned law authorities to delete the disallowance of Rs. 3,060,000. 048. Thus, appeal of the assessee is partly allowed. 049. Now we come to the appeal of theld. AO . The Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, the CIT(A) has exceeded its powers. 053. The ld. Authorized Representative submitted that there is no infirmity in direction of ld.CIT(A). He further submitted that assessee has also raised an issue as per additional Ground No. 2 that prior period expenses should be allowed as deduction in the year in which such expenses are debited to the profit loss account. He submits that, the ITAT has decided identical issue in assessee s own case for A.Y. 1987- 88 and 1990-91. Thus, the issue is covered in favor of the assessee. 054. We have carefully considered the rival contentions and perused the orders of the lower authorities. In fact, assessee has incurred expenditure which are in the nature of prior period expenses amounting to ₹ 1,41,51,738/-. The ld. CIT(A) has confirmed the disallowance. The assessee is not appeal in the confirmation of disallowance on above expenditure for this year. 055. However, both the parties are in appeal before us contesting the direction of the ld.CIT(A) to the ld. AO to verify the claim of the assessee and allow it in the year to which the expenses pertain to. Therefore, we need to decide the issue whether the direction of ld.CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the expenses in the preceding assessment year. Therefore, Ground No. 1 2 of the appeal of the AO are allowed and additional Ground No. 2 of the appeal of the assessee is dismissed. 058. Ground No. 3-5 of the appeal of the AO is with respect to the disallowance u/s. 14A of the Act. This issue has already been dealt with by dealing Ground No. 4-7 of the appeal of the assessee wherein we have held that there cannot be any disallowance of interest expenditure as assessee has excess of free funds available more than the investment which yield it tax free income. We have also confirmed the direction that only those investments which yield at tax free income should be considered for disallowance under rule 8D 2 (III). Accordingly, Ground No. 3-5 of the appeal of the AO are dismissed. 059. Accordingly for AY 2010-11 appeal of the assessee as well as of theld. AO are partly allowed. AY 2011-12 ITA No 5432 / Mum/2017 (by Ld. AO) ITA No 5473 / Mum/ 2017 ( By Assessee) 060. Now we come to the appeal of the assessee and the learned assessing officer for assessment year 2011 12. Both the parties confirmed that the identical grounds are raised in their respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 is with respect to the computation of disallowance u/s 14 A, read with rule 8D of The Income Tax Rules 1962. This is identical to the ground number 5 8 in case of the assessee for assessment year 2000 11 wherein we have held that disallowance u/s 14 A, is required to be restricted With respect to rule 8D (2) (i) and (ii) As assessee has more non-interest-bearing funds available than the amount invested in the securities or investments yielding tax free income. Therefore, no disallowance on interest under that rule can be upheld. Further we have held that the learned CIT A, is correct in holding that only those investments from which the tax free exempt income is earned should be considered for working out disallowance of administrative expenditure Under rule 8D (2) (iii) of the act. Accordingly ground numbers 5 8 are allowed to the above extent. 067. Ground number 9 is with respect to the disallowance u/s 14 A, as per rule 8D made by the learned assessing officer and in the normal computation of total income was once again added to the book profit computed by the assessee u/s 115 JB of the act. The identical issue arose in the case of the assessee as per ground number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 11 wherein the addition was made by the learned assessing officer and confirmed by the learned CIT A. In absence of change of facts or circumstances, following the decision in case of the appeal of the assessee for assessment year 2010 11, reverse the finding of the lower authorities and direct the learned assessing officer to delete the disallowance. Accordingly ground number 12 of the appeal is allowed. 071. The assessee has raised 2 additional grounds. The first additional ground is with respect to deduction in respect of education cess paid by the assessee, in view of the retrospective amendment by the finance act 2022. The said ground of appeal was not pressed and hence same was not admitted and hence dismissed. 072. 2 nd additional ground raised is with respect to deduction in respect of prior period expenses in the year in which expenses debited to the profit and loss account should be allowed. The appellant has submitted that prior period expenses ought to be allowed as deduction in the year in which the said expenses debited to the profit and loss account, relying on the decision of the coordinate bench in assessee s own case for assessment year 87 88 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income of Rs. 125,807,827, under the normal provisions of the income tax act as well as u/s 115 JB of the income tax act book profit was computed at Rs. 173,716,181/ . 080. The learned assessing officer passed an assessment order u/s 143 (3) of the act on 30/3/2015 determining the total income of the assessee as per the normal computation of total income at Rs. 158,690,600/ and the book profit computed u/s 115 JB of the income tax act was also increased by disallowance u/s 14A of the Act of Rs 5,187,207 and provision for wealth tax of Rs 3 lakhs. Accordingly, the revised book profit was determined at Rs. 17,92,03,388. 081. The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT A, who passed an appellate order on similar lines as in earlier year on 3/05/2017. The assessee is aggrieved with that and has preferred this appeal in ITA number 5474/M/2017. 082. Both the parties confirmed that the grounds in the appeal of the assessee are identical to the grounds raised by the assessee for assessment 10 11 and further there is no change in the facts and circumstances of the case. 083. Ground number 1 4 are with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned lower authorities to delete the addition of the tax provision. 087. Ground number 11 is with respect to the disallowance of excise duty debited to the profit and loss account of ₹ 6,930,581/ . This ground is identical to ground number 11 of the appeal of the assessee for assessment year 2010 11 wherein while deciding that appeal we have directed the learned lower authorities to delete the above disallowance. For similar reasons, we direct the learned lower authorities to delete the disallowance of ₹ 6,930,581/ , accordingly, ground number 11 of the appeal is allowed. 088. Ground number 12 is with respect to the disallowance of interest paid which is attributable to the loans to the subsidiaries. This ground is identical to ground number 14 of the appeal of the assessee for assessment year 2010 11. Similarly, applying those reasons, we direct the learned assessing officer to delete the above disallowance. Accordingly ground number 12 of the appeal is allowed. 089. The assessee has raised 2 additional grounds of appeal. Stop ground number one is with respect to deduction in respect of education cess paid. Assessee did not press this ground. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. 096. Ground number 2 of the appeal is with respect to the addition of ₹ 3 lakhs on account of provision for wealth tax while computing the book profit u/s 115 JB of the income tax act. This ground is identical to the grounds of appeal in the case of the assessee for assessment year 2010 11 wherein we have held that according to the explanation II of Section 115 JB, the income tax provisions do not include wealth tax provision and therefore the addition made by the learned assessing officer is not sustainable. For the similar reasons we allow ground number 2 of the appeal of the assessee and direct the learned assessing officer to delete the addition of ₹ 3 lakhs of well tax provision to the book profit computed u/s 115 JB of the act. 097. Ground number 3 is with respect to the deduction of excise duty debited to the profit and loss account amounting to Rs. 30,33,700/ . Identical issue arose in the case of the assessee for assessment year 2000 11. Wherein we have found that the assessee has disallowed the sum of excise duty not paid before the due date of filing of the return of income and the above sum is not double deduction. Therefore, for the similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 115 JB of the income tax act to the book profit does not include the provisions of the Wealth tax. Therefore, same is not required to be added. Thus, the addition made by the learned assessing officer deserves to be deleted, hence deleted. Accordingly ground number 1 of the appeal is allowed. 0104. Ground number 2 of the appeal of the assessee is with respect to the addition on account of excise duty debited to the profit and loss account amounting to ₹ 661,881/ . This ground is identical to the grounds of appeal in the case of the assessee for earlier years. For assessment year 2010 11. We have directed the learned lower authorities to delete the addition on the ground that it is, does not amount to double deduction as well as where the assessee has not paid the amount of excise duty before the due date of filing of the return of income, Ground number 2 of the appeal of the assessee is allowed. 0105. Grounds number three of the appeal of the assessee with respect to the disallowance of interest of Rs. 769315/ out of interest paid attributable to interest free loan given to subsidiary. we find that this ground is identical to ground number 14 of the appeal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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