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TMI Blog2024 (1) TMI 1187X X X X Extracts X X X X X X X X Extracts X X X X ..... d in disallowing and immediate connection of the case, the lower expenses without examining the direct with dividend income. There was no expenditure incurred in relation to" dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities erred in law in adding a sum of Rs. 88, 16,520/-disallowed under rule 8D read with section 14A while computing the book profits under section 115JB of the Act. 4. The lower authorities erred on facts and in law in not reducing the refund of claim of excise duty ( Cenvat) of Rs. 7,82,73.134/- being a capital receipt while computing the under section 115JB of the Act." AY 2011-12 - Revenue "1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s. 14A of the Act to Rs. 8,16,520/- against the disallowance of Rs. 1,66,07,634/- made by the AO in accordance with the provision of Rule 8D of the Income Tax Rules, 1962. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out of its manufacturing activity and allowable as deduction u/s. 80IB. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing deduction u/s. 80IB in respect of other income of Rs. 66,883/- comprising of export incentive holding it as part of sale proceeds. 4. That the grounds of appeal are without prejudice to each other." 4. For AY 2013-14, the assessee and the Revenue has taken the following grounds:- AY 2013-14 - assessee "1. That on the facts and in the circumstances of the case, the lower authorities erred in law disallowing expenditure of Rs. 80,54,305/- under rule 8D(2)(iii) of the Income tax rules 1962 read with section 14A of the Income Tax Act ("Act") without satisfying the nexus of expenditure with dividend income earned. 2 That on the facts and in the circumstances authorities erred in disallowing expenses of the case, the lower without examining the direct and immediate connection with dividend income. There was no expenditure incurred "in relation to dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities erred in law in adding a sum of Rs. 80,54,305/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing the book profits under section 115JB of the Act. 4. The lower authorities erred on facts and in law in not reducing the excise duty (Cenvat) refund of Rs. 18,33,61,159/- being a capital receipt under section 115JB of the Act." The Revenue has raised the following grounds: AY 2014-15 - Revenue "1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s. 14A of the Act to Rs. 52,21,173/- against the disallowance of Rs. 1,33,25,788/- made by the AO in accordance with the provision of Rule 8D of the Income Tax Rules, 1962. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding the income of Rs. 7,44,40,891/- in respect of scrap sales of Rs. 7,44,40,891/- as being generated out of its manufacturing activity and allowable as deduction u/s. 80IB. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing deduction u/s. 80IB in respect of other income of Rs. 1,61,31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Ld. AO found that the assessee earned dividend income of Rs. 1,70,12,884/- during the year. He required the assessee to show cause why disallowance be not made under section 14A as the same is claimed to be exempt. The assessee in its reply contended that the purpose of investment in equity shares is to have controlling interest in the respective investee companies and not to earn dividend income which has causally arisen; the expenditure incurred is not ' in relation to' exempt dividend income and that the investments have been made out of surplus funds available with the company. 14.1 The explanation of the assessee was not acceptable to the Ld. AO. According to him there is an overt and direct link between the expenses incurred by the assessee and the earning of exempt income. He, therefore computed the disallowance of Rs. 1,69,44,245/- under section 14A r.w. Rule 8D of the Rules and added to the income of the assessee. Similar disallowance was made while computing the book profits under section 115JB of the Act. 14.2 On appeal, the Ld. CIT(A) confirmed the disallowance of Rs. 88,16,520/- representing administrative expenses @0.5% under Rule 8D(2)(iii) on the total average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence no disallowance on account of interest can be made under section 14A read with Rule 8D. Thus, following the then CIT(A)' s order in appeal No. 599/13-14/CIT(A)-29 dated 21.01.2015 for investments made in earlier years and new investments made out of no borrowed funds, the appellant gets relief of Rs. 81,27,725/-." 18. The above factual finding of the Ld. CIT(A) could not be controverted by the Ld. CIT-DR by bringing on record any adverse material whereas the record reveals that as against available amount of share capital, reserve and surplus of Rs. (in lakhs) 124535.34, Rs. 136728.80, Rs. 148548.21 and Rs. 159371.75 in AY 2011-12, 2012-13, 2013-14 and 2014-15 investment in shares were made of Rs. (in lakhs) 49296.58, Rs. 49048.21, Rs. 66000.94 and Rs. 53048.59 in AY 2011-12, 2012-13, 2013-14 and 2014-15 respectively. In such a scenario, the decision of the Ld. CIT(A) cannot be faulted on the ground that he erred in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income i.e dividend. We, therefore, reject the Revenue's stand in this regard. Moreover, the decision of the Ld. CIT(A) is in consonance with the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary decision has been brought to our notice by the Ld. CIT-DR. We therefore, accept the contention of the Ld. AR in this regard. 22. Accordingly, we delete the impugned disallowance under section 14A and 115JB of the Act and decide Ground No. 1, 2 and 3 of the assessee's appeal in its favour. 23. Ground No. 4 of the assessee's appeal relates to denial of reduction of refund claim of excise duty (CENVAT) of Rs. 7,82,73,134/- being a capital receipt while computing book profit under section 115JB of the Act. The Ld. AO discussed this issue in para 11 of his assessment order. He found that the assessee disclosed Book profit under section 115JB after reducing capital subsidy on Jammu Unit amounting to Rs. 7,82,73,134/-. Since no justification was given for the said deduction, the Ld. AO negatived the claim of the assessee. 23.1 On appeal, the Ld. CIT(A) observed in para 11 of the appellate order that even if it is a capital receipt, then also it forms part and parcel of book profit and denied relief to the assessee. Aggrieved, the assessee is in appeal before the Tribunal. 23.2 Before us the parties have consented that the issue is covered by the decision of the Tribunal in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. DCIT (iv) 416 ITR 591 (Cal) Pr. CIT vs. Ankit Metal 85 Power Ltd. (v) Appeal No. 1132 of 2014 dated 4th January 2017 CIT vs. Harinagar Sugar Mills Ltd. (Bombay) (vi) ITA Nos. 614, 615 & 635/JP/2010 dated 9th September 2011 - Shree Cement - Appeal by Revenue, the Hon'ble Rajasthan High Court in Appeal Nos. 204 of 2010 and 85 of 2014 vide order dated 22nd August 2017 has not admitted any question of law in appeal filed by Revenue. 15. Since we have already held that the CENVAT credit, as received by the appellant, in accordance with the incentive scheme for J & K as Formulated by the Central Government is a capital receipt not liable to ax, accordingly the same cannot be part of book profit under Section 15JB also. Consequently, ground No. 7 is also allowed." 25. Respectfully following the decision (supra) we decide Ground No. 4 of the assessee's appeal in its favour. 26. Now we take up the appeal of the Revenue for adjudication. 27. The Ground No. 1 relates to the restriction of disallowance of Rs. 88,16,520/- (incorrectly mentioned as Rs. 8,16,520/-) by the Ld. CIT(A) under section 14A r.w. Rule 8D as against disallowance of Rs. 1,66,07,634/- made by the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial pronouncement relied upon by the appellant. I am of the view that freight recoveries are the part of the sales proceeds of the undertakings, exchange fluctuation rate is nothing but the reduction in the purchase cost and insurance recovery received on damaged goods are also the part and parcel of the profit of the undertaking, therefore, the AO is directed to allow the deduction u/s. 80IB on these items. Therefore, the appeal on this ground is allowed." 31.1 The Revenue is dissatisfied and Ground No. 3 relates thereto. 32. We have heard the Ld. Representative of the parties and perused the records. Nothing has been brought on record by the Ld. CIT-DR to interfere with the above findings of the Ld. CIT(A). The Ld. AR has relied on the decision of the Hon'ble Supreme Court in CIT vs. Meghalaya Steels Ltd. (2016) 383 ITR 217(SC). Hence, we have no reason to interfere with the findings of the Ld. CIT(A). Accordingly, ground No. 3 of the Revenue is dismissed. 33. In its appeal for AY 2012-13 the Revenue has taken Ground No. 3 relating to export incentive receipt of Rs. 66,883/-which has been held by the Ld. CIT(A) as part of sale proceeds and hence an allowable deduction under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 77,000/- on account of rent in Jammu Unit III, the appellant has submitted that the same has arisen on account of space provided to banks for providing ATM facilities as Banking ATM facilities are essential to facilitate to do banking transactions by employees without disturbing the business activities of the appellant, therefore, the same is eligible for u/s. 80IB. In view of above discussion and following the above three judgments, the income on account of insurance claim and foreign exchange fluctuation & Rental income are allowed to be included in the eligible profits in Jammu-1, Jammu- Il Unit and Jammu - III. Regarding the sum of Rs. 2,19,415/- received on account of discount in Jammu Unit III, the appellant has relied upon the judgment of ITAT Mumbai in the case of Shri Sri Krushna Patnaik ITA No. 5835 and 5836/MUM/2008 for A.Y. 2004-05 and 2005-06 wherein the ITAT bench has held that the amount written off / discount if are on account of revenue. Relying upon the ITAT's judgment, the same is found to be allowable u/s. 80IB." 36. We find no infirmity in the order of the Ld. CIT(A). Interest, export incentive and other misc income of Rs. 49,48,334/- has already been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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