2018 (11) TMI 1715 - AT - Income Tax

Partial victory for Revenue in appeal on deductions for business unit maintenance and hedging profits.

ACIT 3 (1) (2), Mumbai Versus M/s. Jindal Drugs Pvt. Ltd.

The Tribunal partly allowed the Revenue's appeal, upholding deductions under section 80IB for hedging profits and expenses for business unit maintenance. ... Deduction u/s 80IB - claim disallowed on the ground that profit from hedging of menthol oil in the commodity exchange did not have a nexus with the manufacturing activity of the Jammu unit and is not eligible for deduction - HELD THAT:- As decided in own case [2017 (11) TMI 181 - ITAT MUMBAI] issue of profit from hedging of menthol oil in the commodity exchange was treated as business income - we uphold the order of the Ld.CIT(A) in holding that he hedging loss is the business loss in the case of the assessee not a speculation loss. Grounds raised by the Revenue on this issue are dismissed - CIT-A rightly allowed the deduction Disallowance towards expenditure incurred towards maintenance of business units at Daman - said unit has already closed its business activity in F.Y. 2005-06 and no manufacturing activity was being carried on/conducted at the Daman unit - HELD THAT:- As decided in own case [2017 (11) TMI 181 - ITAT MUMBAI] issue in favour of the assessee by directing the AO to allow the said expenditure for computing the income of the assessee. The co-ordinate bench of the Tribunal has held that the expenditure incurred by the assessee in normal maintenance of the business has to be allowed in spite of closure of the operation of the unit. We, therefore, respectfully following the same, direct the AO to allow the said expenditure. Accordingly, we uphold the order of Ld. CIT(A) by dismissing the ground of the revenue. Addition under section 14A of the Act read with Rule 8D - HELD THAT:- So far as the disallowance under rule 8D2(ii) is concerned, there is fault or infirmity in the order of Ld. CIT(A) as the Ld. CIT(A) has recorded a finding that assessee’s own funds were far more than the interest free funds available with the assessee and the Ld. CIT(A) has relied on the decision of “CIT vs. Reliance Utilities and Power Ltd.” [2009 (1) TMI 4 - BOMBAY HIGH COURT] . On the disallowance under rule 8D2(iii), we find that the co-ordinate bench of the Tribunal in the assessee’s own case [2017 (11) TMI 181 - ITAT MUMBAI] directed the disallowance of 5% of the dividend income which is as per the decision of the co-ordinate bench of the Tribunal in assessee’s own case in earlier year. - We direct the AO to make disallowance at 5% of the exempt income under rule 8D2(iii). To sum up the order of CIT(A) is affirmed on deletion of disallowance under Rule 8D2(ii) while the disallowance under rule 8D2(iii) is to be made at 5% of the exempt income. The ground is partly allowed. Disallowance u/s 14A to the book profit u/s 115JB - HELD THAT:- We find that the issue involved in the present case is covered by the decision of the Special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. [2017 (6) TMI 1124 - ITAT DELHI] wherein the Special Bench has held that the computation under clause f of explanation 1 to section 115JB sub section (ii) is to be made without resorting to the computation as contemplated under section 14A read with rule 8D. We, therefore, following the same direct the AO decide the issue in terms of the special bench decisions as stated above. Issues involved:1. Deduction under section 80IB of the Act for profit from hedging of menthol oil.2. Disallowance of expenses incurred for maintenance of business units at Daman.3. Disallowance under section 14A of the Act read with Rule 8D.4. Disallowance under section 14A to the book profit under section 115JB of the Act.Detailed Analysis:1. The first issue pertains to the deduction under section 80IB of the Act for profit from hedging of menthol oil. The Revenue challenged the order of the Ld. CIT(A) allowing the deduction. The Appellate Tribunal noted that the issue was previously decided in favor of the assessee by a co-ordinate bench of the Tribunal in the assessee's own case for an earlier year. The Tribunal upheld the decision of the Ld. CIT(A) based on the earlier decision, dismissing the Revenue's ground on this issue.2. The second issue concerns the disallowance of expenses incurred for maintenance of business units at Daman. The Revenue contested the Ld. CIT(A)'s direction to delete the disallowance. The Tribunal observed that a similar issue was decided in favor of the assessee by a co-ordinate bench in a previous case of the assessee. Relying on the earlier decision, the Tribunal directed the AO to allow the expenditure, affirming the Ld. CIT(A)'s order and dismissing the Revenue's ground.3. The third issue revolves around the disallowance under section 14A of the Act read with Rule 8D. The AO made an addition to the assessee's income, which was deleted by the Ld. CIT(A). The Tribunal analyzed the disallowance under different sub-sections of Rule 8D and found no fault in the Ld. CIT(A)'s decision regarding the disallowance under rule 8D2(ii). However, the Tribunal directed a 5% disallowance under rule 8D2(iii) based on a previous decision in the assessee's case. The Tribunal partly allowed the ground on this issue.4. The fourth issue involves the disallowance under section 14A to the book profit under section 115JB of the Act. The AO added the disallowance to the book profit, which was challenged by the Revenue. The Tribunal referred to a Special Bench decision in another case and directed the AO to decide the issue without resorting to the computation under section 14A read with rule 8D. Consequently, the Tribunal dismissed the Revenue's ground on this issue.In conclusion, the Tribunal partly allowed the appeal of the Revenue, addressing each issue raised in the appeal and providing detailed reasoning based on legal precedents and interpretations of the relevant provisions of the Income Tax Act.