TaxTMI 
TaxTMI 
2015 (9) TMI 107
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....erest of revenue, is opposed to law and the facts and circumstances of the case. 2. The learned CIT (Appeals) was not justified in allowing the assessee's appeal and in directing the Assessing Officer to allow the deduction claimed u/s 80IA of the Act, without appreciating the facts and circumstances under which the disallowance was made by the Assessing Officer. 3. The learned CIT (Appeals) was not justified in allowing the assessee's appeal without appreciating that the deduction u/s 8OIA is on the profits of "eligible business" and not on eligible units and that the provisions of Section 80IA have to be understood alongwith the provisions of Section 80B(5) and 80AB of the I T Act, 1961. 4. The learned CIT(Appeals) has erred in allowing relief to the assessee based on the decision of the Hon'ble Tribunal dt. 4.9.2009 in assessee's own case for AY 2006-07 without appreciating that the decision of the Tribunal has not reached finality and appeal u/s 260A has been filed before the Hon'ble High Court against such order." 3. The assessee is a company engaged in the manufacture and sale of Aluminium extrusions, generation and sale of wind energy. It had four windmills at four diffe....
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....s much greater than the total deductions claimed under Chapter VIA of the Act. It is also not in dispute that there was no carry forward loss available for set off in any one of the Assessment years referred to in the chart above. The loss referred to in the 6th and 7th column of the table give above, is only a calculation done by the AO by taking into consideration only the profits/loss of the various Sec.80IA units of the Assessee. The computation of total income filed by the assessee is annexed at Annexure-I to this order. 6. The Assessing Officer after making reference to the business loss that remained to be set off in the past from Windmill-II, III & IV referred to in the chart above was of the view that before allowing deduction u/s. 80IA of the Act on Windmill-I, the losses carried forward should be set off and if so set off, there will be no eligible profits on which deduction u/s. 80IA of the Act can be granted. On this basis, the AO denied the claim of the assessee for deduction u/s. 80IA of the Act in respect of the above unit i.e., Windmill-I. 7. The AO was of the view that even assuming that the claim of the Assessee for deduction u/s.80-IA of the Act has to be allo....
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.... of appeal in this regard are allowed." 9. Before CIT(A), the Assessee has challenged the order of the AO whereby the AO held that in the event of deduction u/s.80-IA of the Act being allowed to Wind Mill-I (4.14MW) unit then the profits have to be reduced by Rs. 25 lacs on account of non-apportionment of common expenses to this unit. This ground of the Assessee was not adjudicated by the CIT(A). The Assessee aggrieved by such non adjudication has raised ground No.5 in its appeal. Aggrieved by the order of the CIT(Appeals), the revenue has raised grounds 1 to 4 before the Tribunal. 10. We have heard the rival submissions. An identical issue was considered by this Tribunal in assessee's own case in ITA No.1021/Bang/2011 and by order dated 31.08.2012, this Tribunal upheld the claim of the assessee. The Tribunal, in paragraph 6 of the aforesaid order, firstly referred to the decision of the Hon'ble Supreme Court in the case of Synco Industries Ltd. v. Assessing Officer [2008] 299 ITR 444 (SC) wherein the Hon'ble Court examined the provisions of section 80B and 80-I of the Act (which is akin to section 80-IA of the Act) and held as follows:- "The Hon'ble Court held that the effect o....
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....bai Bench in the case of Meera Cotton and Synthetics Mills Pvt. Ltd. Vs. ACIT 318 ITR (AT) 64 (Mumbai) and observed as follows:- "9. The Mumbai Bench of the Tribunal in the case of Meera Cotton and Synthetics Mills Pvt. Ltd. Vs. ACIT 318 ITR (AT) 64 (Mumbai) had an occasion to deal with a case similar to the case of the Assessee in this appeal. The facts were, the assessee filed its return for the assessment year 2003-04 declaring total income at Rs. 51,95,406. In computing the total income it had claimed deduction under section 80-IB of the Income-tax Act,1961, in respect of unit No. 3 at Rs. 1 crore. The Assessing Officer noted that the assessee had three units eligible for deduction under section 80-IB and that the loss incurred in unit Nos. 1 and 2 was required to be adjusted against the profit of unit 3 before allowing deduction under section 80-IB at 100 per cent of such profit. He, therefore, reduced the amount of deduction from Rs. 1 crore to Rs. 87.61 lakhs. The Commissioner (Appeals) affirmed the view taken by the Assessing Officer. On appeal the Tribunal held that sub-section (1) of section 80-IB provides that where the gross total income of an assessee includes any pro....
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....e assessee claimed deductions under sections 80HH and 80-I by claiming that each unit should be treated separately and the losses suffered by the oil division in earlier years be not adjusted against the profits of the chemical division while considering the question of granting deductions under sections 80HH and 80-I. The Assessing Officer observed that the gross total income of the assessee before granting deductions under this section was nil. He, therefore, held that the assessee was not entitled to the benefit of deduction. The first appellate authority confirmed the view of the Assessing Officer. Similar was the fate of the assessee before the Tribunal and the Hon'ble High Court. It was argued before the Hon'ble Supreme Court that section 80-I(6) entitles it to deduction by considering such industrial undertaking as the only source of income of the assessee during the previous year relevant to the assessment year under consideration and hence the loss suffered by the assessee in the earlier years ought not to have been considered for the purposes of granting deduction under these sections in the current year. Jettisoning the assessee's point of view the Hon'ble Supreme Court ....
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....ed the gross total income of the assessee. If however the amount of eligible relief under section 80-IB is say Rs. 90, then full amount will be eligible for deduction because the amount of the eligible relief does not exceed the gross total income. Therefore it is mandatory to work out the eligible amount of deduction under various sections of Chapter VI-A individually and then such aggregate amount has to be restricted to the amount of gross total income as computed under section 80B(5), which means the income available after adjusting all the brought forward losses and unabsorbed depreciation etc. Coming back to the facts of our case we observe that the gross total income of the assessee is at Rs. 152.08 lakhs after adjusting the losses suffered by it in the eligible as well as non-eligible units. There are no brought forward losses or unabsorbed depreciation. The claim of deduction under section 80-IB in respect of eligible unit No. 3 at Rs. 100.13 lakhs is obviously less than the gross total income. In our considered opinion the learned Commissioner of Income-tax (Appeals) has erred in interpreting the relevant provision when he held that the losses suffered by the assessee in....
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....he Tribunal referred to above, we uphold the order of the CIT(Appeals) and dismiss grounds No.1 to 4 raised by the revenue. As far as the grievance of the Assessee projected in Ground No.5 of its appeal are concerned, we are of the view that it would be just and proper to direct the CIT(A) to adjudicate the aforesaid ground. To this extent Ground No.5 raised by the Assessee in its appeal is treated as allowed for statistical purposes. 13. Grounds No.5 to 7 raised by the revenue and grounds No.1 to 4 raised by the assessee in their respective appeals can be conveniently decided together. They read as follows:- Grounds by revenue "5. The learned CIT (Appeals), while upholding the order of the Assessing Officer in making disallowance u/s 14A of the Act, has erred in allowing relief to the assessee by directing the Assessing Officer to restrict the disallowance to Rs. 14,40,471/-, without appreciating the facts and circumstances of the case in the right perspective. 6. The learned CIT(A) erred in allowing part relief holding that there is no nexus between the borrowed funds with the tax free investments without appreciating that the disallowance has to be determined as per the prov....
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....s of the view that though there was no income from these investments, yet capital gain on their transfer would yield tax free capital gain and therefore even this investment was to be considered as tax exempt investments attracted u/s. 14A of the Income Tax Act. 15. The AO called upon the Assessee to explain why the interest as well as other expenses attributable to the aforesaid investments be disallowed u/s. 14A of the Income Tax Act read with Rule 8D of the IT Rules, 1962 (the Rules). In response to the same, the Assessee filed a reply dated 13- 08-10 stating as below:- "In this connection, we wish to draw your attention to following facts: (a) As on 1-04-2007, our paid up Equity Capital was Rs. 21.01 Cr. and General Reserve was Rs. 84.37 Cr. Further during the Financial Year 2007-08, Rs. 31.80 was transferred from Profit and Loss a/c to General Reserve was Rs. 137.18 Cr. (Rs. 21.01 Cr+ Rs. 116.17 Cr) This is our own capital. No interest is payable on this amount. Investment of Rs. 37.37 Cr. is made out of this fund. No borrowed fund was used for investment. (b) Investment in shares and Mutual Funds was made with the intention to earn capital gains. Investment in Bonds was ....
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.... taken working capital loan of more than Rs. 50 crores. When the assessee had investments in the form of bonds, he did not have any particular reason to keep working capital loan on which an interest of more than 15% per annum is paid. The AO also observed from the schedule of working capital loan taken that the said working capital has increased from Rs. 40.45 crores to Rs. 55.35 crores in one year. The working capital loans have also continued from the past several years in the Balance sheet of the assessee concern. According to the AO, the above conduct of the Assessee exhibits a clear motive on the part of the assessee to earn tax exempt investments while at the same time borrowing money from banks for the purpose of its working capital. The AO therefore did not agree with the stand of the Assessee that only surplus funds of the Assessee are deployed for the purpose of making tax exempt investments. The AO held that the assessee has shifted its investment portfolio from taxable investments to tax exempt investments with a motive to reducing the tax burden. The AO referred to the decision of the Hon'ble Supreme Court in the case of CIT Vs Walfort Share and Stock Brokers Pvt. Ltd....
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....t extracted in the assessment order that appellant sufficiently proved that no interest bearing funds were utilized for the purpose of tax free investments. It is a business decision to increase the working capital loan and free investments. It is a business decision to increase the working capital loan and no nexus was proved by the AO between the borrowings and the tax free investments. In fact there was a net interest surplus without outflow of moneys by way of interest expenditure. The AO also cannot question the utilization of funds by the appellant, unless there is a clear nexus between the interest bearing funds with the tax free investments. Therefore, the element of direct or indirect interest cannot be considered for the purpose of rule 8D. However, the indirect expenditure has to be considered even though the appellant claims there was no expenditure incurred in this regard. The appellant would not have allocated the resources for tax free investment for earning the exempt income without the use of the business infrastructure of the appellant. Since such expenditure is not quantifiable directly, it is called indirect expenditure, hence the Rule prescribes the amount @ 0.....
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....der this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154 for any assessment year beginning on or before the 1st day of April, 2001." (The proviso was inserted earlier by the Finance Act of 2002 with retrospective effect from 11.5.2001) Under subsection (2), the Assessing Officer is required to determine the amount of expenditure incurred by an assessee in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed. The method, having regard to the meaning of the expression 'prescribed' in Section 2(33), must be prescribed by rules made under the Act. What merits emphasis is that the jurisdiction of the Assessing Officer to determine the expenditure incurred in relation to such income which does not form part of the total income, in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of th....
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....d for computing the expenditure incurred in relation to income which does not form part of the total income had been provided. As a result there was a considerable dispute between tax payers and the Revenue on the method of determining such expenditure. In this background, sub section (2) was inserted so as to make it mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with the method that may be prescribed. The circular, however, reiterates that the Assessing Officer has to follow the prescribed method if he is not satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee." (underlining by us for emphasis) 23. Rule 8D was inserted by the Income-tax Act (Fifth Amendment) Rules, 2008, which were published in the Gazette on March 24, 2008. The rules specifically provide that they shall come into force from the date of their publication in the Official Gazette. "8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of exp....
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....he Assessee can the AO proceed to apply Rule 8D. The Assessee's claim before the AO on applicability of Rule 8D(2)(ii) was that as on 1-04-2007, the paid up Equity Capital was Rs. 21.01 Cr. and General Reserve was Rs. 84.37 Cr. Further during the Financial Year 2007-08, Rs. 31.80 was transferred from Profit and Loss a/c to General Reserve was at Rs. 137.18 Cr. (Rs. 21.01 Cr+ Rs. 116.17 Cr). Thus the Assessee claimed Investment of Rs. 37.37 Cr. was made out of its own funds on which there was no interest liability. The Assessee also pointed out that its loan funds as on 1-04-2007 was Rs. 65.76 crores. During the Financial Year 2007-08 it had repaid Rs. 8.13 crores. Thus, loan funds as on 31-03-08 stood reduced to Rs. 57.62 crores. Thus, the Assessee claimed that there was no question of using loan fund in investment. 26. The AO accepted the above explanation of the Assessee. But however proceeded to hold that from Asst. Year 07-08 to Asst. Year 08-09, the assessee has shifted the investments which would yield income which is taxable to investments which would yield income which is tax exempt. This cannot be the basis on which the AO can make disallowance u/s.14A read with Rule 8D o....