TaxTMI 
TaxTMI 
2017 (1) TMI 1049
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....imed for the first time in AY under consideration. The assessee furnished the following details of carried forward loss: AY Loss b/f Profit/Loss of year Loss c/f 2006-07 (5,41,25,245) (5,41,25,245) 2007-08 (5,41,25,245) (50,92,470) (5,92,17,715) 2008-09 (5,92,17,715) 30,04,809 (5,62,12,906) 2009-10 (5,62,12,906) 64,42,419 (4,97,70,487) 2010-11 (4,97,70,487) 73,68,143 (4,24,02,344) The AR of the assessee relied on the decision in the case of Velayudhaswamy Spinning Mills Vs. ACIT, 38 DTR 57 (Mad.) 3.1 The AO held that if the business of operation of windmills was to be considered as the only source of income of the assessee, the result would be as above and the assessee would not have any profit from the windmill business to enable it to claim deduction u/s 80IA. The AO relying on the decision of the coordinate bench of Hyderabad in the case of Hyderabad Chemicals Supplies Ltd. Vs. ACIT, ITA No. 352/Hyd/2005, held that the assessee did not have any profits during the year for deduction u/s 80IA and disallowed the claim of the assessee. 4. On an appeal before the CIT(A), the AR submitted....
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.... the assessee shall be computed on a stand alone basis from the initial assessment year or any subsequent assessment year. The initial assessment year has been understood by the Assessing Officer to be the year of commencement of operation of the unit by the assessee, whereas the CBDT vide circular dated 15.2.2016 has clarified the matter as under- "Subject: Clarification of the term 'initial assessment year in section, 80IA (5) of the Incometax Act, 1961 Section 801A of the Income-tax Act, i961 ('Act'}, as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100 % of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2) of section 801A further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. S....
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....ty. The Assessing Officers are, therefore, directed to allow deduction u/s 801A in accordance with this clarification and after being satisfied that all the prescribed conditions applicable in a particular case are duly satisfied. Pending litigation on allowability of deduction u/s 80 IA shall also not be pursued to the extent it relates to interpreting 'initial assessment year' as mentioned in sub-section (5) of that section for which the Standing Counsels/DRs be suitably instructed." From a reading of the above circular, it is clear that the assessee who is eligible to claim deduction under S.80IA has been given an option to choose initial/first year from which it may desire to claim the deduction for ten consecutive years out of the slab of 15 or 20 years as prescribed under the above sub-section. The term 'initial assessment year' has been held to mean the first year opted to by the assessee for claiming deduction under S.80IA of the Act. Thus, it is clear that the initial assessment year is not the year of operation or commencement of business, as interpreted by the Assessing Officer, but it is the first year in which the assessee has opted to claim the d....
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....t whether the investments were for the purpose of business and, therefore, whether the expenses incurred on the investment allowable as a business expenditure but whether any expenses were incurred by the assessee in relation to exempt income earned by it. The facts and the ratio of the decision in the case of SA Builders, being entirely different from the facts in the present appeal, this decision does not come to the rescue of the assessee. Consequently, the distinction sought to be drawn by the assessee between investments made as investments per se and investments made out of commercial expediency is of no avail for the purpose of section 14A. The CIT(A) further observed that the assessee has also claimed to have made the investments out of its own and surplus funds. The AR has submitted that while the investments had increased from Rs. 18.81 crores as on 31/03/2009 to Rs. 19.16 crores as on 31/03/2010, the share capital as on 01/04/2009 was Rs. 29.12. crores. 11.1 The CIT(A) held that it is clear from the facts as narrated above that the assessee had sufficient funds of its own to enable to make the investments without recourse to the borrowed funds. There is also no specif....
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....ot to some imagined expenditure we would like to make it clear that the 'actual' expenditure that is in contemplation under s. 14A(1) of the said Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made under s. 14A of the said Act. Scope of sub-ss. (2) and (3) of s. 14A 29. Sub-s. (2) of s. 14A of the said Act provides the manner in which the AO is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the AO is required to determine the amount of such expenditure only if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the AO embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the AO returns ....
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.... dividend income. As per the provisions of Sec.14A(3) of the Act, even in such a situation, the AO has to follow the mandate laid down in Sec.14A(2) of the Act, i.e., he has to examine the claim of the Assessee in the light of the books of accounts of the Assessee. If the AO does not agree with the claim of the Assessee having regard to the books of accounts of the Assessee, then is it mandatory for him to resort to Rule 8D of the Income Tax Rules, 1962 to quantify the disallowance u/s. 14A of the Act? A plain reading of Sec. 14A(2) of the Act shows that the legislature has used the words "the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed" and therefore the AO has to resort to the provisions of Rule 8D of the Rules, if the claim of the Assessee regarding expenditure incurred in earning exempt income is not accepted by the AO. If such an interpretation is adopted than that would result absurd results, as in the present case, the exempt income is a sum of Rs. 5,60,301/- and the disallowance u/s. 14A of the Act is a sum of Rs....
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.... only as a measure of last resort. 19..... 20. As far as disallowance of other expenses u/r 8D(2)( iii) of the rules is concerned, shows expenditure on account of staff and off ice expenses of Rs. 14,97,132 and Rs. 28,22,543.16 Ps. respectively. A look at Schedule-14 and 15 of schedules to prof it and loss account (a copy of which is given as an annexure to this order) , .. ... .. .shows that except salary of Rs. 11,72,889, no other expenditure can be said to be attr ibutable to earning of exempt income. In applying the formula prescr ibed u/r 8D(2)(iii) of the Rules, the AO has included all investments, whether it yielding tax free income or not. It is not in dispute before us that it is only the investments which yield tax free income that has to be considered for applying the formula prescr ibed in Rule 8D(2)(ii) & ( iii) of the rules as has been view held by this Tr ibunal in several cases. I f the formula prescribed by rule 8D(2)( iii) of the Rules is applied by consider ing the average value of investments of only UTI mutual fund which yielded tax free income then the calculation of disallowance u/r.8D(2) (iii) of the rules would be as follows: "Average value o....