TaxTMI 
TaxTMI 
2017 (11) TMI 1595
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.... the disallowance under Section 14A is highly excessive and arbitrary, and requires to be reduced substantially. 3. The learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of the claim of the Appellant for deduction under Section 80IA in respect of its power generation plant Rs. 71,69,109/-. 4. The learned Commissioner of Income Tax (Appeals) failed to consider that the case of the Appellant was one of "captive consumption", which is permissible, and recognized within Section 80IA itself." 4. The common issue raised in grounds no.1 and 2 is against the confirmation of disallowance of Rs. 63.98 lakhs u/s 14A of the Act r.w.rule 8D(2)(iii) by the ld. CIT(A). 5. The facts in brief are that the assessee during the year earned a dividend income to the tune of Rs. 4,45,56,700/- and claimed the same as exempt under section 10(34) of the Act. In the tax audit report filed along with return, the tax auditors have quantified the disallowance u/s 14A of the Act at Rs. 14,973/-. However the AO calculated the disallowance as per provisions of section 14A of the Act read with rule 8D at Rs. 1,04,82,000/- comprising the disallowance under rule 8D(....
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....sessee. We have noted, in assessment year 2007-08, the Tribunal in assessee‟s own case has held 2% of the dividend income earned by the assessee to be a reasonable disallowance under section 14A. Applying the same principle, we direct the Assessing Officer to disallow 2% of the dividend income under section 14A. These grounds are partly allowed." Taking a consistent view with the earlier years Tribunal order, we direct the AO to disallow 2% of the dividend income u/s 14A of the Act. Accordingly, these grounds are partly allowed. 7. Grounds of appeal no.3 and 4 are against the confirmation of disallowance of the claim of the appellant u/s 80IA of the Act in respect of its power generation plant amounting to Rs. 71,69,109/- by the ld. CIT(A). 8. Facts in brief are that the AO during the course of assessment proceedings, noticed that the assessee has claimed deduction u/s 80IA the Act to the tune of Rs. 71,69,109 on account of captive consumption of plant at Ankeleshwar, Gujarat. The AO further observed that in the profit and loss account pertaining to the said power plant the assessee has credited Rs. 3,65,09,794/- as savings from captive power plant by the assessee. T....
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....ption. The ld. AR further contended that even at the time of contemplation by the legislature, the explanation of captive consumption was specifically provided in the section itself. The ld. AR further stated that during year the total electricity generated by the said plant was 51,65,720/- units. The ld. AR also took us through the various documents to prove payment of the excise duty to Gujarat Electricity Board at the rate of 40Ps per unit and thus total power duty was worked out to Rs. 20,66,288/-. The ld. AR in defense of his argument relied upon the following case laws: (a) Tamil Nadu Petro Products Ltd. v. ACIT - 338 ITR 643 (Mad.) (b) CIT v. M/s. Orient Abrasive Ltd. - 49 taxmann.com 174 (Del. HC) (c) Dismissal of SLP (C) No. 18537 of 2009 filed by the revenue - 319 ITR (St) 8 (d) West Coast Paper Mills Ltd. v. ACIT - 28 61TR (AT) 252 (Mum) (e) Assessee's own case for Assessment Year 2009-10 (ITA No.401/M/13 and 489/M/13 dated 16.12.2016. 10. The ld. DR on the other hand, relied upon the orders of authorities below and submitted that the claim of the assessee was rightly rejected by the lower authorities as the assessee can not be ....
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....the profit derived from the power generation unit would be eligible for deduction u/s 80IA as separate undertaking u/s 80IA where the power consumption of electricity was made by the assessee without selling to third party. 11.2. In the case of West Coast Paper Mills Ltd.(supra) it has been held that the assessee is eligible to claim deduction under section 80-IA with regard to unit-6 also as a standalone power generating undertaking. 11.3. Even in the assessee‟s own case the issue decided in favour of the assessee for the assessment year 2009-10 vide order dated 16.12.2013 the relevant para 7 of ITA No.401/Mum/2013 (AY-2009-10) is reproduced below: "7. We have considered the submissions of the parties and perused the material available on record. As far as eligibility to claim deduction under section 80IA, for the electricity generation unit at Ankleshwar is concerned, we agree with the learned Commissioner (Appeals) that keeping in view the provisions of section 80IA(8) electricity consumed M/s. Rallis India Ltd. by the other business of the assessee has to be construed as sales of electricity by eligible undertaking. As rightly observed by the learn....
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....le" as revenue expenditure without appreciating the fact that implementation of the said project has enduring benefit to the assessee and deserves to be treated as capital expenditure." 12. The issue raised in ground no.1 is in respect of deletion of disallowance u/s 14A of the Act rule 8D(2)(ii) of Rs. 40,84,000/- by the ld. CIT(A). 13. The facts in brief of the issue have already been stated in para 5 of this order. 14. We have considered the rival submissions and perused the material placed before us. In this case, we find that the ld.CIT(A) partly allowed the ground of the assessee by deleting the addition of Rs. 40,84,000/- on account of interest under rule 8D(2)(ii) by considering the facts that the assessee‟s own funds in the business of assessee were far more than the investments from which tax free dividend income was earned to the tune of Rs. 422.79 crores following the decision in the case of HDFC Bank Ltd. V. DCIT (383 ITR 529) (Born HC) and also the decision in assessee‟s own case for the assessment years 2008-09 and 2009-10. In our considered view, the issue is squarely covered by the ratio in favour of the assessee and therefore we are inclined to d....
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....in the manufacturing process. This submission of the assessee goes against the very grain of creating provision for slow and non-moving stock." In the appellate proceedings, the ld.CIT(A) deleted the addition after taking into consideration the various contentions and submissions of the assessee by observing and holding as under : "11. GROUND NOS. 6 to 8 - DISALLOWANCE ON ACCOUNT OF PROVISION FOR SLOW AND NON-MOVING STOCK: The appellant during the year under consideration has made provision for slow, non-moving and damaged stocks of Rs. 59,97,000/-. It was stated that the appellant follows AS-2 whereby stores/inventories are valued at cost or market value whichever is lower. This principle has also been upheld by the Hon'ble Supreme Court on numerous occasions, one of them being its judgment in the case of CIT vs. Hindustan Zinc. Ltd (2007) (291 ITR 391). He also referred to section 145A and stated that as per the principle of stock valuation upheld by the apex court, the method of valuation regularly adopted by the appellant is a recognized method and therefore, the same cannot be rejected. The items written down to the net realizable value are items of ra....
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....wing case laws: a) CIT v. Hotline Teletube & Components Ltd. -175 Taxman 286 (Del. HC) b) CIT v. Hughes Communication India Ltd.- 33 taxmann.com 95 (Del HC) c) CIT v. IBM India Ltd. - 55 taxmann.com 515 (Kar.) d) CIT v. Indian Rare Earths Ltd. - 375 ITR 276 jBom.) e) Alfa Laval India Ltd. v. DCIT - 2661TR 418 {80m.) f) IAC v. Consolidated Pneumatic Tool Co. (ind). Ltd.-15 ITD 564 Mum Finally, the ld.DR prayed before us that by following the ratio laid down in the aforementioned decisions, the order of the ld.CIT(A) be set aside and that of AO be upheld. 18. The ld.AR relied heavily on the order of ld.CIT(A) by submitting that the assessee is a manufacturer of critical chemicals, powders and pesticides which are highly toxic and the raw materials used are in the form of liquids and powders of various which are highly vaporable and susceptible to damage and are not fit to be used in the manufacturing of the chemicals . The ld. AR took us through pages 198 to 199 of the paper book referring the Insecticides Rules, 1971(GSR 1650, Dt.9.10.1971. Para 10A of the said Rules provides that after expiry of stock the same shall be mar....
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....count of implementing "Project Disha" as revenue expenditure without appreciating the fact that implementation of the said project has enduring benefit to the assessee and deserves to be treated as capital expenditure. 21. Facts in brief are that the assessee incurred an expenditure of Rs. 1,06,52,800/- on account of legal and professional fee incurred for increasing the business operation efficiency and the same were shown under the head "Project Disha" (Driving Innovative Solution for Hyper Achievements). This project was carried out with the help of an external consultant Ernst and Young to whom this amount was paid. The said project was undertaken to bring in several improvements in the operations of business which were divided into three phases: Phase I:Improving area of manufacturing and procurement; Phase II:-Improving areas of Sales and Marketing and ; Phase III: Optimizing the fixed costs and operating expenses. The said project was like remodeling or revamping the whole business of the assessee thereby effecting the improvement and optimizing the areas of manufacturing sales and marketing and thus the expenditure so incurred was towards th....
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....rder of ld.CIT(A) is apparently wrong in deleting the addition of expenses of capital nature incurred on the project to increase efficiency of business operations which was of a long term nature resulting into benefits of enduring nature and the benefit were going to last over longer period of time than one year. Thus, the expenditure incurred by the assessee was of capital nature and the AO has rightly disallowed 75% by allowing 25% of the said expenditure to be written off in the current year and proposing to allow it in the next three years the remaining amount. The ld. DR relied on the decision of AO and stated that the ld.CIT(A) has wrongly followed the decision of the Hon‟ble Supreme Court rendered in the case of In Alembic Chemical Works Vs.CIT 177 ITR 377 (SC) without any discussion. The ld.DR finally prayed that the order of the AO be restored and that of ld.CIT(A) be set aside. 23. On the other hand, the ld.AR submitted that the expenditure incurred by the assessee by way of payment on account of professional and legal fees in connection with a project purported to be undertaken for increasing the efficiency of business operation in the existing business of the a....