AI Drafter 
TaxTMI 
TaxTMI 
2017 (12) TMI 1411
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....e Income Tax Act. 2. On the facts and circumstances of the case, the CIT(A) has erred in deleting the disallowances of Rs. 1,95,30,660/- made by the AO u/s 14A read with Rule 8D of the IT Act. 3. The assessee craves the leave to make any addition, alteration, modification of ground at the appellate stage. 3. First ground raised by the Revenue relates to disallowance of Rs. 1,12,07,224/- made by the AO u/s 40(a)(ia) of the Income Tax Act. 3.1. The brief facts qua the issue are that the assessee is a sole proprietor of M/s TT Industries which is the owner of TT Brand. By way of its franchisees, who use the brand "TT", the assessee earns royalty income. The TT brand is well known brand in hosiery and undergarments both in India and around the globe. The manufacturing of TT products is done by different franchisees throughout India. The assessee gets royalty for use of the said TT Brand from its franchisees. For increasing sales and to earn a higher royalty, the assessee distributes advertisement material (like Canvas bag and big umbrella, air bag set, banners and flex boards banners, bags, umbrella, TT printed pens, calendars etc. In addition to this, dealers a....
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....advertisement come within the purview of the provisions of section 194C. So the assessee should have made TDS at the time of credit or payment, whichever is earlier. During the assessment proceedings, the assessing officer noted that assessee has debited expenses under the head advertisement material but the assessee did not deduct TDS on advertising material on which "TT" has been printed whereas considering the fact that it was the nature of job work. Therefore, the Assessing Officer asked the assessee that why TDS has not been deducted on advertisement material. In response to the same, vide letter dated 18.03.2014, the assessee submitted before the AO, following: 1) The assessee has purchased Advertisement Material e.g. Umbrellas, Bags, Pen, Pad etc. valuing Rs. 82.84 lacs for distributing to the customers. 2) That the payment was for outright purchase of Materials and not for execution of any contract. The transaction constituted transaction of purchase and sale of goods and involves no element of execution of any contract. Provisions of section 194C cannot be stretched to circumscribe transaction of purchase of goods. 3) That no contract for j....
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....h banners Ankur Trading Company 20,50,080 Jute Bags, Flex Board, Cloth Banners, Pad Neelapu Rajesh Kumar 2,07,200 Pen Total 1,12,07,224/- Therefore, total disallowance of Rs. 1,12,07,224/- was made by AO against advertisement material u/s 40(a)(ia) of the I.T. Act, 1961. 3.2 Aggrieved by the addition of Rs. 1,12,07,224/- made by AO against advertisement material, u/s 40(a)(ia) of the I.T. Act, 1961, the assessee filed an appeal before the CIT(A), who has deleted the addition. The ld CIT(A) observed that these expenses were claimed for poster, calendar, flex board, umbrella, air bag, hawker bags, cloth banner, pad, jute bags and pens etc. The AO had treated these payments as job work charges to various persons treated as contractors by the AO whereas the assessee claimed these expense as purchase price for procurement of various materials.The CIT(A) observed that assessee had claimed that the expenditure was not consideration for works contract but were for purchase of various materials to be used in advertising activity. The same issue on almost identical facts came up in assessment year 2....
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.... for purchase of material and had admittedly not supplied the materials to the job worker and hence the same would not fall under the definition of 'work' as per section 194C of the Act, hence there is no violation of section 194C warranting any disallowance u/s 40(a) (ia) of the Act. Thus, respectfully following the decision of the Coordinate Bench in assessee's own case, (supra), in the immediately preceding assessment year 2009-10, whereby the issues were decided in favour of the assessee company, as set out above, we hold that no disallowance under section 40(a)(ia) of the Act should be made, therefore, we confirm the order passed by CIT(A). So, we uphold the order of the ld. CIT(A) and dismiss ground No.1 raised by the Revenue. 3.5 In the result, appeal filed by the Revenue ( in ground No.1), is dismissed. 4.Ground No.2 raised by the Revenue relates to addition of Rs. 1,95,30,660/- made by the AO u/s 14A read with Rule 8D of the IT Act. 4.1 The brief facts qua the issue are that the assessee had disclosed a dividend income of Rs. 2,870/- which he claimed exempt income u/s 10(32) of the I.T. Act, 1961. In the light of above, during the course of assessment proceedin....
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....ted during the year" was not accepted by the AO and he computed the disallowance u/s 14A read with Rule 8D as under: Investment as on 31.03.2010 Rs. 159718070/- Investment as on 31.03.2011 Rs. 162410022/- Total Rs. 322128092/- Average Investment Rs. 161064046/- Asset as on 31.03.2010 Rs. 289662600/- Asset as on 31.03.2011 Rs. 286888906/- Total Rs. 576551505/- Average Asset Rs. 288275753/- Interest expense (including finance charges) Interest on office building loan Rs. 19046660/- Interest on loan Rs. 13463002/- Finance charges Rs. 1005338/- Total interest expenses Rs. 33515000/- 8D(ii) Rs. 33515000/- x Rs. 161064046/- = Rs. 18725340/- Rs. 288275753/- 8D(iii) 0.5% of average investment (Rs.161064046/-) Rs. 805320/- Total disallowance u/s 14A Rs. 19530660/- 4.2 Aggrieved by the order of Assessing Officer, the assessee filed an appeal before the CIT(A), who has deleted the addition made by AO. Aggrieved by the order of CIT(A), the Revenue is in appeal before us. The Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already n....
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.... has two windmills plants, Unit No. 1 and Unit No. 2. Windmill Unit No. 2 had been established in March 2011 U/s 80IA of the I.T. Act. The profits and gains from windmill Unit No. 1 have been claimed as deduction u/s 80IA. This is the second year in which the assessee has claimed deduction u/s 80IA. The assessee furnished before AO separate profit and loss accounts and balance sheets of windmill units as well as one consolidated balance sheet. One set of accounts was reflected a consolidated picture of assessee's entire income and expenditure thereon. The other set of accounts depicted the exclusive picture of windmill account of Unit No. 1 and Unit No. 2. On perusal of windmill account of Unit No. 1, it was observed by the AO, that assessee had a profit of Rs. 32,62,326/- from the unit on which he claimed deducted u/s 80IA. Further, the assessee had booked only four expenses in the profit and loss account of the windmill the details of which is as under: Depreciation Rs. 2,38,099/- Interest on windmill loan Rs.2,20,722/- Insurance charges Rs. 36,792/- Windmill expenses Rs,11,76,080/- Total Rs. 16,71,693/- The interest on loan for windmill has b....
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..... 82.59 lacs), 2010-11 is suffice to cover the above expenses and Net result as per Profit and Loss Account is surplus of Rs. 32.62lacs (P.Y. Rs. 30.62Iacs) after providing Depreciation on the Wind Mill for the year. (v) That Balance Sheet of Wind Mill No. (1) clearly reflects, that there was Debit Balance of Rs. 1.10 Crores in Capital Account, which means Capital of Wind Mill Unit No.-1 amounting to Rs. 1.10 Crores is being used in other consolidated business of the assessee, and as such no other fund from consolidated business is used in the Wind Mill unit. (vi) That cash fund flow statement of Wind Mill for FY 2010-11, Asst. year 2011-12 (as on 31.03.2011) reflects the fact that total out flow of cash is covered by total cash inflow from the wind mill unit no. (1) and no other Loan and/or fund from consolidated Account has been used in Wind Mill business. Therefore, the assessee submitted that apportionment of interest expense to Wind Mill Unit no. (1) for AY 2011-12 cannot be made on above facts and apportionment of Interest expense made by Rs. 45.67 lacs in A.Y 2010-11 on similar facts was arbitrary, uncalled for. After getting the reply from the ass....
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.... 3856103/- Loans and advances Rs. 35204017/- The AO noted that based on the above, it was clear that a part of the loan which is in the mixed fund has been utilized for running the windmill unit and also repayment of loan taken from State Bank of Mysore. The assessee has neither apportioned borrowed funds for running the windmill unit nor has debited any interest expense on loan used for running the windmill unit. Only interest on loan taken from State Bank of Mysore taken for purchase of fixed asset has been debited. By doing so, assessee has subsidized its windmill unit by allocating more expense to its other businesses, thereby increasing the profit of windmill unit and decreasing the profit of other business. Therefore, it is clear that there has been a wilful attempt on the part of the assessee to increase profit of unit claiming 80IA deduction and deflating the profit of other businesses, thereby intending to reduce his taxable income. Thereafter, the AO, didthe calculation of interest exepense for windmill unit, which is as under: Business receipts: Royalty income Rs. 60078562/- Bad debt recovered Rs. 49724/- Electricity Sale Wind Mill No.1 R....
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....us noted that wind mill unit was subsidized by allocating more expenses to its other business and thereby increasing the profit of the wind mill and decreasing the profit of other business. According to the A.O, Section 80IA deduction has thus wrongly been claimed upto the amount of Rs. 29,04,452/-. 4.1.2 The assessee vide his submission dated 05/06/15 in page 5 in clause 3(d) has claimed that the cash fund flow statement as on 31/03/11 reflects that the total out flow of cash is covered by total inflow from the wind mill and no other loan or fund from the consolidated account has been used in the wind mill business. In support the AR pointed out to the balance sheet of wind mill II wherein capital account debt of Rs. l,10,12,230/- is shown. In other words the AR relied on the balance sheet as on 31/03/11 which shows negative capital account of about Rs. 1,10,00,000/- apparently indicating net cash out flow from the unit I to the consolidated fund. 4.1.3 After considering the reasons and the formula adopted for allocation of common interest expenses and the submission of the AR on the point I see that the A.O is not entirely correct in allocating common interest t....
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....nit II an allocation could have only academic significance as this unit is in heavy loss which gets set off against profit of other activities and so no profit calculation in respect of 80IA is required of unit II. 4.1.4 For the purpose of allocation of interest towards unit I borrowings, common fund loans allocated to the unit is thus taken at Rs. 1.5 crore as discussed above. This figure is arrived on the last day of the financial year. Unit I has cash flow of about Rs. 35 lakh in the current year and this has to be considered for deriving the common loan utilized in unit I, at the beginning of year. Thus average fund from the common borrowings for the entire financial year comes to Rs. 1.5 + .35/2=1.68 crore. Taking average interest rate of 12%,interest on the said allocation comes to 20 lakh. Thus, the addition on account of allocated interest is restricted to Rs. 20 lakh and the balance addition of Rs. 9,04,452/- is deleted. In other words the profit of the unit I as assessed by the AO is increased by Rs. 9,04,452/- which results in higher allowable deduction u/s 80IA. The above decision has the impact of addition in the assessed income of Rs. 20 lakh as against Rs. 2....