TaxTMI 
TaxTMI 
2018 (8) TMI 979
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....ssessment under section 144C of the Income-tax Act, 1961 („the Act') at an income of Rs. 91, 19, 37, 560/- as against the income of Rs. 70, 51, 03, 214/- returned by the appellant. 2. That the Dispute Resolution Panel („DRP') / assessing officer erred on facts and in law in disallowing expenses of Rs. 90, 44, 496/- alleging the same to be incurred for earning exempt dividend income of Rs. 7, 10, 41, 503/- from investment in mutual funds, invoking provisions of section 14A of the Act read with Rule 8D of the Rules. 2.1 That the DRP / assessing officer erred on facts and in law in holding that investment activity was not passive activity but was well informed and coordinated activity involving input from the various sources and acumen of senior management functionary and hence there was cost in-built into such investment activity. 2.2 That the DRP / assessing officer erred on facts and in law in holding that, the appropriate cost of composite funds needed to be allocated towards earning of exempt income. 2.3 That the DRP / assessing officer erred on facts and in law in not appreciating that apportionment of expenses is not allowed under section 14A of the Act ....
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.... with the requirement of audit as prescribed in section 80IA(7) of the Act in respect of the Windmill Undertakings. 4.1 That the assessing officer erred on facts and in law in not appreciating that proper books of accounts were maintained which were duly audited by an independent auditor and the report of auditor was filed before the assessing officer both in the assessment proceedings and the remand back proceedings. 4.2 That the assessing officer erred on facts and in law in not appreciating that books of accounts along with documents/ vouchers were produced before the assessing officer both during the assessment proceedings and the remand back proceedings. 4.3 That the assessing officer erred on facts and in law in not appreciating the process of generation and transmission of power vis-a-vis recognition of revenue by the appellant in respect of the Windmill undertakings. 4.4 That the assessing officer erred on facts and in law in not appreciating that there is no requirement in the Act which makes it mandatory for the appellant to recognize revenue on the basis of a sales invoice and not on the basis of a credit note which was issued by a third party viz. Gujarat El....
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....r section 14 A of Rs. 90, 44, 496/- b. Disallowance of engineering fees of Rs. 81, 94, 914/-. c. Disallowance under section 80 IA(4) (IV) made by the Ld. assessing officer of Rs. 18, 35, 10, 396/-. 5. Therefore, assessee aggrieved by the order of the Ld. assessing officer and the Ld. AO aggrieved by the direction of the dispute resolution panel has preferred these appeals before us. 6. Now we 1st take up the appeal of the assessee. The first ground of appeal is challenging the composite order of the Ld. assessing officer. Therefore, this ground is general in nature and no specific arguments were raised before us. In view of this, we dismiss the same. 7. The 2nd ground of appeal divided into 6 segments with respect to the disallowance under section 14 A of the income tax act. During the year the assessee has earned dividend income of Rs. 7, 10, 41, 503/- . During the course of assessment proceedings, the assessee was asked to file the details of the expenditure incurred for earning dividend income and applicability of the provisions of section 14 A as well as rule 8D. The assessee submitted that it had made investment only in Debt mutual funds to earn income by way of dividen....
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....t is not having any separate department or persons exclusively engaged in investment activity and the same is being carried out by Accounts Department as integral part of the day-to-day accounting & finance activity. In this background, the appellant offered to disallow amount of Rs. 3, 17, 216, being 20% of the salary of one accountant and 5% remuneration of the Finance Director, which could be said to have been incurred for earning such dividend income. Interest expenditure of Rs. 27, 07, 351 was on dealer's deposit and Rs. 67, 267 was on loan obtained from bank towards working capital requirement. No part of the interest expenditure relates directly/ indirectly to the investments made in various mutual funds. Tax Auditor has certified/ quantified the disallowance under section 14A of the Act at Rs. 3, 17, 126/- as referred above. Coming to other expenses, it will kindly be noticed that the assessee had on a reasonable basis apportioned the salary cost of employee and finance director looking after investment positions towards earning of dividend income and disallowed the same. The balance expenses were incurred in relation to Mutual funds are governed by SEBI regulations. The Mu....
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....pute disallowance under section 14A by invoking rule 8D without elucidating and explaining why assessee's voluntary disallowance is unreasonable and unsatisfactory. It would be pertinent to mention that the above issue has been decided in favour of the appellant by the Tribunal in assessment year 2009-10 in ITA No.3554/Del/2014 and 3596 & 3595/Del/2014. The relevant extracts of the decision were read out by him , which is as under : "17 Considering the above undisputed facts material to the issue of validity of disallowance made u/s.14A read with Rules 8D, we are of the view that the learned CIT (Appeals) following the ratio laid down by the Hon'ble Jurisdictional High Court of Delhi in the case of Maxopp Investments Ltd. (supra) was justified in holding that the Assessing Officer was not right in rejecting the claim of the assessee in a summary manner without verifying the reasonableness of disallowance of Rs. 3, 04, 866/- made by the assessee itself towards the expenses incurred in the form of administrative cost, in the form of any fraction of the salary of the concerned employees were also performing other duties in the finance section and whose job was not exclusively to....
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....We have carefully considered the rival contentions. The first contention of the assessee is that assessee has suo moto disallowance of certain expenses, given reason for that and without examining the claim of the assessee, ld AO has applied the provision of rule 8D of the act. His main submission is that disallowance cannot be made by invoking Rule 8D without recording satisfaction how the claim of the assessee is not correct. He relied up on plethora of decisions including the decision of coordinate bench in assessee's own case on identical facts and circumstances. Further In computation of disallowance made by the Ld. assessing officer has also worked out the disallowance of interest of Rs. 992176/- and amount of expenditure at the rate of 0.5% of the average value of investment of Rs. 8369536/-. The total disallowance were worked by the Ld. assessing officer applying the provisions of rule 8D was Rs. 9 361712/-. The main claim of the assessee is that it has the surplus fund amounting to Rs. 4, 24, 06, 75, 537/- in the form of share capital and reserve and surplus and the total investment made by the assessee is only of Rs. 1, 67, 84, 06, 403/-. Therefore, there cannot be any di....
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..... 2 of the appeal of the assessee is allowed. 11. The ground No. 3 of the appeal of the assessee is against the disallowance of Rs. 81, 94, 914/- out of the total expenditure of Rs. 5, 85, 35, 098/- made by the assessee on old tank repair claimed as revenue expenditure by the appellant but held to be capital expenditure by the Ld. assessing officer. The brief facts of the issue is that appellant is an original return had claimed deduction of Rs. 5, 85, 35, 098/- being the 2nd installment of engineering fees paid to bludgeon international Corporation USA for old tank repair. The appellant had revised the return of income before the assessing officer wide letter dated 27/11/2011 claiming only Rs. 8 1, 94, 914/- as revenue expenditure and suo Moto capitalizing the balance amount of Rs. 5, 03, 40, 184/-. In the assessment order, the Ld. assessing officer disallowed the same treating the same as capital expenditure. The Ld. DRP also held that entire amount of Rs. 5 853 5098 to be capital in nature and observed that the appellant had claimed depreciation at the rate of 15% amounting to Rs. 81, 94, 914/- on the said expenditure. The Ld. DRP did not noticed that assessee had bifurcated th....
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....ndered by Guardian relating to engineering and procurement activities. This amount was accounted for and charged to Profit and Loss account as plant repair expenses. The disclosure about the said expense was also made in Schedule 18 - Note 14(B) of the Audited Accounts as transaction with related party. The payment made to Guardian was not linked with undertaking actual cold tank repair. In fact, the amount of USD 5 million was agreed for services to be rendered by Guardian in relation to following services as per Article 2.1 of the Agreement: a) Engineering design services b) Equipment supply services c) Project financial control services d) Purchasing services e) Heat up services The detail of work done under the aforesaid services is explained in the Agreement, which was submitted during the assessment proceedings. These services were rendered to prepare the appellant to undertake cold tank repair in the subsequent year. Further, Article 3.2 of the Agreement provides the milestones for making payment of the agreed engineering fees, as under: a) First installment [USD 1.25 million] - after signing of the Agreement; b) Second installment [USD 1.25 million] - after G....
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....italized in the books of accounts. It would be pertinent to mention that the assessing officer, during the assessment proceedings for the assessment year 2011-12, has accepted the bifurcation of total expenditure incurred on cold tank repair as Rs. 26.77 crores being revenue in nature and Rs. 169.77 crores as capital in nature. Accordingly, the assessing officer ought to accept the bifurcation of the engineering fees, which has, was based on the same principle. Reliance, in this regard, is placed on Para-12 of Accounting Standard-10 "Accounting for Fixed Assets" issued by the Institute of Chartered Accountants of India, the premier accounting body of India, which deals with the accounting treatment of „improvements and repairs' carried out with respect to Fixed Assets. As per para 12.1 thereof, only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g. an increase in capacity. AR further placed reliance in this regard on the following decisions: * Empire Jute Co. Ltd. v. CIT: 124 ITR 1 (SC) * CIT vs. Mahalakshmi Textile Mills 66 ITR 710 (SC) * CIT v. Sarvana....
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.... the expenditure should be allowed as revenue expenditure. 13. The Ld. departmental representative relied upon the orders of the lower authority and submitted that disallowance has correctly been made by the Ld. assessing officer. 14. We have carefully considered the rival contentions and find that for assessment year 2009 - 10 the identical issue arose in the case of the assessee in ITA No. 3554/del/2014 wherein wide para No. 21 the coordinate bench is set aside the whole issue back to the file of the Ld. assessing officer as under:- "21. Having gone through the orders of the authorities below, we find that the Ld. CIT (A) has decided the issue of disallowance of the portion of engineering fees claimed as revenue expenditure to the extent of Rs. 6 9, 04, 582/- under factual premises, besides other that the assessee had not received drawings and specifications, and, therefore 2nd installment of payment of US dollar 1.2 5, 000, 000 to the Guardian had not become due. The factual observation of the Ld. CIT - A is disputed by the Ld. authorized representative is incorrect that the submission that the claim of the assessee that the above amount was revenue in nature is supported by....
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....respect of the windmill undertakings. The brief facts of the issue is that during the year under consideration the appellant had claimed deduction under section 80 IA (4) (iv) of the act being an undertaking which is set up for the generation of the power that had begun to generate power from assessment year 2004 - 05 onwards. Admittedly, the assessee has two windmill projects project No. 1 and project No. 2. In the case of the assessee it has set up windfarm situated about 355 km away from the manufacturing facility for transmission of electricity to its manufacturing facility located at Bharuch . For this purpose, the assessee company entered into wheeling of electricity agreement with the Gujarat energy transmission Corporation Ltd. The Ld. assessing officer based on the agreement noted that Assessee Company is using banking facility only for consumption of electricity for its own manufacturing activities. Revenue is booked only on the basis of the credit notes of units issued by GETCO. Since the company according to the AO is not deriving any profits and gains from the so-called windmill undertaking or enterprise the assessee company was required to show cause as to why the ded....
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....CO would meter and measure the energy generated at the wind farm, which would subsequently be wheeled from the wind farm to the appellant's manufacturing units. Any surplus energy will also be injected into the GETCO Grid system and banked for a period of six months. In the wheeling process, the power so generated by the appellant, as measured by GEDA, is acknowledged by GEB by issuing credit certificates, which is thereafter adjusted in the monthly electricity bills. The process is explained hereunder: The detail of power generated and revenue recorded there from in Wind power projects I & II is summarized below: Unit Gross generation 4% Wheeling Charge Net generation Revenue Remarks (in units) (in Rs.) I 20, 674, 006 826, 960 19, 847, 046 118, 647, 716 Recorded as 'revenue from generation' in the accounts, certified by Tralsawala Associates, Chartered Accountants II 18, 215, 575 728, 623 17, 486, 952 104, 538, 829 38, 889, 581 1, 555, 583 37, 333, 998 223, 186, 545 The power generated at t....
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....party, such documents provided by DGVCL cannot be rejected. it will be kindly appreciated that the provisions of section 80IA only requires that "accounts of the undertaking" for the relevant previous year to be audited by a Chartered Accountant and also requires the assessee to furnish report of such audit in prescribed Form No.10CCB along with the return of income. In this regard, it is respectfully submitted that the appellant, during the year under consideration, had maintained separate books of accounts with respect to both the Windmill undertakings. Such books of accounts have been duly audited by an independent auditor viz. Tralsawala Associates, Chartered Accountants and such report of the auditor has been filed before your Honour. The relevant extracts of the audit report have been reproduced hereunder as reference: "We have checked the books of accounts and other records maintained by M/S Gujarat Guardian Ltd, State Highway 13, Village Kondh, Taluka Valia, District Bharuch, Gujarat in respect of the following undertakings set up by the company for generation of Wind Power; Name of undertaking Year of Setting up 1. Wind Power Project - I (Satapar, Gujarat) 2003-04 ....
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.... units were prepared on that basis.It is further submitted that on the basis of unit wise accounts prepared, the appellant claims deduction under section 80IA of the Act, which is duly supported by certificate of the Chartered Accountant. Further, the computation of profits for the purpose of deduction under sections 80IA of the Act is duly certified by the auditors and has been provided as part of the audit report in Form 10CCB. Under the provisions of section 80-IA/ 80-IB of the Act, there is, in fact, no provision/ requirement of maintenance of separate books of account in respect of each eligible undertaking. What is only required is that the assessee has to furnish report of a Chartered Accountant in the prescribed Form No.10CCB certifying that deduction has been rightly computed in respect of profit derived from the undertaking. Reliance in this regard is also placed in the decision of the Punjab and Haryana High Court in the case of CIT v. Micro Instruments Co.: 388 ITR 46 (dated 02.09.2016) wherein issue of requirement of separate books of account in respect of units eligible for deduction under section 80IB of the Act has been specifically dealt with by the Court. While de....
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.... Laboratories ITA No. 196/Del/2013 dated 25.04.2016/ [2016] 68 taxmann.com 322 also, inter alia, held that there is no mandatory requirement to maintain separate books of account for the purpose of claiming deductions under sections 80-IB and 80-IC of the Act. To the similar effect are the following decisions: * Banaskantha District Cooperative Milk Producers Union: ITA No.3599/Ahd/2009 * Revenue's Appeal dismissed in Tax Appeal No. 1813 of 2010 (Guj.) * CIT v. Sabarkantha District Co-operative Milk Producers Union Ltd.: Tax Appeal No. 473 of 2014 (Guj.) * Ajanta (P.) Ltd. v. DCIT: [2017] 77 taxmann.com 227 (Guj.) Reference in this regard is also made to the decision of the Delhi Bench of the Tribunal in the case of DCIT v. NIIT: ITA No. 1112/Del/2012 wherein books maintained in ERP software accounting system was held to be sufficient compliance for the purpose of claiming deduction under section 10B of the Act. It is pertinent to mention here that appeal filed by the Revenue against the order of the Tribunal the aforesaid issue raised was not admitted by the Hon'ble Delhi High Court vide order dated 01.03.2016 in ITA No. 897/2015. In view of the above, it is respectfully ....
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....rashtra Cement & Chemical Industries v. CIT: 123 ITR 669 (Guj) "No doubt, the relief of tax holiday under s. 80J can be withheld or discontinued provided the relief granted in the initial year of assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the Income-tax Officer cannot examine the question again and decide to withhold or withdraw the relief which has been already once granted." - CIT v. Paul Brothers: 216 ITR 548 (Bom.) "Either in section80HH or in section80J, there is no provision for withdrawal of special deduction for the subsequent years for breach of certain conditions. Hence unless the relief granted for the assessment year 1980-81 was withdrawn, the Income-tax Officer could not have withheld the relief for the subsequent years. (See Gujarat High Court decision in the case of Saurashtra Cement v. CIT: 123 ITR 669. Hence, the approach of the Tribunal on all the counts has been perfectly legal." - CIT v Gujarat State Fertilizers Co. Ltd: 247 ITR 690 (Guj.) "Having heard learned counsel for the parties and critically examining the relevant provisions contained in section 80J in the light of....
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....t there was any change in the acts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted under Section10A of the Act to SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis a vis the claim to exemption under section10A of the Act. Therefore, it is not open to the department to deny the benefit of Section10A for subsequent assessment yearsi. e. assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of Income Tax (Appeals) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit." To the same effect is the decision of the Hon'ble Bombay High Court in Direct Information Private Ltd. vs. ITO: 349 ITR 150 and the following decisions of the Delhi High Court: - CIT vs. Escorts Ltd : 338 ITR 435 - CIT vs. Delhi Press Patra Prakashan Ltd. (No.2) : 355 ITR 14 - CIT vs. Tata Communications Internet Services Ltd.: 251 CTR 290 In view of the above, it is submitted that since deduction under sections 80IA of th....
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....for the same. 18. Ld. departmental representative also supported the order of the Ld. assessing officer and stated that subsection 7 shows that the books of accounts are required to be maintained by the assessee for such unit which claimed deduction under that section. He further submitted that no details has been produced by the assessee before the assessing officer. 19. In the rejoinder, the Ld. authorized representative submitted that details were filed before the Ld. assessing officer and it were placed at the paper book page No. 78 onwards. 20. We have carefully considered the rival contention and perused the orders of the lower authorities. The brief background of the issue shows that assessee has set up two windmills for its captive consumption. On the same assessee claimed deduction under section 80 IA. Before the assessing officer the assessee submitted the audit report in form No. 10 CCB. The assessee started generating power from assessment year 2004 - 05 onwards. For both the windmills the assessee entered into a power purchase agreement, such power generated at the windmill wheeled by that agreement to the manufacturing unit of the assessee, and number of units gene....
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....duction and only the net units charged to the assessee. The assessee has recorded the revenue involved in those units generated by the windmill based on the rate at which power that is supplied to the assessee for the manufacturing unit. According to the subsection 7 of section 80 IA the only requirement is that, the accounts of the undertaking are required to be audited. In the present case, the assessee has submitted the audited accounts. If the auditor has not qualified those audited accounts, there is no reason to reject them at the threshold without making further verification. The Ld. assessing officer should have verified whether the assessee has properly computed the income derived from the industrial undertaking or not. If the assessing officer finds that such working is not proper then only he can say that that the audited accounts of the assessee are not reliable. In the present case the revenue has been recorded by the assessee by deriving the units generated based on the credit notes issued by the transmission company, the assessee multiplied those units generated with the power rates for which the manufacturing unit buys the power from an outside agency, reduced the p....
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....ligible undertaking for the earlier years. The aforesaid treatment was given by the assessee by way of revised returns filed before the assessing officer. The assessee has also submitted the working of the same before the AO. The Ld. assessing officer in the draft order rejected the revised claim of the appellant on the ground that for granting deduction under section 80 IA that 1st brought forward losses were to be set off against the profit of the eligible unit and the deduction is allowed in respect of balance of profit if any. Accordingly the AO rejected the claim of enhancement of deduction claimed by the assessee from Rs. 1 8, 35, 10, 398/- Rs. 22, 77, 66, 107/-. On objection filed by the assessee before the Ld. Dispute resolution panel the above disallowance was deleted. Against these directions the assessing officer is in appeal before us. 24. The Ld. departmental representative relied upon the orders of the Ld. assessing officer and submitted that such brought forward losses cannot be set off against other income but should be set off only against the income generated of the eligible undertaking only. 25. The Ld. authorized representative vehemently stated that identical....
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....ure expenditure incurred by the assessee at plant, horticulture expenditure incurred by the assessee at its residential colony, purchases of the computer supply, software purchase expenses and security services charges paid at the colony. Ld AO held them to be capital expenditure. The Ld. Dispute resolution panel directed the Ld. AO to delete the above disallowance and therefore this ground of appeal. 28. The Ld. departmental representative relied upon the order of the Ld. AO. 29. The Ld. authorized representative submitted that identical issue has been covered in favour of the assessee by the decision of the coordinate bench in assessee's own case for assessment year 2007 - 08 and 2008 - 09 in ITA No. 3215/del/2013 and 3214/del/2014. He further stated that for assessment year 2009 - 10 in ITA No. 3554 and 3596 and 3595/del/2014 this issue is also been decided in favour of the assessee it was further submitted that the assessing officer himself has accepted the claim of the appellant in the subsequent year in assessment year 2011 - 12 and 2012 - 13 wherein the AO had allowed the aforesaid expenditure holding the same to be revenue in nature. 30. We have carefully considered the ....
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....re unable to see any ambiguity or perversity in the impugned order or any other valid reason to interfere with the same. 40. On the issue of computer peripherals supply expenses, ld. DR submitted that as per claim of the assessee, the assessee incurred expenditure of Rs. 18, 24, 903 towards purchase of printer cartridges, computer peripherals like CD disks etc. and other consumables for maintenance of computers and printers but the assessee has not furnished any details/evidence to support this claim. Therefore, the AO rightly treated the same as capital nature expenditure and allowed depreciation @15% and disallowed the remaining balance of Rs. 15, 51, 168. The DR further contended that the CIT(A) granted relief for the assessee on wrong basis, hence the impugned order may be set aside by restoring that of the AO. 41. Ld. Counsel of the assessee replied that (i) the nature of aforesaid expenses incurred on consumables are routine in nature (ii) such expenditure was incurred wholly and exclusively for the purpose of business and did not bring any benefit of enduring nature for the assessee, therefore, such expenditure should not be treated as capital expenditure as has been d....
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....ctions as indicated above." 31. Further for assessment year 2009 - 10 the coordinate bench has decided on the issue of the plantation and horticulture expenditure for plant and colony as under"- "30. Having gone through the orders of the authorities below, on the issue we find that the condonation of the assessee in support of the claimed expenditure on plantation remained that it was set up in a remote area in the State of Gujarat which is semi dessert State. It was thus required to have dust free environment for the proper manufacturing of the product of the assessee i.e. glass and such expenses were incurred within the factory premises in order to provide necessary landscape and making the environment green and eco friendly. It was submitted that horticulture expenses were also incurred for the staff colony which is in the immediate vicinity of plant and security thereof was also held to be of the same nature. It was submitted that the staff colony is also a business asset of the assessee. Considering all these material aspects of the issue, we are of the view that the Ld. CIT(A) has rightly deleted the disallowance made by the A.O. on account of expenses incurred on plantat....