TaxTMI 
TaxTMI 
2018 (8) TMI 979
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....g officer erred on facts and in law in completing the assessment 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 appreciat....
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....96/- as claimed under section 80IA of the Act, on the ground that the appellant has neither maintained books of accounts nor complied 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 f....
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.... of Rs. 91, 19, 37, 556/- against the returned income filed by the assessee of Rs. 71, 11, 87, 750/-. Now disputes that remains to be adjudicated are a. Disallowance under 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 earnin....
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....ns to the bank. The dividends/ maturity proceeds are directly credited to appellant's bank account and accounting is done on the basis of computerized statements received from Mutual fund. The appellant 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 direct....
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....is regard is invited to the decision of Delhi High Court in the case of PCIT vs. U.K. Paints (India) (P.) Ltd. [2017] 392 ITR 552 (Delhi) wherein the court held that the assessing officer cannot re-compute 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....
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.... assessee (discussed supra), the disallowance made by the assessing officer calls for being deleted 9. The Ld. departmental representative vehemently relied upon the orders of the Ld. assessing officer. 10. 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....
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....der of the coordinate bench in assessee's own case for assessment year 2009 - 10. In view of this to delete the disallowance made of Rs. 9 044496/- under section 14 A of the income tax act. In the result ground No. 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 ....
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....f USD 1.25 Million was paid in financial year 2007-08 and in financial year 2009- 10 (the assessment year under consideration) 2nd installment of USD 1.25 Million (Rs.5, 85, 35, 098/-) was paid towards the services rendered 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 yea....
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....as later on revised and only Rs. 81, 94, 914/- (approx 14% of the total amount paid) of the engineering fees paid to Guardian was claimed as revenue expenditure under section 37(1) of the Act and the balance amount of Rs. 5, 03, 40, 184/- (approx 84% of the total amount paid) was capitalized 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 assess....
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....s Limited: 235 ITR 343 (Ker.) • CIT v. Udaipur Distillary Co. Ltd.: 268 ITR 451 (Raj.) • CIT vs. Prabhu Spg. Mills (P) Ltd.: 113 TTJ 372 (ITAT) (Chennai) • ACIT v. Shiva Texyarn Ltd.: ITA No. 2231/Mds/2014 (Chennai) • Urban Infrastructure Venture Capital Ltd. v. DCIT: 150 ITD 502 (Mum) • M/s Singh Fab P Ltd Vs ITO : ITA No. 5314/Del/2004, (Trib) (Del) In the light of the aforesaid discussion, it is respectfully submitted that there is no warrant to make any disallowance of the revenue portion of engineering services, since there can be no doubt or ambiguity about rendering of the services before 31.3.2010 and accordingly, 14% of 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 t....
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....inate bench. There is no reason that this ground of the appeal for this year should also not go back to the assessing officer with similar direction. In view of this, we set aside this ground of appeal back to the file of the Ld. assessing officer with similar directions. Accordingly, ground No. 3 of the appeal of the assessee is allowed with above direction. 16. The ground No. 4 of the appeal of the assessee with is with respect to the disallowance of the deduction under section 80 IA of the income tax act of Rs. 1 8, 35, 10, 396/- as the assessee has allegedly not maintained the separate books of accounts, not complied with the requirement of the audit as prescribed under section 80 IA (7) of the act in 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....
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....ty/ Gujarat Electricity Board ["GEDA"/ "GEB"]. Subsequent to the announcement of Wind Power Policy by the Gujarat Government, the appellant had set up Wind Power facility to meet part of the requirement of electricity from in house power generation. The electricity was generated at the appellant's wind farms, situated about 350 kms away from the manufacturing facility operated by it. In order to facilitate transmission of electricity to the manufacturing facility, the appellant had entered into an agreement with GETCO, a Government company functioning as the "State Transmission Utility" under the Electricity Act, 2003 for wheeling and banking power on behalf of the appellant. In terms of the said agreement, GETCO 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 pro....
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..... Limited has been submitted before the assessing officer vide reply dated 20.12.2013.It would be appreciated that the appellant, in its books of accounts, records revenues on the basis of the credit notes issued by the Dakshin Gujarat Vij CO. Limited („DGVCL') being the nodal agency of Gujarat Government. It is further submitted that AO cannot reject the authenticity of the credit note(s) issued by a third party, on the basis of which revenue is booked in the books of accounts of the Windmill undertakings, without placing on record, any document and/ or by bringing facts to the contrary, negate such credit note(s) which have been issued by a third party itself. In other words, in absence of any evidence brought on record by the AO, which stands contrary to the credit notes provided by the third 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, i....
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....rately issuing credit notes for power generated by the appellant. While making payment of bill, the appellant simply paid bills after adjusting the credit note(s). All the transactions, including transfer of power generated by the power plant to GEB/ GETCO, who banks the power and supplies it further to the other manufacturing unit(s)/ undertaking(s), were undertaken on arm's length basis viz. at the rate ordinarily charged by GEB/ DGVCL for supply of power. The transfer of power from the Windmill undertaking was made and recorded in the separate books of accounts on the basis of the credit notes issued by a third party viz. DGVCL being the nodal agency of Gujarat Government at the rate on which GEB sells power to the appellant, being the fair market value of the power supplied, and the statement of profitability for the windmill 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....
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....ring whether the assessee fulfills all the conditions of Section 80- IB and, in particular, sub-section (2) thereof. It would be relevant, for instance, while considering whether the industrial undertaking concerned is formed by splitting up or a reconstruction of a business already in existence or not. If separate books of account are kept in respect of the new industrial undertaking, it would certainly be a factor in favour of the assessee. That, however, relates to the question of evidence in support of the claim and not to the statutory requirement to maintain separate books of account. ....... 37. The contention that the assessees are not entitled to the deduction under Section 80-IB as they did not maintain separate books of account is, therefore, rejected." (emphasis supplied) The Delhi Bench of the Tribunal in the case of Ranbaxy 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: â....
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....deduction was claimed on the ground that the appellant is not having any sales vouchers and sales are computed on the basis of credit notes. In this regard, it is respectfully submitted that it is a well settled proposition of law that where the Act provides for a deduction which is allowable to an appellant for a certain term/ period (such as a period of consecutive ten years in present case), the Revenue is required to examine the eligibility of the appellant and whether all statutory pre-conditions are satisfied in the first year in which the appellant claims such a term deduction. In such cases, without disturbing the assessment for the initial year, it is not open to the Revenue to make disallowance of such deduction in the subsequent year(s), unless there is a material change in the fundamental facts. Reliance, in this regard, is placed on the following observations made in the following decisions: - Saurashtra 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 withou....
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.... - Similarly, the Hon'ble Bombay High Court in the case of CIT v. Western Outdoor Interactive Pvt. Ltd: 349 ITR 309, held as under: "We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit was set up/formed by splitting up of the first unit. In both the above decisions, this Court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income Tax officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that 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....
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....onsistency. Reliance in this regard is placed on the following decisions: - CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC) - Radhasoami Satsang v. CIT: 193 ITR 321 (SC) - DIT (E) v. Apparel Export Promotion Council: 244 ITR 734 (Del) - CIT v. Neo Polypack (P) Ltd: 245 ITR 492 (Del.) - CIT v. Dalmia Promoters Developers (P) Ltd: 281 ITR 346 (Del.) - DIT v. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.) - CIT v. P. KhrishnaWarrier: 208 ITR 823 (Ker) - CIT v Harishchandra Gupta 132 ITR 799 (Ori) - CIT v. SewaBharti Haryana Pradesh: 325 ITR 599 (P&H) - CIT v. Rajasthan Breweries Limited.: ITA 889/2009 (Del) - SLP dismissed. Thus, in view of the above, the department having accepted that the aforesaid units were eligible to claim deduction under section 80IA of the Act in the preceding year, the same stand ought not to be changed/ modified, during the year under consideration, even on the principle of consistency, particularly, when no new fact/ information has been brought on record for the same. 18. Ld. departmental representative also supported the order of the Ld. assessing officer....
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.... and such report of the auditor has been filed before the Ld. assessing officer. The main reason for the rejection of the deduction of the assessee by the Ld. assessing officer is that that assessee is booking revenue based on the credit notes. Looking at the nature of the activities carried out by the assessee wherein it has set up industrial undertaking for the purpose of captive consumption of power. For its major requirement, it buys the power from Gujarat electricity board. However to get the benefit of its different industrial undertaking which generates the power, the assessee entered into an agreement with a power transmission company which gives the credit of units generated by the windmill project against the electricity bill of the manufacturing unit of the assessee. Therefore, the assessee is recording the number of units generated by the windmill as unit revenue generated from the industrial undertaking. While paying the electricity bill of the manufacturing unit, such number of units, which were generated by the industrial undertaking such as windmill, was granted as deduction and only the net units charged to the assessee. The assessee has recorded the revenue involv....
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....nd of appeal back to the file of the Ld. assessing officer with a direction to verify the claim of the assessee on examination of the audited accounts of the industrial undertaking and then grant deduction under section 80 IA of the income tax act in accordance with the law. In the result ground No. 4 of the appeal of the assessee is allowed with above direction. 21. Accordingly, appeal filed by the assessee is allowed with above direction. 22. Now we come to the appeal of the Ld. assessing officer, which is against the direction of the Ld. Dispute resolution panel. 23. The 1st ground of appeal is against the direction of the Ld. dispute resolution panel where the addition of Rs. 4, 42, 55, 709 made by the AO on account of disallowance of the claim towards reduction of deduction under section 80 IA(5) in the draft order. The brief facts of the issue shows that during the year under consideration the assessee revised its claim for deduction under that section with respect to the wind power undertaking. The assessee did not set-off claim notionally by brought forward losses of the eligible undertaking for the earlier years. The aforesaid treatment was given by the assessee b....
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....t off as stipulated in section 80 IA (5) of the act, as loss prior to the initial assessment year which has already been set of cannot be once again reduced from the eligible income of the assessee. In nutshell, it is held that only the holiday period of 10 years starting from the initial assessment year to the last eligible assessment year up to which the assessee is eligible for deduction that is only covered by the provisions of section 80 IA (5) of the act. The Ld. departmental representative also could not show us any other judicial precedent, which forces us to take a different view. In view of this ground No. 1 of the appeal of the revenue is dismissed. 27. The ground No. 2 of the appeal of the revenue is with respect to the direction of the Ld. Dispute resolution panel in deleting the disallowance made out of the miscellaneous expenditure. The brief facts of the case are that during the year under consideration the assessee has incurred expenditure aggregating to Rs. 2, 97, 20, 756/- and out of the said expenditure the assessing officer disallowed the expenditure on account of horticulture expenditure incurred by the assessee at plant, horticulture expenditure incurred b....
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....e, the same is allowable u/s 37 of the Act. We also observe that there are other several expenses which are incurred for decorating the building and for providing general security, beautification and required environment for day to day activities of manufacturing unit of the assessee, therefore, these kind of expenses are incurred for the purpose of business and the same cannot be disallowed. .......... 37. In regard to issue of security services at the staff colony......................... 39. On careful consideration of above submissions and perusal of the order of the CIT(A) for preceding AY 2007-08 and respectfully following the decision of Hon'ble Apex Court in the case of Empire Jute Co. Ltd. vs. CIT 124 ITR 1(SC), wherein it was held that the expenditure incurred for welfare of employees and even general public interest is allowable as revenue deduction, we reach to a conclusion that the expenditure of security for staff colony is squarely covered in favour of the assessee by the earlier/preceding AY 2007-08 order of CIT(A) and in the present case, the CIT(A) was right in deleting the addition. Hence, we are unable to see any ambiguity or perversit....
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....ropos software purchase and development expenditure..................regarded to be incurred as revenue expenditure......... 44. On careful consideration of above submissions of both the sides, we are of the considered view that the AO has not doubted about the genuineness of the claim of the assessee but the AO treated the same as capital ex is penditure. Per contra, the CIT(A) rightly held that the expenditure incurred on software licence fee, purchase/development of miscellaneous software and hosting and maintenance of website and charges for internet band with connectivity are expenditure revenue in nature and we are unable to see any valid reason to interfere with the same, hence, order of CIT(A) is upheld and contentions of the DR are rejected.To sum up, on ground no. 3 of the revenue in AY 2008-09 the issue of horticulture expenses in plant and staff colony, security, charge for staff colony and software development expenses is decided in favour of the assessee and the same is partly dismissed on above four issues and on the issue of computer supplies part ground of the revenue is deemed to be allowed by restoring the issue to the file of the AO with the directions ....