TaxTMI 
TaxTMI 
2018 (2) TMI 1806
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....tc. and wind power generation. The assessee is having 100% export oriented unit at Viramgram. The assessee received dividend income of Rs. 76,14,772/- and claimed the same as exempt in the return of income. The ld. AO sought to invoke the provision of 14A read with Rule 8D of the Rules and show caused the assessee in this regard. In response to this, the assessee replied vide letter dated 28.02.2014 as under: "It is engaged in the business of manufacture and sale of Guar Gum, Powder Gum, Guar (Split etc. All expenses incurred were in relation to its business only. The shares on which Dividend was received were purchased out of its own fund and no funds were borrowed on interest. Further, it was also submitted that the dividend in respect of units of mutual funds in most of the cases has been reinvested in the respective schemes without being actually received by the assessee. The dividend warrants received from companies/ mutual funds are required to be deposited in the assessee's bank account for which practically no expenditure was incurred. Your kind attention is also draw to column 17(c) of our Tax Audit Report dated 08.09.2010, wherein the auditor has qualified th....
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....emaining amount of Rs. 57,24,672/- was in respect of units of Debt schemes of Mutual Funds and therefore the only activity of the company was to deposit 3 dividend warrants in its bank account during the entire year. On basis of above submission you will find that almost the entire expenses incurred by the assessee are in connection with its business of manufacturing and trading in Guar Gum products. Only the surplus business funds of the assessee are invested in safe and liquid investments. BNP Paribas looks after the investments and provides the wealth management service without any charge whatsoever. The assessee's share investments are non-moving. Accordingly it is submitted that the company did not incur any expenditure to earn Dividend income." The ld. AO did not accept the explanations given by the assessee and resorted to make disallowance under second and third limb of Rule 8D(2) and worked out the disallowance figure of Rs. 4,41,712/-. The Ld. CIT(A) appreciating the strong evidences of the assessee held that it had sufficient own funds to make investments in shares and debt funds of mutual funds and deleted the disallowance made under second limb of Rule ....
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....is in consonance with the decision rendered by this Tribunal in REI Agro Ltd. reported in 144 ITD 141. Accordingly, ground no.1 raised by the assessee is partly allowed and ground no. 4 raised by the revenue is dismissed. 3. Disallowance of provision for leave encashment of Rs. 47,75,059/- Ground No. 2 of assessee appeal The brief facts of this issue is that the assessee made a provision for leave encashment amounting to Rs. 47,75,059/- in its book and claimed the same as deduction in the return of income. The ld. AO applied the provision of Section 43B(f) of the Act and disallowed the same. This action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved, the assessee is in appeal before us on the following ground: I.T.A. No. 1410/Kol/2016- Assessment year 2010-11 2. That on the facts and circumstances of the case the learned CIT(appeals) erred in not holding that provision for leave encashment for Rs. 47,75,059/- is neither statutory liability nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s 43B(f) of the I.T. Act, 1961. 3.1. We have heard the rival submissions. We find that though the Hon'ble Calcu....
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.... ld. AO in assessment year 2009-10. The assessee wrote back the said provision for mark to market loss in the sum of Rs. 2,12,48,372/- in its books of accounts during the year under appeal. Since, this sum was already disallowed by the ld. AO in assessment year 2009-10, the assessee claimed deduction towards the same in the return of income filed for assessment year 2010-11 in order to avoid double taxation. This was not granted by the ld. AO. 4.1. The Ld. CIT(A) dismissed the plea of the assessee by observing as under: "In this ground the assessee has claimed that the mark-to-market loss pertaining to A.Y.2009-10 and reserved in the assessee's books during the current year be allowed to be deducted since in the assessment order for A.Y. 2009-10, the loss was disallowed. I however find that my predecessor in his appellate order for A.Y. 2009-10 allowed the assessee's claim for deduction of MTM loss amounting to Rs. 2,12,48,372/-. As such on reversal of the said loss, no deduction is permissible to the appellant in A.Y. 2010-11. For these reasons therefore, ground no. 8 is dismissed." 4.2. Aggrieved the assessee is in appeal before us on the following grounds: ....
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....ed from the manufacture of eligible article from the eligible undertaking of the assessee and accordingly denied deduction u/s 10B to that extent. The Ld. CIT(A) granted relief to the assessee by placing reliance on the decision of this Tribunal in assessee's own case for assessment years 2003-04 to 2007-08. Aggrieved, the revenue is in appeal before us on the following grounds : 1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in fact and in law in accepting assessee's contention regarding applicability of exemption u/s 10B of the Act on incomes from other sources. 2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not relying the decision of the Apex Court in this regard. 6.1. We have heard the rival submissions. We find that the issue under dispute is squarely covered by this Tribunal in assessee's own case in its favour for the assessment year 2008-09 in I.T.A. No. 462 & 752/Kol/2014 dated 08.03.2017 wherein it was held as under: 5. The first issue to be decided in this appeal is as to whether the ld CITA was justified in allowing exemption u/s 10B of the Act in respect of other inc....
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....units as admittedly the assessee is having both taxable unit as well as exempt unit. In response to this, the ld AR argued that the provisions of section 10B(1) of the Act starts with 'subject to the provisions of this section' . The provisions of section 10B(4) of the Act clearly specifies that the profit derived from the 100% EOU should be as follows:- Profits of the business of the undertaking * Export Turnover / Total Turnover Hence, the entire income of the 100% EOU shall be eligible for exemption u/s 10B of the Act. He further stated that the assessee maintains separate profit and loss account and balance sheet for the 100% EOU which is also part of the records. In respect of rent recovered from staff, the same only represents recovery of rent from staff quarters in respect of the quarters let out by the assessee on the rented premises. In other words, the assessee pays rent for the total premises including staff quarters and recovers the rent from staff for their quarters accommodation. Hence it is effectively recovery of expenditure and not any income for assessee. In respect of insurance claims received, the same was received for damages for goods pertaining to 10....
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....g for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to the deduction referred to in this sub-section only for the unexpired period of aforesaid ten consecutive assessment years" "10B(4) For the purposes of sub-section (1), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking." From the aforesaid section, it is very clear as rightly pointed out by the ld AR that section 10B(1) of the Act starts with the expression 'subject to the provisions of this section'--------. The provisions of section 10B(4) of the Act which stipulates the computation mechanism clearly states that the entire profits of the business of the eligible undertaking should be taken into account for computing the amount eligible for section 10B of the....
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....ng the amount of interest from the total turn over as has been done in the case of 80HHC by explanation (baa) of subsection (4C) thereof. In that case, 90% of the income arising out of interest has to be excluded from the profits of the business for the purpose of arriving at deduction available under Section 80HHC. But an identical provision is not there. Therefore, that provision cannot be imported by implication. The submission that the amount earned from interest was not intended to be taken into account for the purpose of giving benefit under subsection (1) of Section 10B may be correct. But the amount of deduction available to a 100% export oriented undertaking is necessarily dependent upon the formula provided in subsection (4). There is, as such, no scope for any controversy that part of the money was earned from interest and not from export. This question came up before the Karnataka High Court and was answered in the case of CIT vs. Motorola India Electronics (P.) Ltd. reported in [2014] 46 Taxmann.com 167 (Karnataka) as follows : "In the instant case, the assessee is a 100% EOU, which has exported software and earned the income. A portion of that income is inclu....
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....ason that sub-section (4) of Section 10B was not taken into account by the Hon'ble Madras High Court. Therefore, this judgment is of no assistance in deciding the issue. The learned Tribunal has passed the following order: "There is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100% EOU will be the "profits of the business of the undertaking". It has been held above that the interest earned on temporarily surplus business funds of the 100% EOU deposited with banks for short periods is business income and has in fact been so assessed. It is not in dispute that the surplus funds were of the 100% EOU. As such, the interest earned thereon has to be regarded as part of the "profit of the business of the undertaking". We 8 further find that the Tribunal in the case of Cheviot Co. Ltd. for assessment years 2003-04 and 2004- 05, relied upon by the assessee, has dealt with similar issue. In those cases, the difference between the provisions of sections 10B and 80HH was noted and after considering the judgments of the Hon'ble Supreme Court in Sterling Foods (supra) and in P.R.Prabhak....
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.... 50% initial depreciation u/s 32(1)(iia) of the Income Tax Act, 1961(hereinafter referred to as the Act) in view of the second proviso to section 32(1) of the Act. Further, balance 50% of initial depreciation, amounting to Rs. 21,71,119/- on such plant & machinery has been claimed by the company during the year under reference. Now during the year under appeal i.e. assessment year 2010-11, the assessee claimed further depreciation (i.e. balance 10% which is 50% of 20%) on this plant and machinery on the plea that it is entitled to get the balance depreciation this year also. The Ld. AO held that after allowing a portion of additional depreciation in assessment year 2009-10, written down value has been worked out by the ld. AO and the same has been brought forward during the year under appeal as opening written down value, on which regular depreciation would be applicable to the assessee at the rates prescribed for plant and machinery. With these observations, he disallowed the remaining portion of unclaimed additional depreciation pertaining to assessment year 2009-10 (i.e. balance 10%) in the assessment and granted only regular depreciation. The ld CITA granted relief to the asses....
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....nery was acquired after 01-10-2006. The relevant portions at page no's at 9 and 10 of which is reproduced herein below for better understanding:- "The language used in clause (iia) of the said section clearly provides that "a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)". The word "shall" used in the said clause is very significant. The benefit which is to be granted is 20 per cent. additional depreciation. By virtue of the proviso referred to above, only 10 per cent. can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent. additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent. deduction which shall be allowed. It has been consistently held by this court, as well as the apex court, that the beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the....
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.... to the actual cost of new plant and machinery, accordingly ground no-1 raised by the assessee is allowed." Respectfully following the same, we dismiss Ground No. 2 raised by the revenue. Respectfully following the same ground no. 3 raised by the revenue is dismissed. 8. Disallowance of provision for mark to market loss - Rs. 38,29,247/- Ground no. 5 of revenue appeal The brief facts of this issue is that the assessee made a provision for mark to market loss of Rs. 38,29,347/- on restatement of forward exchange contracts and the same was disallowed by the assessee in the return of income while computing the business income. Later in the course of assessment, the assessee vide letter dated 28.02.2014, requested to allow the deduction for such loss in view of the fact that similar claim was allowed by the Ld. CIT(A) while deciding the assessee's appeal for assessment year 2009-10. The ld. AO however did not deal with the said submission of the assessee and proceeded to assess the total income with reference to the business income as returned by the assessee. Accordingly, the assessee preferred an appeal on this ground before the Ld. CIT(A). The Ld. CIT(A) by plac....
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..../2014 dated 25.10.2017. The relevant portion has already been reproduced elsewhere in this order. The same are not reproduced here for the sake of brevity. Accordingly, ground no. 5 raised by revenue is dismissed. 9. In the result, the appeal of the assessee is partly allowed for statistical purposes and the appeal of the revenue is dismissed. Order pronounced in the Court on 14.02.2018 ============= Document 1 7.5. We have heard the rival submissions and perused the materials available on recond We find that the ld AO had placed heavy reliance on Instruction No. 3/2010 dated 23.3.2010. From the perusal of the said Instruction, we find that the same was issued in respect of loss on account of trading in foreign exchange derivatives. The assessee had entered into forward contracts in order to hedge its exchange risk in respect of export proceeds receivable by it in foreign exchange. The assessee's forward contracts were not by way of trading as such in foreign exchange derivatives. Hence, Instruction No. 3/2010 cannot be made applicable to the facts of the instant case. We find that the decision relied upon by the ld AR on the decision of th....