TaxTMI 
TaxTMI 
2016 (8) TMI 1450
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....t borrowed funds are utilized for making investment in tax-free securities. 2. He failed to appreciate and ought to have held that: i) the interest was not a direct expense for earning tax free income and no disallowance can be made on proportionate basis by attributing the same towards tax free income; ii) the expenses which could be attributed under section 14A of the are only those which are incurred "in relation" to earning tax-free income and no disallowance could be made based on presumption on proportionate basis; iii) the investments were made out of own funds i.e. capital and reserves and not out of borrowed funds as such no disallowance is called for; iv) where no expenditure has been actually incurred , no estimation can be made to disallow expenditure for earning exempt income; v) borrowings were made for the purpose of business and as such the conditions envisaged by s. 36(1) (iii) have been fulfilled, entire interest should have been allowed as deduction. 3. Without prejudice to the above, it is submitted that since dividend tax is payable u/s 115O of the Act, it is incorrect to hold that dividend is tax-f....
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....ces of the case and in law, the CIT (A) erred in confirming the action o the AO of deducting the amount of Rs. 8,39,51,299/- being the amount of Miscellaneous Income from the business profits for the purpose of calculation of deduction of under section 80HHC of the Act. 2. He failed to appreciate and ought to have held that: a. miscellaneous income and other items is business income arising out of the business operations of the company; and b. the miscellaneous income has arisen during the course of business and they by their very nature are business income. Also, they are taxed as business income only. Hence, there is no reason why a separate treatment (of not considering them as part of business profits) be accorded to them while working out of proportionate profit eligible for deduction u/s 80HHC. 3. The Appellant prays that it be held that 90% of amount of Rs. 8,39,51,299/- not to be deducted from the "business profit" while computing deduction under section 80HHC of the Act. 4. Without prejudice to above, 90% of net income be reduced from "business profits" for calculating deduction u/s 80HHC of the Act. Ground VII: Not all....
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....ividend income under the head "income from Other Sources". 2. On the facts and in the circumstances of the case and in law, the ld. CIT (A) erred in deleting the disallowance of Rs. 7,92,843/- being 2% of gross dividend on estimate basis out of general and administrative expenditure." 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 9,54,432/- out of interest on the ground that interest bearing funds which have been diverted for non business purposes as advances to subsidiaries." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in directing the AO to recomputed the book profits without making adjustment in the respective provisions, including provisions for doubtful debts and advances and provision for diminution in the value of investments. 5. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to reduce the book profits by the quantum of notionally computed deduction u/s. 80 HHC." 6. "On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in hol....
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....on, as per the arguments of the learned AR exemption u/s 10 (33) of the Act was not available in respect of income earned from dividend for accounting year 2003-04 only and later on, from 2004-05, the said exemption was available. But, for this particular year under consideration exemption u/s 10(33) of the Act was not available. Since, the entire income was taxable, therefore no question of disallowance accrued. Therefore, keeping in view the said legal proposition we agree with the contention of the learned AR and delete the entire addition made by the AO of 7,61,476/-. Resultantly, ground No. I of the assesee's appeal stands allowed. 5. Ground No. II of the asessee's appeal relates to confirmation of disallowance of non-compete Fees paid to ex-directors by the learned CIT (A) amounting to Rs. 34,58,616/- made by the AO. 6. We have heard the rival submissions, perused the materials on record and carefully gone through the orders of the Revenue authorities. On perusal of the records, it is found that this issue has been decided against the assessee by the Co-ordinate 'F' Bench of ITAT Mumbai vide order dated 12th June, 2013 for assessment year 2002-03, the relevant portion o....
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....ries Ltd. Vs ACIT (2013) 351 ITR 434 as well as the decision of the Hon'ble Supreme Court in the case of CIT Vs Shrike Construction Equipments Ltd. reported in [2007] 291 ITR 380 (SC) by holding that as per the aforesaid case laws, it is now settled that for the purpose of deduction u/s 80 HHC profits will have to be computed after giving full effect to other provisions of the Act, including the provisions relating to carry forward and set off. 9. The learned AR during the time of argument has not pointed out or placed on record any material to controvert the decision of the learned CIT (A). On the other hand, the learned DR supported the orders of the learned CIT (A). In view of the above, we find no reason to interfere with the findings of the learned CIT (A) and uphold the same. Accordingly, Ground No. V of the assessee's appeal stands dismissed. 10. Ground No.VI of the assessee's appeal relates to the issue of deduction of Miscellaneous Income and other items from the profits while computing the deduction u/s 80HHC of the Act. 11. We have heard the rival submission, considered the orders of the authorities below and perused the materials placed on record including the ....
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..... Vs. UOI [2013] 349 ITR 566 (Bom. HC) and (iii) CIT Vs Avani Exports [2015] 58 taxmann.com 100 (SC) submitted that amendment to section 80HHC by way of adding third and fourth provisos is ultra vires Article 14 of the Constitution. On careful perusal of the aforesaid decisions it is noticed that the Hon'ble Apex Court in the case of CIT Vs Avani Exports has however, to make the position crystal clear, substituted the direction of the Hon'ble High Court with the following direction: "Having seen the twin conditions and since 80HHC benefit is not available after 1.4.05, we are satisfied that cases of exporters having a turn over below and those above 10 cr. should be treated similarly. This order is in substitution of the judgment in Appeal." The learned DR could not controvert the aforesaid decision of the Hon'ble Apex Court by placing on record any relevant material. We have even noticed that the assessee's claim of deduction u/s 80HHC relates to assessment year 2003-04 i.e. prior to the date of amendment of the provisions with effect from 1st April, 2005. In view of the above, we respectfully following the decision of the Hon'ble Apex Court in the case of CIT Vs Avani....
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....he instant case, the incomes under consideration are assisting others business houses in their exports but are not directly attributable to the exports of the appellant. In such a situation the view taken by the AO appears correct and 90% of these incomes have to be reduced for calculating deduction under section 80HHC. Accordingly, this ground of appeal is also rejected." The above issue was summarily rejected by the AO on the ground that the assessee had not filed any break-up of the income from services. The learned AR has drawn our attention to page 126 of the paper book wherein claim of deduction u/s 80HHC of the Act in the STI has been provided. The learned AR also drew our attention to pages 91 to 94 and page 96 of the paper book wherein working of deduction u/s 80HHC has been given and at page 96 the break-up/details of service income have been provided and submitted that service income is not included in the total turnover u/s 10CCAC report while computing deduction u/s 80HHC of the Act. On this basis the learned AR submitted that 90% of the net service income be reduced from the business profits for the purpose of deduction u/s 80 HHC of the Act. The learned DR on t....
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.... appeal filed by the assessee is treated as disposed off for statistical purposes." 16. We respectfully following the above decision of the Co-ordinate Bench of this Tribunal and with a view of maintain judicial consistency; remit the issue in the year under consideration back to the file of the AO with the same line of direction to decide the same afresh. This ground of appeal of the assessee is allowed for statistical purposes. 17. Ground Nos. X and XI relating to interest u/s 234B, 234C and 234D as well as interest u/s 220(2) of the Act are consequential and are decided as such. 18. Ground No.XII of the assessee's appeal is general in nature and hence, requires no specific adjudication. 19. In the overall result, the appeal of the assessee is partly allowed for statistical purpose. 20. Now, we will take up the Revenue's appeal in ITA No.6580/Mum/2007 (AY 2003-04) for adjudication. 21. Ground No. 1 of the Revenue's appeal: While adjudicating Ground No. 1 of the assessee's appeal in ITA No.6721/Mum/2007 for the year under consideration we have decided the issue in favour of the assessee vide Para 4 above. With a view to maintain principle of judicial consistency,....
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....sessee to furnish explanation with regard to the said transaction. After considering the reply filed by the assessee AO disallowed an amount of Rs. 13.19 lakhs out of the interest paid by the assessee. Disallowance was worked out on pro rata basis in the ratio of borrowed funds to total funds. 5.1 Assessee preferred an appeal before the First Appellate Authority (FAA). After considering the assessment order and the submissions of the assessee FAA held that matter of the assessee was directly covered by the decision of Hon'ble Supreme Court delivered in the case of S A Builders that all the transactions with subsidiaries were in the current account, that commercial expediency was evident in the case under consideration, that disallowance of interest on account of diversion of interest bearing funds to a subsidiary company was not justified. He deleted the addition made by the AO. 5.2 Before us, DR supported the order of the AO. AR submitted that loans advanced to the subsidiary companies was in the current account, that the assessee had sufficient surplus, reserves and share capital to advance loans to the subsidiary company. He replied upon the case of S. A. Build....
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.... no reason to sustain the findings of the learned CIT (A). Hence, we uphold the order of AO and while setting aside the order of CIT this ground of appeal of the Revenue is allowed. 27. Ground No.5 of the appeal of the Revenue relating to reduction of book profits by the quantum of notionally computed deduction u/s 80HHC has been decided in favour of the assessee and against the Revenue by ITAT Mumbai "F" Bench while adjudicating the assessee's appeal in ITA No.6720/Mum/2007 for assessment year 2002-03 vide Para 7 at page 9 of the Order dated 12th June, 2013. The relevant portion of the above order is reproduced herein below for reference:- "7. The last ground of the appeal filed by the AO is about the direction issued by the FAA to reduce the book profit by the quantum of notionally computed deduction u/s 80HHC of the Act. During the assessment proceedings, AO found that the assessee claimed deduction u/s. 80HHC at Rs.NIL, whereas as per the income computed u/s 115JB the same was arrived at Rs. 78.85 lakhs. AO called for the explanation from the assessee as to why deduction should not be computed in line with department's stand in assessment year 2001-02. After conside....