TaxTMI 
TaxTMI 
2017 (8) TMI 1569
X X X X Extracts X X X X
X X X X Extracts X X X X
....spect. 2. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, it be held that disallowance of expenses at Rs. 4,33,500/- in terms of provisions of section 14A of the Act made by the AO and confirmed by the 1st appellate authority is unwarranted, unjustified, imaginary and contrary to the provisions and scheme of the Act. It further be held that no disallowance is warranted in the case of the appellant on facts prevailing in the case and as per provisions of law. The disallowance made be deleted. Just and proper relief be granted to the appellant. 3. On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, it be held that disallowance/ addition of interest payment of Rs. 80,03,105/- being part of purchase price in terms of provisions of section 40(a) (ia) of the Act made by the AO and confirmed by the 1st appellate authority is unwarranted, unjustified, imaginary and contrary to the provisions and scheme of the Act. It further be held that no disallowance is warranted in the case of the appellant on facts prevailing in the case and as per provisions of law. The disallowance made be deleted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2012 (supra.). 6. Both sides heard. Orders of the authorities below perused. The first ground of appeal is with respect to allowability of deduction u/s. 80IB(4) on profits derived from unit located at Silvasa. The authorities below have held that Silvasa unit of assessee is not eligible for claiming deduction u/s. 80IB (4) as the activity carried out by the assessee in the said unit does not amount to manufacture or production and the assessee has failed to show that manufacture or production at Silvasa unit had began on or before 31.03.04. We find that disallowance of deduction u/s. 80IB(4) in the case of assessee was made by the Department in assessment years 2005-06 & 2008-09 for identical reasons. In respect of first objection that is, whether the activity carried out by the assessee at Silvasa unit amounts to manufacture or production, the Tribunal decided the issue in favour of assessee by observing as under:- "10. We have carefully considered the rival submissions with respect to the objection of the Assessing Officer that the activity undertaken by the assessee at Silvasa unit relating to the generators does not amount to manufacture or production of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee were put to him, it was stated that those bills i.e. Bill Nos.130 and 132 respectively were not issued by him. Though, he confirmed the vehicle number mentioned in the bills but it was claimed by him that the said vehicle was not sent by him from Chakan, Pune (i.e. the premises of M/s Kavita Industries Pvt. Ltd.) to Silvassa unit of the assessee. After noticing the denial of the transporter, he was also asked to produce a Log Book, if any, maintained by him showing movement of the vehicle in question. In response, it was stated that though the vehicle was owned by him but no Log Book was maintained for its movement. On being asked to produce the bill book for the relevant period, the said transporter replied that it was not available and it was kept in the godown in his residential house which he had since shifted out. The transporter also confirmed that the Bill Nos. 130 and 132 purported to have been issued by him were not even ITA Nos.1368 & 1369/PN/2012 signed by him and nor were issued by him. When all these were put to the assessee, a detailed written communication was furnished, which we have already reproduced in the earlier part of this order. The claim of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment recorded on 28.12.2010 is placed at pages 20 to 24 of the Paper Book. The relevant portion of the same is already reproduced in the earlier part of this order. Nevertheless, when the Assessing Officer put across to the transporter Bill Nos. 246 and 249 issued by him as also the contents of assessee's submissions it was admitted that the LR and bills were indeed issued and signed by him. The transporter explained that the bills related to the local transportation and not for transportation outside Maharashtra and that in the bills he had mentioned the address of Silvassa merely for the purposes of billing. According to the transporter, though the LRs and bills were issued by him but they were for local transportation only and there was no transportation of goods from Chakan, Pune to Silvassa or from Silvassa to Chakan, Pune. 21. Ostensibly, there are apparent contradictions in the statements furnished by the transporter at the different points of time. In such a situation, one of the course available was for a cross-examination of the transporter by the assessee. On this aspect, we find that the Assessing Officer did allow an opportunity to the assessee of crossexa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....blish the case either way. Under these circumstances, in our view, it was not only imperative but also prudent that the cross-examination of the transporter was undertaken so as to enable the Assessing Officer to come to appropriate findings. In our considered opinion, it would meet the ends of ITA Nos.1368 & 1369/PN/2012 justice if the matter is restored back to the file of the Assessing Officer who shall certainly confronted the assessee with the material with him but also ensure that an appropriate and adequate opportunity of cross-examination is allowed to the assessee. It is also relevant to say that in response to the denials by the transporter, initially the assessee had made a detailed submission attempting to demolish the version of the transporter. The initial burden on the assessee stood discharged in view of its submissions dated 21.12.2010 and therefore it was in fitness of things that crossexamination was carried out so as to enable the Assessing Officer to come to an appropriate and credible findings thereof. Thus, we setaside the order of the CIT(A) and restore the matter back to the file of the Assessing Officer who shall make an order afresh after allowing t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowance made u/s. 14A r.w. Rule 8D was deleted under similar circumstances. In the said case the assessee had made investment in the subsidiary company out of borrowed funds. The said subsidiary company was formed as SPV to obtain contracts from NHAI. The Co-ordinate Bench of the Tribunal in the case of Hari Infrastructure Pvt. Ltd. Vs. Dy. CIT in ITA No. 848/PN/2013 for the assessment year 2009-10 decided on 18-01-2016, under similar circumstances by following the decision rendered in the case of Commissioner of Income Tax Vs. Oriental Structural Engineers Pvt. Ltd. (supra) deleted the disallowance made u/s. 14A r.w. Rule 8D in respect of investments made in the subsidiary companies which were created as SPV to obtain and execute Government contracts. The relevant extract of the findings of Tribunal are as under : "17. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO on the basis of his finding that interest bearing funds have been diverted to holding company for acqu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect of the assessment year 2008-09. The issue before the Tribunal, which is also an issue before us, was whether in the facts and circumstances of the case the Commissioner of Income Tax (Appeals) had erred in restricting the disallowance under section 14A of the Income Tax Act, 1961 to 2% of dividend income of Rs. 20,27,812/-. It was the contention of the revenue that Rule 8D of the Income Tax Rules, 1962 had not been applied properly in respect of the assessment year 2008-09. This aspect has been considered by the Tribunal in detail and it has observed as under: - 6.3 We have carefully considered the submissions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that only interest of Rs. 2,96,731/- was paid on funds utilized for making investments on which exempted income was receivable. Further, Ld. Commissioner of Income Tax (Appeals) has observed that in respect of investment of Rs. 6,07,775,000/- made in subsidiary companies as per documents produced before him, they are attributable to commercial expediency, because as per submission made by the assessee, it had to form Special Purpose Vehicles (SPV) in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... appeal No.1 as well as the first issue in the additional ground raised by the assessee are accordingly allowed." 10. We further observe that the CBDT vide Circular No. 37/2016 dated 02-11-2016 has clarified that where disallowance has been made u/s. 32, 40(a)(ia), 40A(3), 43B etc., of the Act and other specific disallowance relating to business activity deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. The relevant extract of the circular is as under : "Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A 2. The issue of the claim of higher deduction on the enhanced p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h the grounds. Thus, in view of the facts of the case, the order of Co-ordinate Bench and the CBDT Circular, we direct the Assessing Officer to delete the disallowance made u/s. 14A of the Act. Accordingly, ground Nos. 2 and 4 raised in the grounds of appeal by the assessee are allowed. " Therefore, in view of the facts of the case and decisions discussed above, we find merit in ground No. 2 raised by the assessee. Since no exempt income has been earned during the period relevant to the assessment year under appeal and since it is no ones case that any interest expenditure was incurred for making investments by the assessee, therefore, no disallowance u/s 14A is warranted. Accordingly, ground No. 2 raised in the appeal by the assessee is allowed. 11. The third ground raised in the appeal by the assessee relates to disallowance of Rs. 80,03,105/- u/s. 40(a) (ia) of the Act. The ld. AR submitted that disallowance u/s.40(a) (ia) has been made for nondeduction of TDS u/s. 194A of the Act on payment of interest for delayed payments to creditors. The ld. AR submitted that interest paid was in the nature of trade payments, therefore, such payments do not fall w....