TaxTMI 
TaxTMI 
2019 (11) TMI 702
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....t justified to uphold action of the Ld. Assessing Officer in disallowance of deduction u/s 80-IC amounting to Rs. 28,81,388/-. 3. That the Ld. Commissioner of Income Tax (Appeals) was further not justified in upholding the action of the Ld. Assessing Officer in not allowing deductions u/s 80-IC on disallowed amount of Rs. 6,48,149/- u/s 14A. [B]. Assessment order dated 27.3.2015 was passed by the AO under section 143(3) of the Income Tax Act, 1961. In this assessment order, the Assessing Officer made a further disallowance of Rs. 13,72,440/- under section 14A of the Income Tax Act r.w.r. 8D Income Tax Rules in addition to suo moto disallowance of Rs. 01,18,44,660/- made by the assessee under section 14A. Further the Assessing Officer disallowed an amount of Rs. 28,81,388/- out of deduction under section 80IC of Income Tax Act, 1961 amounting to Rs. 32,49,88,100/- claimed by the assessee. The relevant portions of the assessment order as reproduced below for ease of reference:- Disallowance u/s 14A read with Rule 8D During the year assessee has earned exempt income/Dividend income of Rs. 2,33,42,646/- and made disallowance of Rs. 1,18,44,660/- on account....
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....ing the total income of the assessee, a deduction from such profits and gains, as specified in sub- section (3). (3) The deduction referred to in sub-section (1) shall be-(i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) of sub-clauses (i) and (iii) of clause (B), of sub-section (@), one hundred percent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clauses (ii) of clause (a) of sub-clauses (ii) of clause (b) of sub-section (2), one hundred percent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter twenty- five percent of profit and gains. As per above, it is established that the deduction u/s 80IC of IT' Act, 1961 shall be allowed on the profits and gains from business. However the interest income earned shall be taxed under 'Income from Other Sources'. Hence, it is clear that interest from fixed deposits is not entitled for deduction u/s 80IC of the Act. Reliance is placed in the case of Pandian Chemicals Ltd. Vs....
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....curred during the previous year; B= the average of value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year: C= the average of total assets as appearing in the balance sheet of the assessee on the first day and the last day of the previous year " The provision of Rule 8D (2)(ii) talks about interest expenditure incurred by the assessee and it nowhere says that net interest expenditure has to be taken for calculation, therefore, the contention of the appellant that for working out disallowance under rule 8D, the interest cost to the assessee has to be taken is not correct. The various case laws relied upon by the appellant does not deal with the issue involved here, therefore, the same are not applicable to the facts of the appellant's case Hence, the disallowance worked out by the AO under Rule 8D (2)(ii) taking the gross interest expenditure for working out disallowance of interest expenses pertaining to earning exempt income is correct and no interference is called for. Therefore, this ground of appeal is rejected." ....
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....-clauses (i) and (iii) of clause (B) of (2) one hundred percent of such profits and gains for ten assessment years commencing with the initial assessment year. (ii) In the case of any undertaking or enterprise referred to in sub-clauses (ii) of clause (a) of sub-clauses (ii) of clause (b) of sub-section (2) one hundred percent of such profits and gains for five assessment years commencing with the initial assessment year and thereafter twenty-five percent of profit and gains. As per above, it is established that the deduction u/s 80 1C of IT Act, 1961 shall be allowed on the profits and gains from business However the interest income earned shall be taxed under Income from Other Sources' Hence, it is clear that interest from fixed deposits is not entitled for deduction u/s 80 1C of the Act. Reliance is placed in the case of Pandian Chemicals Ltd. vs CIT [262 ITR 278(SC)], wherein the apex court held that Derivation of interest on profits on 'deposit with the Electricity Board could not be said to be flowing directly from the industrial undertaking and, therefore, deduction u/s 80 HH could not be allowed in respect thereof" In view of the above fac....
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....n heard and record perused Brief facts in this case are that the assessee-company is engaged in the manufacture of telecommunication equipments. The assessee claimed deduction under Section 80-IB of the Act @ 30% of the eligible profits. During the course of assessment under Section 143(3) the assessing officer observed that assessee is claiming; deduction on the basis of profit as per profit and loss account whereas deduction under Section 80-IA of the Act is available on the eligible profit only i.e. the profit from manufacturing activity of eligible unit. The assessing officer assessed interest income on FDRs with banks against margin money and corporate loans, as "income from other sources" instead of eligible business profits claimed by the assessee Accordingly, deduction under Section 80- IB was declined on the interest income. 3. By the impugned order, CIT (Appeals) allowed assessees claim of interest income by observing that assessee was required to invest in FDRs for margin money not for the sake of earning income from investment of surplus funds but as a mandatory requirement in order to obtain orders for sale. It could not have fluctuated tenders without filing ....
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....it of deduction under Section 80-IB should have been allowed. He draw our attention to the language of Section 80-IB which reads as "where the gross total income of the assessee includes any profit and gains derived from any business referred to in Subsection (3) to (ii), (iiA) and (OB)...."Mr. Singhvi further contended that on identical facts, benefit under Section 80-IB has been allowed in the preceding year, therefore, revenue cannot be allowed to change its stand, without there being change in the facts and circumstances during the year under consideration. He further submitted that even otherwise there is no infirmity in the order of CIT (Appeals), as benefit of netting is to be allowed even as per the decision of Hon'ble Delhi High Court in case of CIT v. Shri Ram Honda Power Equip. Ltd The purchase of FDRs were out of borrowed funds, therefore, there is on reason to decline netting of the interest expenditure out of the interest income while bringing the net interest income for taxation under the head "Income from other sources" He further relied on various decisions of the following co-ordinate Benches wherein bank interest income was considered as inextricably related to c....
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....judgment does not favour the appellant's claim, on the contrary the judgment supports the AO's view. The Hon'ble Supreme Court in the case of CIT Vs. Sterling Food has held that there must be for the application of words derived from a direct nexus between the profits and gains and industry undertaking. The earning of interest to the appellant's case was incidental to the business and not inextricably linked to the industrial undertaking. Therefore, interest income is not entitled for deduction under Section 80IC. In this regard reliance is placed on following judicial pronouncement:- [2015] 56 taxmann.com 415 (Calcutta)/[2015] 231 Taxman 585 (Calcutta) "Section 80-IC of the Income-tax Act, 1961 - Deductions- Special provisions in respect of certain undertakings or enterprises in certain special category States (Interest income) - Assessment year 2007-08 - Assessee- company deposited profits and gains of its undertaking and earned interest income from those fixed deposits - It claimed deduction under section 80-IC in respect of said income - Whether interest income earned by assessee would not be treated as income derived from business of manufacture or production....
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.... 167/Del/2016 (ITAT Delhi) 4. DCIT vs. Adani Gas Ltd. & Anr. (2018) 54 CCH 90 (ITAT Ahmedabad) 5. DCIT vs. Machino Finance Pvt. Ltd. (2016) ITA No. 312/Kol/2014 (ITAT Kolkata) 6. DCIT vs. Trade Apartment Ltd. (2012) ITA No. 1277/Kol/2011 (ITAT Kolkata) [F]. However, the learned Departmental Representative submitted that the disallowance of expenditure is to be done under Rule 8D of I.T. Rules r.w.s. 14A of I.T. Act by considering gross amount of interest expenditure. For this purpose, he relied on the orders of the Assessing Officer and the learned CIT(A). In the case of Pr. CIT vs. Nirma Credit & Capital (P.) Limited (supra), it was held by Hon'ble Gujarat High Court that amount of expenditure by way of interest would be interest paid by assessee on borrowings minus taxable interest earned during the financial year, for the purposes of applying factors in Clause (ii) of Sub Rule (2) of Rule 8D where assessee pays interest on borrowings, as also earns taxable interest on investments. Same view has also taken by Coordinate Benches of ITAT in the case of DCIT vs. DLF Asset Pvt. Ltd. (supra), DCIT vs. Machino Finance Limited (supra) and DCIT vs. Trade Apa....
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.... the investment in the shares. It is also important to note that the assessee is having both interest income and interest expenses. In this connection various courts have decided to take the net of interest amount while making the disallowance under section 14A read with rule 8D of Income Tax rules 1962. Therefore we are relying in the order of Jurisdictional Tribunal in the case of DCIT Vs. Trade Apartment Limited ITA no. 1277/ko 1/2011. The relevant extract is extracted below : "3. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 4. As learned CIT(A) has rightly observed, once there is no net interest expenditure, as is the case before us - upon setting off interest credited to profit and loss account, no part of interest debited can be disallowed as attributable to earning tax free dividend. The CIT(A) was thus quite justified in deleting the interest disallowance. We have also noted that entire expenses incurred by the assessee have been offered for disallowance, and once that happen, nothing remains for further disallowance u/s. 14A. The disallowa....
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....ing appellate proceedings before him. These submissions had already been considered by the learned CIT(A) relevant portion of which has been reproduced in foregoing paragraph 'C' of this order. We are of the view that the order of learned CIT(A) on this issue is just and fair and in accordance with law, having regard to the facts and circumstances of the case. The learned counsel for the assessee has not brought any further materials for our consideration to persuade as to take view different from the view taken by the learned CIT(A). The order of the learned CIT(A) is well reasoned, detailed and speaking order, in which there is no such infirmity which warrants any interference by us. Therefore, second ground of appeal is dismissed. [H]. We now come to the third ground of appeal. The relevant portion of the order of the learned CIT(A) is reproduced as under:- 6. Ground No. 3 pertains to the claim of the appellant that expenses disallowed u/s 14A for earning exempt income should be considered for deduction u/s 80 IC of the IT Act, 1961 of Rs. 6,48,149/- Submission of the appellant " ......... Notwithstanding any thing contrary here in above in the disc....