TaxTMI 
TaxTMI 
2019 (6) TMI 1441
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....being allocation of head office expenses to Power Project at Akrimota Unit which is subjected to deduction u/s 80IA. 3. It appears from the records that the assessee, a Government company originally filed its return of income for A.Y. 2011-12 on 28.09.2011 declaring total income of Rs. 557,66,01,050/- followed by revised return on 04.02.2012 without changing the figure of total income and again on 10.09.2012, a revised return declaring total income at Rs. 555,33,44,360/- was filed by the assessee. Upon scrutiny notice u/s 143(2) dated 06.08.2012 followed by a notice u/s 142(1) was served upon the assessee. The assessment was finalized inter alia upon making disallowance of deduction u/s 80IA of Rs. 31,15,94,168/- which was in turn deleted by the Learned CIT(A). However, while deciding the issue related to deduction u/s 80IA the Learned CIT(A) reduced an amount of Rs. 6,63,71,309/- towards allocation of head office expenses in respect of Akrimota Power Project u/s 80IA of the Act which is under challenge before us by the assessee. The brief facts leading to such enhancement is this that the Learned CIT(A) noted that certain common expenditure incurred in the head office were not ....
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....over of each different unit as that is the most scientific basis on which the expenses can be allocated. Accordingly, the appellant was show caused as to why the deduction claimed by it be reduced to the extent of proportionate had office expenses pertaining to the eligible units for which the deduction under section 80 I-A has been claimed. The appellant vide letter dated 25/02/2015 has submitted that the expenses pertaining to the power project were accounted for in the books of power project only and, therefore, no had office expenses were allocated to work out the claim for deduction under section 80 I-A. It has further been submitted by the appellant that in the books of the head office, income is more than expenses on account of interest earned by the head office and, therefore, no allocation of expenses has been done. The head office was treated as a separate profit centre aped segment and, therefore, there was no allocation of expenses to any of the projects. On a careful consideration of the entire facts related to the issue it is noted that even though the head office has been treated by the appellant has a separate unit and the income has been computed ....
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....irs And maint 780071 780071 20490 Vehicle Spares 24800 24800 20506 Survey & Data Collection 26401745 26401745 21004 Transportation Expenses 17150 17150 21201 Rates, Taxes & Land Revenue 2496460.69 2496460.69 21301 Insurance Premium Expenses 2904779 2904779 21501 Conveyance Expenses 269134 269134 21503 Petrol, Diesel & Oil (for 2173541 2173541 21504 T.A.D.A to Chairman 8947 8947 21505 T.A.D.A. to Managing 541001.5 541001.5 21506 T.A.D.A. to others 411752 411752 21507 T.A.D.A. to Staff 2154977 2154977 21508 Vehicles Hire Charges 983436 983436 21601 Advertisement and Publicity 11650750 11650750 21602 Computer Stationary and 505958 505958 21603 Internet Communication 940712 940712 21604 Postage and Telegrams 2042897 2042897 21605 Satellite Communication 134723 134723 21606 Stationery & Printing 1902803 1902803 21607 Telephone Expense 1227142.29 1227142.29 21703 Paid to Statutory Auditors 10000 10000 21701 Statutory Audit Fees 474290 ....
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.... accordingly be reduced by this amount and the amount admissible for deduction would be as under: (I) 80IA deduction as claimed in the ROI - Rs. 31,15,94,168/- (II) Reduction for allocation of HO Expenses - Rs. 6,63,71,309/- Net allowable deduction u/s 80IA of the Act - Rs. 24,52,22,859/- Accordingly, the deduction claimed by the appellant is reduced to that extent and the income is enhanced." 6. It appears from the order that the assessee accepted the allocation made by the Learned CIT(A) in respect of the units except Akrimota Power Project which is eligible for deduction u/s 80IA of the Act. No explanation, whatsoever, has been forthcoming in this aspect. Taking into consideration the nature of expenditure as evident at Page 64, 65 & 66 of the impugned order, we find some of them may not be directly linked with the concerned Power Project Unit at Akrimota; the share transfer fee, seminar expense, security expenses, donation, sundry balances, telephone expenses ought not to have been allocated on the basis of the turnover to various units. They are neither required to be allocated to the Power Project Unit as well. We find no justific....
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....led following grounds of appeal: "1. The Ld.CIT(A) has erred in law and on facts in directing the AO to make proportionate disallowance out of total disallowance of Rs. 47,83,671/- by the AO u/s 36(1)(iii) of the I.T. Act, 1961, though the assessee could not prove nexus of interest of interest free loans given to others with interest free fund. 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 42,90,471/- made by the AO u/s 14A r.w.r. 8D of the I.T Rules. Further, the Ld.CIT(A) has also erred in law and on facts by directing that the disallowance should not be done on Administrative expenses as no exempt income has been earned in this year. This is against CBDT Circular No.5/2014 dtd.11.02.2014 which warrants disallowance u/s 14A is to be done even in cases where no exempt income has been earned in a particular 3. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 5,00,000/- towards depreciation on account of Multi Metal Project as assessee could not produce any supporting document for the assets and that the said assets had been put to use for the purpose of the business of the assess....
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...., therefore, came to a conclusion that the appellant company had used borrowed fund for non interest bearing advances and proportionate interest of Rs. 47,83,671/- being 12% of the entire loan, advances to tune of Rs. 3,98,63,925/- given to those sister concerns was disallowed and added to the total income of the assessee which was in turn deleted by the Learned CIT(A). Hence, the instant appeal preferred by the revenue before us. 11. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that the assessing officer failed to appreciate the underlying principle of own funds and borrowed funds as discussed in the matter of CIT vs. Reliance Utilities & Power Ltd reported in 178 Taxman 135 (Bombay). It was further contended that even if such companies are related company to the appellant then also during the year the appellant company paid up capital of Rs. 63,60,000/- and free Reserve & Surplus of Rs. 16,06,16,98,572/- for the purpose of making of such payments. In the similar set of facts, the Learned CIT(A) since in A.Y. 2010-11 directed the Learned AO for computing the disallowance after excluding the interest having dire....
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....er ltd 178 Taxman 135(Bom.) Without prejudice to what is stated above, we would further like to state that even if such companies are related company to the appellant than also during the year the appellant company has paid up capital of Rs. 63,60,000/- and free Reserve & surplus of Rs. 1606,16,98,572/- for the purpose of making of such payments. 1.5. Without prejudice to what is stated above, We would like to state that on one hand the Ld. A.O. states that the appellant has failed to furnish and prove nexus that the advances were made from interest free funds, on the other hand, while calculating the deduction U/s 80IA of the Act in respect of Income from Power Plant, the appellant has considered Interest of Rs. 11,34,24,434/- as relatable to Income earned from such power plant. This fact is very much accepted. The balance amount of Interest of Rs. 3,25,59.873/- & Rs. 68,48,106/- represented Interest in respect of other Term Loans & Interest on income Tax, Sales tax, Service Tax and other Miscellaneous Interest for late payments respectively, which has no connection with the Advances in question. In respect of the use of the fund borrowed for the term loan we would like t....
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....thout any ambiguity. Hence, we find no infirmity in the order passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Hence, revenue's appeal found to be devoid of any merit and dismissed. 13. Ground No.2: The revenue has also challenged the deletion of disallowance of Rs. 42,90,471/- u/s 14A r.w.r. 8D of the Income Tax Rule. 14. During the course of assessment proceeding, it was noticed that the appellant company has made total investment in shares & mutual funds to the tune of Rs. 1,32,60,88,170/-. The company has also earned exempt income i.e. dividend income to the tune of Rs. 3,28,01,063/-. Show-case, therefore, dated 17.12.2013 was served upon the assessee as to why disallowance u/s 14A of the Income Tax Act, 1961 r.w.r. 8D of the Income Tax Act, 1962 would not be made. In reply the assessee submitted that the assessee took loan for its wind power project and such term loan had been granted for specific project, hence such interest cost had direct nexus with such respective project. No amount of borrowed funds had been utilized for the purp....
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....e purpose of making such investments and therefore disallowance as made by the Learned AO to the tune of Rs. 42,90,471/- upon application of section 14A r.w.r. 8D has been rightly deleted by the Learned CIT(A). On the contrary, the Learned DR relied upon the order passed by the Learned AO. 16. We have heard the respective parties, and perused the relevant materials available on record. We have carefully considered the order passed by the Learned CIT(A) which is as follows: "I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made disallowance under section 14A by applying the provisions of Rule 8D. It has been held by him that the appellant has not been able to explain that the investment has been made out of the interest-free funds and after giving the credit of the disallowance already made by the appellant, a disallowance of Rs. 42,90,471/- has been made. The appellant on the other hand has submitted that during the year, the interest expenditure which are shown and claimed in the profit and loss account have been incurred exclusively for the power plant of the appellant company. No expenditu....
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...., noted that certain disallowance out of this amount has already been made under section 36(i)(iii) of the Act which has been decided by me in the preceding ground of appeal. The total disallowance so made under both the sections should not exceed the total interest expenditure of Rs. 11,53,706/-. Regarding, the disallowance on account of administrative expenditure, it is noted that the claim of appellant that it has not earned any tax free income in respect of the investment of Rs. 29.20 crores and no disallowance under section 14A should be made on account of this investment is acceptable keeping in view the judgment of jurisdictional High Court in the case of Corrtech Energy Private Limited in Tax Appeal No. 239 of 2014 reported in 45 taxmann.com 116 (Gujarat). It has been held by the honourable court that, if no exemption on account of the income generated from the investment has been claimed, no disallowance under section 14A should be made. Respectfully following the judgment, the investment of Rs. 29.20 crore should be excluded for working out the disallowance out of interest, as well as, out of the administrative expenditure. However, it is noted that the appellant....
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.... also under challenge before us by the revenue. 18. The brief facts leading to the case is this that the assessee claimed depreciation on the assets in respect of multi-metal project at Ambaji. Since the said project was nonfunctional and did not operate at all during the year under consideration, the assessee was served with a show-cause dated 17.12.2013 as to why disallowance of the said amount should not be made on multi-metal project. However, the reply rendered by the assessee was not found acceptable by the Learned AO. He thus disallowed the same which was in turn deleted by the Learned CIT(A) in appeal. Hence, the challenge before us. 19. At the very outset of the hearing of the issue, the Learned Counsel appearing for the assessee submitted before us that the matter is squarely covered in the assessee's own case on the identical issue by the judgment passed by the Learned Tribunal in ITA No.402/Ahd/2005 for A.Y. 2001-02. The copy whereof is also annexed to the paper book at Page 221. The Learned DR, however, failed to controvert the said contention made by the Learned AR of the assessee. 20. Heard the respective parties, perused the relevant materials available on ....
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....and depreciation which has been set off against other business income of the corporation should not be set off against the power project income of Rs. 31.16 crores. The assessee submitted as follows: "...Notional brought forward of loss of the earlier years u/s.80-IA(5): Your goodself has asked us to explain as to why as per the provisions of sub section (5) of section SOLA, loss of earlier years in respect of power project, though set off against the income of other units in earlier years, be not set off notionally in determining the deduction u/s.80IA. In this regard, we would like to submit as under; Analysis of S.80-IA(5): S.80-IA(5) reads as under: "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevan....
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....(5), the assessee can continue to deduction on the profit from 5th year ignoring loss incurred in the 4th year if it has been set off against any other income. By virtue of the fiction in Ss.(5), the loss of the 4th year is to be set off against the income before claiming deduction for the 5th year. Therefore, Ss(5) will operate only during the period of ten years of claim and only form the second year of the claim. Ss.(5) is thus not rendered redundant....." In support of the contention made by the assessee reliance was also placed on the judgment passed by different Court of Law. However, such plea of the assessee was not found tenable by the Learned AO. He, ultimately came to a conclusion that the initial assessment year for the purpose of Section 80IA(5) shall be the year of commencement of eligible business and the loss or unabsorbed depreciation shall be notionally brought forward from the said year even if the loss or unabsorbed depreciation has already been set off with the income of non-eligible business in earlier years by virtue of the provision of the Act. In this particular case, the initial year should be 2005-06 i.e. the year of commencement of eligible business. ....
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....der section 80IA of the Act claimed by the appellant. He has considered the unabsorbed depreciation of the eligible unit in earlier years as unadjusted depreciation and accordingly considered the same as brought forward depreciation of the eligible unit and after adjusting unabsorbed depreciation, the claim of deduction under section 80IA of the Act has been allowed. The appellant has commenced the production from A. Y. 2005 - 06, but made that claim for the first time in A Y 2010 - II. The appellant on the other hand has submitted that the losses from eligible business in the years prior to initial Assessment Year absorbed against the profit of other business need not be nationally brought forward and, therefore, the deduction should not be reduced." On a careful consideration of the entire facts of the case, if is noted that the issue whether the deduction under section 80IA of the Act is to be allowed without adjusting the notional brought forward losses and depreciation of earlier years is to be allowed or not, is almost legally settled now. It is noted from the perusal of various judicial pronouncements that the preponderant judicial opinion is in favour of the ....
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.... adjusted into period of ten years from initial assessment year-Held, yes- Whether where assessee had not suffered any loss in relevant years and brought forward loss or depreciation did not relate to initial years, same could not be reduced for determining amount for which deduction is to be allowed under section 80-IA - Held, yes [Para 28]" The judicial pronouncements relied by the AO such as Goldmine Shares & 6.3 Finance (P) Ltd (supra) is respectfully distinguished as the judgement has been considered by honourable ITAT Ahmedabad and honourable High Court of Madras in the case of Velayudhaswamy Spinning Mills Private Limited (supra). In view of the above discussion, the reduction- of claim under section 80 l-A made by the AO is directed to be deleted." Following the findings given by me in the above order, the disallowance made by the AO is directed to be deleted. He is directed to allow the claim of the appellant as per the calculation given by him and as per the law. The ground of appeal is accordingly allowed." The initial assessment year, as held by the Learned CIT(A) is the year in which the appellant made the claim for the first time exercisi....
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....s development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides as under- "Notwithstanding anything contained in any other prow'so-, of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that subsection for the assessment year immediately succeeding ino initial assessment year or any subsequent assessment yea/, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Officers are interpreting the term 'initial assessment year' as the year in which the eligible business/ Manufacturing activity had commenced and are considering such first year of commenc....