AI Drafter 
TaxTMI 
TaxTMI 
2020 (4) TMI 425
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....ssessment years 2009-10, 2010-11 & 2011-12 respectively on the grounds inter alia that :- "ITA No.704/Kol./2015 FOR AY: 2009-10 (Assessee's Appeal) 1. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the action of the AO in making allocation for foreign exchange fluctuation loss to the profits and gains of business of the undertaking eligible for deduction u/ s 801e. 2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs. 7,19,216/-. 3. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred by sustaining the disallowance u/s 14A r.w. Rule 8D without appreciating the fact that the no expenditure has been incurred to earn exempt income. 4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction for Education Cess on Income Tax, Dividend Distribution Tax and Fringe Benefit Ta....
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....laimed on provision basis amounting to INR 597,487/- . 4. The Ld. CIT(A) has grossly erred both on facts and in law in confirming the action of the Ld. AO in not allowing deduction for Education Cess on Income Tax and Dividend Distribution Tax aggregating to INR 4,742,7851- in computing total income under the normal provisions of the Act." 3. Appellants, DCIT, Range 8, Kolkata & DCIT, Range 23 (2), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeals sought to set aside the impugned orders dated 25.03.2015 & 08.08.2017 passed by the CIT (A)-3, Kolkata & CIT (A)-12, Kolkata in ITA No.838/Kol/2015 & 7483/Del/2017 qua the assessment years 2009-10 & 2011-12 respectively on the grounds inter alia that :- ITA No.838/Kol./2015 FOR AY : 2009-10 (Revenue's appeal) 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction under section 80IC of the Income tax Act, 1961 on the transport subsidy of Rs. 3,04,561/- as this subsidy is in nature of capital receipt and external aid, and is not directly related to manufacturing activities of the assessee. 2. That on the facts and c....
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....n 10 or section 11 or section 12 of the Income tax Act, 1961 apply." ITA No.7483/Kol./2017 AY: 2011-12 (Revenue's appeal) 1. Whether the Ld. CIT(A) was justified in deleting the addition to the extent of Rs. 15,28,408/- (transport receipt of Rs. 12,43,233/-, Misc. Income of Rs. 1,31,647/- and written back amount of Rs. 1,53,528/-) out of total addition of Rs. 39,97,952/- made by the AO on account of exclusion of other income not eligible for deduction u/s 80-IC of the LT. Act, 1961. 2. Whether the Ld. CIT(A) was justified in deleting the addition of Rs. 1,97,06,900/- made by the AO on account of apportioned indirect head office expenses e.g. advertisement and publicity expenses, Rent, Depreciation on vehicles & donation and contribution paid for scientific research, not eligible for 80-IC unit. 3. Whether the Ld. CIT(A) was justified in treating the forward contract gain of Rs. 19,32,946/- as business income eligible for deduction u/s 80-IC without verifying transaction wise import of raw material/goods vis-a-vis the forward contracts executed by the assessee. In case there is no one to one nexus between the imports and the forward contr....
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....e income in normal provisions of the Act as well as not computing the book profit u/s 115JB of the Act. AO also excluded the amount of Rs. 2,39,40,228/- and Rs. 3,04,561/- disallowed as claim of deduction u/s 80IC on account of excise duty exemption subsidy and transport subsidy respectively towards profit of the unit in computing the income under normal provisions of the Act as well as in computing the book profit u/s 115JB of the Act. 9. In AY 2011-12, AO made addition of Rs. 39,97,952/- (Rs. 12,43,233/- + Rs. 1,31,647/- + Rs. 153,528/- on account of freight income, misc. income and provision of expenses returned back respectively) on the ground that the assessee has not furnished the details if expenses of freight is the liability of the assessee and assessee is earning the freight income as facilitator or transport agent which cannot be directly linked to the business of the undertaking and for misc. income, on the ground that these income are not having any business nexus with the assessee's business undertaking and for provision for expenses written back, on the ground that the assessee has not provided any proof and having no direct connection with the business of the ....
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....deduction u/s 80IC. Assessee company however excluded excise duty exemption subsidy from the book profit for the computation of income u/s 115JB of the Act. AO however excluded excise duty exemption subsidy and transport subsidy of Rs. 2,39,40,228/- and Rs. 3,04,561/- respectively for the purpose of computation of deduction eligible to the assessee under section 80IC of the Act. AO thereby computed the eligible deduction u/s 80IC at Rs. 25,48,25,717/-. 15. Ld. CIT (A) however give the relief by treating excise duty exemption subsidy and transport subsidy to be eligible for deduction u/s 80IC by including the same in profit of Sikkim unit. Ld. CIT (A) also reduced the foreign exchange loss of Sikkim unit to Rs. 68,33228/- instead of Rs. 1 crore made by the AO. Both assessee company as well as Revenue are in appeal before the Tribunal. 16. Undisputedly, assessee company being in manufacturing activities in the Estate of Sikkim received excise duty exemption subsidy & transport subsidy of Rs. 2,39,40,228/- & Rs. 3,04,561/- respectively. Ld. AR for the assessee contended that the subsidy extended by the Government helped the assessee in reducing the cost of manufacturing an....
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....ocated to the eligible industrial undertaking. Ld. DR for the Revenue, however, relied upon assessment orders passed by AO. 19. Assessee company has brought on record detail of foreign exchange loss incurred on account of import of raw material used at the industrial undertaking, available at page 193 of the paper book. Ld. CIT (A) after taking into account working given by the assessee company at page 193 of the paper book restricted the allocation to the tune of Rs. 68.33 lakhs. No doubt, foreign exchange loss being in the nature of indirect/non-operating expenses must not be allocated to the eligible industrial undertaking. However, when the assessee company has come up with specific working/details of suffering foreign exchange loss on account of import of raw material used at the industrial undertaking, the ld. CIT (A) has rightly thrashed the issue on facts and directed the AO to reduce such allocation to Rs. 68.33 lakhs as against Rs. 1 crore estimated by the AO. So, again we find no illegality or perversity in the findings returned by the ld. CIT(A). Consequently, Ground No.1 of assessee's appeal for AY 2009-10 is allowed and Grounds No.1, 2 & 3 of Revenue's appeal fo....
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.... generally taken by management personnel or other professional experts employed for the purpose for which administrative, managerial and administrative expenses are incurred." 22.1 To our mind, this is no satisfaction rather AO proceeded on the basis of assumptions and guesswork. In AY 2011-12, AO while invoking the provisions contained under Rule 8D recorded that, "since the assessee has not maintained any separate books of account for accounting of expenses incurred in relation to income not includible in its total income the amount of expenses actually incurred cannot be ascertained from the assessee's books of account satisfactorily and proceeded to invoke the provisions contained u/s 14A of the Act r/w Rule 8D of the Rules." 23. Hon'ble Apex Court in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT - 394 ITR 449 (SC) thrashed the issue in controversy as to invoking of the provisions contained under Rule 8D of the Rules by observing as under :- "37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely pr....
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....ued u/s 10(23G) placed at page No. 24 of the paper book, shows that such exemption was initially granted only for the specific period i.e. assessment year 1999-2000 to 2001-2002. No doubt, the said exemption was further extended upto assessment year 2004-05 as submitted by the learned DR, a perusal of the copy of relevant notification placed at page No. 29 of the paper book clearly shows that such extension was granted subject to satisfaction of certain conditions. Keeping in view all these uncertainties and contingencies, we are inclined to agree with the contention of the learned counsel for the assessee that the premium paid by the assessee on redemption of premium notes (OCPN) utilized for making investment in the shares/debentures of RUPL cannot be regarded as expenditure incurred exclusively in relation to earning of exempt income so as to invoke the provisions of section 14A. Moreover, the said investment had the potential of generating taxable income also as explained by the learned counsel for the assessee in the form of short term capital gains etc. In this regard, the learned DR has submitted that no such taxable income however was actually earned by the assesses during ....
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....he Act and relied upon the CBDT circular dated 19.05.1967 (supra). He further contended that cess is not in the nature of tax. However, ld. DR for the Revenue relied upon the orders passed by the AO as well as ld. CIT (A). 32. Perusal of CBDT Circular dated 19.05.1967 (supra) is categoric enough that view of ITO disallowing the cess paid by the assessee is not correct and the Select Committee has decided to omit the word 'cess' from the clause and its effect is that only taxes paid are to be disallowed in the assessment for the year 1962-63 and onwards. 33. This issue has been decided by Hon'ble High Court of Rajasthan in case of Chambal Fertilizers and Chemicals Ltd. (supra) in the light of the interpretation of Circular dated 19.05.1967 (supra) in favour of the assessee by returning following findings :- "13. On the third issue in appeal no.52/2018, in view of the circular of CBDT where word "Cess" is deleted, in our considered opinion, the Tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court ....
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....% of the business promotion expenses disallowed by the ld. CIT (A)., hence Ground No.4 of assessee's appeal in AY 2010-11 is determined in favour of the assessee. GROUND NO.4 OF AY 2009-10 (REVENUE'S APPEAL) 37. AO for the purpose of calculation of disallowance in terms of Rule 8D(2)(iii) of the Rules considered the investment of Rs. 1.41 crores made by the assessee company in its subsidiary, namely, M/s. Newby India Pvt. Ltd.. However, ld. CIT (A) directed to exclude the said investment made by the assessee in M/s. Newby India Pvt. Ltd. for the purpose of computing disallowance under Rule 8D by relying upon the decisions rendered by the coordinate Bench of the Tribunal in case of Inter Globe Enterprises Ltd. vs. DCIT, J.M. Financial Ltd. vs. Addl. CIT ITA No.4521/Mum/2012 and UP Electronics Corpn. Ltd. vs. DCIT. 37.1 We are of the considered view that when undisputedly strategic investment has been made by the assessee company in its subsidiary company to have control over it, the same has to be excluded for the purpose of computing disallowance under Rule 8D. When undisputedly there is no exempt income no disallowance u/s 14A can be made. Revenue itself has allowed the i....
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....the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec. 115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee. being a company, the income- tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on Of after the 1st day of April, 200l, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec. 115JB of the Act were applicable. Every assessee, being a company, shall, for the purposes of section 115jB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (l of 1956). In so preparing its book of accounts incl....
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....73 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. Vs. DCIT (2010) 131 TTJ (Hyd)(SB) 514, ITAT Lucknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vice versa in ITA Nos. 417 ,418 & 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P) Ltd. Vs. DCIT (2015) 173 TTJ (Mumbai) 238 dated 19.8.2015, came to the conclusions (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec.l15JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P&L a/c and not otherwise. (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12,65,75,000/- by the Assessee in its notes on accounts vide Note No.6 to Sc....
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....es of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation I to sec. 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect o....
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....hedule VI to the Companies Act, no further adjustment can be made except expressly provided in the Act. So, the AO has no jurisdiction to travel beyond the net profit shown in the P&L account except to the extent that profit in the Explanation to section 115JB of the Act under which disallowance u/s 14A is not covered. 43. Coordinate Bench of the Tribunal in case of M/s. Essar Teleholdings Ltd. vs. DCIT (ITA No.3850/Mum.2010 for AY 2005-06 order dated 29.07.2011) held that, "no addition to the book profit shall be made on account of expenditure as per Rule 8D r/w section 14A of the Act while computing income u/s 115JB of the Act." So, in view of the matter, we are of the considered view that ld. CIT (A) has rightly deleted the disallowance u/s 14A read with Rule 8D while computing the book profit u/s 115JB. So, ground no.6 of Revenue's appeal for AY 2009-10 is dismissed. GROUND NO.1 OF AY 2011-12 (REVENUE'S APPEAL) 44. AO made addition of Rs. 39,97,952/- on account of exclusion of other income viz. income earned by way of scrap sales, misc. income, freight income, transport subsidy and cash discount not eligible for deduction u/s 80IC of the Act by relying upon the decisio....
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....35 in respect of contributions Rs. 1,53,36,000/- & deduction u/s 80G in respect of donations Rs. 23,08,500/-) on proportioned indirect Head Office expenses eg. advertisement and publicity, rent, depreciation on vehicles, donation and contribution paid for scientific research being not eligible for deduction u/s 80IC of the Act. However, ld. CIT (A) deleted the proportionment of Head Office expenses made by the AO by following the decisions rendered by the coordinate Bench of the Tribunal for AY 2006-07 in assessee's own case. 48. Perusal of the order passed by the coordinate Bench of the Tribunal in AY 2006-07, available at pages 151 to 153 of the paper book, goes to prove that the identical issue has been decided in favour of the assessee by returning following findings :- "4. We have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. D.R. has contended that the profit eligible for deduction under section 80IC is to be worked out after deducting al l the direct and indirect expenses, the deduction under section 80IC, as pointed out by the ld. Counsel for the assessee, is in respect of any profit and gains ....