TaxTMI 
TaxTMI 
2020 (6) TMI 335
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....re common issues involved in all the appeals arising from identical set of facts. All the cross appeals were, therefore, taken up together for hearing. We shall first take up the cross appeal pertaining to assessment year 2008 - 09 i. e. in ITA No. 484/Chd/ 2019 & ITA No. 611/Chd/ 2019 and first deal with the appeal of the assessee in ITA No. 484/Chd/ 2019. ITA No. 484/Chd/ 2019 (A. Y. 2008 - 09 - Assessee's Appeal): 3. The effective grounds of appeal raised by the assessee read as under: 2. That the Ld. CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions/submissions of the assessee. 3. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs. 9, 89, 04, 000/- as 'Income from Other Sources' instead of 'Income from Business and Profession'. 5. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of Rs. 45, 75, 267/-, Interest from Other of Rs. 42, 40, 928/- and Miscellaneous ....
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....e 2006 - 07 Rs. 1. 59 crores Rs. 2 lacs 2007 - 08 Rs. 2. 19 crores Rs. 2. 50 lacs 2011 - 12 Rs. 12. 59 crores Rs. 5 lacs 2012 - 13 Rs. 14. 87 crores Rs. 6 lacs 8. Referring to the above the Ld. Counsel for the assessee pleaded that considering the same since the exempt income earned in the impugned year amounted to Rs. 1. 39 crores, drawing parity from the orders of the I TAT as above, the disallowance in the present case be restricted to Rs. 2 lacs. The Ld. Counsel for the assessee further pointed out that there were no change in facts and circumstances from the preceding year i. e. assessment year 2007 - 08 when the disallowance had been restricted by the I TAT to Rs. 2. 5 lacs since as in that year, in the impugned year also the assessee had sufficient own funds for the purpose of making the impugned investment. Our attention was drawn to the total investment made by the assessee in the said two years as reproduced in its synopsis as under: Investments 31.3.08 31.3.07 Subsidiaries/Associates = 95.16 Crs 84.63 Crs Investments generating taxable income = 0.25 Crs 0.25 Crs In section 25 companies ....
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....000 - 01 had confirmed the disallowance of Rs. 1 lac against dividend income earned by the assessee for Rs. 2. 16 crores. Considering the overall facts and circumstances of the case the ITA T had confirmed the disallowance of Rs. 2 lacs and Rs. 2. 5 lacs in assessment years 2006 - 07 and 2007 - 08 respectively. In assessment years 2011 - 12 and 2012 - 13, on going through the order of the ITAT, we find that the ITAT in the said years had taken note of the fact that the assessee had sufficient own funds for the purpose of making the investments and accordingly following the decision of the Hon' ble Apex Court in the case of CIT LTU Vs. Reliance Industries Ltd. (2010) 410 ITR 466 held that no disallowance of interest is warranted u/ s 14 A of the Act. Accordingly, the disallowance calculated as per Rule 8 D(2) (i i) was deleted by the I TA T. As for the disallowance of administrative expenses the ITAT noted that the substantial amount of interest had been earned by the assessee from its subsidiary companies where not much of administrative resources were used. Accordingly, the ITA T held that the disallowance of administrative expenses could not be done solely in the ratio of qua....
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....er consideration, the Ld. Counsel for the assessee has submitted that out of the total divided of Rs. 12. 59 crores, the assessee has earned a divided of Rs. 7. 91 cores from its subsidiaries. He, in this respect has submitted that for making investments in own subsidiaries, not much of administrative resources are used, hence, the disallowance on administrative expenditure cannot be disallowed solely in the ratio of the quantum of the investments shown. He, however, has fairly admitted that the assessee has also received dividend of Rs. 4. 6 cores from the investment in other companies. The Ld. counsel has further submitted that the assessee has suo motto disallowed a sum of Rs. 2 lacs for the year under consideration on account of administrative expenses u/ s 14 A of the I. T. Act. 10. Considering the over all facts and circumstances of the case and submissions of both the parties and also considering the quantum of investment made, the amount of divided earned by the assessee from its own subsidiary as well from outside/other companies, in our view, a total disallowance of Rs. 5 lacs will be justified in this case on account of administrative expenses. However, since th....
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.... Ld. DR pointed out that identical issue stood adjudicated in the case of the assessee by the I TAT in assessment year 2006 - 07 in ITA No. 1429/Chd/ 2010 and in assessment year 2007 - 08 in ITA No. 270/Chd/ 2011 vide order dated 18. 12. 2018 wherein the ITAT had dismissed assessee' s plea of treating it as income from business and profession but considering the plea of the assessee that the netting of interest expenditure be allowed, had directed the AO to allow the same where a direct nexus between the interest income earned and interest expenditure incurred was there. Our attention was drawn to paras 4 to 6 of the order dealing with the said issue in assessment year 2006 - 07 as under: "4. Ground No.1: Vide ground No.1, the assessee has agitated the action of the CIT(A) in treating the interest income amounting to Rs. 1, 65, 17, 422 /- as 'income from other sources' instead of 'income from business or profession' as was claimed by the assessee. 5. The facts relating to the above issue are that the Assessing officer had treated interest from customers and suppliers amounting to Rs. 355. 28lacs and further interest from bank &others amounting to Rs. 165. 17 lacs ....
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....eipt, the contention of the Ld. Counsel for the assessee was that it had received rental income from accommodation rented to its employees. The pleadings of the Ld. Counsel for the assessee in this regard was that while the Revenue authorities had excluded the entire rent receipts, the expenses incurred for maintaining those accommodations for the employees should have been reduced therefrom and only the balance rental income ought to have been disallowed. 19. As for the miscellaneous receipts it was pointed out that the same related to the following: a) Damages against cancellation of orders from customers = Rs. 31, 10, 744 /- b) Commission from shipping companies = Rs. 7, 075 /- c) Other receipts = Rs. 1, 00, 356 /- 20. The Ld. Counsel for the assessee contended that there cannot be dispute about the fact that the damages received against cancellation of orders from customers had direct nexus with the industrial undertaking of the assessee and deduction u/ s 80 IC/ 80 IB of the Act was allowable in this regard. He relied upon the decision of the I TAT in the case of Pr. CI T, Delhi Vs. Bharat Sanchar Nigam Ltd. in ITA No. 476/2016 dated 1. 8. 2016....
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....ing to Rs. 26, 84, 428 /-, had been received from Electricity Board on security deposit and being purely of business nature, the same was eligible for deduction u/ s 80 IB/ 80 IC of the Act. 22. The Ld. DR, on the other hand, relied upon the order of the authorities below contending that in the absence of nexus with the industrial undertaking, the disallowance of deduction u/ s 80 IB/ 80 IC of the Act of the Act on the above incomes had been righty upheld by the Ld. CI T(A). 23. We have heard the contentions of both the parties. I t is settled law that the deduction u/ s 80 IB/ 80 IC of the Act is eligible on the incomes which have first degree nexus with the industrial undertakings of the assessee. There is no dispute about this proposition at all. In this backdrop, considering that the rental income had been received by the assessee from letting out accommodation to its employees, there is clearly no nexus of the said income with the industrial undertaking of the assessee and the claim of deduction u/ s 80 IB/80 IC of the Act, therefore, we hold has been rightly disallowed by the Ld. CIT(A). But at the same time, we are in agreement with the contention of the Ld. Counsel fo....
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....terest receipts from bank and others and rental income, which we direct the AO to restrict the disallowance to the net rental income excluding the expenses incurred for earning the same. Ground of appeal No. 5 raised by the assessee is partly in above terms. 25. Ground of appeal No. 6 raised by the assessee relates to the issue of allocation of head office expenses to units claiming deduction u/ s 80 IB/ 80 IC of the Act. 26. Briefly stated the AO had allocated head office expenses on the basis of turn over for the purpose of calculating the profits of the units eligible for deduction u/ s 80 IB/ 80 IC of the Act. The Ld. CIT(A) directed the AO to allocate head office expenses net of head office income for the said purpose following the decision of the ITA T in assessee' s own case for assessment years 2006 - 07 and 2007 - 08 in ITA No. 1429/Chd/ 2010 and ITA No. 270/Chd/ 2011. 27. Before us the Ld. Counsel for the assessee was unable to give any reason for not following the decision of the ITA T in the preceding year as done by the CIT(A). He was unable to point out any distinguishing facts in the present case. In view of the same, since the Ld. CIT(A) has followed the or....
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....the assessee, therefore, contended that the issue stood covered in favour of the assessee 32. The Ld. DR though fairly conceded to the above, however, relied upon the orders of the authorities below. 33. In view of the above since identical issue already stands decided in favour of the assessee by the I TAT in assessment year 2011 - 12 and 2012 - 13 and no distinguishing facts have been brought to our notice by the Ld. DR, the said decision will apply in the present case Assessing Officer, following which we hold that the line/bay charges to be revenue in nature. Ground of appeal NO. 7 raised by the assessee is accordingly, allowed. 34. In effect the appeal of the assessee is partly allowed. We now shall take up the departmental appeal in ITA No. 611/Chd/ 2019. ITA No. 611/Chd/ 2019 (A. Y. 2008 - 09 - Revenue's Appeal): 35. Ground No. 1 raised by the Revenue reads as under: Q.I. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from customers & suppliers amounting to Rs. 3, 19, 43, 971/- to be treated as business income as against A.O. treating the same as income from other sources?" 36. T....
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....2007 Claim for mobile set 1, 800 1, 800 12/27/2007 Marine Claim due to loss of yarn 105, 920 105, 920 828, 533 442, 597 Auro Textiles Date Description of Claim Loss Suffered Claim Received 9/25/2007 Claim for Mobile Set 3,200 900 3,200 900 Auro Spinning Mills Date Description of Claim Loss Suffered Claim Received 8/27/2007 FIRE CLAIM OF BLOW ROOM MPM 8 IN HALL 5 163, 715 136, 281 8/27/2007 FIRE CLAIM OF BLOW ROOM (UNIMIX) IN HALL 4 372, 770 362, 432 10/26/2007 LOSS OF MOBILE BILL NOKIA 5, 600 5, 572 11/14/2007 TRANSIT CLAIM OF RIETER CARD COVER SHEET 8, 192 7, 447 3/31/2008 TRANSIT CLAIM OF AMSLER ATTACHMENTS (CSY) 4, 966, 956 4, 966, 956 5,517,233 5,478,688 40. Referring to the same he pointed out that the entire claim related to the loss in its business units/ business activities and, therefore, the entire claim was eligible for deduction u/ s 80 IB/ IC of the Act. He further pointed out that the issu....
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....al assets and which of the items constituted trading asset of the assessee. We therefore, restore this issue to the file of the assessee to bifurcate the items between capital assets and trading assets and to allow the claim in respect of insurance claim received on trading assets only. 28. The third part of ground No.2 is against the action of the CIT(A) in directing the Assessing officer not to reduce foreign exchange fluctuation gain from eligible profits of units eligible for deduction u/s 80IB and 80IC and exemption u/s 10B of the Act. 29. The Ld. Counsel for the assessee has submitted that the foreign exchange fluctuation gain is in respect of export receipts/receivable of the assessee and any gain in respect of receivable on account of foreign exchange fluctuation in fact contributes to the profits of the assessee from the sale/ export of the products. We find force in the aforesaid contention. We do not find any infirmity in the order of the CIT(A) in this respect also. We have also gone through the order of the ITAT in ITA No. 787/2015 at para 23 as under: " 23. Ground No. 9. Vide this ground the assessee has agitated the action of the lower a....
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....e and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without giving an opportunity to assessing officer to examine the claim of assessee?" 43. The issue raised in the above ground relates to the treatment of the reimbursement of interest received by the assessee under the TUF Scheme of the Ministry of Textilels, Government of India, which the assessee had claimed to be capital in nature as opposed to the AO treating the same as revenue in nature and subjecting it to tax and which claim of the assessee was upheld by the Ld. CIT(A). Our attention was drawn to the findings of the Ld. CIT(A) at paras 23 to 25 of the order pointing out therefrom that the Ld. CIT(A) after examining the objects of the TUF Scheme from the resolution of the Ministry of Textiles (No. 28/1/99 CIT dated 31. 3. 1999) had found that the purpose of this subsidy was upgradation of plant and machinery and thus the capital apparatus of the assessee company. Thereafter referring to the decision of the Hon' ble Jurisdictional High Court in the case of CIT Vs. Sham L....
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....gh court noted that the purpose of the TUF Scheme was to induce the entrepreneur to undertake investment in modernizing the plant and machinery and was definitely not for the purpose of day to day business of the assessee. Accordingly the Hon' ble High Court held that the nature of the subsidy was capital. 11. In the case of Gloster Jute Mills(supra), copy of order of which was also placed before us, the Hon' ble High Court examined the features of the TUF Scheme and found the purpose was to induce the entrepreneur to undertake investment in modernizing the plant and machinery and assets and, therefore was clearly a capital receipt. 12. The aforesaid two decisions relied upon by the CIT(A), we find therefore, have already dealt with the nature of the subsidy received under TUFS Scheme and after analyzing the terms of the scheme and finding that the purpose of the scheme was to induce modernization of plant and machniery used in textile industry, held the same to be capital in nature following the proposition laid down by the apex court for determining the nature of subsidy in the case of Sawhney steels(supra) and Ponni Sugars(supra). The Ld. DR has been unable....
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....issue in favour of the assessee treating the sales tax subsidy as capital receipt in their order passed in ITA Nos. 787 & 894/Chd/ 2015 for assessment year 2011 - 12 and in ITA Nos. 483 & 518/Chd/ 2016 for assessment year 2012-13 both dated 14. 3. 2019. Copy of the order was placed before us. Our attention was drawn to the relevant findings of the I TAT at para 32 of the order and at paras 35 and 36 of the order as under: " 32. Ground Nos. 12 & 13 : Vide ground Nos. 12 & 13, the assessee has agitated the action of the CIT(A) in treating the sales tax subsidy as Revenue receipt instead of capital receipt as claimed by the assessee. This issue is now well settled by the decision of the Hon' ble Supreme Court in 'CIT- I Vs. M/ s Chaphalkar Brothers, Pune and Others' in Civil Appeal Nos. 6513 - 6514 of 2012 order dated 7. 12. 2017, wherein, i t has been held that the sales tax subsidy is a government incentive to set up new industrial units in specified areas and to be is treated as capital receipt. Further, the Ld. counsel for the assessee has also invited our attention to the decision of the Tribunal dated 18. 12. 2018, (supra) wherein after considering the relevant deci....
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....ny distinguishing facts, the issue stands covered by the decision of the ITAT as above in favour of the assessee. Ground of appeal No. 4 raised by the Revenue is also dismissed. 50. Ground of appeal No. 5 raised by the Revenue reads as under: 5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing relief to the assessee by holding that MAT credit to be carried forward to subsequent years should be calculated after including of Surcharge and Cess?" 51. The issue raised in the above ground relates to the inclusion of surcharge and cess for the purpose of determining the quantum of MA T credit to be carried forward for set off in subsequent years. The AO had excluded surcharge and cess from the quantum of Mat credit to be carried forward for set off in subsequent years which the Ld. CIT(A) held was incorrect since he noted that the ITAT had held in the case of VMT Spinning Company Ltd. for assessment year 2007 - 08 in I TA No. 1147/Chd/ 2014 dated 8. 12. 2016 that the surcharge and cess were to be included in MA T credit. He accordingly directed the AO to calculate and carry forward MAT credit in terms of the aforesaid ....
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....;Income from Business and Profession'." 57. It was common issue between the parties that the above ground is identical to ground No. 3 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 16 of our order above will apply mutatis mutandis to this ground No. 3 raised by the assessee. Accordingly the plea of the assessee of treating the impugned interest income as assessable under the head Business Income is rejected but at the same time its plea of netting the said income is accepted and the AO is directed to allow netting subject to there being direct nexus between the interest income and expenditure incurred. Ground of appeal No. 3 raised by the assessee is allowed in the above terms. 58. Ground No. 5 raised by the assessee in ITA No. 484/2019 reads as under: "5. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of Rs. 58, 87, 394/-, Interest from Others of Rs. 1192962/- and Miscellaneous receipts of Rs. 1, 26, 569/- from the profits of the units eligible for deduction u/s 80IC of the Income Tax Act, 1961." 59.....
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....ground is identical to ground No. 1 raised by the Revenue in its appeal for A. Y 2008 - 09 in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 37 will apply mutatis mutandis to ground No. 1 raised by the Revenue in ITA No. 612/Chd/ 2019. Ground of appeal No. 1 raised by the Revenue is accordingly dismissed. 67. Ground No. 2 raised by the Revenue in ITA No. 612/2019 reads as under: 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IB and 80IC on interest from customers & employee, misc. receipts comprising Brokerage from ocean freights and insurance claim?" 68. It was common ground between the parties that the above ground is identical to ground No. 2 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 41 will apply mutatis mutandis to ground No. 2 raised by the Revenue in ITA No. 612/Chd/ 2019. Ground of appeal No. 2 raised by the Revenue is accordingly partly allowed for statistical purposes. 69. Ground No. 3 raised by the Revenue in ITA No. 612/2019 reads as under: 3. "Whether on the fact....
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.... 2013 - 14 - Assessee's Appeal): 76. Ground No. 2 raised by the assessee in ITA No. 486/2019 reads as under: "2. That the Ld. CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance there under ignoring the contentions/submissions of the assessee." 77. It was common ground between the parties that the above ground was identical to ground No. 2 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with us above. Our decision rendered therein at para 12 - 13 above will apply mutatis mutandis to this ground No. 2 raised by the assessee. Accordingly disallowance of interest made as per Rule 8D(2)(ii) of the Income Tax Rules, 1962, is directed to be deleted. Further the disallowance of administrative expenses as per Rule 8 D(2)(iii) of the Rules, is directed to be restricted to Rs. 5. 50 lacs in all considering the past history of the identical disallowance upheld by the ITA T and applying it to the facts of the present case wherein the assessee has earned exempt income to the tune of Rs. 13. 15 crs. Ground of appeal No. 2 raised by the asse....
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....dealt with us above. Our decision rendered therein at para 33 will apply mutatis mutandis to ground No. 5 raised by the assessee. Ground of appeal No. 5 raised by the assessee is allowed in the above terms. 84. Ground Nos. 6 raised by the assessee in ITA No. 486/2019 read as under: "6. That the authorities below here erred in treating interest reimbursement of Rs. 1, 76, 12, 549/- related to TUFS under Madhya Pradesh Scheme - 2012 as revenue receipt instead of capital receipt. 85. At the outset it was pointed out by the Ld. DR that there is no grievance of the assessee on the impugned issue since the Ld. CIT(A) has treated the interest received under TUFS Scheme as capital receipt at para 38 - 43 of his order. The Ld. Counsel for the assessee was unable to controvert the above. In view of the same the ground of appeal No. 6 is dismissed as infructuous. Ground of appeal No. 7 reads as under: 7. That the authorities below here erred in treating sales tax subsidy of Rs. 2, 82, 71, 552/- under Madhya Pradesh Industrial Promotion Assistance Scheme - 2004 as revenue receipt instead of capital receipt." It was common ground between the parties that the ....