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2021 (3) TMI 825
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....ure would have to be incurred by the Appellant to earn the exempt income. 1.1 That on the facts and circumstances of the case and in law, the CIT(A) has erred in not accepting the claim of the Appellant that only expenditure of Rs. 2,30,000 can be said to be incurred for earning the dividend income and in the absence of any nexus existing between the dividend earned and other expenditure claimed by the Appellant, disallowance under section 14A of the Act was not warranted. 1.2 That on the facts and circumstances of the case and in law, the CIT(A) has erred in upholding, the disallowance made by the AO applying sub-rule (2) of Rule 8D of the Rules without recording any cogent reason regarding his dissatisfaction, on disallowance of Rs. 2,30,000 /- suo-moto computed by the appellant and offered for taxation, as required by section 14A of the Act read with sub- rule (1) of Rule 8 D of the Rules. 1.3 That, without prejudice to the above, the CIT(A) has erred on facts and in law in upholding the computation of the AO wherein investments held by the Appellant in shares of India LNG Transport Company (No. 3) Limited, Malta has been included while computing the a....
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.... facts and in law in not considering the allocation of disallowance made under section 14A of the Act towards port, power and regasification undertakings. 4. In ITA No. 5232/Del/2015, following grounds have been raised by the assessee: "1. That on the facts and circumstances of the case and in law, the CIT(A) has erred in arbitrarily sustaining the disallowance under section 14A of the Act, made by the Assessing Officer (" AO") by applying the provisions of Rule 8D(2)(iii) of the Income tax Rules, 1962 ("the Rules"), alleging that certain expenditure would have to be incurred by the Appellant to earn the exempt income. 1.1 That on the facts and circumstances of the case and in law, the CIT(A) has erred in not accepting the claim of the Appellant that only expenditure of Rs. 3,69,800 can be said to be incurred for earning the dividend income and in the absence of any nexus existing between the dividend earned and other expenditure claimed by the Appellant, disallowance under section 14 A of the Act was not warranted. 1.2 That on the facts and circumstances of the case and in law, the CIT(A) has erred in upholding, the disallowance made by the AO applyin....
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..../- made by Assessing Officer by ignoring the provisions of section 80 IA(4)(iv)(a) of the Income tax Act, 1961. 2. On the facts and in the circumstances of the case, the Id C1T(A) has erred in law and on the facts in deleting the disallowance of Rs. 7,91,95,087/- under Rule 8D(2)(ii) by ignoring the mandatory provisions of Rule 8D w.r.s. 14A of the Income tax Act, 1961." 6. In ITA No. 4903/Del/2015, following grounds have been raised by the revenue: "1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in disallowing the disallowance of Rs. 33,31,00, 400/- made by Assessing Officer by ignoring the provision of sub section 5 of section 801A of the Income tax Act, 1961. 2. On the facts and in the circumstances of the case, the ld CIT(A) has erred in law and on the facts in deleting the disallowance of Rs. 1287.32 lakhs under Rule 8D(2)(ii) by ignoring the mandatory provisions of Rule 8D w.r.s. 14A of the Income tax Act, 1961." 7. In ITA No. 4904/Del/2015, following grounds have been raised by the revenue: "1. On the facts and in the circumstances of the case, the Id. CIT(A) has erred in allowing the deduction of Rs. ....
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....eleted the addition on the grounds that the action of the Assessing Officer to bring losses again notionally cannot be accepted. 12. Heard the arguments of both the parties and perused the material available on record. 13. The profits and the brought forward and carried forward losses from A.Y. 2005-06 till the current assessment year as per the AO are given below: Assessment Years Port Unit 2006 - 07 B/ F Losses (310, 09, 69, 047) Taxable profits for A. Y 06 - 07 6, 86, 05, 536 Carry forward balance losses to AY 07 - 08 (303, 23, 63, 511) Deduction u/ s 80IA Nil 2007 - 08 B/ F Losses (303, 23, 63, 511) Taxable profits for A. Y 07 - 08 54, 39, 28, 860 Carry forward balance losses to AY 08 - 09 (248, 84, 34, 651) Deduction u/ s 80 IA Nil 2008 - 09 B/ F Losses (248, 84, 34, 651) Taxable profits for A. Y 08 - 09 89, 75, 27, 557 Carry forward balance losses to AY 09 - 10 (159, 09, 07, 094) Deduction u/ s 80IA Nil 2009 - 10 B/ F Losses (159, 09, 07, 094) Taxable profits for A. Y 09 - 10 109, 65, 21, 389 Carry forward balance losses to AY ....
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....ct'), as substituted by the Finance Act, 1999 with effect from 01.04.2000, provides for deduction of an amount equal to 100 % of the profits and gains derived by an undertaking or enterprise from an eligible business (as referred to in sub-section (4) of that section) in accordance with the prescribed provisions. Sub-section (2j of section 80IA further provides that the aforesaid deduction can be claimed by the assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins 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 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....
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....e be brought to the notice of all Assessing Officers concerned. Sd/- (Deepshikha Sharma) Director to the Government of India (F.No. 200/31/2015-ITA-I) 18. Straight to the issue- Taking into consideration, the above Circular of the CBDT, we hold that the assessee is entitled to claim the deduction from the assessment year 2009-10 as the "initial assessment year" u/ s 80IA(5) even though this is the fourth year of operation of the activities u/ s 80 IA. We clarify that the "initial assessment year" for the " claim of deduction" need not be the " first year" of the " commencement of operations" of the assessee. 19. The second issue is to be examined is b. Whether the revenue was right in notionally carrying forward the losses and unabsorbed depreciation of the earlier years to be taken into consideration for computing deduction u/ s 80IA. 20. In the instant case, the AO has calculated the profits available for the year after setting off the brought forward losses from the assessment years 2006-07 to 2008-09. The Assessing Officer has computed the losses against the profits of the similar unit year wise. The moot argument of the ld. Counsel for the assesse....
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....ed after deduction of the notional brought forward losses and depreciation of eligible business even though they have been allowed set off against other income in earlier years.(Ack-inputs from Open Article -Robin Rawal Addl.CIT) 24. Subsequent to clarification by the Circular of the CBDT, since the initial year of deduction is allowed to be different from the initial year of commencement, the profits have to be computed from the initial year of deduction on standalone basis for each eligible unit. While doing so, the carried forward losses of the eligible unit which have already been set off against regular profits cannot be brought again in determination of profits eligible for deduction. The loss of the year commencing from the initial assessment year alone is to be carried forward and set off against the profits. Since, the provision allows the benefit to further 10 years down the line one need not look behind to see what has happened in the years earlier to the claim of deduction. Similar view has been expressed by the Co-ordinate Bench of ITAT of Madras in the case of Mohan Breweries v. ACIT, 116 ITD 241. 25. In the case of VS Mills Pvt. Ltd. Vs ACIT, the Hon'ble Apex C....
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....nt of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, thirty per cent of such profits and gains for further five assessment years. (3) This section applies to an undertaking referred to in clause (ii) or clause (iv) of sub-section (4) which fulfils all the following conditions, namely :- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose: Provided that nothing contained in this sub-section shall apply in the case of transfer, either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in clause (7) of sectio....
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....frastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place: Provided further that nothing contained in this section shall apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017. Explanation.-For the purposes of this clause, "infrastructure facility" means- (a) a road incl....
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....ime during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2017; (b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on the 1st day of April, 1999 and ending on the 31st day of March, 2017: Provided that the deduction under this section to an undertaking under sub-clause (b) shall be allowed only in relation to the profits derived from laying of such network of new lines for transmission or distribution; (c) undertakes substantial renovation and modernisation of the existing network of transmission or distribution lines at any time during the period beginning on the 1st day of April, 2004 and ending on the 31st day of March, 2017. Explanation.-For the purposes of this sub-clause, "substantial renovation and modernisation" means an increase in the plant and machinery in the network of transmission or distribution lines by at least fifty per cent of the book value of such plant and machinery as on the 1st day of April, 2004; (v) an undertaking owned by an Indian company and set up for reconstruction or revival o....
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....ee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and no losses of earlier years which were already set off against the income of the assessee. Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the Revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the Revenue cannot rework the set off amount and bring it notionally. 30. In the present case, there is no dispute that the losses incurred by the assessee were already been set off and adjusted against the profits of the earlier years. During the relevant assessment year, the assessee has exercised the option of claiming deduction u/ s 80IA. There is no unabsorbed depreciation or loss of the eligible undertaking and the same were already absorbed in the earlier years. There is a positive profit during the year. The Assessing Off....
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....th earning of said dividend income. The assessee has offered an amount of Rs. 2,30,000 /- u/ s 14A of the Act for taxation during the course of assessment proceedings. The AO disallowed an amount of Rs. 10,04,84,577/- u/ s 14 A of the Act applying the provisions of Rule 8D of the Income Tax Rules, 1962. The ld. CIT (A) confirmed the addition to the tune of Rs. 2,12,89,490/- under Rule 8D(2)(iii) and deleted the amount of Rs. 7,91,95,087/- made under Rule 8D(2)(ii). 36. Aggrieved both the assessee and the revenue are in appeal in this issue. 37. During the hearing before us, the ld. AR relied on submissions made before the authorities below and also on the letter dated 22nd September 2011 (PB 121) wherein it was submitted that the assessee has not incurred any expenditure in connection with the earning of dividend income which is exempt from tax under the provisions of the Act. The assessee has also offered an amount of Rs. 2,30,000/- for disallowance which was based on third party quotation received on charges of an external advisor, attributing 5 to 10% of the salary cost of the employees who may have interacted with the subject matter. Further, replies have been given to....
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....or not. * Whether the ld. CIT (A) was correct in confirming the amount of Rs. 2,12,89,490 /- under Rule 8D(2)(iii) or not. Q-1) Whether the Assessing Officer have recorded any cogent reason for his dissatisfaction or not. 42. With regard to the satisfaction of the AO, we have gone through the order of the Assessing Officer pertaining to disallowance of expenses u/ s 14 A which is as under: "32. A perusal of assessee' s balance sheet reveals that assessee had investment of Rs. 30,426.21 lacs in shares and mutual funds and has received dividend income of Rs. 2986.44 lacs on it. Assessee was asked to explain why expenses in relation to income which does not form part of total income may not be disallowed as per provisions of Section 14A of the Act. The assessee vide its reply filed on 13.09.2011 submitted that the company did not incur any expenditure in connection with earning dividend income and therefore, no disallowance was made by it u/s 14A of the Act. The assessee further submitted that it had not appointed any specific employees for the purpose of making investment decision and managing the investment portfolio. The assessee's reply dt. 29.....
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....e replied on 13.09.2011, on 22.09.2011 and on 29.11.2011 and the deliberations went on during hearing show the application of mind of the AO with regard to the dissatisfaction as per the provisions of Section 14A. The Assessing Officer has given reasoning at para 33 of the Assessment Order which has been reproduced above as to how and why the assessee's contention is not acceptable. Relying on the decision of Hon'ble Punjab & Haryana High Court in the case of Punjab Tractors Vs CIT in ITA No. 458 of 2015 dated 03.02.2017, we hold that it is not necessary for the Assessing Officer to decide the extent or quantum of the incorrect claim. However, he has to correctly conclude and satisfied that the claim of the assessee is incorrect. It is necessary for the Assessing Officer to rightly come to the conclusion that the claim of the assessee is incorrect. 44. The Hon'ble Chief Justice held that the language of Section 14(2) is "is not satisfied with the correctness of the claim" and not " reasonably doubts it" or " has reason to doubt the correctness of the claim". 45. The relevant extract of the decision of the Hon'ble Delhi High Court in the case of India Bulls Financial Se....
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....8D sets in. Owing to the decisions of the Hon' ble Courts and the facts of the instant case, we hold that the Assessing Officer has rightly not satisfied with the contentions of the assessee and the disallowance. Q.2) Whether the ld. CIT (A) was correct in deleting the amount of Rs. 7, 91, 95,087/- under Rule 8D(2)(ii) or not? 49. The AO disallowed Rs. 7,91,95,087/- under Rule 8D(2)(ii). The ld. CIT (A) deleted the addition, however no reasons have been given. 50. We have gone through the arguments and submissions of both the parties. We find that as per the page no. 190 of the paper book vide letter dated 07.12.2011, the assessee submitted that they did not invest any part of the borrower funds in the mutual funds and there was no dividend income earned on borrowed funds. This fact has not been disputed by the revenue authorities. In this context, the relevant provisions are hereby perused. 51. The provisions of the Rule 8D(2)(ii) are as under: "(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i)............. (ii) in a case where the assessee has incu....
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....r cent of the average of the 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." 56. In this aspect, we are guided by the judgments of the Hon' ble Jurisdictional High Court and the Hon' ble Apex Court quoted by the ld. CIT (A) with regard to Section 14A and the disallowances thereof. (a) The mandate of Section 14 A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; (b) Section 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; (d) The basic principle of taxation is to tax net income. This principle applies even for the purposes of Section 14 A and expenses towards non-taxable income must be excluded; (e) Once a proximate cause for disallowance is established - which is the relationship of the expenditure with income which does not form part of the total income - a disallowance has to be effected. All expenditure incurred in relation to income which does not form....
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....y attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest [other than the amount of interest included in clause (i) incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure - one half percent of the average value of the investment, income from which does not or shall not form part of the total income. 57. During the year, the assessee has received Rs. 29.86 Cr. and claimed that no expenditure has been incurred for earning this income. During the assessment proceedings before the AO, the assessee has offered Rs. 2,30,000/- as approximate expenditure incurred. As per the settled position and on the facts of the case as mentioned above, the provisions of Rule 8D(2)(iii) are invited to the facts of the case. Hence, the action of the AO determining of percentage of the average investments for disallowance as per Rule 8D(2)(iii) cannot be faulted with. 58. The assessee has submitted the computation before the AO as Anne....
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....ght of the decision of the Supreme Court in Maxopp Investment Ltd. Vs. Commissioner of Income Tax, (2018) 402 ITR 640. Accordingly, the observations of the ITAT on this aspect are set aside. However, its observations with respect to the calculation of disallowance under Section 14A being confined to investments that derived tax exempt income are valid in the light of the Division Bench ruling in ACB India Ltd. v. ACIT, (2015) 374 ITR 108 (Del). 62. Thus, the Hon' ble Jurisdictional High Court reiterated that the disallowance should be confined to the investments yielding exempt income. Hence, the ground of the assessee on this aspect is accepted. The revenue is hereby directed to re- compute the disallowance taking into account only those investments that have yielded exempt income. A.Y. 2011 -12 (Revenue) TDS Payment: 63. The revenue raised objection against the deletion in respect of disallowance u/s 40 (a)(ia) on the ground that no TDS was deducted on the guarantee commission paid to the bank. 64. During the year the assessee had incurred a sum of Rs. 18,68,005 /- towards charges for issuing bank guarantee. 65. The AO quoted notification of the CBDT dated 31....
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.... (Assessee) Disallowance on account of CSR: 70. The assessee had incurred an expenditure of Rs. 51,05,000 /- which it stated was a business expenditure incurred for welfare activities. The expenditure incurred is as under: Particulars Amount (Rs. in Lacs) Medical Relief Camp in U.P. 46.49 Education Promotion : Set of Computer Lab 1. 00 Afforestation Drive: Brahmavetta Shree Devaraha Hans Baba Trust 2.50 Chatralaya - All India Movement (AIM) for Seva 1.00 Others 0.06 Grand Total 51.05 71. The AO disallowed the expenditure claimed stating it was not incurred wholly and exclusively for the purpose of business of the assessee. 72. The ld. CIT (A) supported the order of the Assessing Officer holding that the Corporate Social Responsibility expenditure is an application of income. An application of income is not an allowable deduction for computing taxable income of any company. It was not incurred for the purpose of business. Reliance was placed on the following decisions by the ld. CIT (A): • Sri Venkata Satyancrayana Rice Mills Contractors Co. vs. CIT (223 ITR 101) SC. • CIT & Anr. vs. Infosys Technologies....
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....015. The provision 37(1) was inserted w.e.f. 01.04.2015. 78. We have also gone through the provisions of Section 135 Companies Act, 2013 dealing with CSR. The same are as under: 135. Corporate Social Responsibility (1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. (2) The Board' s report under sub- section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (3) The Corporate Social Responsibility Committee shall,- (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy....
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....1 shall be allowed deduction under section 37 (1) NOTE: ANY EXPENDITURE QUALIFYING AS CSR EXPENDITURE UNDER PROVISIONS OF SECTION 135 OF THE COMPANIES ACT, 2013, WHICH OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 OF THE INCOME TAX ACT, 1961 SHALL BE ALLOWED AS DEDUCTION. 81. Thus, the expenditure on CSR activities is non-deductible for tax purposes unless falling within provisions of Sections 30 to 36 of the Income Tax Act, 1961. 82. The expenditure incurred by the assessee is in no way connected with the business of the assessee or earning of the income. As per section 37 therefore the expenditure has not been incurred wholly and exclusively for the purpose of the business and cannot be allowed as a deduction. We have also gone through the arguments of the assessee that the explanation is prospective in nature. Since, we are of the view that the explanations are only with regard to the main provisions of the Act, the explanation are brought in to pact the provisions and to avoid any confusion in interpretation. The effect of the explanation shall be from the date of insertion of the provision. The explanations gives clarity to the statute as it is and as it was meant to b....
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....sessment proceedings although not raised earlier. 6. In the case of Jute Corporation of India Ltd. v. C.I.T. this Court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner....