TaxTMI 
TaxTMI 
2021 (10) TMI 1097
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.... learned CIT(A) has erred in confirming the said disallowance. 2.2. The learned CIT(A) has erred in rejecting the claim of the appellant on the basis of conjectures and surmise that there were some expenses incurred in relation to exempt income. 2.3. The learned CIT(A) has erred in not appreciating the submissions made by the appellant with regard to non-incurrence of expenditure in managing the exempted investments. 2.4. On facts and circumstances of the case and law applicable, disallowance amounting to Rs. 2,02,22,837/- is to be deleted. 3. Disallowance under section 36(1)(iii) 3.1. The learned AO has erred in making a disallowance of indirect proportional interest amounting to Rs. 5,32,41,623/- claimed as a deduction under section 36(l)(iii) and the learned CIT(A) has erred in confirming the said disallowance. 3.2. The learned CIT(A) has erred in not appreciating that the appellant has advanced amounts to sister concerns who are also engaged in the same business as the appellant for the purposes of commercial expediency. 3.3. The learned CIT(A) has erred in not appreciating the fact that the acquisition of land and formation of Joint Development Agreements for car....
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....owance of deduction under section 80-lB amounting to Rs. 8,07.80,427 be deleted." Brief facts of the case are as under: 2. The assessee is a company and filed its return of income for year under consideration declaring total income of Rs. 1,45,82,610/-. Book profit for the year was shown at Rs. 59,89,64,843/-. Ld.AO observed that assessee is engaged in the business of marketing services, real estate development. Assessee was issued notice under section 143(2) and 142(1) of the act. Upon receipt of the notices, representatives of assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO observed that assessee had claimed deduction under section 80IB(10) amounting to Rs. 29,03,88,814/-. From the details filed it was observed by the Ld.AO that over a period of time subsequent or completion of project, 5 of the projects made losses, however on percentage completion basis these projects had returned profits during the years and the same were claimed under Section 80IB(10) of the Act. The Ld.AO issued notice dated 16/03/2016 calling upon assessee to explain the allowability of deduction on those projects that had resulted in loss as per the project complet....
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....ever had not disallowed any amount as expenditure attributable to the earning of exempt income. Ld.AO accordingly computed disallowance under Rule 8D(ii)(iii) amounting to Rs. 2,02,22,837/- 2.9 Aggrieved by the additions made by the Ld.AO, assessee preferred appeal before the Ld.CIT(A). 2.10 The Ld.CIT(A) sustained the addition made under section 14A read with Rule 8D, disallowance of the expenses incurred towards initial public offer as not eligible under section 35D of the act and the disallowance made under section 80IB(10) of the act, by the Ld.AO. 2.11 Aggrieved by the additions made by the Ld.AO assessee is in appeal before us now. 2.12 The Ld.AR submitted that, Ground No.1 is general in nature and therefore do not require any adjudication. 3. Ground No.2 is in respect of disallowance under section 14A read with Rule 8D of the rules 1961. 3.1 Before us, Ld.AR submitted that the investment for relevant year was only 32.67 crores. He submitted that, total assets of assessee for year under consideration was Rs. 2,752.36 crores. He submitted that the share capital, reserve and surplus an advance from customers was to the extent of Rs. 1,327.56 crores. He submitted that, the....
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....st free funds and are sufficient to make tax free investments and therefore, the finding o the Assessing Officer that overdraft facility was directly used for making tax exempt investments have been reversed. The tribunal has affirmed the aforesaid finding in para 8.4.3 of its order. Thus, concurrent findings of fact have been recorded on the aforesaid issue, which could not be demonstrated to be perverse. Therefore, no interference is called with the aforesaid concurrent findings of fact in this appeal under Section 260A of the Act. [SEE: SYEDA RA HIMUNNISA VS. MA LA N BI BY L.RS.AND ORS. (2016)10 SCC 315 and PRINCIPAL COMMISSIONER OF INCOME TAX, BANGAL ORE & ORS VS. SOFTBRANDS INDIA P. LTD., (2018) 406 ITR 513]." 3.5 We are in agitation with the contention of the ld. AR. However, assessee should prove the availability of interest free funds to make such investments by filing necessary cash flow statements on the date of investment in view of para 7 of the decision by the Hon'ble Supreme Court in the case of Reliance Industries Ltd., reported in (2019) 102 taxmann.com 52/307 CTR 121. 3.6 Respectfully following the same, we direct the Ld.AO to carry out necessary verification bas....
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....der the Income-tax Act, 1961, after amendment of the Act by the Finance Act, 1992 in order that interest paid on borrowings can be allowed as a deduction in computing the business profits, every assessee, including a firm, has to establish, in the first instance, that it was allowable under section 36(1)(iii); and in the case of a firm, further that the amount does not exceed the limit fixed by section 40(b)(iv). 4.6 The audited accounts filed by assessee revealed that there were sufficient funds with assessee as on 31/03/2013. The argument that assessee had sufficient own funds cannot be the only reason to allow the claim of assessee. And we also note that, when assessee had sufficient funds, why should it depend on borrowed funds. In any case, if at a given point of time assessee has own funds and they have advanced it as interest-free loans to sister concerns for meeting their business needs, in which assessee also has an interest, then such advances should not lead to disallowance of interest paid on borrowings. In other words, unless the assesses establishes with cash flow statements about availability of its own funds at the time of making the interest-free advances. 4.7 Fo....
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....isation of such capital expenditure is allowable. 5.5 We note that in the preceding four assessment years, the Ld.AO did not disallow the expenses under section 35D. As the nature of expenditure is not disputed by the Ld.AO, and that the section allows amortisation of such expenses that have been incurred towards expansion/extension of the undertaking, it could not be denied in the subsequent period also. Accordingly this ground raised by assessee stands allowed. 6. Ground No.5-6 is in respect of disallowance of deduction claimed under section 80 IB of the Act. 6.1 Following two issues arises from these grounds: Issue (a) Whether loss of one eligible undertaking is to be set off against the profits of another eligible undertaking? Issue (b) Whether the deduction claimed can be only against the business profits or can it be against the other heads of income? 6.2 The Ld.AR submitted that assessee follows percentage completion method consistently that is in conformity with the accounting standard. During the year under consideration assessee claimed deduction of Rs. 29,03,88,814/- under section 80 IB of the Act and the project wise detail are as under: 6.3 The Ld.AR relied o....
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....f provision of section 80IA(5). Our attention was been drawn to page 536 of paper book, wherein an identical issue is considered by coordinate bench of this Tribunal in ACIT vs Sterling Developers Pvt Ltd (supra). The relevant extract of the decision that dealt with the similar objections raised by the Ld. DR is as under: "5.3.1 We have heard both parties and have carefully perused and considered the material on record. At the outset it must be mentioned here that the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) was concerned with not withstanding anything contained in any other provisions of Section 80-I(6) of the Act, as it existed at that relevant point of time and the same is extracted hereunder for clarity : "Section 80-I(6) - Notwithstanding anything contained in any other provisions of this Act, the profits and gains of an industrial undertaking on a ship or the business of a hotel (or the business of repairs to ocean going vessels or other powered craft) to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under sub-section (1) for the assessment year immediately succeeding the initial ass....
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....ivision, then in computing the total income of the assessee, a deduction from such profits of an amount equal to 20 per cent has to be made. Section 80-I(1) lays down the broad parameters indicating circumstances under which an assessee would be entitled to claim deduction. On the other hand section 80-I(6) deals with determination of the quantum of deduction - section 80-I(6) lays down the manner in which the quantum of deduction has to be worked out. After such computation of the quantum of deduction, one has to go back to section 80-I(1) which categorically states that where the gross total income includes any profits and gains derived from an industrial undertaking to which section 80-I applies then there shall be a deduction from such profits and gains of an amount equal to 20 per cent. The words "includes any profits" used by the legislature in section 80-I(1) are very important which indicate that the gross total income of an assessee shall include profits from a priority undertaking. While computing the quantum of deduction under section 80-I(6) the Assessing Officer, no doubt, has to treat the profits derived from an industrial undertaking as the only source of income in o....
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....er Chapter VI-A of the Act." 5.3.3 The above decision of the Hon'ble Apex Court squarely supports the case of the assessee that the provisions of section 80 IA(5) of the Act would not restrict the operation of the provisions of section 70(1) of the Act with respect to the set off of the loss. The operation of the provision of section 80 IA(5) of the Act is restricted to the computation of the quantum of deduction for which it has to be considered that the eligible business is the only source of income. That restriction, however, cannot be applied to render the concept of gross total income in terms of section 80B(5) to be determined before the set off of the losses under section 70(1) of the Act. We are, therefore, of the view that the learned CIT (Appeals) has rightly applied the decision of the Hon'ble Apex Court in the case of Synco Industries Ltd (supra) and that there is no merit in the plea of revenue that the said judgment is not applicable to the facts of the present case of the assessee. 5.3.4 That apart, the learned counsel for the assessee has rightly contended that the provisions of section 80IA(5) of the Act applies in computing the profits of an eligible b....
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.... extracted at page 14 of this order shows that there were loss in certain eligible units. However, the gross total income computed after setting off losses from eligible units was positive, amounting to Rs. 29,03,88,814/-. In our view, the computation of gross total income in respect of the eligible units u/s. 80IB in the present facts of the case is to be consonance with the above principles approved by the Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. Vs. CIT (supra). 6.9. Respectfully following the same, we direct the Ld.AO to compute the profits under the head 'business income' from eligible undertaking by netting of the losses earned by assessee from other eligible undertaking for determining the deduction to be computed under section 80IB(10) of the act. Accordingly this issue is decided against assessee. 6.10. Issue(b): It is argued by the Ld.AR that, while computing "total income", deduction is available under section 80IA/80IB is to be set off against the gross total income. He placed reliance on decision of Hon'ble Supreme Court in case of CIT vs Reliance Energy Ltd. reported in (2012) 127 Taxmann.com 69. On the contrary, the Ld.CIT.DR argued that it is....
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....from 'eligible business' which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the 'business income'. On the other hand, it is the case of the Assessee that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the 'eligible business' as the only source of income. It was submitted by Mr. Vohra, learned Senior Counsel, that the final computation of deduction under section 80-IA for the assessment year 2002-03 as accepted by the Assessing Officer, was arrived at by taking into account the profits from the 'eligible business' as the 'only source of income'. He submitted that, however, sub-section (5) is a step antecedent to the treatment to be given to the deduction under sub-section (1) and is not concerned with the extent to which the computed deduction be allowed. To explain the interplay between sub-section (5) and sub-section (1) of Section 80-IA, it will be useful to refer to the facts of this Appeal. The amount of deduction from the 'eligible business' computed under section 80-IA for the assessment year 2002-03 is Rs. 492,78,60,973/-. There i....
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....putation of the profits for the purpose of deduction under section 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80- E of the Act, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. This Court was not in agreement with the submissions made by the Revenue. It was held that the profits and gains by an industry entitled to benefit under section 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the assessee. 15. In the case before us, there is no discussion about Section 80-IA(5) by the Appellate Authority, nor the Tribunal and the High Court. However, we have considered the submissions on behalf of the Revenue as it h....