TaxTMI 
TaxTMI 
2021 (10) TMI 1097
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.... under Rule 8D(2)(ii) and Rs. 28,23,868/- under Rule 8D(2)(iii) and the 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) h....
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....e amounting to Rs. 5,32,41,623/- be allowed. iii) Expenditure claimed towards initial public offer amounting to Rs. 13,20,000/- be allowed. iv) Deduction under section 80-lB amounting to Rs. 1,00,17,863/- be allowed. v) Disallowance 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 pro....
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....er section 36(1)(iii) of the act at Rs. 5,32,41,623/- for lack of commercial expediency. 2.8 The Ld.AO during the assessment proceedings observed that assessee has received dividend of Rs. 12,95,000/- that was claimed exempt under section 10(35) of the act. Assessee however 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 f....
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....sal of the balance sheet the finding has been recorded that assessee has received an amount of Rs. 146.52 Crores as advances from customers, which are interest free and the reserves and surpluses are to the tune of Rs. 882,67 Crores. Thus, it has been held that all the aforesaid amounts are interest 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....
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.... v. CIT (2007) 158 Taxman 74 and submitted that money has been advanced to the sister concerns on account of commercial expediency and it is to be allowed. Further, the Ld.AR relied on the judgment of the Supreme Court in the case of Munjal Sales Corporation v. CIT (2008) (Supra) wherein it was held as follows: "Under 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 concer....
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.... by following the decision of Hon'ble Supreme Court in case of Brooke Bond India Ltd. (supra). We note that in the said case it was also held that the expenditure incurred on public issue for the purpose of expansion of the companies are to be treated as capital expenditure. However by virtue of the provision of section 35D of the Act, amortisation 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 b....
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....e with the relevant provisions applicable for the year under consideration. It is the argument of the 6.8 Ld.CIT.DR that as contemplated under section 80IA(5) of the Act, income from eligible business is to be treated as a single source of income for purpose of computing deduction u/s. 80IB and loss from eligible business could not be set-off against business income from other business in view of 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 a....
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....reunder : "12. The contention that under section 80-I(6) the profits derived from one industrial undertaking cannot be set off against loss suffered from another and the profit is required to be computed as if profit making industrial undertaking was the only source of income, has no merits. Section 80-I(1) lays down that where the gross total income of the assessee includes any profits derived from the priority undertaking/unit/division, 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....
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....come and as the gross total income was 'Nil' the assessee was not entitled to claim deduction under Chapter VI-A which includes section 80-I also. 13. The proposition of law, emerging from the above discussion is that the gross total income of the assessee has first got to be determined after adjusting losses, etc., and if the gross total income of the assessee is 'Nil' the assessee would not be entitled to deductions under 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 ....
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....sion of the Hon'ble Supreme Court in the case of IPCA Laboratories Ltd. Vs. CIT, reported in 266 ITR 521(SC), held that only an assessee having positive profits from eligible undertaking could claim such deduction. Their Lordships also held that, for arriving at such profit, income from various units had to be calculated, and if one of the unit was running at loss, gross total income had to be arrived at considering such loss also. In the present case, the table 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 deduct....
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....tion admissible under section 80-IA of the Act to income under the head 'business' only, with which we agree. 13. The other contention of the Revenue is that sub-section (5) of Section 80-IA refers to computation of quantum of deduction being limited from 'eligible business' by taking it as the only source of income. It is contended that the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income 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 tha....
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....ly source of income. Further, the Court concluded that Section 80-I(6) of the Act dealt with actual computation of deduction whereas Section 80-I(1) of the Act dealt with the treatment to be given to such deductions in order to arrive at the total income of the assessee. The Assessee also relied on the judgment of this Court in Canara Workshops (P.) Ltd. (supra) to emphasize the purpose of sub-section (5) of Section 80-IA. In this case, the question that arose for consideration before this Court related to computation 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....
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....the Act. This was clearly interpreted by the Hon'ble Supreme Court in the case of Synco Industries Ltd. Vs. AO (supra) and it was held that gross total income had to be arrived at after making deduction as per appropriate computation provisions including income u/s. 60 to 64, adjustment of interest losses and after setting off of brought forward losses and unabsorbed depreciation. Only if resultant gross total income is positive the assessee was entitled for deduction under chapter VIA of the Act. Same proposition is upheld by the Hon'ble Supreme Court in the case of Reliance Energy Ltd. (supra). Respectfully following the ratio laid down by Hon'ble Supreme Court, we remand this issue back to the Ld.AO to recompute the deduction under section 80IB(10) of the Act, on the principles laid down in case of Reliance Energy Ltd. (supra), as explained hereinabove. Accordingly, this ground raised by assessee stands partly allowed. In the result appeal filed by assessee stands partly allowed. Order pronounced in the open court on 11th October, 2021 ============= Document 1 Profit/Loss as SI.N Particulars Profit/Loss as on on 31.03.2013 Total Eligible ....