TaxTMI 
TaxTMI 
2022 (10) TMI 1101
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....of facts. 2. The grounds of assessee for assessment year 2013-14 are reproduced as under: 1.a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition to the extent 9,35,400/- made by the AO to the income of the Appellant by way of disallowing administrative expenses on flat rate claimed to have been incurred relating to exempt income invoking provisions of section 14A. b) The Ld. CIT(A) failed to appreciate that having regard to the accounts there is no reason and basis in reaching to dissatisfaction with the correctness of the claim of the Appellant that no expenditure was incurred in relation to dividend income which does not form part of the total income. c) In reaching to the conclusion and confirming such addition the Ld. CIT(A) omitted to consider relevant factors, considerations, principles and evidences while he was overwhelmed, influenced and prejudiced by irrelevant considerations and factors. 2.a) On the facts and in the Rs. 16,84,368/- circumstances of the case and in law, the Ld. CIT(A) erred in not allowing reduction of interest subsidy of Rs. 91,04,692/- under TUF Scheme, be....
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....O allocated Rs. 7,34,844/- towards direct expenses and the disallowance of Rs. 6,81,2551/- is in excess of direct expenses computed as per rule 8D(2) of Income Tax Rules 1961 and since the Ld. CIT(A) himself upheld the disallowance under rule 8D(2)(iii) on merit, the same should have been confirmed. 2. The Ld. CIT(A), has erred in considering the subsidy received in the form of Technology Upgradation Fund as a capital receipt, without appreciating the fact that the assessee has not proved that the application of the money received was for the purpose of acquiring a capital asset.' 3. The Ld. CIT(A) has erred in directing the assessing officer to delete the adjustment to book profit on account of disallowance u/s. 14A r.w.r. Rs. 3,08, 8D without appreciating the provision of clause) to section 115JB of the IT Act." 2.3. The ground raised by the assessee for AY 2015-16 are produced as under: 1.a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not reduction of allowing interest subsidy of 1,86,78,619/- under TUF Scheme, being capital receipt, from the book profit u/s. 115JB although the Ld. CIT(A) has allowed suc....
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....nding of the Ld. CIT(A), both the parties are in appeal before the Tribunal raising the grounds as reproduced above. 6. The Revenue in Ground No. 1 of the appeal is aggrieved by the deletion of disallowance made by the Assessing Officer under Rule 14A r.w.r. 8D of the Income-tax Rules, 1961 (in short 'the Rules'). 6.1. Brief facts qua the issue-in-dispute are that the assessee shown receipt of exempted income of Rs. 3,73,165/- from its investment in shares mutual fund etc. and in the return of income filed made suo motu disallowance of Rs. 7,34,844/- u/s. 14A of the Act. During the assessment proceedings, the Assessing Officer was of the view that assessee failed to link the investment in shares & mutual fund etc. with its own fund/surplus fund available at it disposal and therefore, invoking provisions of section 14A of the Act r.w.r. 8D of the Rules, he made three disallowances. Firstly, disallowance of expenditure directly related to exempted income under Rule 8D(2)(i) of Rs. 7,34,844/-. Secondly, the Proportionate interest expenditure under Rule 8D(2)(ii) amounting to Rs. 2,25,345/- and thirdly, administrative expenses under Rule 8D(2)(iii) amounting to Rs. 6,81,2....
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..... 14A can be made out of interest expenditure. Therefore, the action of the AO of computing disallowance out of interest expenditure as per Rule 8D(2)(ii) is incorrect. Accordingly, the entire addition made by the AO out of interest expenditure after invoking rule 8D(2)(ii) is deleted." 7.1. Regarding the disallowance under Rule 8D(2)(iii), the Ld. CIT(A) noted that suo moto disallowance made by the assessee of Rs. 7,34,844/- was more than the exempted income of Rs. 3,73,165/-. Therefore, following the decision of the Hon'ble Bombay High Court in the case of Nirved Traders (WP ITA No. 149 of 2017 dated 23.04.2019), deleted the addition observings under: "7.7 The AO has computed the disallowance of indirect expenses other than interest as per Rule 8D(2)(ii) at Rs. 6,81,255/-, It is noted that the significant investments have been made by the assessee. For taking these investment decisions of acquisitions/disposals time and cost of the top management of the assessee company would have been utilized. In this context, attention is invited to the decision of ITAT, Mumbai in the case of Dufon Laboratories P. Ltd. (50 Taxmann.com 143) (Mum Trib), wherein it is held that de....
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.... the other hand, the Ld. Counsel of the assessee relied on the order of the Ld. CIT(A). The Ld. Counsel of the assessee has also filed a paperbook containing pages 1 to 286. 10. We have heard rival submissions of the parties on the issue-in-dispute and perused the relevant material on record. We find that the assessee has made suo moto disallowance of Rs. 7,34,844/- against the exempted income of Rs. 3,73,165/-. The Ld. Assessing Officer rejected the disallowance computed by the assessee mainly on the ground that there was no direct link of the investment made in shares/mutual funds out of own funds or surplus funds available on the disposal of the assessee. The Ld. Assessing Officer treated the suo moto disallowance of Rs. 7,34,844/- made by the assessee as incurred directly against the earning of exempted income. This finding of the Assessing Officer is fallacious without any evidence on record that said expenditure was connected directly with the earning of exempted income. Further, under Rule 8D(2)(ii), the Assessing Officer disallowed proportionate interest expenses incurred for investment on borrowed funds in mutual funds/shares. The said disallowance has been deleted by t....
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....company received interest subsidy of Rs. 1,72,22,271/- from the Government of India under the credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme of Ministry of Textiles, Government of India. The purpose of the Scheme under which the subsidy is given was to sustain and prove the competitiveness and overall long term viability of the textile industry. The concerned Ministry of Textile adopted the TUFS Scheme, envisaging technology upgradation of the industry. The subsidy was not given for running the business. Hence interest subsidy is a capital receipt. 8.10 In order to support its view, the assessee has relied on various judicial pronouncements- i. In the case of Gloster Jute Mills Ltd. 67 SOT 21 (Kol.) the ITAT was of the view that in order to sustain competitiveness in the domestic as well international market and overall long-term viability of the industry, the concerned Ministry adopted the TUFS scheme envisaging Technology Upgradation of the Industry. Hence, the subsidy received in this regard falls into capital field. ii. the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Shri Sham Lal Bansal in ITA No. 472....
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....td., [2020] 116 taxmann.com 26 (Rajasthan), has taken the view that the amount of such subsidy is capital in nature. The High Court has observed that: 6. This Court notices that the Punjab and Haryana High Court took into account the previous binding ruling of the Supreme Court in CIT v. Ponni Sugars & Chemicals Ltd. [2008) 174 Taxman 87/306 ITR 392 and Sahney Steel & Press Works Ltd. v. CIT [1997) 94 Taxman 368/228 ITR 253. In these circumstances, the Court is of the opinion that the amount was received as capital stream and therefore, not taxable. 7. A similar view was taken by the Calcutta High Court in CIT v. Gloster Jute Mills Ltd. [2018] 96 taxmann.com 303/257 Taxman 512/2019) 416 ITR 458. 8.12 In light of the overwhelming judicial pronouncements in favour of the assessee on this issue, the ground is decided in favour of the assessee and is allowed. The AO is directed to exclude the amount of TUF subsidy from the income of the assessee. Ground No. 4(a) to 4(c) is decided in favour of the assessee and is allowed." 12.1. We find that the TUF scheme was launched by the Ministry of Textile of the Central Government and the Ld. CIT(A) not only relied ....
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....see has not claimed the deduction in the return of income, neither filed any revised return of income. The claim has not even been made before the assessing officer. 8.18 In the case of Jute Corporation of India Ltd. V. CIT [53 Taxman 85 (SC)], the Hon'ble Apex Court has held that the CIT(A) has a power coterminous with the Assessing Officer. Furthermore, in the case of Goetze (India) Ltd. v. CIT 284 ITR 323 (SC), it was held by the Hon'ble Apex Court that the claim of deduction not made in the return cannot be entertained by the Assessing Officer otherwise than by filing a revised return. In the case of the assessee, it is evident that the claim of the deduction made by the assessee is a fresh claim and not a revised claim. The assessee has not claimed the deduction in the return of income, neither filed any revised return of income claiming the said deduction. In this regard, I am of the considered view that this claim of the assessee tantamount to revision of the Return of Income itself. If I go into the facts of the case, it is clear that assessee wants to get relief in the form of rectification of mistake in the return of income in respect of a claim which its....
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.... Ground No. 2 is accordingly dismissed." 14.1. However, the Ld. CIT(A) also disallowed the claim of the assessee on merit observing as under: 8.21 Without prejudice to the above, the matter is examined on merits. The issue of adjustments which can be made to the book profits under section 115JB of the Act is no longer res judicata. The Hon'ble Supreme Court has confirmed in many cases that section 115JB is a complete code in itself and the book profits of an assessee can only be altered in line with the items enumerated in the section itself (Apollo Tyres Limited [2002] 122 Taxman 562 (SC)/255 ITR 273 (SC). 8.22 In its submission, the assessee has relied on the above decision of the Supreme Court to conclude that an item which cannot be brought to tax under section 4 cannot be brought to tax under section 115JB. For this, reliance has also been placed on the decision of the Bombay ITAT in the case of Alok Industries Ltd. (supra) wherein it has been held that once a receipt cannot be taxed under section 4 of the Act, there cannot arise any taxability under section 115B of the Act. The decision of the Hon'ble Supreme Court has been examined and no such in....
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....the law so mandates. It is noted that section 115JB, which has been accepted by judicial authorities as a complete code in itself mandates that a book profit, once computed under Companies Act and certified by the auditor, cannot be altered it espe computed under com income included in such account, unless the items are covered under the Explanation 1 contained in this section, As such, the claim of the assessee that section 4 of the Act excludes receipts on capital account from taxation is totally misplaced and deserves to be outrightly rejected. 8.25 The assessee has brought to my notice the contents of Explanation 1 wherein certain income of an assessee is required to be excluded while computing the book profit. For clarity, the relevant provisions are reproduced below: Explanation 1:........................... if any amount referred to in clauses (a) to (i) is debited to the statement of profit and loss] or if any amount referred to in clause (i) is not credited to the statement of profit and loss), and as reduced by,- i. the amount withdrawn from any reserve or provision (excluding a reserve created before the 1st day of April. 1997 otherwis....
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....tly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 8.28 Item (I) to Explanation 1 of section 115JB, at no place, allows all capital items included in the P & L account to be excluded from computation of book profits. The Section is absolutely clear. The Hon'ble Supreme Court has also a clear mandate that the book profits of the company have to be computed in accordance with the provisions of section 115JB and the authorities cannot travel beyond. The Hon'ble Supreme Court also holds that the statute is to be interpreted strictly at the threshold stage. (Apollo Tyres(Supra)) 8.29 In light of the above clear guidance given by the statute as well as the Highest Court of the Country, the provisions cannot be interpreted on the basis of intent and logic. There is no logic in taxation. As far as section 115JB of the Act is concerned, the profit is required to be determined in accordance with Companies Act and not Income Tax Act. Hence, the pres....
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....idy treated as capital receipt shall not taxable even in book profit u/s. 115JB: i. In CIT v. Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014, dated 04-01-2017) (Born) (HC) wherein it has been held that, a) The issue raised in this question is consequential to question No. (i). We have already held that the subsidy received by the respondent assessee from the State of Bihar was in the nature of capital receipt. Hence the same cannot be added to arrive at book profits of the respondent assessee under Section 1151 of the Act. (b) Thus, the question as proposed herein does not give rise to any substantial question of law as it also stands concluded against the Revenue. ii. Recently in PCIT v. Ankit Metal & Power Ltd. (ITA 155 of 2018, dated 0907-20 19) it has been held that, But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of the Income Tax Act, 1961. For the aforesaid reason, we hold that the interest and power subsidy under the schemes in question would have to be excluded while computing book profit under Section 115JB of the Income Tax Act, 1961. ....
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....e same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. 8.3.14 I have considered the submission and the contention of the appellant carefully, since the subsidy received is capital in nature and not chargeable to tax in computing the total income as per the normal provisions of the Act, the said subsidy is not termed as Income to be fall under the section 4 of the Income-tax Act being the charging section. As stated by the Apex Court Padmaraje R. Kadambande (supra) wherein it has been held that Capital Receipts are not income within the definition of section 2(24) of the Act and hence are not at all chargeable under the entire Income-tax Act. Further, recently Hon'ble Calcutta High Court in the case of Ankit Metals (supra), Hon'ble Rajasthan High Court in the case of Shri Cement Ltd. (supra) and Jurisdictional High Court in the case of Harinagar Sugar Mills Ltd. (supra) and Jurisdictional Tribunal in the case of Alok Industries Limited (supra) considering the various decisions on the said issue has specifically held that, once the subsidy are treated as capital receipt and, not chargeable to tax has also to be excluded from computing....
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....9;ble Jurisdictional High Court. 10.4 On this issue, recently the Spl Bench of ITAT, Delhi vide its order dated 16.06.2017 in the case of Vireet Investments P Ltd. (82 Taxmann.com 415) after considering the various decisions on this issue has also taken a similar view that disallowance u/s. 14A cannot be added while computing the book profits us. 115JB. This view has also been taken by the Hon'ble Delhi High Court in the case of Bhushan Steel Ltd. in ITA No. 593/2015. Respectfully following the said decisions of the Hon'ble Delhi High Court, Spl Bench ITAT Delhi and the decision of ITAT, Mumbai wherein the appeal of the Department has been dismissed, the contention of the assessee that the disallowance made u/s. 14A cannot be considered while computing the book profits us. 115JB is accepted. Accordingly, the addition made by the AO of the disallowance us. 14A while computing the book profits u/s. 115JB, is deleted. Ground No. 6 raised by the assessee is allowed." 19. We find that the Ld. CIT(A) followed the decision of the Special Bench of the Tribunal in the case of the Vireet Investment Pvt. Ltd. (supra) on the issue-in-dispute which being a binding precedent,....