TaxTMI 
TaxTMI 
2026 (7) TMI 296
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....come of Rs.2,32,40,360/-. 3. During the course of assessment proceedings, the Assessing Officer identified four major issues viz. (i) disallowance under section 14A read with Rule 8D, (ii) computation of book profit under section 115JB of the Act in relation to deduction claimed under section 10AA, (iii) omission to offer prior period income to tax, and (iv) eligibility of deduction under section 10AA on profits arising from trading activities carried on by the SEZ unit. 4. The first issue examined by the Assessing Officer related to the applicability of section 14A read with Rule 8D. The Assessing Officer noticed that the assessee had earned exempt dividend income of Rs.4,50,000/- during the relevant previous year. However, while computing the taxable income, the assessee had not disallowed any expenditure attributable to earning such exempt income. The Assessing Officer, therefore, asked the assessee to explain why disallowance under section 14A of the Act should not be computed in accordance with Rule 8D. According to the Assessing Officer, the assessee failed to furnish any explanation or material to show that no expenditure had been incurred in relation to the exempt inc....
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....ssing Officer held that under section 10AA, to mean the deduction was allowable only on profits derived from manufacture or production of articles or things or from eligible services undertaken by the SEZ unit. According to the Assessing Officer, profits arising only from trading activity did not satisfy the Statutory conditions prescribed under section 10AA. The Assessing Officer, therefore, restricted the deduction under section 10AA to Rs.14,97,45,000/- being profits from manufacturing activity and disallowed the balance claim of Rs.4,05,000/- attributable to pure trading activity. The Assessing Officer also disallowed the claim of brought forward unabsorbed depreciation of Rs.23,68,431/- on the ground that the same had already been allowed in the immediately preceding assessment year. After incorporating all the above adjustments, the Assessing Officer assessed the income under the normal provisions at Rs.2,77,40,714/-. Since the tax payable under section 115JB of the Act was higher than the tax computed under the normal provisions, the assessee was assessed on the book profit computed under section 115JB of the Act. 7. Aggrieved by the assessment order, the assessee preferr....
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....cted to recompute the book profit after allowing exclusion of manufacturing profits eligible under section 10AA of the Act. Thus, this ground of appeal was partly allowed by CIT(Appeals). 10. On the final issue concerning deduction under section 10AA of the Act on trading profits, the Commissioner (Appeals) agreed with the findings of the Assessing Officer. The CIT(Appeals) observed that despite adequate opportunities during assessment as well as appellate proceedings, the assessee failed to produce evidence to demonstrate that the trading activity undertaken by the SEZ unit was an eligible service. The Commissioner (Appeals) further noticed that even the tax audit report in Form 3CD did not disclose re-export or trading of imported goods as the nature of business carried on by the assessee. In the absence of any material showing that such trading activity was within the ambit of eligible services under the Special Economic Zones framework, the CIT(Appeals) held that the trading profit of Rs.4,05,000/- not quality as profit derived from eligible operations of the SEZ undertaking. The CIT(Appeals) confirmed the disallowance made by the Assessing Officer under section 10AA of the ....
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....uction under section 10AA of the Act were liable to be included while computing book profit and the learned CIT(A) erred in granting relief by relying upon the decision of the Mumbai Bench of the Tribunal in Genesys International Corporation Ltd. v. ACIT (2013) 151 TTJ 588 (Mum.). The Ld. Departmental Representative further contended that the Finance Act, 2011 withdrew the benefit available under section 115JB(6) of the Act and, therefore, the assessee was not entitled to exclusion of SEZ profits from MAT computation. 13. We are unable to accept the aforesaid contention advanced by the Revenue. The assessment year before us is Assessment Year 2011-12. For the year under consideration, section 115JB(6)of the Act, as it then stood, specifically provided that the provisions of section 115JB of the Act would not apply to the income accrued or arising to an entrepreneur or developer from any business carried on in a Special Economic Zone. The Statutory exemption contained in sub-section (6) was operational during Assessment Year 2011-12. 14. The Finance Act, 2011 withdrew this exemption with effect from 01.04.2012, i.e., from Assessment Year 2012-13 onwards. Thus, the Legislature ....
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....tion Ltd. (supra). We do not find any legal or factual infirmity in the conclusion arrived at by the learned CIT(A). 19. In the result, the appeal filed by the Department is dismissed. Now we shall take up the assessee's appeal in ITA Number 1139/Mum/2026 (for assessment year 2011-12) 20. The assessee has raised the following Grounds of Appeal 1. Under the facts and in law, the National Faceless Appeal Centre (hereinafter referred to as 'Learned CIT(A)'), erred in confirming the additions / disallowances made by the Learned A.O under the provisions of the Income Tax Act, 1961 ('the Act'), which are bad in law and untenable. 2. Under the facts and in law, the Learned CIT(A) erred in confirming the disallowance of Rs. 14,57,265/- u/s 14A read with Rule 8D of the Income Tax Act, 1961. 2.1 The Learned CIT(A) failed to consider the submissions made by the appellant. 2.2 The Learned CIT(A) failed to appreciate the fact that the investments were made in subsidiary and associate companies for strategic and business purposes, and not with the objective of earning exempt income. Hence, such investments ought to have been excluded w....
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....de under section 14A read with Rule 8D of the Income-tax Rules, the undisputed factual position emerging from the record is that during the year under consideration the assessee has earned exempt dividend income of only Rs. 4,50,000, whereas the Assessing Officer has computed the disallowance under section 14A at Rs. 14,57,265 by applying Rule 8D, which has been sustained by the learned CIT(A). 22. It is now a well-settled proposition of law that the disallowance under section 14A cannot exceed the amount of exempt income earned during the relevant previous year. The Hon'ble Delhi High Court in PCIT v. Caraf Builders & Constructions (P.) Ltd.[(2019) 414 ITR 122 (Delhi)] held that where the exempt income earned by the assessee is lower than the disallowance computed under Rule 8D, the disallowance has to be restricted to the amount of exempt income. Notably, Hon'ble Supreme Court dismissed the SLP filed by the Department against High Court reported inPrincipal Commissioner of Income-tax-2 vs. Caraf Builders & Constructions (P.) Ltd. [2019] 112 taxmann.com 322 (SC)/[2020] 268 Taxman 317 (SC)[30-08-2019]. In Assistant Commissioner of Income-tax vs. NDL Ventures Ltd. [2026] ....
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....n under section 10AA of the Act. The Assessing Officer, however, was not satisfied with the same. He observed that although the assessee relied upon approvals granted by the SEZ authorities and certain documentary evidence, the assessee failed to establish by cogent material that any genuine trading activity had actually been carried out during the relevant previous year. The Assessing Officer found that the documentary evidence furnished was not sufficient to demonstrate actual trading operations and, accordingly, disallowed the deduction claimed in respect of trading activities. 29. Aggrieved, the assessee carried the matter in appeal before the learned CIT(Appeals). The learned CIT(Appeals), after considering the submissions of the assessee observed that although trading activity may, in law, qualify for deduction under section 10AA of the Act subject to fulfillment of the prescribed conditions, the primary requirement is that the assessee must establish by credible evidence that such eligible trading activity was in fact carried out during the relevant previous year. On appreciation of the material on record, the learned CIT(Appeals) concurred with the findings of the Assess....
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....the assessee's appeal for assessment year 2012-13 (in ITA Number 1140/Mum/2026 35. The assessee has raised the following Grounds of Appeal: 1. Under the facts and in law, the National Faceless Appeal Centre (hereinafter referred to as 'Learned CIT(A)'), erred in confirming the additions / disallowances made by the Learned A.O under the provisions of the Income Tax Act, 1961 ('the Act), which are bad in law and untenable. 2. Under the facts and in law, the Learned CIT(A) erred in considering that the Learned A.O completed the set-aside assessment proceedings without considering the detailed submission and the documentary evidences filed by the appellant. 2.1 The Learned CIT(A) failed to consider the fact the assessment order was passed by the Learned A.O in gross violation of the principle of natural justice and without complying with the directions of Hon. ITAT to conduct proper enquiry in accordance with law. 3. Under the facts and in law, the Learned CIT(A) erred in confirming the disallowance of Rs. 14,84,78,993/- being SEZ deduction claimed by the appellant u/s 10AA of the Act. 3.1 The Learned CIT(A) failed to consider....
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.... its SEZ unit, the assessee had initially claimed deduction under section 10AA of the Act in respect of its SEZ unit. During the original assessment proceedings, the Assessing Officer disallowed the claim on the ground that the assessee had failed to establish that it had carried out any eligible manufacturing or trading activities from the SEZ unit during the relevant previous year. The assessee carried the matter in appeal before the learned CIT(Appeals). Thereafter, the issue reached the Tribunal in the first round of litigation. The Coordinate Bench observed that the assessee had claimed to have carried on eligible activities in the SEZ unit and had also relied upon Form No. 56F and other documentary evidence. However, the Tribunal found that the Assessing Officer had not conducted a proper enquiry into the factual aspects of the claim, more particularly with regard to whether any manufacturing or trading activity had in fact been carried out during the year and whether the deficiencies noticed in Form No. 56F and other supporting documents were explained by the assessee. Accordingly, the Tribunal restored the matter to the file of the Assessing Officer with a direction to cond....
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....books and many liabilities had remained unpaid for a prolonged period without any part payment or communication from the creditors demanding payment. The AO was of the view that the liabilities had become fictitious or had ceased to exist and that the assessee had already obtained deduction of the corresponding purchases in earlier years. Relying upon section 41(1) of the Act and in light of judicial precedents on the subject, the AO held that the outstanding liabilities had ceased and accordingly treated Rs. 6,39,80,954/- as income under section 41(1) of the Act on account of cessation of trading liability. 38. Aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A), however, was not convinced by the submissions canvassed by the assessee. The CIT(A) observed that despite adequate opportunity granted by the Assessing Officer in compliance with the directions of the Tribunal, the assessee had merely produced approvals and paper documentation without anything to show that that any actual manufacturing or trading activity eligible for exemption had been carried out in the SEZ unit during the relevant previous year. The CIT(A....
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....spose of the appeal on the basis of the material available on record and after considering the orders of the authorities below. Ground relating to deduction under section 10AA 41. We have carefully examined the assessment order, the impugned order of the learned CIT(Appeals) and the material placed on record. We find that this issue had earlier been restored by the Coordinate Bench of Tribunal to the file of the Assessing Officer with a specific direction to conduct proper enquiry regarding the actual carrying on of eligible manufacturing or trading activities in the SEZ unit. Pursuant to such directions, the Assessing Officer afforded adequate opportunities to the assessee and specifically required it to establish that the SEZ unit was carrying on eligible activities during the relevant previous year. The Assessing Officer has recorded detailed findings that except for production of statutory approvals, Form No.56F, certain electricity and water bills and sample import and export invoices, the assessee failed to establish that any actual manufacturing or eligible trading activity was carried out in the SEZ unit. The Assessing Officer has further observed that the electricity....
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....e Act. We find that this issue was also restored by the Tribunal to the file of the Assessing Officer with specific directions to verify the age-wise details of creditors, confirmations from the creditors, movement in the accounts, evidence of payments, continuity of business and other relevant material. Pursuant to the directions of the Tribunal, the Assessing Officer issued notices under sections 142(1) and 133(6) of the Act and granted sufficient opportunity to the assessee to establish the continued existence of the liabilities. The Assessing Officer has recorded that despite repeated opportunities, the assessee failed to furnish confirmations from the creditors, bank statements evidencing subsequent payments or any other satisfactory material to establish that the liabilities were genuine and subsisting. The enquiries conducted under section 133(6) of the Act further revealed that corresponding balances were not reflected in the books of certain creditors and many liabilities had remained outstanding for years without any movement. On these facts, the Assessing Officer treated the outstanding amount of Rs. 6,39,80,954/- as cessation of liability under section 41(1) of the Act.....
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....he books of several of those creditors, certain concerns shown as creditors were, in fact, debtors of the assessee. According to the Assessing Officer, this showed a circular pattern of transactions demonstrating that the liabilities shown as sundry creditors were mere accommodation entries and not genuine trade liabilities. In the first round of litigation, the Hon'ble Tribunal restored the issue to the file of the Assessing Officer with a direction to conduct a de novo enquiry in accordance with law. Pursuant thereto, fresh notices under section 133(6) of the Act were again issued to certain creditors asking for details regarding their own creditors and other supporting information. The Assessing Officer observed that neither the creditors furnished the requisite details nor did the assessee produce any fresh documentary evidence to rebut the findings recorded in the original assessment proceedings. The Assessing Officer further observed that the assessee failed to establish the identity of the creditors, their creditworthiness and the genuineness of the transactions. Relying upon the material gathered during the original as well as the set-aside proceedings and holding that ....