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2013 (9) TMI 555 - AT - Income TaxDisallowance u/s 14A - Disallowance of 10% of dividend income - Held that - Even prior to assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer had to enforce the provisions of sub-section (1) of section 14A. - The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case - Following decision of Godrej and Boyce Manugacturing Co. Ltd., Vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT) - Decided in favour of assessee. Deduction u/s 80IB - Held that - Assessing Officer disallowed the deduction u/s.80-IB on interest income, lease rental and other income and the CIT(A) in appeal disallowed the deduction to the assessee on interest income and lease rental following his predecessor s order for the assessment year 2001-02 in assessee s own case and allowed deduction to the assessee on other income. The order of the CIT(A) was confirmed by the Tribunal in further appeal filed by the assessee. The assessee has therefore very fairly considered that the issue of allowing deduction u/s.80-IB on interest income and lease rentals are covered against the assessee. Therefore, the ground of appeal of the assessee is dismissed. Regarding the deduction allowed u/s.80IB on other income, we find that all the facts regarding the details of income are not available from the order of the Assessing Officer and the CI(A) and neither party before us has filed the same. Therefore, we are not in a position to adjudicate the issue completely. Therefore, in our considerate opinion, the issue needs to be adjudicated afresh by the Assessing Officer after bringing all relevant details and facts on record by passing his speaking order. We therefore, set aside the orders of the lower authorities and remand the matter back to the file fo the Assessing Officer to adjudicate the matter afresh by passing his order after allowing reasonable opportunity of hearing to the assessee - Decided against assessee.
Issues Involved:
1. Disallowance of 2% of dividend income under Section 14A. 2. Inclusion of interest income, lease rent receipts, and other income in computing deduction under Section 80-IB. 3. Deduction under Section 80-IB on profit from forge shop. 4. Inclusion of scrap sales in the total turnover for computing deduction under Section 80HHC. 5. Reduction of deduction allowable under Section 80HHC by eligible deduction under Sections 80-IB and 80G invoking Section 80-IA(9). Issue-wise Detailed Analysis: 1. Disallowance of 2% of Dividend Income under Section 14A: The assessee and the Department filed cross appeals against the CIT(A) order sustaining a 2% disallowance of dividend income as expenditure under Section 14A, against the Assessing Officer's (AO) 10% disallowance. The AO made the disallowance on an estimate basis following earlier orders. The CIT(A) reduced it to 2% based on a previous decision. Both parties agreed to remand the matter to the AO for re-adjudication in light of the Hon'ble Bombay High Court's decision in Godrej and Boyce Manufacturing Co. Ltd. v. DCIT, which mandates the AO to determine the expenditure incurred in relation to income that does not form part of the total income under the Act, using a reasonable basis or method. The AO must provide the assessee with a reasonable opportunity to present relevant material. Consequently, the orders of the lower authorities were set aside, and the matter was remanded to the AO for fresh adjudication. 2. Inclusion of Interest Income, Lease Rent Receipts, and Other Income in Computing Deduction under Section 80-IB: The AO excluded interest income, lease rent receipts, and other income from business profits while computing deductions under Section 80-IB for the relevant assessment years. The CIT(A) upheld the exclusion of interest and lease rent but included other income. The assessee conceded that the exclusion of interest and lease rent was covered against them by a prior decision. The issue regarding other income was remanded to the AO for fresh adjudication due to a lack of detailed information in the records. The AO was directed to verify if the other income pertained to DEPB receipts, which are not eligible for deduction under Section 80-IB as per the Hon'ble Supreme Court's decision in Liberty India v. CIT. 3. Deduction under Section 80-IB on Profit from Forge Shop: The AO denied the deduction under Section 80-IB on income from the forge shop, citing the lack of claimed expenses towards manufacturing activities, which were subcontracted. The CIT(A) supported this view, stating that the manufacturing activity should be carried out primarily with new plant and machinery owned by the assessee. The CIT(A) referenced a jurisdictional High Court decision, which held that the process of heat treatment and forging constitutes manufacturing, but since the forge shop itself was entitled to the deduction, the same turnover could not be claimed by the assessee. The assessee argued that the raw materials were procured, and the manufacturing was supervised and controlled by them, citing similar cases where deductions were allowed. The matter was remanded to the AO for fresh consideration in light of these arguments. 4. Inclusion of Scrap Sales in the Total Turnover for Computing Deduction under Section 80HHC: The AO included scrap sales in the total turnover, impacting the deduction under Section 80HHC. The CIT(A) upheld this inclusion, referencing various court decisions that similar receipts should be included in both the numerator and denominator when computing the deduction. The assessee acknowledged that the issue was decided against them by the Hon'ble Supreme Court in CIT v. K. Ravindranathan Nair, which mandated the inclusion of scrap sales in the total turnover for computing business profits under Section 80HHC. Consequently, this ground of appeal was dismissed. 5. Reduction of Deduction Allowable under Section 80HHC by Eligible Deduction under Sections 80-IB and 80G Invoking Section 80-IA(9): The AO reduced the deduction allowable under Section 80HHC by the deductions under Sections 80-IB and 80G, invoking Section 80-IA(9). The CIT(A) confirmed this action, relying on a decision by the Mumbai Bench of the Tribunal. The assessee argued that the issue was covered in their favor by decisions of the Hon'ble Madras High Court and the Bombay High Court. However, the Departmental Representative cited a Delhi Special Bench decision supporting the AO's view. The matter was resolved in favor of the Department, aligning with the interpretation that Section 80-IA(9) mandates the reduction of deductions under Sections 80-IB and 80G from the business profits for computing the deduction under Section 80HHC. Conclusion: The Tribunal set aside the orders of the lower authorities on several issues and remanded the matters back to the AO for fresh adjudication, ensuring that the AO provides a reasonable opportunity to the assessee to present relevant material. The Tribunal upheld the AO's and CIT(A)'s decisions on other issues, particularly where Supreme Court and High Court precedents were clear. The judgment reflects a detailed and thorough consideration of the legal provisions and relevant case law, ensuring fair adjudication based on established legal principles.
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