2014 (12) TMI 974 - AT - Income Tax

Re-opening of the assessment u/s 147/148 Held that - In Commissioner of Income Tax Versus Kelvinator Of India Limited 2002 (4) TMI 37 - DELHI High Court it has been held that on mere change of opinion of AO cannot be a ground for re-assessment and that amendment of sec. 147 w.e.f. 1.4.89 has not altered the position assessee has been able to prove that assessee disclosed all primary fact before AO at the time of making original assessment order dated 26.11.2008 - the re-opening of the assessment for the year 2006-07 is thus clearly bad in law and is to be set aside Decided in favour of assessee. Assessment Year 2007-08 Held that - In Arun Kumar Goyal Vs CIT 2012 (12) TMI 870 - PUNJAB AND HARYANA HIGH COURT it was held that it is explicit from the post amendment decisions cited above that once there are reasons for the AO to believe whether such reasons originate out of the record already scrutinized or otherwise he shall be within his competence to initiate the re-assessment proceedings - Since in the assessment year under appeal the AO has processed the return u/s 143(1) and has not formed any opinion on the material available on record - therefore it may not be a case of quashing of re-assessment proceedings in the year under consideration i.e. assessment year 2007-08 Decided against assessee. Deduction on various subsidies u/s 80IB Held that - The assessee obtained subsidies in respect of unit No. I and II Samba which falls in territory of State of J&K and the dispute of disallowance of deduction u/s 80IB pertains to Samba unit only which is in the State of J&K - the same scheme of grant of subsidy have been considered by Hon ble J&K High Court in the case of Shree Balaji alloys & Ors Vs CIT 2011 (1) TMI 394 - Jammu and Kashmir High Court in which the assessee unit was also found to be situated in State of J&K and in the case of the assessee also the units are situated at Samba (J&K) therefore when the schemes of grant of subsidy have been considered by Hon ble J&K High Court the same view shall have to be adopted in the case of the present assessee for grant of deduction u/s 80IB on the identical facts in which the subsidies were held to be capital in nature the authorities below are not justified in denying deduction u/s 80IB - assessee is also entitled for relief on alternate contention and would be entitled to set off of the expenses under the grant of subsidies the order is set aside and the AO is directed to grant deduction to the assessee u/s 80IB Decided in favour of assessee. Reduction on rate of deduction from 12% to 11% u/s 80IB - Inter unit investments - interest allocation on deemed basis Held that - The AO has specifically noted that interest expenditure on the investments made by the Ludhiana unit in the other units located at Samba had not been allocated to respective units - The AO therefore correctly referred to provisions of Section 80IA(8) (10) of the Act because the assessee company was transferring funds borrowed on interest from the non eligible unit at Ludhiana to the eligible units and the corresponding interest was not being allocated which had led to the inflation in the profits of eligible units - The finding of fact recorded by AO have not been assailed through any material on record - CIT(A) perused the balance sheet of Ludhiana unit which shows that funds have been raised from financial institution on interest apart from internal accrual/capital contributions - CIT(A) therefore observed that this would mean that in order to transfer the appropriate interest debits to the eligible units only way out was to find out the ratio of borrowed/non-borrowed funds and in this regard data was furnished by the assessee - Since the data produced by the assessee clearly support the finding of CIT(A) for allocation of the interest to the three units therefore there should not have any grievance left for the assessee to agitate the finding of fact recorded by the CIT(A) - CIT(A) correctly allocated the interest to the three units and correctly reduced the same addition in proportion/ratio of borrowed/non-borrowed funds Decided against assessee. Disallowance u/s 14A Held that - The assessee s counsel has specifically pleaded that no investments have been made in the year under consideration and only part investments have been made in subsidiary companies - the AO has specifically observed that assessee company had made investments in shares and mutual funds on which exempt income accrued and no disallowance in respect of expenditure incurred to earn the exempt income have been made - The A.O. considering explanation of the assessee concluded that assessee had not been able to establish the claim that no expenditure had been incurred and therefore disallowance had to be worked out by applying Rule 8D of the Act - assessee earned dividend income in the year under consideration - disallowance u/s 14A has been worked out on the basis of Rule 8D which is as observed earlier applicable in case of the assessee Decided against assessee. Addition of 2% on advances given by assessee to BPL Held that - The assessee has not diverted borrowed funds for any business purposes - The AO has not brought any evidence on record to prove any nexus between borrowed funds and the funds advanced to subsidiary companies - The assessee has not given funds to the subsidiary company without any interest rather it is a fact that assessee has charged interest @ 10% on the funds given to the subsidiary companies - since the assessee has business relation with the subsidiary company and funds have been given to the subsidiary company subject to interest therefore AO could not examine the reasonable interest charged by the assessee - The AO cannot step into the shoe of the businessman as to how much the businessman has to earn profit out of the same transaction CIT(A) correctly deleted the addition Decided against revenue.

Summary

Issues Involved:
1. Re-opening of the assessment under Section 147/148 of the Income Tax Act.
2. Deduction under Section 80IB on subsidies.
3. Deduction under Section 80IB on inter-unit investments and interest allocation.
4. Disallowance under Section 14A of the Income Tax Act.
5. Addition on advances given to a sister concern.
6. Revised claim under Section 80IB.

Issue-wise Detailed Analysis:

Issue No. 1: Re-opening of the assessment under Section 147/148 of the Income Tax Act
The Tribunal examined the re-opening of assessments for the years 2006-07 and 2007-08. The assessee argued that all facts were disclosed during the original assessment and that the re-opening was based on a change of opinion, which is not permissible under the law. The Tribunal cited multiple judgments, including those from the Hon'ble Supreme Court and various High Courts, to support the view that re-assessment based on a mere change of opinion is invalid. The Tribunal concluded that the re-opening of the assessment was unjustified and quashed it for the assessment year 2006-07. However, for the year 2007-08, since the original assessment was processed under Section 143(1), the Tribunal upheld the re-opening based on the jurisdictional High Court's decision.

Issue No. 2: Deduction under Section 80IB on subsidies
The Tribunal addressed the denial of deduction under Section 80IB on various subsidies. The assessee argued that these subsidies were capital receipts, not taxable, and therefore should not affect the deduction under Section 80IB. The Tribunal referred to the judgment of the Hon'ble J&K High Court in the case of Shree Balaji Alloys, which held that such subsidies are capital receipts. The Tribunal also considered the alternate plea that the subsidies should be netted against the related expenses, as supported by ITAT Chandigarh Bench decisions. The Tribunal allowed the deduction under Section 80IB, following the J&K High Court's judgment and the alternate plea.

Issue No. 3: Deduction under Section 80IB on inter-unit investments and interest allocation
The Tribunal examined the allocation of interest on inter-unit investments for the years 2008-09 and 2009-10. The assessee contended that the funds transferred to the eligible units were from self-generated funds, not borrowed ones. However, the Tribunal found that the assessee could not provide evidence to support this claim. The Tribunal upheld the allocation of interest by the Assessing Officer and the CIT(A), who had calculated it based on the ratio of borrowed to non-borrowed funds. The Tribunal dismissed the appeals of both the assessee and the revenue on this issue.

Issue No. 4: Disallowance under Section 14A of the Income Tax Act
The Tribunal addressed the disallowance under Section 14A for the year 2008-09. The assessee argued that no expenditure was incurred to earn exempt income, and therefore, no disallowance should be made. The Tribunal referred to its decision in the case of M/s Chadha Super Cars P. Ltd., which held that Rule 8D applies when the assessee cannot establish that no expenditure was incurred. The Tribunal upheld the disallowance made by the Assessing Officer and confirmed by the CIT(A).

Issue No. 5: Addition on advances given to a sister concern
The Tribunal reviewed the addition made on advances given to a sister concern for the year 2008-09. The Assessing Officer had disallowed the excess interest on borrowed funds, applying the decision in the case of M/s Abhishek Industries. The Tribunal found that the assessee had charged interest on the advances and that there was no evidence of a nexus between borrowed funds and the advances. The Tribunal upheld the CIT(A)'s decision to delete the addition, citing the commercial expediency and the fact that interest was charged.

Issue No. 6: Revised claim under Section 80IB
The Tribunal examined the revised claim under Section 80IB for the year 2008-09. The Assessing Officer had rejected the claim, citing the decision in the case of Goetze (India) Ltd. The Tribunal referred to the judgments of the Hon'ble Punjab & Haryana High Court in the cases of M/s Ramco International and Metalman Auto Pvt. Ltd., which allowed such claims even without a revised return. The Tribunal upheld the CIT(A)'s decision to allow the revised claim under Section 80IB.

Conclusion:
The Tribunal allowed the appeal of the assessee for the year 2006-07, partly allowed the appeals for the years 2007-08, 2008-09, 2009-10, and 2010-11, and dismissed both the appeals of the revenue.