2015 (11) TMI 1011 - AT - Income Tax

Entitlement for benefit of section 10B - Held that - Identical issue was examined by the Hon ble High Court in earlier assessment year, in which it has been categorically held that the assessee is a manufacturer and is entitled for benefit of section 10B of the Income-tax Act, 1961 - Decided in favour of assessee. Disallowance of interest incurred on investment in shares of foreign companies - CIT(A) deleted the addition - Held that - CIT(A) has deleted the disallowance made under section 14A of the Act having invoked rule 8D(2) of the Rules on the ground that the assessee was having sufficient surplus fund. Therefore, no disallowance under section 14A of the Act is called for. The Revenue has preferred an appeal against the order of the ld. CIT(A) on different grounds, but deletion of disallowance was not challenged before the Tribunal. Therefore, the order of the ld. CIT(A) has attained the finality and in the instant assessment year, the ld. CIT(A) has simply followed his aforesaid order. Therefore, we are of the view that once the Revenue has accepted the contention of the assessee with regard to the availability of surplus funds for investment in domestic companies, no further disallowance can be made in succeeding years. We accordingly confirm the order of the ld. CIT(A) on this issue. - Decided in favour of assessee. Disallowance under section 35D - CIT(A) deleted the disallowance -Held that - A similar disallowance was made by the Assessing Officer in assessment year 2009-10, but it was deleted by the ld. CIT(A) and the Assessing Officer in the impugned assessment year has also made disallowance following his earlier order for assessment year 2009-10 and the same was deleted by the ld. CIT(A) following his order for assessment year 2009-10 which attained finality, as the Revenue has not challenged the findings of the ld. CIT(A) in this regard before the Tribunal though an appeal was filed on different grounds. Under these circumstances, we are of the view that the ld. CIT(A) has decided the issue following his earlier order which attained the finality - Decided in favour of assessee. Disallowance payment of bonus - CIT(A) deleted the disallowance - Held that - Now the Revenue is in appeal before the Tribunal, but could not point out any specific defect in the order of the ld. CIT(A). Since payment of bonus was made in time, no disallowance is called for, as the Assessing Officer has made disallowance without pointing out any defect. - Decided in favour of assessee.

Issues Involved:
1. Exemption under Section 10B of the Income Tax Act.
2. Formation of a 100% Export Oriented Unit (EOU) by splitting and reconstruction of old business.
3. Disallowance under Section 14A related to investments.
4. Disallowance of bad debts claims under Section 35D.
5. Disallowance of bonus payment.

Issue-wise Detailed Analysis:

1. Exemption under Section 10B of the Income Tax Act:
The Revenue contended that the CIT(A) erred in law and on facts by allowing relief of Rs. 5,81,95,611/- without satisfying the conditions of exemption under Section 10B. However, the Tribunal noted that this issue had already been settled by the jurisdictional High Court in the assessee's favor for the assessment years 2007-08 and 2009-10. The High Court had held that the assessee is a manufacturer entitled to the benefits of Section 10B, as the manufacturing activities were conducted under the direct control and supervision of the assessee's managerial and technical staff. Consequently, the Tribunal confirmed the CIT(A)'s order, following the High Court's judgment.

2. Formation of a 100% Export Oriented Unit (EOU) by splitting and reconstruction of old business:
The Revenue argued that the 100% EOU was formed by splitting and reconstructing the old business carried by the assessee group in the name of MKU Armours Pvt. Ltd. This issue was also covered by the High Court's judgment, which had overturned the Tribunal's previous objection, holding that MKU (Armours) Pvt. Ltd. was entitled to exemption under Section 10B. The Tribunal, following the High Court's decision, confirmed the CIT(A)'s order in favor of the assessee.

3. Disallowance under Section 14A related to investments:
The Assessing Officer had disallowed Rs. 55,35,947/- on account of interest incurred on investment in shares of foreign companies under Section 14A. The CIT(A) deleted the disallowance, noting that the investments were made out of surplus funds and not borrowed capital. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Revenue had not challenged the deletion of a similar disallowance in the previous assessment year, thus accepting the assessee's contention of having sufficient surplus funds for investment.

4. Disallowance of bad debts claims under Section 35D:
The Assessing Officer disallowed Rs. 4,38,322/- claimed towards bad debts and claims written off under Section 35D, following the earlier order for assessment year 2009-10. The CIT(A) deleted the disallowance, and the Tribunal confirmed this decision, noting that the Revenue had not challenged the CIT(A)'s order for the previous year, which had attained finality.

5. Disallowance of bonus payment:
The Assessing Officer disallowed a bonus payment of Rs. 4,27,342/-, but the CIT(A) deleted the disallowance, noting that the bonus was paid on time. The Tribunal upheld the CIT(A)'s order, as the Revenue could not point out any specific defect in the payment of the bonus.

Cross Objection by the Assessee:
The assessee filed a cross objection against the disallowance of expenditure under Rule 8D(2) related to investment in shares of domestic companies. Since no disallowance was made, the Tribunal found the cross objection to be infructuous and dismissed it.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the assessee's cross objection, confirming the CIT(A)'s orders on all issues. The judgments were pronounced in the open court.

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