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2017 (1) TMI 1249 - AT - Income TaxQuantum of deduction allowable u/s. 80IB and 80IC - Held that - The adjustment of brought forward losses for the purpose of arriving Income from Business , in our view, cannot be come in the category of determining the Net income of the eligible undertaking for the year under consideration, since the brought forward losses cannot be considered to be expenses incurred to earn the profits and gains of eligible undertakings. The adjustment of brought forward losses is the process prescribed by the statute to determine the Gross total income . Hence we are of the view that, for the purpose of determining the quantum of deduction, the Profits and gains of eligible business of eligible undertaking should be considered before setting off of brought forward losses, but the deduction should restricted to the amount of Gross Total income as per the provisions of sec. 80A(2) of the Act. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the aggregate amount of deduction u/s 80IB and 80IC of the Act to the aggregate amount or the Gross Total income, whichever is less. Disallowance made u/s 14A - Held that - On a careful perusal of the submissions made by the assessee and the Ld D.R, we find merit in the submissions made by Ld A.R. We have noticed the nature of investments and the volume of transactions. Considering these factual details, we are of the view that the disallowance of ₹ 1,65,000/- is reasonable. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance of administrative expenses u/s 14A to ₹ 1,65,000/-. We direct the AO to add the amount disallowed u/s 14A of the Act under the normal provisions of the Act to book profit computed u/s 115JB of the Act. ESOP expenses allowability - Held that - We notice that an identical issue was considered by the Special bench of Bangalore in the case of M/s Biocon Limited Vs. DCIT 2013 (8) TMI 629 - ITAT BANGALORE held that the discount on ESOP is allowable as deduction. The Special bench has also prescribed the manner of computation of discount and the adjustments to be made in the succeeding years. There should not be any dispute that the decision rendered by the larger bench of Tribunal is required to be preferred over the division bench. Accordingly we are of the view that this issue requires fresh examination in accordance with the decision rendered by the Special bench in the case of Biocon Ltd (supra).
Issues Involved:
1. Quantum of deduction allowable under sections 80IB and 80IC of the Income Tax Act. 2. Disallowance made under section 14A of the Income Tax Act. 3. Addition of disallowed amount under section 14A to the book profit computed under section 115JB of the Income Tax Act. 4. Disallowance of ESOP expenses. 5. Claim for deduction under section 80IC on the receipts from the sale of scrap. Detailed Analysis: 1. Quantum of Deduction Allowable under Sections 80IB and 80IC: The assessee claimed deductions under sections 80IB and 80IC for the power transmission divisions in Rakholi and Haridwar. The Assessing Officer (AO) restricted the aggregate amount of deduction to the amount of business income computed after setting off brought forward losses, relying on the Supreme Court decision in SYNCO Industries Ltd. The CIT(A) upheld this view. The assessee argued that the deductions should be restricted to the Gross Total Income (GTI) and cited various High Court decisions supporting this. The Tribunal concluded that the aggregate amount of deduction should be restricted to the GTI, not just the business income, and directed the AO to adjust accordingly. 2. Disallowance Made under Section 14A: The assessee received dividend income and did not disallow any expenditure related to exempt income. The AO computed disallowance under Rule 8D, disallowing both interest and administrative expenses. The CIT(A) deleted the interest disallowance, citing that interest-free funds exceeded investments, but upheld the administrative expense disallowance. The Tribunal agreed with the CIT(A) on the interest disallowance and, considering the nature of investments, restricted the administrative expense disallowance to ?1,65,000. 3. Addition of Disallowed Amount under Section 14A to Book Profit Computed under Section 115JB: The Tribunal directed the AO to add the amount disallowed under section 14A to the book profit computed under section 115JB. 4. Disallowance of ESOP Expenses: The assessee claimed ESOP expenses, which the AO disallowed, following past assessments. The CIT(A) allowed the claim, referencing the Tribunal's decisions in the assessee’s favor in previous years. The Tribunal noted the Special Bench decision in Biocon Limited, which allowed ESOP discounts as deductions and prescribed a computation method. The Tribunal remanded the issue to the AO to re-examine and compute the deduction as per the Special Bench's guidelines. 5. Claim for Deduction under Section 80IC on Receipts from Sale of Scrap: The assessee claimed deductions on receipts from the sale of scrap. The Tribunal referenced decisions in CIT vs. Sadhu Forging Ltd and CIT vs. Harjivandas Juthabhai Zaveri, which favored the assessee. Consequently, the Tribunal directed the AO to allow the deduction under section 80IC on scrap sale receipts. Conclusion: The Tribunal allowed both appeals of the assessee, directing the AO to adjust deductions as per GTI, restrict administrative expense disallowance under section 14A, and re-examine ESOP expenses. The Tribunal also directed the AO to allow deductions on scrap sale receipts and to add disallowed amounts under section 14A to book profits under section 115JB. The revenue's appeals were partly allowed, with specific directions to follow the Special Bench's guidelines for ESOP expenses.
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