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2019 (7) TMI 1491 - AT - Income TaxDeduction u/s.10B - whether DEPB benefits are eligible for deduction ? - HELD THAT - As relying on ACIT, CIRCLE-2, GURGAON VERSUS M/S QH TALBROS LTD. 2015 (11) TMI 737 - ITAT DELHI consider the export benefits for the purpose of deduction under Section 10B of the Act. Therefore, the reasoning of CIT(A) while allowing these grounds of appeal is upheld. Hence, the ground of appeal file the Revenue is dismissed. Disallowance of interest on account of interest on investments - HELD THAT - AO has merely made the disallowance following the ratio laid down in the case of CIT vs. Abhishek Industries Ltd. 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT whereas the fact of the matter was that assessee is not given any interest free loan but made investment in M/s. Talbros Automotive Company Ltd. out of its own surplus funds. Thus, there could not be case of giving any interest free loan. Moreover, we find that this issue has been decided in favour of the assessee not only in the Assessment Year 2007-08, but also in the Assessment Year 2010-11, wherein this issue has been decided in favour of the assessee. Accordingly, disallowance of interest made by the AO has rightly been deleted by the ld. CIT (A). Disallowance of interest under proviso to Section 36(1)(iii), being interest @12% on capital-work-in-process - After invoking proviso to Section 36(1)(iii), Assessing Officer disallowed interest @12%. - HELD THAT - We find that in Assessment Year 2007-08, the Tribunal has deleted the similar addition not only in the Assessment Year 2007-08, but also in the Assessment Year 2010-11. Otherwise also, once this fact has not been disputed that interest for the period between the date of disbursement of loan and date of putting the assets in use has been disallowed as per Section 36(1)(iii) by the assessee itself, then without there being any factual infirmity either for the period up to putting the asset in use or in the computation, no such disallowance can be made. Accordingly, this issue is decided in favour of the assessee. Disallowance u/s.14A - HELD THAT - Assessee has earned dividend of ₹ 11,19,530/- and AO has mechanically applied Rule 8D for making the disallowance u/s.14A without any satisfaction having regard to the accounts maintained by the assessee as mandated in Section 14A(2). The Tribunal in the earlier years has deleted the disallowance on the ground that AO has not given any reasons as to how he is not satisfied with correctness of the claim of the assessee. Now it is well settled principle laid in the case of Maxopp Investment Ltd. vs. CIT, 2018 (3) TMI 805 - SUPREME COURT that recording of satisfaction by the AO is mandatory before proceeding to make any disallowance u/r 8D which here in this case has not been done. Accordingly, disallowance of Section 14A has rightly been deleted.
Issues Involved:
1. Deletion of addition made by disallowing deduction under Section 10B on duty drawback. 2. Deletion of disallowance on account of interest on investment for non-business expenditure. 3. Deletion of disallowance out of interest under Proviso to Section 36(1)(iii) on capital work in progress. 4. Deletion of disallowance made under Section 14A of the Income Tax Act, 1961. Detailed Analysis: 1. Deletion of Addition Made by Disallowing Deduction under Section 10B on Duty Drawback: The Revenue challenged the deletion of the addition of ?1,38,67,815/- for AY 2009-10 and ?31,59,173/- for AY 2011-12 made by the Assessing Officer (AO) by disallowing the deduction under Section 10B claimed on duty drawback received by the assessee. The AO held that export incentives in the form of duty drawback are not income derived from the business of exporting articles or things as required under Section 10B(1). However, the Commissioner of Income Tax (Appeals) [CIT(A)] followed the ITAT’s earlier orders for AYs 2007-08 and 2008-09, which were upheld by the Hon’ble Delhi High Court in multiple cases, including Principal Commissioner of Income Tax vs. Universal Precision Screws and CIT vs. XLNC Fashions. These judgments clarified that business profits should be considered for deduction under Section 10B, including duty drawbacks as part of business income. The Tribunal upheld the CIT(A)’s decision, allowing the deduction under Section 10B. 2. Deletion of Disallowance on Account of Interest on Investment for Non-Business Expenditure: For AY 2009-10, the AO disallowed ?3,58,749/- as notional interest on an investment of ?29,89,571/- in M/s. Talbros Automotive Company Ltd., citing it as non-business expenditure. Similarly, for AY 2011-12, the AO disallowed ?32,42,244/- on an investment of ?2,70,18,699/-. The assessee argued that these investments were made from surplus funds and not from borrowed funds, and thus no interest expenditure was incurred. The CIT(A) deleted the disallowance based on the Tribunal’s earlier decisions for AYs 2007-08 and 2008-09. The Tribunal found no fault with the CIT(A)’s decision, noting that the investments were made from the assessee’s own surplus funds and not as interest-free loans. 3. Deletion of Disallowance out of Interest under Proviso to Section 36(1)(iii) on Capital Work in Progress: The AO disallowed ?73,29,225/- as interest on capital work in progress amounting to ?6,09,93,541/- for AY 2009-10, claiming the assets were not put to use during the previous year. The assessee contended that interest incurred for the acquisition of assets for business extension had already been disallowed in the computation of taxable income, and this was verified by auditors. The CIT(A) deleted the addition, following the Tribunal’s decisions for AYs 2007-08 and 2008-09. The Tribunal upheld this decision, noting that the AO did not dispute the interest computation or the period up to the asset being put to use, and thus no further disallowance was warranted. 4. Deletion of Disallowance Made under Section 14A of the Income Tax Act, 1961: For AY 2009-10, the AO made a disallowance of ?18,62,886/- under Section 14A, applying Rule 8D without recording satisfaction regarding the correctness of the assessee’s claim. Similarly, for AY 2011-12, the AO disallowed ?18,04,390/-. The CIT(A) deleted these disallowances, following the Tribunal’s earlier decisions. The Tribunal noted that the AO did not provide reasons for not being satisfied with the assessee’s accounts, a mandatory requirement as per the Supreme Court’s decision in Maxopp Investment Ltd. vs. CIT. Therefore, the Tribunal upheld the CIT(A)’s deletion of the disallowance under Section 14A. Conclusion: The Tribunal dismissed the Revenue’s appeals for both assessment years, upholding the CIT(A)’s decisions on all issues. The judgments were pronounced in the open court on 26th July 2019.
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