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2015 (9) TMI 107 - AT - Income TaxDeduction u/s. 80IA in respect of profits of Windmill-I (4.14 MW) - CIT(A) directed to allow claim - Held that - In the present case, as can be seen from the computation of total income filed by the Assessee, which is given as an annexure to this order, there was no carry forward loss/depreciation to be set off. The deduction claimed u/s.80-IA of the Act is not greater than the gross total income. In such circumstances, we are of the view that the CIT(A) was justified in directing the AO to allow the claim of the Assessee for deduction u/s.80-IA in respect of Unit-I. Following the decision of the Tribunal in assessee s own case 2012 (11) TMI 507 - ITAT BANGALORE we uphold the order of the CIT(Appeals) - Decided against revenue. Disallowance u/s 14A - CIT(A) restricted disallowance in part - Held that - proceeded to hold that from Asst. Year 07-08 to Asst. Year 08-09, the assessee has shifted the investments which would yield income which is taxable to investments which would yield income which is tax exempt. This cannot be the basis on which the AO can make disallowance u/s.14A read with Rule 8D of the Rules. The second reason given by the AO was that the assessee has taken working capital loan of more than ₹ 50 crores and paid interest thereon. According to the AO the Assessee when it liquidated investments which would yield income which is taxable, it ought to have used the proceeds on such liquidation to fund the working capital instead of investing such proceeds in investments which would yield income which is tax exempt. This cannot also be the basis on which the AO can reject the claim of the Assessee that no interest expenses were incurred to earn tax free income. The law is well settled that the AO cannot sit in judgment over the manner in which a businessman has to arrange his business affairs and decide as to what should be the manner in which a particular decision has to be made. He can invoke jurisdiction to make disallowance u/s.14A of the Act only on a finding that interest expenditure were incurred for earning tax free income. In our view the CIT(A) has rightly accepted the stand of the Assessee that no interest expenses whatsoever were incurred in respect of funds which were used to make investments which yielded tax free income. We do not find any grounds to interfere with the order of the CIT(A). The Assessee has not taken any specific stand regarding expenses claimed as deduction while computing its income is only in relation to earning such income and that no indirect expenses can be attributed to the earning of tax free income. In this regard it is necessary that the Assessee should point out as to how each item of expense debited to profit and loss account is wholly for the purpose of earning income which is taxable. We are of the view that it would be just and appropriate to direct the Assessee to make its claim in this regard. The AO will examine the claim of the Assessee and thereafter decide the issue in accordance with law as explained in judicial decisions. - Decided in favour of assessee for statistical purposes.
Issues Involved
1. Deduction under Section 80IA for Windmill-I. 2. Disallowance under Section 14A read with Rule 8D. Detailed Analysis 1. Deduction under Section 80IA for Windmill-I Revenue's Appeal: The revenue's primary grievance was the CIT(A)'s direction to allow the deduction under Section 80IA for Windmill-I, amounting to Rs. 4,60,89,154. The revenue contended: - The CIT(A)'s decision was prejudicial to the revenue's interests and opposed to law and facts. - The CIT(A) failed to appreciate the facts and circumstances under which the AO made the disallowance. - Deduction under Section 80IA should be on the profits of "eligible business" and not on eligible units, considering Sections 80B(5) and 80AB. - The CIT(A) relied on a Tribunal decision from AY 2006-07, which had not reached finality due to an appeal under Section 260A. Assessee's Appeal: The assessee, engaged in manufacturing and sale of aluminum extrusions and wind energy, claimed deduction under Section 80IA for Windmill-I. The AO denied this deduction, arguing that losses from other windmills should be set off before allowing the deduction. Additionally, the AO allocated Rs. 25,00,000 as indirect expenses to Windmill-I, reducing the profits eligible for deduction. CIT(A)'s Decision: The CIT(A) directed the AO to allow the deduction, referencing the Tribunal's decision in the assessee's favor for AY 2006-07. The CIT(A) noted: - Each windmill should be considered a separate undertaking for Section 80IA. - The AO's aggregation of profits and losses from all windmills was incorrect. - The AO's notional adjustment of losses from sold Windmill-IV was unjustified. Tribunal's Analysis: The Tribunal upheld the CIT(A)'s decision, referencing: - The Supreme Court's decision in Synco Industries Ltd. v. Assessing Officer, which clarified the computation of "gross total income" and the application of Sections 80A(2) and 80B(5). - The Mumbai Tribunal's decision in Meera Cotton and Synthetics Mills Pvt. Ltd. v. ACIT, which supported the assessee's claim that profits from one eligible unit should not be reduced by losses from other units. - The assessee's gross total income was positive, and there were no carry-forward losses or unabsorbed depreciation. Hence, the deduction under Section 80IA was justified. Conclusion: The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s direction to allow the deduction under Section 80IA for Windmill-I. The issue of non-apportionment of common expenses was remanded to the CIT(A) for adjudication. 2. Disallowance under Section 14A read with Rule 8D Revenue's Appeal: The revenue challenged the CIT(A)'s decision to restrict the disallowance under Section 14A to Rs. 14,40,471, arguing: - The CIT(A) erred in holding that there was no nexus between borrowed funds and tax-free investments. - The disallowance should be determined as per Rule 8D, which includes allocation of interest expenses not directly attributable to any particular income. Assessee's Appeal: The assessee contended that: - Investments were made from its own resources and surplus, not borrowed funds. - No expenditure was incurred to earn dividend income, hence disallowance under Section 14A was uncalled for. - Investments were intended for capital gains, which are taxable, not for earning tax-free income. CIT(A)'s Decision: The CIT(A) partly upheld the AO's disallowance but restricted it to Rs. 14,40,471, noting: - No interest-bearing funds were used for tax-free investments. - The AO failed to prove a nexus between borrowings and tax-free investments. - Indirect expenses should be considered as per Rule 8D, despite the assessee's claim of no such expenses. Tribunal's Analysis: The Tribunal considered: - The Bombay High Court's decision in Godrej & Boyce Mfg. Co. Ltd. v. DCIT, which emphasized the AO's need to record satisfaction regarding the correctness of the assessee's claim before applying Rule 8D. - The AO's acceptance of the assessee's explanation that investments were made from own funds, but his subsequent rejection based on the shift from taxable to tax-exempt investments was unjustified. - The AO's incorrect reasoning that the assessee should have used proceeds from liquidated investments to fund working capital instead of investing in tax-exempt assets. Conclusion: The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to restrict the disallowance of interest expenses. It remanded the issue of indirect expenses to the AO for re-examination based on the assessee's claims. The Tribunal treated the assessee's appeal as allowed for statistical purposes and directed the AO to provide consequential relief. Final Outcome: - Revenue's appeal dismissed. - Assessee's appeal allowed for statistical purposes. - CIT(A) to adjudicate on non-apportionment of common expenses.
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