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2017 (4) TMI 106 - AT - Income TaxDeduction u/s. 80IB in respect of common expenses - Held that - On perusal of the orders for AY 2000-01 and 2001-02 shows the basis of apportionment of head office and common selling expenses is being followed by the Assessee consistently. We find the Tribunal found the basis of apportionment of common head office and common selling expenses adopted consistently by the company is scientific and reasonable and accepted and allowed deduction under Section 80IB of the Act. Respectfully following the above, we uphold the impugned order of the CIT-A and we have no hesitation to allow the deduction as claimed u/s.80IB of the Act and therefore, ground raised in this regard fails and it is dismissed. - Decided in favour of assessee Deduction u/s.80IB in respect of interest income on sale of scrap - Held that - Hon ble High Courts in the cases of DClT vs Harjivandas Juthabhai Zaveri (1999 (12) TMI 5 - GUJARAT High Court ) held that scrap generated in the manufacturing activity is eligible for deduction and respectfully following the same, we hold that the Assessee is entitled to claim deduction under the provisions of the section 80IB of the Act and the impugned order of the CIT-A on this issue is justified and delete the addition - Decided in favour of assessee Disallowance u/section 14 A - applicability of rule 8D - Held that - as on 11-04-07 the opening surplus was 212 crores and as on the same the share capital was at 63.77 crores. Therefore it amply proves that the Assessee has made investments from its own funds and as rightly pointed by the Ld. AR that the AO did not examine the nexus between the investments if any made from borrowed funds, without the same application of Rule 8D to compute the expenditure for the purpose of disallowance u/ section 14 A of the Act is bad. We find that the issue in hand is covered by the decision in the case of CIT Vs. Ashish Jhunjhunwala 2015 (12) TMI 905 - CALCUTTA HIGH COURT which held that while rejecting the claim of the Assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons. We find the AO without assigning any reasons to the claim of the Assessee applied Rule 8D, therefore, the disallowance as made to an extent of 38,07,778/- is not maintainable. Respectfully following the decision supra, we have no hesitation to delete the impugned addition as made by the AO and confirmed by the CIT- A - Decided in favour of assessee
Issues Involved:
1. Disallowance of deduction under Section 80IB for common expenses. 2. Disallowance of deduction under Section 80IB for income from the sale of scrap. 3. Disallowance of expenditure under Section 14A related to exempt income. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 80IB for Common Expenses: The revenue challenged the allowance of a deduction under Section 80IB for common expenses amounting to ?10,21,06,200/-. The assessee, a company engaged in manufacturing and trading paints, enamels, and resins, apportioned common head office and selling expenses based on turnover ratios. The AO contested this, suggesting that indirect expenses should be apportioned at 20% instead of the 6.07% claimed by the assessee. The CIT(A) allowed the assessee's appeal, referencing the ITAT's prior acceptance of the assessee's method in earlier years. The ITAT upheld the CIT(A)'s decision, reiterating that the allocation method was scientific and reasonable, consistent with previous years' decisions. The Tribunal emphasized that the AO's method lacked a rational basis and was arbitrary. 2. Disallowance of Deduction under Section 80IB for Income from Sale of Scrap: The AO disallowed the deduction under Section 80IB for ?57,93,000/- earned from the sale of scrap, arguing it was not derived from the industrial undertaking's profits. The CIT(A) reversed this decision, relying on the ITAT's prior rulings that income from scrap sales, directly connected to the manufacturing process, qualifies for deduction under Section 80IB. The ITAT confirmed the CIT(A)'s decision, citing various High Court rulings that supported the inclusion of scrap sales income in the deduction calculation. The Tribunal found that the scrap generation was directly linked to the manufacturing process, making it eligible for the deduction. 3. Disallowance of Expenditure under Section 14A Related to Exempt Income: The AO disallowed ?38,07,778/- under Section 14A, applying Rule 8D, as the assessee had only offered ?21,921/- as expenditure related to earning exempt income. The CIT(A) upheld this disallowance. The ITAT reversed the CIT(A)'s decision, noting that the assessee had sufficient reserves and surplus funds to cover the investments, and the AO did not establish a nexus between borrowed funds and the investments. The Tribunal referenced the Calcutta High Court's ruling in CIT vs. Ashish Jhunjhunwala, which required the AO to provide cogent reasons for rejecting the assessee's claim. The ITAT found the AO's application of Rule 8D without such reasons to be unjustified and deleted the disallowance. Conclusion: The ITAT dismissed the revenue's appeal and allowed the assessee's appeal. The Tribunal upheld the CIT(A)'s decisions regarding the deduction under Section 80IB for common expenses and scrap sales income, and reversed the disallowance under Section 14A related to exempt income. The judgments emphasized the consistency and reasonableness of the assessee's methods and the necessity for the AO to provide clear justifications for disallowances.
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