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2017 (11) TMI 181 - AT - Income TaxIncome from hedging transaction of Menthol Oil - whether be treated as a business income for the purpose of section 80IB or not? - Held that - This year it appears that the assessee incurred loss from hedging contracts in Menthol Oil and the Assessing Officer treated such loss as speculation loss following the stand taken in earlier years that the income from hedging contracts is the income from speculation business. In assessee s own case the Coordinate Bench in earlier years held that income from hedging contracts is a business income thus respectfully following the said decision we uphold the order of the Ld.CIT(A) in holding that he hedging loss is the business loss in the case of the assessee not a speculation loss. Grounds raised by the Revenue on this issue are dismissed. Disallowance of expenses of Daman Unit - AO disallowed the expenses on the ground that the manufacturing activities of Daman Unit were closed in Financial year 2005-06 and there was complete stoppage of activity - Held that - This issue came up before the Tribunal for the Assessment Year 2009-10 in assessee s own case wherein allowed the claim of the assessee holding that, expenses are incurred in the normal maintenance of business which have to be incurred inspite of closer of operations of the unit. We direct the Assessing Officer to allow the said expenditure as deduction in computing the income of the assessee. This ground of appeal is allowed. Disallowance u/s. 14A r.w. Rule 8D(2)(iii) - Held that - Taking the totality of facts and circumstances into consideration, we direct the Assessing Officer to restrict the disallowance under Rule 8D(2)(iii) to 5% of the dividend income earned by the assessee. In the result the ground raised by the assessee is partly allowed.
Issues Involved:
1. Deletion of disallowance of ?45,61,11,542/- representing speculation loss. 2. Deduction under section 80IB on Gross total income. 3. Deduction under section 80IB on income other than business income. 4. Non-following of the Supreme Court decision in the case of Liberty India Ltd. 5. Disallowance of expenses of Daman Unit amounting to ?95,516/-. 6. Disallowance under section 14A read with Rule 8D(2)(iii) of ?14,57,608/-. Issue-wise Detailed Analysis: 1. Deletion of Disallowance of ?45,61,11,542/- Representing Speculation Loss: The Revenue challenged the deletion of the disallowance of ?45,61,11,542/- representing speculation loss. The assessee argued that the issue was covered in its favor by the Coordinate Bench's decision for the Assessment Year 2006-07, where it was held that income from hedging contracts in Menthol Oil formed an integral part of the income of the Jammu unit and was eligible for deduction under section 80IB. The Tribunal upheld the CIT(A)'s decision, confirming that the loss from hedging contracts was a business loss and not a speculation loss, thereby dismissing the Revenue's grounds on this issue. 2. Deduction under Section 80IB on Gross Total Income: The Revenue contested the CIT(A)'s decision to allow deduction under section 80IB on the Gross total income. The Tribunal observed that the CIT(A) correctly allowed the deduction, referencing the Coordinate Bench's previous decision and the Hon'ble Delhi High Court's judgment in CIT vs. Eltek SGS (P) Ltd., which distinguished between the language used in sections 80HH, 80I, and 80IB. The Tribunal concluded that the CIT(A) was right in granting the deduction as per section 80IB, thus dismissing the Revenue's appeal on this ground. 3. Deduction under Section 80IB on Income Other Than Business Income: The Revenue argued that the CIT(A) wrongly granted deduction under section 80IB on income other than business income. The Tribunal, however, upheld the CIT(A)'s decision, noting that the language in section 80IB is broader and includes profits derived from any business of the industrial undertaking. The Tribunal affirmed that the hedging profit was eligible for deduction under section 80IB, thereby dismissing the Revenue's ground. 4. Non-following of the Supreme Court Decision in the Case of Liberty India Ltd.: The Revenue contended that the CIT(A) did not follow the Supreme Court's decision in Liberty India Ltd. The Tribunal noted that the CIT(A) had distinguished the facts of the present case from those in Liberty India Ltd., and correctly applied the law as per the Delhi High Court's interpretation in similar cases. The Tribunal thus dismissed the Revenue's appeal on this ground. 5. Disallowance of Expenses of Daman Unit Amounting to ?95,516/-: The assessee challenged the disallowance of expenses related to the Daman Unit, which was closed in the financial year 2005-06. The Tribunal referred to its earlier decision for the Assessment Year 2009-10, where it allowed similar expenses, stating that these were normal maintenance expenses necessary despite the closure of the unit. The Tribunal directed the Assessing Officer to allow the said expenditure as a deduction, thus allowing the assessee's ground. 6. Disallowance under Section 14A Read with Rule 8D(2)(iii) of ?14,57,608/-: The assessee contested the disallowance under section 14A read with Rule 8D(2)(iii), arguing that the Assessing Officer did not provide proper reasons for rejecting the assessee's quantification of expenses. The Tribunal observed that the Assessing Officer failed to record proper satisfaction as required under section 14A(2). The Tribunal directed the Assessing Officer to restrict the disallowance to 5% of the dividend income earned by the assessee, thereby partly allowing the assessee's ground. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, providing specific directions on the disputed issues. The order was pronounced in the open court on October 27, 2017.
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