2021 (4) TMI 639 - AT - Income Tax

Disallowance of deduction u/s. 80IC under the head interest and financial charges, common expenses of corporate expenses and common expenses of corporate and plastic division - AO was of the view that the interest expenditure required to be allocated proportionately in the ratio of sales for deduction u/s. 80IC of the Act for the industrial undertaking of the assessee - HELD THAT - No error in the decision of ld. CIT(A) for allocating common interest financial charges on the basis of investment. Similar in respect of deleting addition of common head expenses and plastic/corporate division expenses made on sales basis, we do not find any infirmity in the decision of ld. CIT(A) after following the decision of the Co-ordinate Bench as cited above in this order. Taking into consider the finding of the Coordinate Bench in the case of assessee itself on the aforesaid issues, we do not find any reason to interfere in the decision of ld. CIT(A), therefore, this ground of appeal of the revenue is dismissed. Disallowance u/s. 14A - HELD THAT - Respectfully following the decision of Co-ordinate Bench of the ITAT in the case of the assessee itself for A.Y. 2009-10 and A.Y. 2010-11 2016 (4) TMI 904 - ITAT AHMEDABAD the appeal of the Revenue is dismissed. Regarding the appeal of the assessee, we direct the Assessing Officer to decide the issue afresh after examination/verification of the details filed by the assessee as per the direction laid down in the decision of the Co-ordinate Bench of the ITAT in the case of the assessee itself 2016 (4) TMI 904 - ITAT AHMEDABAD and decision of Hon ble Gujarat High Court 2017 (5) TMI 1160 - GUJARAT HIGH COURT Addition on account of foreign exchange fluctuation gain - HELD THAT - We have gone through the decision of ITAT on the similar issue and identical facts and noticed 2016 (4) TMI 904 - ITAT AHMEDABAD the issue was decided in favour of the assessee Addition for late contribution to ESIC - HELD THAT - In view of the decision of Hon ble Gujarat High Court in the case of Gujarat State Road Transport Corporation 2014 (1) TMI 502 - GUJARAT HIGH COURT , we do not find any merit in the appeal of the assessee and the same stands dismissed.

Summary

Issues Involved:
1. Disallowance of deduction u/s. 80IC for interest and financial charges, common expenses of corporate and plastic division.
2. Disallowance u/s. 14A for expenditure incurred in relation to exempt income.
3. Addition on account of foreign exchange fluctuation gain.
4. Addition for late contribution to ESIC.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction u/s. 80IC:
- Facts: The assessee allocated interest/financial charges and common head expenses to its Baddi Unit. The Assessing Officer (AO) reallocated these expenses based on the ratio of sales, resulting in a higher disallowance.
- CIT(A) Decision: The CIT(A) directed the AO to allocate common interest and financial charges based on investment in the Baddi Unit rather than sales. The CIT(A) also ruled that common head expenses should be allocated based on actual expenses rather than sales ratio.
- ITAT Decision: The ITAT upheld the CIT(A)'s decision, referencing a previous ITAT ruling in favor of the assessee. The ITAT confirmed that interest and financial charges should be allocated based on investment, and common head expenses should be allocated on an actual basis rather than sales ratio.

2. Disallowance u/s. 14A:
- Facts: The AO noticed that the assessee received dividend income but disallowed only a small amount for expenditure incurred in earning exempt income. The AO applied Rule 8D and significantly increased the disallowance.
- CIT(A) Decision: The CIT(A) restricted the disallowance to a much lower amount.
- ITAT Decision: The ITAT referenced its previous ruling and the Hon’ble Gujarat High Court decision, which favored the assessee. The ITAT directed the AO to re-examine the details provided by the assessee and decide afresh, following the previous ITAT and High Court rulings.

3. Addition on Account of Foreign Exchange Fluctuation Gain:
- Facts: The AO added the foreign exchange fluctuation gain to the total income, treating it as taxable.
- CIT(A) Decision: The CIT(A) treated the gain as a capital nature adjustment under section 43A, not taxable as revenue.
- ITAT Decision: The ITAT upheld the CIT(A)'s decision, referencing previous ITAT and Gujarat High Court rulings in favor of the assessee. The ITAT confirmed that the foreign exchange gain related to FCCB liabilities should be treated as a capital adjustment.

4. Addition for Late Contribution to ESIC:
- Facts: The AO disallowed the amount for late deposit of employees' contribution towards PF and ESIC.
- CIT(A) Decision: The CIT(A) sustained the addition, following the Hon’ble Gujarat High Court decision in the case of Gujarat State Road Transport Corporation.
- ITAT Decision: The ITAT upheld the CIT(A)'s decision, finding no merit in the assessee's appeal based on the cited High Court ruling.

Conclusion:
- The appeals filed by the revenue (ITA Nos. 2786/Ahd/2014, 1416/Ahd/2018, and 1417/Ahd/2018) were dismissed.
- The appeal filed by the assessee (ITA No. 2702/Ahd/2014) was partly allowed for statistical purposes.
- The ITAT's decisions were consistent with previous rulings and High Court judgments, ensuring a thorough examination of the facts and legal principles involved.