2022 (9) TMI 1040 - HC - Income Tax

Benefit u/s 80IC - substantial expansion - revenue s contention is that the assessee having not undertaken any substantial expansion as required under Section 80IC(2)(b) of the Act, they cannot claim exemption u/s 80IC - HELD THAT - Sub-Section (2) of Section 80IC deals with the undertakings and enterprises to which Section 80IC would apply. Clause (b) of sub-Section (2) of Section 80IC would be relevant to the cases on hand. The said clause (b) of Section 80IC(2) applies to any undertaking or enterprise which has begun or begins to manufacture or produce any article or thing specified in the Fourteenth Schedule or commences any operation specified in that Schedule. The second category of undertakings are those which manufactures or produces any article or thing in the Fourth Schedule; and the third category being undertakings or enterprises which commenced operations specified in the Fourteenth Schedule and undertakes substantial expansion during the relevant period which is on 24th day of December, 1997 and ending before 1st day of April, 2007 in any North-Eastern States. On a reading of the order passed by the assessing officer we find that the assessing officer has missed out one of the categories which have been mentioned in Clause (b) of Section 80IC(2). The assessee would squarely fall within the category of undertakings or enterprises which manufactures or produces any article or thing as specified in the Fourteenth Schedule as the assessee is a mineral based industry which finds place in clause-16 of Part-A of the Fourteenth Schedule. Thus, we are the of the view that the learned tribunal rightly affirmed the conclusion arrived at by the CIT(A). In the result, the appeal filed by the revenue is dismissed and substantial question of law which was common in all the three appeals is answered against the revenue. Addition u/s 14A r.w.r. 8D - Necessity of recording satisfaction - HELD THAT - The explanation submitted by the assessee while framing the assessment proceedings was rejected by the assessing officer without adducing any reasons nor any defect was pointed out by the assessing officer at the time of assessment and straightway the assessing officer applied the machinery provision under Rule 8D of the Income Tax Rules, 1962. Furthermore, on facts, the learned tribunal found that the assessee had sufficient funds and an inference can be drawn that the investment has been made out from the funds of the assessee. In the case of Kesoram Industries Ltd. 2022 (1) TMI 995 - CALCUTTA HIGH COURT the Court took into consideration the decision of the Hon ble Supreme Court in Maxopp Investment Ltd. vs. CIT 2018 (3) TMI 805 - SUPREME COURT The decision of the Hon ble Supreme Court in South Indian Bank Ltd. vs. Commissioner of Income Tax 2021 (9) TMI 566 - SUPREME COURT is also in aid of the case of the assessee as the tribunal has recorded specific finding that own funds were available with the assessee - Decided in favour of assessee.

Summary

Issues Involved:

1. Whether the Tribunal erred in law in allowing the benefit under Section 80IC of the Income Tax Act.
2. Whether Rule 8D(iii) of the Income Tax Rules, 1962 can be invoked in cases where no direct nexus between borrowings and investments could be established.
3. Whether the Tribunal erred in law in deleting the amount added by the Assessing Officer under Section 14A of the Act read with Rule 8D(ii) of the Rules.

Issue-wise Detailed Analysis:

1. Allowing Benefit under Section 80IC:

The primary issue was whether the Tribunal was correct in allowing the benefit under Section 80IC of the Income Tax Act. The revenue contended that the assessee had not undertaken substantial expansion as required under Section 80IC(2)(b) of the Act, thus disqualifying them from claiming the exemption. The Tribunal's decision was based on the consistent approach adopted by the department in previous assessment years, where the assessee was granted the benefit under Section 80IC without any factual distinction being pointed out by the assessing officer. The Tribunal affirmed the CIT(A)'s conclusion that the assessee's unit, located in a North-Eastern State, qualified for the deduction under Section 80IC due to its classification as a mineral-based industry specified in the Fourteenth Schedule of the Act.

2. Invocation of Rule 8D(iii):

The second issue was whether Rule 8D(iii) of the Income Tax Rules, 1962, could be invoked in cases where no direct nexus between borrowings and investments could be established. The Tribunal found that the assessing officer rejected the assessee's explanation without adducing any reasons or pointing out any defects. The assessing officer applied the machinery provision under Rule 8D straightaway, which was deemed incorrect. The Tribunal noted that the assessee had sufficient funds, and an inference could be drawn that the investment was made from the assessee's own funds. The Tribunal's decision was supported by the principles laid down in the case of Kesoram Industries Ltd. vs. Principal Commissioner of Income Tax and the Supreme Court's decision in Maxopp Investment Ltd. vs. CIT, which emphasized the need for the assessing officer to record satisfaction before invoking Rule 8D.

3. Deletion of Amount under Section 14A:

The third issue was whether the Tribunal erred in deleting the amount added by the Assessing Officer under Section 14A of the Act read with Rule 8D(ii) of the Rules. The Tribunal observed that the assessing officer did not provide any reasons for rejecting the assessee's explanation and directly applied Rule 8D. The Tribunal found that the assessee had sufficient own funds, and the investment was presumed to be made from these funds. The decision was further supported by the Supreme Court's ruling in South Indian Bank Ltd. vs. Commissioner of Income Tax, which concluded that proportionate disallowance of interest is not warranted under Section 14A if the assessee's own funds exceed the investments made in tax-free bonds/securities. The Tribunal's factual findings and the legal principles established in previous judgments led to the conclusion that the revenue's appeal on this issue lacked merit.

Conclusion:

In conclusion, the appeals filed by the revenue (ITA/39/2021, ITA/159/2018, and ITA/65/2021) were dismissed, and the substantial questions of law were answered against the revenue. The Tribunal's decisions were upheld based on consistent application of the law, factual findings, and established legal principles.