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TMI Blog2013 (9) TMI 446X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is allowable project wise. 5. The CIT(A) ought to have appreciated that the loss in eligible project should not be set off against income from eligible project as held by the Hon'ble Bombay High Court in the case of Hindustan Unilever Limited v. DCIT 325 ITR 102 (Bom.). 6. The learned CIT(A) erred in confirming the assessment of interest income of Rs. 3,20,87,420/-, being interest received from Shriram Properties & Infrastructure Private Limited (Rs. 1,68,17,926), Bengal Shriram Hitech City Private Limited Rs.(72,89,783) and from Bank of Rs. 79,79,712/- under the head "Other Sources". 7. The learned CIT (A) ought to have appreciated the fact that the appellant held 50% shares in Shriram Properties & Infrastructure Pvt Ltd and that Bengal Shriram Hitech City Private Limited is also coming within the purview of company under the same management of the appellant company and that the appellant has been assisting these companies which are also in real estate business in accordance with clause 11 of object clause of Memorandum of Association and hence the interest received from these companies is assessable under the head "Profits and gains from Business". 8. The learned CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not pressing Ground Nos. 6 to 10 raised in the grounds of appeal filed before the Tribunal and has also made an endorsement to this effect in the grounds of appeal filed before us. Therefore, these grounds of appeal of the assessee are dismissed for want of prosecution. 5. In Ground Nos. 2 to 5 of the appeal, the grievance of the assessee is that the ld. CIT(A) erred in confirming the action of the Assessing Officer in disallowing deduction u/s 80IB(10) of Rs. 2,23,22,237/-. 2. The brief facts of the case are that the assessee is in the business of real estate development. During the year under consideration the assessee fully completed two projects viz. 'Samruddhi' and 'Shreyas' and continued to carry out existing housing projects of 'Spandhana' and 'Coimbatore'. The assessee has shown income from these projects on percentage completion method. The assessee, in the return of income filed, claimed deduction u/s 80IB for an amount of Rs. 2,23,22,237/-. Since the assessee had shown a business loss, the Assessing Officer held that the assessee-company is not eligible to claim deduction un 80IB and hence, disallowed the same. 3. The assessee, being a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible for deduction under Chapter VI-A could be set off against income/loss of non-eligible business and in that context it was held that deduction under Chapter VI-A is to be allowed on income from eligible business without being adjusted/ set off relating to non-eligible business. However, there is a decision of the Hyderabad Bench of I.T.A.T, in the case of Jt. CIT v. Dr. Reddy's Laboratories Ltd. [2005] 272 ITR (AT) 38 which was also cited by the Ld. authorized representative of the assessee, wherein it was held that even if the assessee was having two units and both are entitled for deduction under Chapter VI-A, but one of the units was having profit and the other was incurring loss, it was held that the unit having profit will be entitled to claim deduction under section 80HH of the Act without adjusting losses of other unit. We are of the considered view that the said decision is not relevant after the decision of the Apex Court in the case of IPCA Laboratory Ltd. ( supra) wherein it has been held that for giving deduction under section 80HHC of the Act, the profits earned from export of both self-manufacturing goods and trading goods are to be considered and if after su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Apex Court and/ or the decision of the Apex Court in the case of IPCA Laboratory Ltd. (supra) was not available. There is no dispute to the fact that gross total income has to be computed for the purpose of Chapter VI-A in accordance with provisions of the Act i.e., inter alia intra head and/or inter head losses have to be adjusted. If it is so, the loss incurred by the assessee in the eligible unit of Dairy Division are adjusted with profits of the eligible unit of Polymer Division, the gross total income of the assessee for both the assessment years comes to Nil i.e., there is a loss to the assessee. In view of the above, we are of the considered, view that the authorities below have rightly held that the assessee is not entitled for deduction under section 80-lA of the Act for both the assessment years under consideration, as the assessee has disclosed gross loss after considering the results of its both Polymer Division and Dairy Division, which are entitled for deduction under section 80-IA of the Act. Hence, we uphold the orders of the authorities below by rejecting grounds of appeal taken by the assessee." [Emphasis supplied]. The ratio of the above said decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible unit has to be determined separately and deduction allowed on that u/s 80IB of the Act. His submission is that loss from other projects should not be adjusted against the profits of the eligible projects while determining deduction allowable u/s 80IB of the Act to the assessee. In support of his submission, the ld. A.R of the assessee relied on the decision of the Hon'ble Madras High Court in the case of Viswas Promoters (P.) Ltd. v. ACIT, [2013]255 CTR (Mad) 149,, and submitted that the Hon'ble High Court has held that in that case the assessee had claimed deduction u/s 80IB in respect of flats measuring less than 1500 sq ft of built-up area and did not claim deduction in respect of flat exceeding an extent of 1500 sq ft. The Assessing Officer rejected the assessee's claim on the ground that deduction was for the project as a whole and all residential units in a project must satisfy conditions of having built up area of less than 1500 sq ft. The ld. CIT(A) held that within composite building project, if there were both eligible and ineligible units, assessee would be eligible to claim deduction in respect of eligible units. However, the Tribunal held that a projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hird windmill units with the profit of the first, and as a result wholly disallowing the deduction claimed u/s 80IA. The ld. CIT(A) confirmed the action of the Assessing Officer. On further appeal, the Tribunal held allowing the appeal of the assessee that at the stage of aggregation of income under the same head of income as well as under different heads of income, the losses intra-head as well as inter-head have to be adjusted. The primary step for considering the grant of deductions under Chapter VI-A is to determine the gross total income, which, in turn, is computed by aggregating the income from all the sources in the year after adjusting the losses of the current year under any head. The brought forward loss or unabsorbed depreciation are also reduced. The resultant figure is determined as gross total income. At the stage of aggregation of income there is no question of adjusting loss of any other business against the business income of the undertaking eligible for deduction under Chapter VI-A of the Act. The gross total income of the assessee was at Rs. 8,03,26,598/- after adjusting the losses suffered by it in the eligible as well as profits of the non-eligible units. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22,237/- (ii) Loss from two Projects viz. 'Shreyas' and 'Coimbatore' : Rs. 2,87,71,682/- (iii) Interest income : Rs. 3,20,87,421/- Gross total income : Rs. 2,56,37,975/- On the above facts, the issue before us is whether the assessee is entitled for deduction u/s 80IB of Rs. 2,23,22,237/- or not in view of the fact that though there is gross total income of higher amount of Rs. 2,56,37,975/-, but in view of the fact that amount computed under the head 'business income' by aggregating profits and losses of all business is loss of Rs. 64,49,445/-. 9. Sub-section (1) of section 80-IB provides that where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11B), there shall be allowed, in computing the total income of the assessee a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. Sub-section (2) states that this section applies to any industrial undertaking which fulfills all the conditions stipulated in this sub-section. Sub-section (4) of section 80-IB state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible business under this section." 11. Sub-section(5) of section 80IA reads as under: "(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." 12. Thus, a reading of the above provisions shows that for determining the amount which qualifies for deduction u/s 80IB(1), one has to compute the income from eligible business as if the eligible business was the only source of income of the assessee. In other words, the income or loss from other business or other activities are to be ignored for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business; and (ii) The amount of gross total income of the assessee The amount of profit derived from eligible business qualifies for deduction u/s 80IB subject to the amount of gross total income of the assessee. There is absolutely no relevance for this purpose of the amount which is arrived at by aggregating income from all the different business of the assessee which is the amount assessable as business income of the assessee. 15. We are reminded of the celebrated judgment rendered by the Hon'ble Supreme Court in the case of CIT v. Canara Workshop (P.) Ltd. [1986] 161 ITR 320 in which the assessee was engaged in the manufacture of automobile spares. The products manufactured by it were covered by the list in the Fifth Schedule to the Income-tax Act. During the relevant period, the assessee commenced another activity, that is the manufacture of alloy steels, which was also an industry covered in the Fifth Schedule. The assessee sustained loss in the alloy steel industry but profit in the other industry. It claimed deduction in respect of the profit without reducing the loss from the alloy steel industry. The ITO held that the assessee will be entitled to deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rived by the assessee from two projects viz. 'Spandhana' and 'Samruddhi' of Rs. 2,23,22,237/-. Thus, the grounds of appeal of the assessee are allowed. 18. Ground Nos. 11 & 12 of the appeal are directed against the order of the ld. CIT(A) in confirming the action of the Assessing Officer in disallowing Rs. 9,27,875/- u/s 14A of the Act r.w. Rule 8D of the IT Rules. 19. The brief facts of the case are that the assessee received dividend income of Rs. 1,58,45,280/- and claimed the same as exempt. In the return of income filed, the assessee did not disallow any amount u/s 14A towards expenditure incurred to earn the exempt income. During the course of assessment, the Assessing Officer required the assessee to give the actual calculation of expenses incurred for earning the dividend income as per Rule 8D of the IT Rules. The assessee submitted that Rs. 15,000/- was the expenditure incurred to earn the exempt income. The Assessing Officer, however, disallowed Rs. 9,27,875/- u/s 14A of the Act. 20. On appeal, the ld. CIT(A) confirmed the disallowance observing that the amount offered for disallowance of Rs. 15,000/- in the course of assessment proceedings was substanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) and Shriram City Union Finance Ltd. (supra) wherein the Tribunal, in the consolidated order passed in the case of these concerns, while deleting the disallowance made on similar facts and circumstances, held as under: 12. We have heard both sides, perused the materials available on record and the decisions relied on by both counsels. In the case of ACIT v. SIL Investment Ltd. (supra), the Delhi Bench of the Tribunal in its order in para 27 held as under: "27. In the present case, the AO did not bring any evidence on record to establish that any expenditure had been incurred by the assessee company for earning the exempt income. In the absence of such evidence, it was wrong on the part of the AO to proceed to compute disallowance of the expenses u/s 14A of the Act by merely applying Rule 8D(2)(iii) of the Rules." The above view was taken by the Tribunal taking into consideration various decisions of the Tribunal including the decision of the Delhi Bench in the case of DCIT v. Jindal Photo Ltd. and the High Courts. 13. The Delhi Bench of the Tribunal in the case of DCIT v. Jindal Photo Limited in I.T.A. No. 814 (Del) 2011 by order dated 23.09.2011 for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y applying the method provided in Rule 8D of the I.T. Rules, 1962. This was done without pointing out any inaccuracy in the method of apportionment or allocation of expenses, as adopted by the assessee. All through, the assessee was maintained that the assessee was during the year, carrying on manufacturing activities at its manufacturing units at several places. Its head office was at Delhi. The assessee had maintained separate books of account for each unit. Common expenses incurred at the head office and the branches were attributed to all the units including the head office. Investment in mutual funds, which gave rise to exempt dividend income, was done through the head office. It was the case of the assessee that to earn such dividend income, no direct expenditure was required and no expenses were incurred to make investment of surplus amounts in mutual funds. The suo moto disallowance had, however, been made by the assessee keeping in consideration, the provisions of section 14A of the Act. 18. Now, as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in partially approving the action of the AO." 14. The Hon'ble Delhi High Court in a batch of appeals in the case of MAXOPP Investment Ltd. vs. CIT & Others (supra) elaborately dealt the issue of applicability of provisions of section 14A read with Rule 8D for the assessment years prior to the assessment year 2008-09 and also the applicability of the said provision for the assessment years subsequent to assessment years 2008-09. The Hon'ble High Court in paras 29 to 31 and 36 to 40 held as under: 29. Sub-section (2) of Section 14A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed". We have already mentioned above that by virtue of Notification No.45/2008 dated 24/03/2008, the Central Board of Direct Taxes introduced Rule 8D in the said Rules. The said Rule 8D also makes it clear that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value of the investment, income from which does not or shall not form part of the total income, is taken. Do sub-sections (2) and (3) of Section 14A and Rule 8D apply retrospectively ? 32 to 35. ---------- ------------------- ---------------------- 36. Insofar as sub-sections (2) and (3) of Section 14A are concerned, they have also been introduced by virtue of the Finance Act, 2006 with effect from 01.04.2007. This is apparent, first of all, from the Notes on Clauses of the Finance Bill, 2006 [Reported in 281 ITR (ST) at pages 139-140]. The said Notes on Clauses refers to clause 7 of the Bill which had sought to amend Section 14A of the said Act. It is specifically mentioned in the said Notes on Clauses that:- "This amendment will take effect from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent years." 37. Furthermore, in the Memorandum explaining the provisions in the Finance Bill, 2006 [281 ITR (ST) at pages 281-281], it is once again stated with reference to clause 7 which pertains to the amendment to Section 14A of the said Act that:- "This amendment will take effect from 1st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure incurred in relation to such income, which does not form part of total income under a prescribed method, which is Rule 8D of the Income Tax Rules. The Hon'ble High Court further held that sub-sections (2) and (3) of section 14A are workable only with effect from the date of introduction of Rule 8D i.e. 24.03.2008 because prior to that date, there was no prescribed method and sub-sections (2) and (3) of section 14A remain unworkable. 16. Therefore, finding of the Assessing Officer that the claim of the assessee that it had not incurred any expenditure or it had incurred only so much expenditure is incorrect is a must for invoking the provision of sub-section (2) of section 14A of the Act.' 26. We find that in the course of assessment proceedings, the assessee filed a letter stating as under: "...With regard to expenses in connection earning dividend income we wish to submit that only 5 transactions were made during the year In connection with Investments in Mutual Fund (MF) and 8 transactions were made for redeeming the MF investments. Therefore, the expenses viz. salary and conveyance charges that could have Incurred would be about Rs. 15,000/- Only. Hence, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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