9911796707
TMI Blog2015 (5) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... in any social engagements in the foreign country visited by them along with the Directors of the assessee company, we do not find any reason to interfere in the order of CIT(A) on this issue. Decided against the assessee. Enhancement of book profit U/s 115JB - Held that:- The authorities below have applied Explanation (1), clause (f) an sub-clause (ii) appearing below clause (i) of Explanation (1). It is submitted that on the facts of the present case where the investment in shares either directly or through PMS has yielded huge income in the form of short term capital gain which is taxable, it cannot be said that there was any expenditure that could be identified and said to be related to the exempted income. The expenditure was essentially been incurred for the purposes of earning income which is taxable and in case, by virtue of the “share holding being hold beyond a specified period” any incidental income has been earned, it cannot be said that the expenditure was relatable to any exempt income. Therefore, no part of the expenses could have been considered to be disallowable, so as to call for adjustment in book profit computed under section 115JB.Wholly without prejudice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is aspect of earning dividend income of more than ₹ 10 crores out of direct investment by directing the Assessing Officer to disallow ₹ 10 crore on lump sum basis. Hence, on this issue, we confirm the order of CIT(A) Disallowance u/s 14A r.w.r. 8D - Held that:- None of the judgments cited by assessee is applicable because in all these judgments, the assessment year is prior to assessment year 2008-09 when Rule 8D was not applicable whereas in the present case, Rule 8D is applicable and therefore, in the facts of the present case, we find no infirmity in the order of authorities below and decline to interfere in the order of CIT(A). - Decided against assessee. - ITA No.210/LKW/2012, ITA No.306/LKW/2012, ITA No.348/LKW/2012, ITA No.408/LKW/2012 - - - Dated:- 24-4-2015 - Shri Sunil Kumar Yadav And Shri A.K. Garodia JJ. For the Appellant : Shri S. K. Garg, Advocate Shri P. K. Kapoor, C.A. For the Respondent : Shri Revenue by Puneet Kumar, D. R. ORDER Per A. K. Garodia, A.M. These are cross appeals filed by the assessee and Revenue for two assessment years i.e. assessment year 2007-08 and 2008-09, which are directed against two separate orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble ITAT being ITA No.1003/LUC/2006 which along with the appeal for the assessment year 2004-05 was decided by the Tribunal, vide a common order dated 28.09.2007. A copy of the said order has been placed in the paper book at pages 100 to 121 thereof. 4.3. In the said order the issue of deduction for claim under section 80IB by virtue of allocation of expenses from Head Office to Jorhat Unit was dealt with and decided by the Hon ble ITAT in the following manner:- ITA No.1003/Luc/2006 for the Assessment Year 2002-03 5. We have considered the rival submissions and perused the material on record. In our considered view, profits of eligible units, as per audited accounts could not be said to be sacrosanct so as to prohibit the Assessing Officer from making adjustment therein. The claim of the assessee is that since books of Jorhat Unit are audited, the Assessing Officer could not have made any adjustment by allocating a portion of Head Office expenses incurred on advertisement and publicity. We however do not agree. If profit of the eligible unit has to be worked out treating it as independent source of income, then such profits have to be adjusted by value of common goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made herein above and offer an opportunity of being heard to the assessee. ITA No.1147/Luc/2006 for the Assessment Year 2004-05 4.4 In this year, the Hon ble ITAT has affirmed the view that had been taken by it in the assessment year 2002-03 (supra). The findings are given in paras 20 and 21 which are reproduced hereunder:- 20. In this case the assessee has raised the following issues: (i) Allocation of part of Head Office expenses to Jorhat Unit (ii) Notwithstanding the method of allocation being on turnover basis was not justified. (iii) Deduction u/s 80-IB is not required to be excluded while computing deduction u/s 80-HHC (iv) Not treating interest received from the bank and on rent as eligible for deduction u/s 80-HHC. (v) Disallowing an expenditure of ₹ 14,86,565/- out of foreign travel expenses. 21. Issue from (i) to (iv) are covered in ITA No.1003 and ITA No.1062. The issue no.(i), (ii) and (iii) are restored to the file of the Assessing Officer to decide afresh and in accordance with the directions given in those appeals and after giving opportunity of being heard to the assessee. 4.5. Coming to the year under appeal, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were any other unit. iii) The administrative expenses of Kanpur e.g. Security, ROC etc. were all being incurred much before the Jorhat unit and thus again these expenses can be attributable to Jorht unit. iv) That separate books of account are being duly maintained at the units of the company, and expenditure actually incurred thereat/with respect thereto was fully recorded in the concerned unit. v) That in respect of common expenditure, the assessee, suo-moto apportions the same amongst the units the details of which have already been brought to your honour s notice. vi) Therefore, all expenditure attributable to the Jorhat Unit, whether it be on account of advertisement, audit fees, freight etc. was fully taken in to account in arriving at the profit at the Unit. vii) That separate Financial Statements for each Unit were prepared and also submitted along with the Return of Income and were duly audited. The financial statements of the Jorhat Unit were also audited in terms of section 80-IB of the I.T.Act. viii)Your honour has proposed to allocate the expenses on the basis of turnover. In this regard, it is most humbly submitted that the need for allocation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsection (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible business under this section. The provisions of sub-section (5) of section 80-IA as it stood in the relevant assessment year in the case of assessee are reproduced as under:- Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection( 1) apply shall, for the purposes of determining the quantum of deduction under subsection (5) 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 undisclosed profit to and including the assessment year for which the determination is to be made. It is further seen that this unit started production on 12.09.2000. Thus it is seen that in view of provisions of section 80-IA(5) of the Income Tax Act, 1961, profits gains of and eligible business shall be computed as if such eligible business were the only source of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without administrative control, sales monitoring, policy decisions and other related matters being performed by Head Office. It is seen that the assessee has not furnished any convincing explanation on the issue of computation of net profit of Jorhat unit by way of considering expenses attributable to Head Office. had made further allocation out of Head Office expenses, to the Jorhat Unit. As a result of such allocation of expenses, the profit of Jorhat unit got reduced by sums aggregating ₹ 1,31,28,476/- and there was consequent reduction in the claim under section 80-IB. 5. In the 1st appeal, the ld. CIT(A) has discussed the issue in paras 4.2, 4.3, 4.3.1 and 4.3.2 which are reproduced hereunder for the sake of instant reference:- 4.2 In this regard, it has been submitted and argued by the Ld. A.R. that: In this regard it is most humbly submitted that: a) That the appellant himself is maintaining separate accounts for its Jorhat unit. b) No defect or discrepancy has been found by the Ld.A.O. in the books and the same were accepted for the purposes of assessment u/s.143(3). c) That no finding has been given that the profits have been not been worke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, has held in Para 29 and elsewhere in that order that distribution of pro rate expenses of Jorhat Unit would be unfair. We, therefore, restore that matter to the file of the Assessing Officer for giving an opportunity of hearing to the assessee to find out a suitable method for allocation of expenses incurred by Head Office and which are affecting the profits of Jorhat Unit. As a result, this ground of the assessee is allowed but statistical purposes and Assessing Officer will decide the issue in the light of the discussion made herein above and offer an opportunity of being heard to the assessee 4.3.1 Pursuance to the said decision of the Hon ble Tribunal, the department has passed an order u/s 143(3)/251/254 dated 31.12.2008 wherein the AO has examined this issue as per the direction of the Hon ble Tribunal and passed the order by holding that I have carefully considered the chart of allocation submitted by the assessee and also detailed submission with regard to each of the above expenses in the light of the allocation made u/s 143(3). Though the assessee has covered most of the expenses and a substantial amount have already been allocated suo moto but it is also noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made before the Assessing Officer, which finds reproduction in Para 4.6 hereinfore. It is a matter of record, undisputed as the same is, that for Jorhat Unit separate books of account had been maintained. In order to increase the expenses in the said unit (so as to reduce its profits eligible for deduction under section 80-IB) by further allocation from the Head Office, it was imperative that books of the said unit should have been rejected. In the instant case there is no such rejection and therefore, the income determined for the said unit on the basis of separate books of account could not have been linked with. (iii) In the aforesaid context sub-section (5) and (10) of section 80 IA as have been made applicable to section 80- IB also are reproduced hereunder:- (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of subsection( 1) apply shall, for the purposes of determining the quantum of deduction 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 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent view of those deeds is not a conclusive circumstance. The decision of the Tribunal reached during those proceedings does not operate as res judicata. As seen earlier there was a great deal more evidence before the Tribunal during the present proceedings, relating to those gift deeds. (277) and in view of the said proposition of law, it is respectfully prayed that your honours be pleased to accept the assessee s contention and allow the Issue No.I in its favour. 12. It is further submitted that in the Income tax Act only express provision of law is to be considered and rule of strict interpretation thereof has to be applied as has been held by the Hon ble Allahabad High Court in the case of CIT vs. Sahara India Savings and Investment Corpn. Ltd. reported in (2003) 264 ITR 646, wherein their lordships have observed and held as under:- In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One must only look fairly at the language used. xxxxx xxxxx xxxxx Hence there is no question of looki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has passed an order u/s 143(3)/251/254 dated 31.12.2008 wherein the AO has examined this issue as per the direction of the Hon'ble Tribunal and passed the order by holding that- I have carefully considered the chart of allocation submitted by the assessee and also detailed submission with regard to each of the above expenses in the light of the allocation made u/s 143(3), Though the assessee has covered most of the expenses and a substantial amount have already been allocated suo moto but it is also noted that the assessee has allocated the director's commission to Jorhat unit in the ratio of profit of the unit i.e. ₹ 1,13,05,963/- like other expenses, it is worked out at ₹ 1,14,03,232/-. The difference of these two i. e. ₹ 97,269/- [11403232- 11305963] is further allocated to Jorhat unit. 4.3.2 The chart submitted by the appellant during the reassessment proceedings (for A.Y. 2004-05) which was accepted by the AO on this issue (as mentioned in the said assessment order) shows that the expenses on account of advertisement, directors' travelling and dealers conference have been allocated to Jorhat unit in the ratio of turnover. Director remuner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea was not taken before the Tribunal in assessment year 2004-05 to the effect that there was absence of business arrangement between the assessee and any other person, we find that there is no merit in this contention also because it is noted by the Tribunal in the order for assessment year 2004-05 that power for adjustment is available to the Assessing Officer by virtue of sub section (8) and (10) of section 80IA. As per sub section (10) of section 80IA, if it appears to the Assessing Officer that owing to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer shall, in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reasonably deemed to have been derived therefrom. Hence, in our considered opinion, the scope of sub section (10) of section 80IA is very vide b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the matter was duly recognized by the Tribunal in the case of Glaxo Laboratories (India) Ltd. vs. Second ITO (1986) 18 ITD 226, wherein it was held that :- in the modern age, more so in the western countries, the senior executives as a matter of social customs are accompanied by their wives. Such visits, though are for business purpose, yet have some social aspects also. In the circumstances, the entire expenditure which included air fare and purchase of some foreign exchange was an allowable expenditure. A copy of the said judgment is enclosed as ANNEXURE-I hereto. 16. Reliance in this regard is also placed on the decision of Hon ble Madras High Court in the case of CIT vs. Clayton Ltd. reported in (1999) 240 ITR 271 wherein it has been held that visit of directors of the company to a foreign country is to facilitate the carrying on and improving the business of the assessee. Accordingly the expenditure incurred on foreign travel of their wives should be held to be governed by commercial expediency and therefore allowable as such. 17. It is also a settled law that consideration of commercial expediency are to be governed from the point of view of a businessma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpediency and not from the point of view whether the amount was advanced for earning profits. page 9 7. Learned D. R. of the Revenue supported the orders of the authorities below. 8. We have considered the rival submissions. We find that the disallowance was made by the Assessing Officer in respect of the expenses incurred on the spouse of the Chairman and Managing Director of the company. A clear finding has been given by CIT(A) that the assessee company has not demonstrated as to in what manner foreign travelling of the spouse of the Chairman and Managing Director was for the business of the assessee company. In the light of these findings of the authorities below, we examine the applicability of various contentions raised by Learned A.R. of the assessee in the written submissions. In this regard, reliance has been placed on a Tribunal decision rendered in the case of Glaxo Laboratories (India) Ltd. vs. Second Income-tax Officer [1986] 18 ITD 226 (ITAT[Bom]). We find that in that case, it was noted by the Tribunal in Para 17 that Chairman and Chief Executive of Glaxo had extended invitation to Mr. Mrs. Bhoothalingam and that the wife was accompanying her husband as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B the Assessing Officer has made an adjustment of ₹ 48,71,190/- on account of proportionate expenses relatable to the exempt income on account of dividend . The issue has been discussed by the Assessing Officer in Para 7 of the assessment order which is reproduced hereunder:- 7. Computation of Book Profit as per section 115JB of I.T. act, 1961 It was observed that assessee has declared a dividend of ₹ 11,82,21,258/- which was claimed exempt and the same was excluded while computing the book profit. As per explanation - f to section 115JB, the expenditure relatable to exempt income is to be added to the book profit. Vide order sheet entry dated 18.06.2008, the assessee was asked to explain as to why the proportionate expenditure amounting to ₹ 48,71,190/- may not be added to the profit while computing book profit u/s 115JB. The relevant part of order sheet entry dated 18.06.2008 is being reproduced as under:- As per computation of MAT u/s 115JB, dividend of ₹ 11,82,21,258/- is deducted while computing book profit u/s 115JB as dividend was credited in P L A/c. As per explanation - f to section 115JB, the amount or amounts of expenditure relatable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11 or section 12 apply; or] 6.3 Therefore, once the dividend income is excluded, any expenditure related to the same ought to be excluded. As regards the quantum of the disallowances, the appellant has stated as under:- Without prejudice it may be submitted that: 1. That while working out the disallowance, the entire dividend of ₹ 11.82 crores has been considered by the Ld.A.O. against the PMS investment of ₹ 90 crores, which is totally against the facts of the appellant s case. 2. That the appellant has earned dividend income of only ₹ 1,69,35,903/- on its investments through the PMS, the balance being on investments made directly by the appellant. 3. That if at all such a disallowance was to be made, the same ought to be made by considering the dividend earned by the appellant only on investment through the PMS, i.e. ₹ 1,69,35,903/- 6.4 On perusal of details, it is seen that out of total dividend of ₹ 11.82 crores earned by the appellant, it has earned dividend of only ₹ 1,69,35,903/- through the PMS and the balance amount of dividend has been earned on investments which had been made by the company directly. It is also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered to be disallowable, so as to call for adjustment in book profit computed under section 115JB. 20. Wholly without prejudice to the said submissions, it is stated that estimate of ₹ 10,00,000/- in relation to the income earned through direct investment (other than PMS) is much too high and excessive. The dividend income, apart from incidental to the investment in shares, the decision making process cannot be said to be entailing such a huge expenditure. 21. In this view of the matter the assessee s submission is that first of all no disallowance should have been made (which may affect the computation of book profit under section 115JB) and in any case and without prejudice to the said submission the estimate of expenditure at ₹ 10,00,000/- is much too high and excessive. B - Revenues Appeal (ITA No.306/LKW/2012) 22. In its appeal the revenue has taken as many as five grounds, essentially the same relate to two issues, viz. I - Relief allowed by CIT(A) in the matter of quantum of expenses allocated by the Assessing Officer to Jorhat Unit and consequential enhancement in the relief under section 80-IB II - Relief allowed out of overall adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount given on PMS'was ₹ 90 crores. Accordingly, proportionate expenditure amounting to ₹ 48,71,190 (Rs.3,70,83,608 x 11,82,21,258/ 90,00,00,000) is proposed to be disallowed/ added while computing the Book Profit. 6.2 The Ld.AR has vehemently argued that the AO was not empowered to make any adjustments to the profit as per the Profit Loss account. Reference has been made to the Hon'ble Apex Court's ruling in the case of Malyala Manorama Co. Ltd. [2008] 169 Taxman 471. I do not however agree with the Ld.A.R. Since the adjustments, as specifically given in section 115JB are necessarily to be considered in working out the 'Book Profits' under that section. It is for this very reason that the dividend income of ₹ 11.82 crores has been excluded in working out the book profits. Clause (f) to the Explanation 1 of the section is very clear on this and reads as under: (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or] 6.3 Therefore, once the dividend income is excluded, any expenditure related to the same ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outhern Petro Chemicals vs DCIT (93 TTJ Chennai 161). 6.7 The AO would add ₹ 10,00,000/- + proportionate PMS charges (as referred in Para 6.4 6.5) to the Book Profit for computation of tax liability u/s 115JB of the Act. In result, Ground Nos. 10 is partly allowed. 12.1 From the above paras from the order of CIT(A), we find that CIT(A) has reproduced clause (f) to the Explanation 1 of section 115JB and as per this clause (f), any expenditure relatable to any income to which section 10 is applicable, is to be added back. The CIT(A) has directed the A.O. to compute the amount of expenditure incurred for earning dividend income in proportion to dividend income to total income i.e. capital gain + dividend, as noted by CIT(A) in Para 6.1 reproduced above. Considering the provisions of clause (f) of sub section (1) of section 115JB, we do not find any infirmity in the order of CIT(A) on this issue. 12.2 In addition to this, it is noted by CIT(A) that out of total dividend income of ₹ 11.2 crores earned by the assessee, the earning of dividend income through PMS is ₹ 169.35 lac and therefore, earning of dividend income from self-investment is more than ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend income of more than ₹ 10 crores out of direct investment by directing the Assessing Officer to disallow ₹ 10 crore on lump sum basis. Hence, on this issue, we confirm the order of CIT(A) and accordingly, grounds raised by the Revenue and assessee in this regard are rejected. 13. In the result, the appeal of the assessee and Revenue are dismissed. 14. Now we take up the cross appeals for assessment year 2008-09. As per the written submissions filed by the assessee in this year, the issue involved are three i.e. reduction in claim u/s 80IB in Jorhat Unit on account of further allocation of expenses to that unit, disallowance out of foreign travelling expenses and disallowance u/s 14A read with Rule 8D(2) in assessee s appeal whereas there is only one issue raised by the Revenue regarding part relief allowed by CIT(A) in respect of reduction in the disallowance u/s 80IB in respect of Jorhat Unit. Both the sides agreed that these issues are identical to issues raised in assessment year 2007-08 except disallowance u/s 14A read with Rule 8D because Rule 8D has been made applicable from this year. Both the sides agreed that except the disallowance u/s 14A, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is satisfaction on how the assessee s calculation is incorrect. The AO cannot apply Rule 8D without pointing out any inaccuracy in the method of apportionment or allocation of expenses. Further, the onus is on the AO to show that expenditure has been incurred by the assessee for earning tax=-free income. Without discharging the onus, the AO is not entitled to make an adhoc disallowance. A clear finding of incurring of expenditure is necessary. No disallowance can be made on the basis of presumptions. The case also draws reference from several earlier decisions including (a) CIT vs. Hero Cycles 323 ITR 158 (PH) (b) ACIT vs. Eicher Ltd., 101 TTJ (Del) 369 (c) Vidyut Investment Ltd., 10 SOT 284 (Del) (d) D.J. Mehta vs. ITO, 290 ITR 238 (Mum)(AT) (b) MAXOPP INVESTMENT LTD. v. CIT, New Delhi (High Court-Delhi): Para 31of the judgment reda 31. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard 41. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd which has resulted into considerable income (running into Crores) through dividend and capital gains. Very little expenditure (Rs.2,27,000/- on/y) had been shown by the appellant company on earning income on account of dividend and Long Term Capital Gains on investments managed by itself which is in sharp contrast to ₹ 34,34,195/- that was paid to the PMS Managers. The appellant company has stated that this computation has been done based on actual facts. However, the AO was not convinced. It is seen that in its computation (of expenses incurred) no cost pertaining to the top-executive(s) of the company had been considered by the assessee company. It is a common knowledge that managing and decision making for such a large portfolio of investment (which can result into profits/loans running into crores), top-executive(s) of the company are always involved [Refer to the decision of Southern Petro Chemicals vs. DCIT (93 TTJ Chennai 161) in this regard. Once the computation done by the assessee in this regard is not acceptable, the AO has no choice but to invoke the provisions of Rule 8D of the I.T. Rules. The Ld. A.R. has not pointed any mistake in calculation of disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
