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TMI Blog2016 (6) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... st assessee. Disallowance u/s 14A - Held that:- The Department has not disputed over the quantum of investment made by the assessee to the extent of .338.96 crores and receipt of exempt income amounting to .11.70 crores. The value of investment was .344.74 crores and .338.96 crores as on 31.3.2007 and 31.3.2008 respectively. The investment as on 31.3.2008 was 338.96 crores. The sale proceeds of investments during the year was .964.52 crores, which was higher by .5.78 crores than purchase of investments of .958.74 crores. There is no dispute on the free reserve and surplus funds available with the assessee of .791.40 crores. When the assessee got its own fund and non-interest bearing funds more than the investment in tax-free securities, then there is no question of deeming that the assessee has used the borrowed funds for investment in tax-free securities. By following the decision of the ITAT, Mumbai in the case of HDFC Bank Ltd. v. DCIT (supra), wherein it was held that if assessee’s own fund and non-interest bearing funds are more than the investment in tax-free securities, then there is no basis for deeming that the assessee has used the borrowed funds for investment in tax-fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services - Section 9 of the Act is not applicable to the case on hand and section 195 of the Act does not come into play – Decided against Revenue. Set off of the loss of 80IC units against the income of other units - Held that:- With regard to set off of losses of 80IC unit against the profit of other units, we find that the Hon’ble Delhi High Court in the case of CIT v. KEI Industries Ltd.(2015 (3) TMI 618 - DELHI HIGH COURT) has held that loss suffered by the assessee in a unit entitled to exemption under section 10B of the Income-tax Act, 1961 cannot be set off against income from any other unit not eligible for such exemption. - Decided in favour of revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... worked out the quantum of expenditure relatable to the above exempt incomes and quantified the disallowance at ₹.3,66,11,461/- and added the same to the total income of the assessee. With regard to the above disallowance, the AR of the assessee has strongly contested before the ld. CIT(A). After examining the profit and loss account, balance-sheet and other details submitted by the AR of the assessee, the ld. CIT(A) has observed as under: "4.2 I have carefully considered the facts of the case and the submission of the ld. AR. I have also gone through the decisions relied on by the AO and ld. AR. I have also perused the profit and loss account, balance-sheet and other details submitted by the ld.AR in support of his contention that no borrowed fund was utilized for making investment which yielded exempt income. There is no dispute regarding the quantum of investment made by the appellant to the extent of ₹ 338.96 crores and receipt of exempt amounting to ₹ 11.70 crores. The value of investment was ₹ 344.74 crores and ₹ 338.96 crores as on 31.3.2007 and 31.3.2008 respectively. Obviously, the returns from such investment would not attract any tax. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for deeming that the assessee has used the borrowed funds for investment in tax-free securities. Further, Hon'ble Bombay High Court in CIT v. Reliance Utilities and Power Ltd (213 ITR 340) has held that if there be interest-free funds available to assessee sufficient to meet its investments and at the same time the assessee had raised a loan, it can be presumed that investments were made from interest free funds available. Hence, taking into account the totality of facts and the precedents, I am of the considered opinion that the appellant had sufficient interest-free funds of its own to make investment in tax-free territory and hence no interest can be disallowed under rule 8D(2)(ii). Hence, disallowance of interest of ₹ 1,95,18,961/- under rule 8D(2)(ii) is deleted. 4.4 As regards the contention of the appellant that the third limb being rule 8D(2)(iii) is also not applicable, I do not find substance in such argument. There is also no substance in the argument that only ₹ 26.46 lakhs can at best be disallowed u/s 14A. As stated earlier, the investment of the appellant is quite substantial. The investments will definitely involve certain administrative and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2008-09, which was not found to have been reversed by the Higher Court, the question of restriction of disallowance @ 2% as well as application of the above said notification whether from retrospectively or prospectively does not arise. Since the assessee has not excluded any expenditure relatable to earning exempt income of ₹.11,70,82,808/-, by invoking section 14A of the Act applied Rule 8D and worked out the expenditure at ₹.1,95,18,961/- under Rule 8D(2)(ii) and ₹.1,70,92,500/- under Rule 8D(2)(iii). By considering various decisions of the Mumbai Benches of the Tribunal, as reproduced hereinabove, while deleting the disallowance made under Rule 8D(2)(ii) of ₹.1,95,18,961/-, the ld. CIT(A) confirmed the disallowance of ₹.1,70,92,500/- made under Rule 8D(2)(iii) on the ground that the investments would have definitely involved certain administrative and establishment cost since the decision to make investments, track investments, sale of such investments and follow-up of the receipt of income, sale proceeds, etc. have to be undertaken which entails definite costs. During the course of appellate proceedings, the AR of the assessee has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D is applicable from the assessment year 2008-09, when the Act has prescribed a method for quantifying the disallowance, the same cannot be overlooked. Since Rule 8D is not applicable prior to the assessment year 2007-08, the Tribunal has set aside the order passed by the ld. CIT(A) and directed the Assessing Officer to work out the disallowance @ 2%. However, since Rule 8D is applicable from the assessment year 2008-09 onwards, the disallowance should be made based on the prescribed method quantified by the Act. Since the Assessing Officer has made the disallowance under section 14A and computed under Rule 8D, we confirm the disallowance made by the Assessing Officer. Accordingly, the ground raised by the assessee is dismissed." 9. Similarly, in the case of Indian Nippon Electricals Ltd. v. DCIT in I.T.A. No. 459/Mds/2014 for the assessment year 2008-09 vide order dated 17.02.2016, the same Bench of the Tribunal has observed and held as under: "7. The second issue raised in the appeal of the assessee relates to confirmation of disallowance made under section 14A read with Rule 8D. It is not disputed that the total investments made by the assessee in the form of shares/funds is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from assessment year 2008-09 onwards. Since the assessee has not maintained any separate sets of books for the investment activity and the manufacturing activities and moreover, all the funds are pooled up and utilized for various activities from a common kitty. Therefore, the Assessing Officer has segregated the probable expenses by way of financial charges and other overhead expenses between the investment activities and manufacturing and export activities. In view of the above, the Assessing Officer has rightly applied the provisions of Rule 8D by invoking section 14 of the Act, which was confirmed by the ld. CIT(A). Therefore, we find no infirmity in the order of the ld. CIT(A) on this issue and thus, the ground raised by the assessee is dismissed." 10. In the return of income filed by the assessee, the assessee has not shown any expenditure incurred for earning the exempt income. Therefore, in accordance with the provisions of section 14A r.w. Rule 8D the Assessing Officer made the disallowance of expenditure for earning the exempt income. Even during the course of assessment proceedings, the assessee has not accepted any expenditure for earning the exempt income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts during the year was ₹.964.52 crores, which was higher by ₹.5.78 crores than purchase of investments of ₹.958.74 crores. The free reserve and surplus were ₹.791.40 crores. Since the Mumbai Benches of ITAT in the case of HDFC Ltd., v. DCIT (ITA No.4529, 3650, 3651, 4059, 991/Mum dated 29.6.2011) has held that if assessee's own fund and non-interest bearing funds are more than the investment in tax-free securities, then there is no basis for deeming that the assessee has used the borrowed funds for investment in tax-free securities. Further, the Hon'ble Bombay High Court in CIT v. Reliance Utilities and Power Ltd (213 ITR 340) has held that if there be interest-free funds available to assessee sufficient to meet its investments and at the same time the assessee had raised a loan, it can be presumed that investments were made from interest free funds available. Hence, taking into account the totality of facts and the precedents, the ld. CIT(A) has held that the assessee had sufficient interest-free funds of its own to make investment in tax-free territory and hence no interest can be disallowed under rule 8D(2)(ii). Hence, he deleted the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bay High Court in the case of CIT v. HDFC Bank Ltd. [2014] 366 ITR 505. The ld. DR could not controvert the above findings of the Tribunal as well as the decision of the Hon'ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. Under the above facts and circumstances, we find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue stands dismissed. 17. The next ground raised in the appeal of the Revenue is with regard to deletion of disallowance of expenses on dies and moulds made to the tune of ₹.23,29,55,420/- only on the ground that the Department has preferred an appeal against the order of the Tribunal in assessee's own case in I.T.A. No. 893/Mds/2007 dated 22.05.2008 for the assessment year 2003-04, which was not accepted by the Department. 18. The brief facts of the case are that the assessee has claimed ₹.27,40,65,201/- towards revenue expenditure incurred in consumption of dies, jigs and moulds. Dies and moulds are actually part of the heavy plant and machinery which are used for manufacturing of various parts of automobiles components. However, the Assessing Officer has treated this expenditure as capital in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the findings of the Tribunal, we find no infirmity in the order passed by the ld. CIT(A) and accordingly, the ground raised by the Revenue is dismissed. 21. The next ground relates to disallowance of product launch expenditure of ₹.41,28,15,721/-. The assessee has launched four new vehicles i.e., Star Sport, Apache RTR, Flame and Star 110 and has incurred an expenditure of ₹.51,07,67,162/- as product launching expenses. The above expenses are charged to revenue in the accounts over a period of 36 months. If the launch is carried out in the month of April, the expenditure will be charged to revenue for the entire 12 months of the year and further for subsequent two years. If the product is launched in some other month, the expenditure is charged to revenue equivalent to the remaining months and balance will be charged in the subsequent three financial years. But for the purpose of income-tax the entire expenditure is claimed in the year in which it is incurred. The Assessing Officer has stated that the above expenses are mainly incurred for advertisement and brand building of new products and to promote sales in the Indian market. The Assessing Officer has observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 35D is also not warranted. The only contention raised by the ld. DR before the Tribunal is that the Department has not accepted the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Brilliant Tutorials Ltd. 292 ITR 399 relied on by the ld. CIT(A) and against this decision, the Department has preferred SLP Before the Hon'ble Supreme Court. However, the ld. DR could not file any decision against the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Brilliant Tutorials Ltd. (supra). Until and unless the decision is reversed, the decision of the Hon'ble Jurisdictional High Court is having binding nature, therefore, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue is dismissed. 25. The next ground raised in the appeal of the Revenue is with regard to deletion of disallowance under section 40(a)(i) made to the tune of ₹.12.61 crores for non-deduction of tax at source on the foreign remittances made for agency commission. In the assessment order, the Assessing Officer has stated that the assessee has debited the above sum towards selling agency commission. After ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment years 2005-06 and 2007-08, the ld. CIT(A) allowed the ground raised by the assessee by following the decision of the Tribunal in assessee's own case in ITA No.697, 757, 976 and 1017/2009 dated 22.12.2010 decided the issue in favour of the assessee. 27. We have considered rival submissions and perused the materials on record. With regard to the issue as to whether the TDS has to be deducted or not when the commission payment made to the overseas agents, the issue is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Faizan Shoes Pvt. Ltd. [2014] 367 ITR 155, wherein by dismissing the appeal of the Revenue, the Hon'ble High Court has held as under: "Held, dismissing the appeal, that on a reading of section 9(1)(vii), commission paid by the assessee to the non-resident agents would not come under the term "fees for technical services". For procuring orders for leather business from overseas buyers, wholesalers or retailers, as the case may be, the non-resident agent was paid 2.5 per cent commission on free on board basis. This was a commission simpliciter. What was the nature of technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the jurisdictional Tribunal in the case of Mohan Breweries and Distilleries Ltd (311 ITR 346) and also various other decisions, the ld. Counsel for the assessee has pleaded that the set off of loss of the 80IC units should be allowed against the income of other units. After considering the submissions of the assessee and also by considering various decisions, the ld. CIT(A) directed the Assessing Officer to allow carry forward and set off the losses of the unit from the profit of the unit in subsequent year(s). 31. Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR, by relying on the decision CIT v. KEI Industries Ltd. 373 ITR 574 (Delhi), has submitted that the findings of the ld. CIT(A) should be reversed. 32. On the other hand, the ld. Counsel for the assessee strongly supported the order passed by the ld. CIT(A). 33. We have heard both sides, perused the materials on record and gone through the orders of authorities below. With regard to set off of losses of 80IC unit against the profit of other units, we find that the Hon'ble Delhi High Court in the case of CIT v. KEI Industries Ltd.(supra) has held as under: "Loss suffered by the assessee in a un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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