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TMI Blog2018 (3) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... de in subsidiaries would fall under the category of strategic investments as they are admittedly made only for the purpose of obtaining controlling interest in the said companies and not for the purpose of earning dividend income which is exempt. Hence they would stand differently from other regular investments. - Decided against revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit derived from the activity of manufacture of poultry feed was entitled to deduction u/s.80IB(5) of the Act. 5. It was the plea of the Assessee that the process of producing poultry feed involved mechanical, chemical & electrical processes for which the Assessee used sophisticated Plant & Machinery. In the course of production of poultry feed raw- materials which exceeded 30 in number, lost individual identity and the emerging product was distinct and separate in shape, character and end-use. The raw- materials consumed in production of poultry feed could be individually used for different purposes, but the end product at the end of integrated production process was known to trade by its distinct commercial name as 'poultry feed'. It could only be consumed by only one class of consumer i.e. poultry & none else. It was the claim of the Assessee the end product was known as poultry feed in the trade, commerce and industry and was considered as separate and distinct from various materials consumed in the process of its production. The Assessee also pleaded that poultry feed manufacturing industry was notified by the Central Government to be eligible for claiming deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking to be engaged in 'manufacture of production of an article'. The said section however, does not define the expression "manufacture or production of an article". In fact this expression is not defined in the Act also. The Ld. CIT (A) extensively analysed meaning of the said expression with reference to judicial decisions discussed in his order. The test laid down by the Courts is whether the emerging new product is known to the trade, industry and commerce by its own name having its own application use and has a market of its own. Applying the criteria as laid down in these judicial decisions we find that in physical appearance, colour and shape the. Poultry feed vastly differs from the input materials. The poultry feed is manufactured in a scientific and systematic manner with the use and assistance of sophisticated plant and machinery acquired at a substantial cost. Poultry feed is recognised not only by trade and commerce but also by the statutory authorities under Central Excise, Sales Tax etc as independent products Applying the ratio laid down in judicial decisions discussed in the order of CTT(A) we have no hesitation in holding that the assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue cannot hold the poultry .feed industry as manufacturing industry if situated in North Eastern states and a 'processing industry" if situated in any other states Such an interpretation will only lead to an absurd legal position. 18. For the reasons as set out herein before therefore we do not find any infirmity in the order of CIT(A) holding the assessee to be engaged in manufacture or production of an article We are therefore of the considered opinion that the assessee satisfies the conditions of Sec 80- IB(2) (iii) of the Act and is therefore eligible for deduction u/s 80IB We therefore uphold the order of CIT (A) directing A 0 to allow deduction u/s 80 IB to the assessee." 10. In Assessee's own case this Tribunal in ITA No.2227/Kol/2010 for AY 2007-08 by order dated 20.3.2013 allowed similar claim of the Assessee. From perusal of the said decisions of this Tribunal, it is apparent that this Tribunal has categorically held in the case that the assessee is engaged in manufacturing of poultry feeds and that the assessee is engaged in the manufacture or production of an article. 11. The learned DR however submitted that in the decisions rendered by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Hyderabad Bench of ITAT in the case of Venkateswara Feeds (supra) and therefore the decision requires reconsideration. 13. The learned counsel for the Assessee while relying on the order of the CIT(A) and decision of the Tribunal in Assessee's own case in AY 2005-06 also submitted that in the case of Amrit Feeds (supra), the Hon'ble ITAT had considered and distinguished the decision rendered in the case of Venkateswara Feeds (supra) by ITAT Hyderabad Bench. 14. We have given a careful consideration to the rival submissions. In the case of Amrit Feeds (supra), the Tribunal considered the decision rendered in the case of Venkateswara Feeds (supra) and held that the assessee in that case had claimed deduction under section 80IB on the activity of merely converting poultry mash feed into pellet feed and therefore that Bench has held that there was no change in the basic component or new or different article came into existence. As such, conversion was processing activity not manufacturing. The Tribunal held that the case of the assessee Amrit Feeds (supra) was entirely different. The assessee's eligible undertaking itself was independently carrying out the complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said decision was rendered in the context of provisions of section 80HHC, yet in my opinion the principle laid down in that decision has equal application in the assessee's case as well. I further find that on similar facts the ITAT, Kolkata in the case of DCIT vs BMW Industries Limit (TA No.2115/Kol/2007) dated 29th February 2008 had similarly held that for the purpose of computation of deduction u/s 8IB, the interest income was liable to be netted off against interest expenses and only the net interest expenditure was required to be allowed in arriving at qualifying profits of the eligible undertaking u/s 80IB of the Act. I also find that the principle of netting off of interest income against interest expense has been upheld by jurisdictional Calcutta High Court in the case of CIT vs Warren Tea Ltd (374 ITR 6) for the purposes of interpreting & computing business income in the context of Rule 8 applicable to tea companies. Following the ratio laid down in these decisions therefore, I hold that the AO should net off the interest income credited in the profit and loss account of the eligible undertaking against the interest expense debited in the said profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,208 4.2 Assessee had received certain incomes during the year such as Dividend income which are exempt income in the hands of assessee. Assessee also claimed various expenses under the head Profit and Gain of Business or Profession. As, it is not possible to segregate portion of these expenses incurred for earning exempt income i.e. Dividend and others, hence it has been decided that provisions of section 14A would apply in the case of the assessee for the assessment year 2013-14. The next question that arises is the quantum of disallowance. The only basis of quantification of disallowance is the one provided in Rule 8D(2)(iii), i.e., 0.5% of the average investment. Accordingly, disallowance under Rule 8D(2)(iii) is worked at 0.5% of (B) above: Disallowance u/s 14A r.w.r 8D(2)(iii) 0.5% of 25,74,5001- 12,872/- 4.3 In view of the aforesaid paragraph, an amount of ₹ 12,872/- is disallowed u/s 14A read with Rule 8D. Hence, Disallowance added to the total income of assessee. Disallowance: ₹ 12,872/-" 14. Before CIT(A), the Assessee submitted that only dividend bearing investments should be reckoned for disallowance under Rule 8D(2)(iii) of the Rules and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p the dividend was paid only by the associate companies. The investment in these shares was made for acquiring management control and not to earn tax free dividend. The ITAT, Kolkata in the case of DCIT vs Binani Industries Limited (ITA No.443/Kol/2013) has held that no disallowance u/s 14A is warranted where the investments are made in associate & subsidiary companies for strategic business purposes. Keeping in view the ratio decided by the jurisdictional Kolkata bench of ITAT and other judicial authorities, assessee's appeal on these grounds are allowed." 16. Aggrieved by the order of the CIT(A), the revenue has raised Gr.No.(vii) before the Tribunal. We have heard the submission of the learned DR who relied on the order of the AO. As far as disallowance under Rule 8D(2)(iii) is concerned, we are of the view that it is only the investment which yield dividend income that should be considered for the purpose of applying the formula as held by this tribunal in the case of REI Agro Ltd. (supra). The aforesaid view of the Tribunal has since been affirmed as correct by the Hon'ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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