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TMI Blog2019 (6) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been declared by the assessee. - Decided against revenue Addition u/s 14A r.w. Rule 8D - expenditure incurred for earning of tax exempt dividend income - CIT(A) restricted the disallowance u/s 14A to the extent of tax exempt income - HELD THAT:- disallowance u/s 14A cannot exceed the tax exempt income earned by the assessee. See WINSOME TEXTILE INDUSTRIES LTD. [ 2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT] and CHEMINVEST LIMITED [ 2015 (9) TMI 238 - DELHI HIGH COURT]. Disallowance of notional interest u/s 36(1)(iii) - investment made on CWIP - HELD THAT:- We find from the chart that in the year under consideration the paid up capital of the assessee for the year under consideration was at ₹ 10.42 crores, reserves and surplus at ₹ 297 crores and apart form that profit during the year was of ₹ 101 crores totalling ₹ 408 crores. Apart from the aforesaid work in progress, the total investments of the assessee at the end of the year was at ₹ 6.36 crores. The total amount incurred by the assessee on investments as well as capital work in progress is a meager amount as compared to the own funds available with the assessee. The issue is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst the separate orders of the Commissioner of Income Tax (Appeals)-2, Ludhiana [hereinafter referred to as CIT(A)]. 2. First, we shall take up the appeal for the assessment year 2011-12 in ITA No, ITA No. 96/Chd/2018, wherein, following grounds have been taken by the Revenue :- ITA No. 96/Chd/2018 i. Whether on the facts and circumstances of the case and in law the CIT(A) has erred in deleting the addition made on account of deduction claimed of ₹ 25,72,43,366/- u/s 80IA of the Act, by relying on his decision for the A.Y. 2010-11 without appreciating that allocation of expenses was not proper and profit shown in power generating unit was unreasonable and excessive. ii. Whether on the facts and circumstance of the case and in law the CIT(A) was justified in deleting the addition of ₹ 26,28,364/- u/s 14A of the Act, while failing to appreciate the grounds of appeal for A.Y. 2008-09 filed in the Hon'ble Punjab Haryana High Court, Chandigarh in the case of the assessee. iii. Whether on the facts and circumstances of the case and in law the CIT(A) has erred in deleting an addition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction under section 80IA of the Act was not found to be satisfactory by the Assessing Officer. The Assessing Officer, therefore, denied entire claim of deduction of Rs,25,60,54,312/- claimed by the assessee company under section 80IA of the Act and made an addition to the same extent to the returned income of the assessee company as he was of the opinion that the assessee company could not justify excessive and unreasonable profits shown from the running of 40MW Power Plant Unit. Being aggrieved by the above additions made by the Assessing officer, the assessee preferred appeal before the CIT(A). 4. The Ld. CIT(A), however, deleted the additions so made by the Assessing officer, observing as under:- 5.2 I have considered the observations of the Assessing Officer as made by him in the assessment order while denying entire claim of deduction claimed by the assessee company under section 8OIA of the Act. I have also considered written submissions filed by the assessee company through its learned AR vide letters dated 09.09.2017 and 02.11.2017 on the issue under reference. I have further considered various judicial pronouncements r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower Plant Unit at Odisha have not been done as per the said principle. (g) The interest expenses which should have been allocated as per the market rate of borrowing for the eligible unit (had the eligible unit borrowed the said funds directly from the market without approaching Head Office) has not been done in case of the assessee company. (h) Inspite of the opportunity been provided to the assessee company to establish the allocation of the interest expenses from the parent unit to the eligible unit neither any justifiable reply has been submitted nor the working of allocation of interest expenses by the CA has been submitted which means that the allocation of interest expenses to eligible unit has not been properly done which resulted in reduction of actual expenses of the eligible unit. (i) The assessee company has also not allocated any notional amount of interest for the funds utilized for setting up the Power Plant which were taken from other units of the assessee company which was required to be done as per provisions of section 80IA(8) of the Act. (j) The assessee company has not properly allocated other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheaper rate of coal supplies from M/s Mahanadi Coalfields Limited. It has again been submitted that the Auditor of the assessee company has submitted proper reply to each and every query of the Assessing Officer and it is incorrect on the part of the Assessing Officer to say that the Auditor of the assessee company has not submitted any reply. It has again been submitted that the allocation of interest expenses has been done on actual basis and not on notional basis. It has again been submitted that the Assessing Officer has not taken any cognizance of various allegations leveled by him against the assessee company but proceeded to disallow the entire claim of deduction under section 80IA of the Act with predetermined mind and proper justification. It has again been submitted that if the method adopted by the Assessing Officer in A.Y. 2010-11 for allocation of various expenses is applied in A.Y. 2011-12 too than the assessee company will be eligible for more deduction to the claim actually made by it. It has again been submitted that this fact has indirectly been admitted by the Assessing Officer as he has not even tried to reallocate the expenses on the basis ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also filed proper justification for its claim with regard to deduction under section 80IA of the Act. It has again been noticed that the assessee company has claimed deduction under section 80IA of the Act only to the extent of ₹ 25,72,43,366/- in view of insufficient profits as against its total claim of deduction at ₹ 59,29,94,212- which means that minor variation in deduction will not adversely affect the assessee company. The judicial pronouncements relied upon by the learned AR of the assessee company also support its case. Under such circumstances, the action of the Assessing Officer in denying entire claim of deduction claimed by the Assessing Officer under section 80TA of the Act cannot be said to be justified. The Assessing Officer is, therefore, directed to allow deduction to the assessee company as claimed by it under section 80IA of the Act. In the result, the grounds No. 1 and 2 of appeal taken by the assessee company are allowed. 5. Being aggrieved by the above findings of the CIT(A), the rev has come in appeal before us. 6. After hearing the Ld. representatives of both the parties, we do not find any reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Gujarat High Court in the case of Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116 and further of the Hon'ble Allahabad High Court in the case of CIT Vs. M/s Shivam Motors (P) Ltd (2014) 272 CTR (All) 277 and various other case laws. In all the above referred to case laws, the Hon'ble High Courts have been unanimous to hold that disallowance u/s 14A cannot exceed the tax exempt income earned by the assessee. We therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue also. 9. Ground No.3 : Vide this ground the Revenue has agitated the action of the CIT(A) in deleting the disallowance of notional interest of ₹ 1,16,84,195/- calculated on the investment made on Capital Work in progress (CWIP) by way of invoking the provisions of section 36(1)(iii) of the Act. 10. The Assessing officer noted that the assessee has shown huge assets under Capital Work in Progress (CWIP) and had also given capital advances allegedly out of borrowed funds. In view of the opinion of the Assessing Officer, the interest expenses on funds utilized for the acquisition of assets which were yet to be used for busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lead case being Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC), wherein in the context of section 14A, the decision of the Hon'ble Jurisdictional Punjab Haryana High Court in the case of Avon Cycles Ltd. Vs. CIT in ITA No.277 of 2013 was also under consideration wherein the Hon'ble Jurisdictional High Court had upheld the disallowance of interest u/s 14A where mixed funds were deployed by the assessee, and this proposition has been affirmed by the Hon'ble Apex Court. She has further submitted that if the presumption theory is applied, the reverse of the same will also be applicable to presume that the investment in work in progress has been made by the assessee only out of the borrowed funds. 14. On the other hand, the Ld. Counsel for the assessee has relied upon the recent decision of the Hon'ble Supreme Court in the case of CIT (LTU) Vs. Reliance Industries Ltd. [2019] 410 ITR 466 (SC). 15. We have considered the rival submissions of the Ld. Representatives of the parties. A perusal of the details submitted by the assessee reveals that the opening balance of the investment in building was ₹ 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the assessee out of own funds / interest free funds. Reliance in this respect can also be placed on the decision of the Hon'ble Supreme Court in the case of Hero Cycles (P) Ltd Vs. CIT 379 ITR 347 (SC) and also on the latest decision of the Hon'ble Supreme Court in the case of CIT (LTU) Vs. Reliance Industries Ltd. [2019] 410 ITR 466 (SC). 17. However, we deem it appropriate to specifically deal with the arguments of the Ld. DR. So far as the contention of the Ld. DR that the reverse of the presumption theory is to be applied, we do not find any force in the above contention of the Ld. DR. There is no basis to apply the presumption that the assessee might have used the borrowed funds for CWIP, when as noted above, the assessee was possessed sufficient own funds. 18. So far as the reliance of Ld. DR on the decision of the Hon'ble Supreme Court in case of Avon Cycles Ltd. Vs. CIT (supra) and Hero Cycles Vs. CIT, (supra) is concerned, we find that the aforesaid decision of the Hon'ble Supreme Court in the case of Avon Cycles Ltd Vs. CIT (supra) with the lead case being Maxoppp Investment Ltd Vs. CIT (supra) has come into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court has affirmed the proposition as given in the case of Janak Global Resources Pvt Ltd (supra). Thus, the above arguments of the Ld. DR on this issue are misconceived. In view of the above discussion, we do not find any infirmity in the order of the CIT(A) on this issue and the same is accordingly upheld. In the result, the appeal of the Revenue is dismissed. ITA No.97/Chd/2018 (A.Y. 2012-13): 21. In this appeal, the Revenue has taken following grounds of appeal:- i. Whether on the facts and circumstances of the case and in law the CIT(A) has erred in deleting the addition made on account of deduction claimed of ₹ 127,76,82,177/-u/s 80IA of the Act, by relying on his decision for the A.Y. 2010-11 without appreciating that allocation of expenses was not proper and profit shown in power generating unit was unreasonable and excessive. ii. Whether on the facts and circumstance of the case and in law the CIT(A) was justified in deleting the addition of ₹ 36,47,905/- u/s 14A of the Act, while failing to appreciate the grounds of appeal for A.Y. 2008-09 filed in the Hon'ble Punja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case and law, the CIT(A) has erred in deleting the disallowance u/s 36(1)(iii) of the Act while ignoring the fact that interest free loan granted to various parties were not for any commercial / business purpose. 26. Ground No.1: Vide ground No.1, the Revenue has agitated the action of the CIT(A) in deleting the addition of ₹ 41,40,767/- made by the Assessing officer u/s 14A read with Rule 8D of the Income Tax Rules in respect of expenditure incurred on earning of tax exempt income. 27. The Ld. CIT(A) held that since the assessee was possessed of own sufficient funds to meet the investments, hence, no disallowance of interest expenditure under Rule 8D is attracted. So far as the disallowance under Rule 8D(ii) in respect of Administrative expenditure is concerned, the Ld. CIT(A) held that the same is to be worked out by taking only average of investments which yielded tax exempt income. The relevant part of the findings of the Ld. CIT(A) is reproduced as under:- I have considered the observations of the Assessing Officer as made by him in the assessment order while making the impugned additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AR of the assessee company has relied upon the decision of the Honorable ITAT, Chandigarh in the case of Sh. Shiv Parshad Aggarwal [A.Y. 2011-12]. It has again been submitted that the issue of disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 stand decided by the Honourable ITAT, Chandigarh in assessee's own case for the A.Y. 2009-10 vide order dated 30.11.2015 wherein it has been held that if the availability of own funds is more than the investment in shares/mutual funds, no disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 is called for. It has again been submitted that the investments made by the assessee company were old one and no new investment has been made during the year under consideration. On careful consideration of the rival contentions, 1 find a lot of force in the contentions of the learned AR of the assessee company that the assessee company has sufficient interest free funds to make investment in shares/mutual funds which yield exempt income. Keeping in view this peculiar fact, no disallowance out of interest expenses in my considered opinion can be made in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 16.10.2018. This issue is also now squarely covered by the latest decision of the Hon'ble Supreme Court in the case of CIT (LTU) Vs. Reliance Industries Ltd. [2019] 410 ITR 466 (SC), wherein, the Hon'ble Supreme Court has reiterated the proposition that if there are interest funds available with the assessee, which are sufficient to meet the investment, it can be presumed that the investments are made from the interest free funds available with the assessee. So far as the action of the CIT(A) in directing to calculate the disallowance under Rule 8D(2)(iii) in respect of administrative expenditure incurred on earning of tax exempt income is concerned, the Ld. CIT(A) has followed the decision of the Chandigarh Bench of the Tribunal in the case of Shiv Parsad Aggarwal (supra). No contrary decision has been cited before us. We, therefore, do not find any infirmity in the order of the CIT(A) on this issue. In the result, the ground of the Revenue is hereby dismissed 29. Ground No.2 : The Revenue vide this ground has agitated the action of the CIT(A) in deleting the disallowance made by u/s 36(1)(iii) of the Act. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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