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TMI Blog2019 (11) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowings minus taxable interest earned during the year) for purpose of Clause (ii) of Sub Rule (2) of Rule 8D. Disallowance of deduction u/s 80-IC - HELD THAT:- CIT(A) on this issue is just and fair and in accordance with law, having regard to the facts and circumstances of the case the learned counsel for the assessee has also not brought any further materials for our consideration to persuade as to take a view different from the view taken by the learned CIT(A). The order of the learned CIT(A) is well reasoned, detailed and speaking order. No such infirmity in the order of ld. CIT(A) has been brought to our notice by ld. Counsel of the assessee, warranting any interference by us. In fact, no specific submissions were made by the ld. Counsel for the assessee, except that this ground of appeal was consequential to ground no. 2 of appeal. - ITA No:- 4657/Del/2016 - - - Dated:- 7-11-2019 - Shri H.S. Sidhu, Judicial Member And Shri Anadee Nath Misshra, Accountant Member For the Appellant : Sh. Ashwani Kumar, C.A. For the Respondent : Sh. Sanjay Kapoor, Sr. DR ORDER PER ANADEE NATH MISSHRA, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulation of the assessee is analyzed in light of the method prescribed as per Rule-8D of the I.T. Rules, in the following table. 4] Disallowances on account of excess claim of deduction u/s 80 IC As per form 10 CCB the assessee has claimed deduction u/s 80 IC in Haridwar Unit to the tune of ₹ 32,49,88,100/-. The said deduction has been claimed on profit and gains of ₹ 36,22,45,554/-. The said profit and gains include other income (interest) of ₹ 28,81,388/-. The assessee was asked to explain that why deductions u/s 80 IC should not be disallowed on other income (interest) of Haridwar Unit. Assessee vide letter dated 16.03.2015 submitted that the assessee has earned interest at ₹ 2881388/-from the FDRs etc which are prepared for margin money etc. Otherwise also, it is pertinent to mention that the assessee has paid huge Finance Cost (i.e. Interest) for the said Eligible unit. The interest earned is less than the interest Paid and the assessee could have shown the Net Interest after set off the same within the interest head. It is also not out of place to mention here that the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial undertaking and, therefore, deduction under section 80HH could not be allowed in respect thereof. In view of the above facts, it is clear that the assessee is not entitled for deduction u/s 80 IC of IT Act on interest income from fixed deposits of ₹ 28,81,388/- and the same is being disallowed. (Addition: ₹ 28,81,388/-) In view of above discussions I am satisfied that assessee has furnished inaccurate particulars and concealed his income. Therefore, penalty proceedings u/s 271(1) (c) is initiated separately. [C] The assessee filed appeal before the learned CIT(A), who confirmed both the aforesaid additions. The relevant portions of the aforesaid impugned appellate order dated 24.6.2016 are reproduced as under for the ease of reference:- I have considered the submission of the appellant and observation of the AO made in the assessment order on the issue It is seen that the AO has disallowed ₹ 1,32,17,100/- as expenses pertaining to earning exempt income as against 1,18,44,660/- disallowed by the appellant in the computation of income. The appellant has calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, this ground of appeal is rejected. 7. Ground No. 2 vide this ground of appeal the appellant has challenged disallowance of deduction u/s 80 1C of ₹ 28,81.388/- claimed by the appellant on the interest income received. The observation made by the Assessing Officer is reproduced hereunder - ........... As per Form 10 CCS the assessee has claimed deduction u/s 80IC in Haridwar Unit to the tune of ₹ 32,49,88,100/-. The said deduction has been claimed on profit and gains of ₹ 36,22,45,554/-. The said profit and gains include other income (interest) of ₹ 28,81,388/- The assessee was asked to explain that why deduction u/s 80IC should not be disallowed on other income (interest) of Haridwar Unit. Assessee vide letter dated 16.03.2015 submitted that the assessee has earned interest at ₹ 28,81,388/- from the FDRs etc which are prepared for margin money etc , otherwise also, It is pertinent to mention that the assessee has paid huge Interest for the said Eligible unit. The interest earned is less than the interest Paid The assessee could have shown the Net Interest after set off the same within the Interest head. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking and, therefore, deduction u/s 80 HH could not be allowed in respect thereof In view of the above facts, it is clear that the assessee is not entitled for deduction u/s 80 1C of IT Act on interest income from fixed deposits of ₹ 28,81,388/- and the same is being disallowed. Submission of the appellant Disallowance of deduction claimed under section 80-1C amounting to ₹ 28.81.388/- on account of Interest Income earned at Exempted Unit, Haridwar It is respectfully submitted that the assessee has earned interest at ₹ 28,81,388/- from the FDRs etc which were prepared for margin money etc., in other words for the purposes of the industrial business of the exempted unit only. It is pertinent to mention that the assessee has paid huge Interest for the said Eligible unit The interest earned is less than the interest Paid. The assessee could have shown the Net Interest after set off the same within the Interest head. It is also not out of place to mention here that the Interest income earned would have not been there had the funds not invested and were utilized directly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees claim of interest income by observing that assessee was required to invest in FDRs for margin money not for the sake of earning income from investment of surplus funds but as a mandatory requirement in order to obtain orders for sale. It could not have fluctuated tenders without filing bank guarantee and without these bank guarantees, it could not have obtained any orders. Accordingly, he held that these FDRs were purchased out of business compulsion and were inextricably linked with the assessees business activities. The interest income of ₹ 34.91 lakhs was thus held to qualify for inclusion in the profits of the business for the purpose of computing deduction under Section 80-IB of the Act. 4. Aggrieved by the above order of the CIT (Appeals), the revenue is in appeal before us It was contended by the learned Sr. DR Shri. R.L Meena that by no stretch of imagination interest earned on bank deposits can be said to have derived from industrial undertaking so as to qualify for special deduction under Section 80-IB of the Act Fie relied on the proposition laid down by Hon ble Supreme Court in case of CIT v. Sterling Foods, wherein the Hon ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ason to decline netting of the interest expenditure out of the interest income while bringing the net interest income for taxation under the head Income from other sources He further relied on various decisions of the following co-ordinate Benches wherein bank interest income was considered as inextricably related to carrying out on business of industrial undertaking and considered for deduction under Section 80-1A of the Act. 1. Assistant Commissioner v. Maxcare Laboratories Ltd. (2005) 92 ITD 11 (Ctk.) The bank interest income was considered as inextricably related to carrying out on of business of industrial undertaking and considered for deduction under Section 80-IA. 2. Centex Publication (P.) Ltd. v. Dy. CIT (2003) 133 Taxman 42 (Delhi)(Mag). The interest income was considered as derived from industrial undertaking and eligible for deduction under Section 80-L 3. Picric Ltd v Jt. CIT The interest on fixed deposit with the bank towards various credit limits considered as derived from an attributable to business and benefit was allowed under Section 80HHC 4. Leather age v. ITO (2003) 86 ITD 4822 (Luck ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain undertakings or enterprises in certain special category States (Interest income) - Assessment year 2007-08 - Assessee- company deposited profits and gains of its undertaking and earned interest income from those fixed deposits - It claimed deduction under section 80-IC in respect of said income - Whether interest income earned by assessee would not be treated as income derived from business of manufacture or production of any article or thing by assessee's industrial undertaking for purpose of granting relief under section 80-IC - Held, yes [Para 20] [in favour of revenue] [2015] 62 taxmann.com 252 (Punjab Haryana) HIGH COURT OF PUNJAB HARYANA Commissioner of Income-tax, Patiala vs. H.M. Steels Ltd.* S.J. VAZIFDAR, Actg. CJ. AND G.S. SANDHAWAL/A, J. IT Appeal No. 352 of 2013 (O M) AUGUST 4, 2015 Section 80-IC of the Income-tax Act, 1961 - Deductions - Special provisions in respect of certain undertakings or enterprises in certain special category States (Computation of deduction) - Assessment year 2007-08 - Whether any industrial undertaking or enterprise would be entitled to deduction under sub-section (1) of section 80-IC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital (P.) Limited (supra), it was held by Hon ble Gujarat High Court that amount of expenditure by way of interest would be interest paid by assessee on borrowings minus taxable interest earned during the financial year, for the purposes of applying factors in Clause (ii) of Sub Rule (2) of Rule 8D where assessee pays interest on borrowings, as also earns taxable interest on investments. Same view has also taken by Coordinate Benches of ITAT in the case of DCIT vs. DLF Asset Pvt. Ltd. (supra), DCIT vs. Machino Finance Limited (supra) and DCIT vs. Trade Apartment Limited (supra), copies of these precedents were filed by the learned counsel for the assessee, and are placed on record. The relevant portions from these precedents are reproduced below for the case of reference:- From DCIT vs. DLF Asset Pvt. Ltd. (supra) 5. The decision of Hon ble High Court in PCIT Vs. Nirma Credit Capital (P) Ltd. is brought to our notice and it is so held in the said decision that for the purpose of applying factors contended in clause (ii) of sub-rule (2) of rule 8D, prior to its amendment w.e.f. 02.06.2016, amount of expenditure by way of interest would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the material on record and duly considered factual matrix of the case as also the applicable legal position. 4. As learned CIT(A) has rightly observed, once there is no net interest expenditure, as is the case before us - upon setting off interest credited to profit and loss account, no part of interest debited can be disallowed as attributable to earning tax free dividend. The CIT(A) was thus quite justified in deleting the interest disallowance. We have also noted that entire expenses incurred by the assessee have been offered for disallowance, and once that happen, nothing remains for further disallowance u/s. 14A. The disallowance under section 14A can come into play only out of expenses claimed/or deduction and expenses have been claimed for deduction, there cannot be any disallowance either. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A). In the instant case the Id. CIT(A) has calculated the disallowance under section 14A r.w.r. 8D of Income Tax Rules after taking the net interest expenditure. We find that the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuade as to take view different from the view taken by the learned CIT(A). The order of the learned CIT(A) is well reasoned, detailed and speaking order, in which there is no such infirmity which warrants any interference by us. Therefore, second ground of appeal is dismissed. [H]. We now come to the third ground of appeal. The relevant portion of the order of the learned CIT(A) is reproduced as under:- 6. Ground No. 3 pertains to the claim of the appellant that expenses disallowed u/s 14A for earning exempt income should be considered for deduction u/s 80 IC of the IT Act, 1961 of ₹ 6,48,149/- Submission of the appellant ......... Notwithstanding any thing contrary here in above in the discussion of Ground No 1. if at all, Your good self takes the view that the disallowance u/s 14A is to be calculated on Net Interest as calculated by the id AO, then in that case, the disallowance calculated by the Ld AO for the exempted unit, is allowed u/s 80-IC. The Ld AO has arbitrarily and Wrongly not allowed the deduction under section 80-IC on disallowance under section 14A pertaining to exempted Unit at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X
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