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TMI Blog2018 (5) TMI 1967X X X X Extracts X X X X X X X X Extracts X X X X ..... that no efforts were made by the assessee to recover the amounts. As per the judgment of Hon ble Supreme Court in the case of TRF Ltd. Vs. CIT [ 2010 (2) TMI 211 - SUPREME COURT] bad debts need not be proven to be irrecoverable. It is sufficient if the same are written off. Since the issue is squarely covered by the provisions under section 36(1)(vii) and section 36(2) of the Income Tax Act,1961, and since it is written off as irrecoverable, we decline to interfere in the order of the Ld. CIT(A). - Decided against revenue Disallowance under section 36(1)(iii) on purchase of Land - HELD THAT:- Assessee has got sufficient funds as per the balance sheet as on year ending 2010. The share capital is of 2.57 Crores and the reserves and surplus are to the tune of 115.35 Crores. Hence, placing reliance on the decision of the Hon ble jurisdictional High Court in the case of Bright Enterprises Private Ltd. [ 2015 (11) TMI 342 - PUNJAB HARYANA HIGH COURT] and judgment in the case of a CIT Vs. Omax bikes limited [ 2015 (8) TMI 1290 - ITAT CHANDIGARH] , Hero Cycles Vs. CIT [ 2016 (2) TMI 1081 - ITAT CHANDIGARH] wherein it has been held that if sufficient interest free funds are available the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for these investments which have been received in the form of share capital from M/s Goldman Sachs (Mauritius) to whom 360000 shares have been allotted. Keeping in view the peculiar facts and circumstances of the case a reasonable estimate of the expenses needs to be determined as Rule 8D cannot be invoked. We find that Ld. CIT(A) has reasonably estimated the disallowance keeping in view the entire facts and circumstances of the case. Addition u/s 8D(2)(i) (ii) - In the decision in the case of Dhampur Sugar Mills Vs. CIT (Alld) [ 2014 (9) TMI 791 - ALLAHABAD HIGH COURT] wherein it was held that half percent of average investment is justified on account of disallowance under Rule 8D(2)(iii) on account of other expenses. Since the decision of the Ld. CIT(A) is based on the orders of the ITAT and the Hon ble High Court, we decline to interfere in the order of the Ld. CIT(A). Disallowance u/s14A cannot be considered in determination of tax under section 115JB - HELD THAT:- Disallowance under section 14A read with Rule 8D cannot be added while computing book profits as per section 115JB as Explanation to that section does not specifically mentions section 14A of the Income Tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 17,32,506/- u/s 80IS by holding the assessee's NOIDA Unit to be Small Industrial Unit by simply relying solely on the submissions of the assessee and not by giving any independent findings? Grounds of C.O. No. 27/Chd/2017 for A.Y. 2007-08 is as follows: 1. That the learned CIT(A)-1, Ludhiana, has erred in confirming the disallowance of ₹ 5,31,145/- u/s 14A being 10% of the dividend income of ₹ 53,11,447/-. 2. That it has been ignored that no expenditure was incurred by the appellant in earning the exempt income and even otherwise the disallowance of 10% of the exempt income is far too excessive. 3. That the confirmation is disallowance is against the law and facts of the case. Grounds of ITA No. 405/Chd/2017 for A.Y. 2008-09 is as follows: 1. Whether upon facts and circumstances of the case in law, the Ld. CIT(A) is justified in deleting the disallowance made on account of Foreign Travel Expenses when the onus of the assessee to prove the business purpose has not been discharged? 2. Whether upon facts and circumstances of the case in law, the Ld. CIT(A) is justified in deleting the disallowance made u/s 14A of Income Tax Act, 1961 read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale tax subsidy by wrongly treating the same as part of income of the appellant ignoring the facts that the said amount of ₹ 61,59,656/- was in nature of capital receipt not liable to tax. 2. That the Ld. CIT(A) has erred in not following the judgment of the Hon'ble jurisdictional Tribunal which was binding on him. 3. That the Ld. CIT(A) has erred in confirming the order of the AO in upholding the disallowance made u/s 14A amounting to ₹ 1,51,728/- in assessment made u/s 115JB of the Income Tax Act. Grounds of ITA No. 557/Chd/2017 for A.Y. 2011-12 is as follows: 1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of ₹ 14,76,483/- u/s 80IC of Income Tax Act, 1961 on job work charges by simply relying solely on the submissions of the assessee and not by giving any independent findings.? 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of ₹ 17,10,872/- u/s 80IC of the Income-tax Act, 1961 in lieu of indirect benefits received by assessee from the parent company M/s. Crcmica Agro Foods Ltd., by simply relying solely on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax. 2. That the Ld. CIT(A) has erred in not following the judgment of the Hon'ble jurisdictional Tribunal which was binding on him. Grounds of ITA No. 559/Chd/2017 for A.Y. 2013-14 is as follows: 1. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of ₹ 42,16,898/- u/s 80IC of Income Tax Act, 1961 on job work charges by simply relying solely on the submissions of the assessee and not by giving any independent findings.? 2. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance of ₹ 43,44,775/- u/s 80IC of the Income-tax Act, 1961 in lieu of indirect benefits received by assessee from the parent company M/s. Cremica Agro Foods Ltd., by simply relying solely on the submissions of the assessee and not by giving any independent findings? 3. Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition of ₹ 99,032/- on account of bad debts without appreciating the facts that no efforts were made to recover the same by simply relying solely on the submissions of the assessee and not by giving an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal A.Y. 2013-14: Ground No. 3 of Revenue's appeal 4.1 The Assessing Officer has disallowed bad debts of ₹ 4.78 Lacs( for the A.Y. 2012-13) claimed by the assessee on account of transactions with the distributors who in turn supply products of the assessee to the retailers. The retailers made claim against the distributors pertaining to the damaged stock. On settlement of the suits filed by the distributor, the amount was ultimately settled at ₹ 4.78 Lacs which the assessee written off permanently as bad debts. Ld. CIT(A) considered the facts of the case and allowed the claim made by the Assessing Officer as the assessee company has permanently written off the amount. 4.2 Since the action of the Ld. CIT(A) is in consonance with the provisions under section 36(1)(vii) and section 36(2) of the Income Tax Act,1961, and since it is written off as irrecoverable in the taxpayer's books of accounts, we decline to interfere in the order of the Ld. CIT(A). For the A.Y. 2013-14, the bad debts claimed by the assessee are on account of publicity charges not recovered from customers. The Assessing Officer disallowed the claim only on the basis that no efforts were made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2010-11: Ground No. 3 of the Revenue's appeal (Cremica) A.Y. 2011-12: Ground No. 2 of the Revenue's appeal (Cremica) A.Y. 2012-13: Ground No. 2 of the Revenue's appeal (Cremica) A.Y. 2013-14: Ground No. 2 of the Revenue's appeal (Cremica) 6.1 The relevant portion of the Assessment Order pertaining to disallowance is as under: The assessee is running a unit at Tahliwal claiming exemption u/s 80IC of the Income Tax Act, 1961 established by M/s Cremica Agro Foods Limited in a industrial growth centre in the state of Himachal Pradesh as per section 80IC(2)(ii). M/s. Cremica Agro Foods Ltd. had taken the land on lease from Himachal Pradesh Government for establishing its unit in Himachal Pradesh. The funds and technical know how has been provided by the management since it was already running the similar business at Phillaur. The brand names, products, quantities, packing, sizes/ quantities of the saleable units of the products are the same, as per the discussions with the assessee during the assessment proceedings. The Tahliwal Unit has not paid any expenses for know how, goodwill, trade name, establishing expenses in the market for its products as it got a readymade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 being established in a industrial growth centre in the state of Himachal Pradesh as per section 80IC(2)(ii). The assessee has taken the land on lease from Himachal Pradesh Government for establishing its unit in Himachal Pradesh. The funds and technical know how has been provided by the management since it was already running the similar business at Phillaur. The brand names, products, quantities, packing, sizes/quantities of the saleable units of the products are the same, as per the discussions with the assessee during the assessment proceedings. The Tahliwal Unit has not paid any expenses for know how, goodwill, trade name, establishing expenses in the market for its products as it got a readymade market generated by Phillaur Units in the last 12 to 15 years, no patent rights expenses given to Phillaur Unit etc. All the Profits of Tahliwal Unit could not have been earned by a newly established independent group without having experience, expertise, market share, goodwill, trade name, know how etc. Therefore, as per Provisions of Section 80IA (8)&(10), 10% of the Profits earned by Tahliwal Unit are considered to be an indirect benefits derived from the parent unit i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference for the purpose of deduction under section 80IB of the act. Similar view was taken by the Hon'ble Delhi High Court in the case of CIT vs Northern Aromatics Ltd (2005) 196 CTR (Delhi) 479. In view of the same, the reduction in the claim made by the appellant under section 80IC on this account deserves to be deleted. These grounds of appeal are allowed". 6.3 The matter has further travelled to the Tribunal in the A.Y. 2006-07 which stands adjudicated in the favour of the assessee. For the sake of brevity the relevant portion of the order of the ITAT in the case of the assessee in ITA No. 39 & 40/CHD/2017 dt. 08/12/2017 in the case of M/s. Cremica Agro Foods Pvt. Ltd. for the A.Y. 2006-07. 28. Ground No.4 raised by the Revenue reads as under: "4.Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the disallowance ₹ 12,16,332/- made by the A.O. on deduction u/s 80IC claimed by the assessee on Tahliwal Unit without giving any reasons and by simply stating that the A.O. is highly unjustified in denying deduction u/s 80IC to the assessee on the basis of some notional expenses such as knowhow, goodwill, trade nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee having al located al l common expenses on turnover basis and the Assessing Officer have not pointed out as to which expenses had not been considered, this al location of notional expenses by the Assessing Officer was unjustified and unwarranted. Relevant findings of the Ld.CIT(Appeals) at para 3.2 are as under: "3.2 I have considered the facts of the case, the basis of the additions made by the Assessing Officer and the arguments of the AR. The AO has reworked the claim under section 80IC between the Tahliwal unit and the Phillaur unit on estimated basis without bringing any evidence on record to show whether there has been any transaction between the two units. The appellant has made the allocation of all common expenses on turnover basis and the AO has failed to mention any expense which has not been considered in the said exercise. Thus, the reducing of the eligible profits to the extent of 10% by the AO without any sound basis is unwarranted and is hereby ordered to be deleted. 32. Before us, the Ld. DR relied upon the order of the Assessing Officer while the Ld. counsel for assessee reiterated the content ion made before the Ld.CIT(Appeals) and relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted as under:- Regarding disallowance of deduction u/s 80IC on Tahliwal unit on income earned from job charges of ITC Limited in the assessment year 2006-07, we submit that we have correctly claimed the deduction U/S 80IC of the Income Tax Act, 1961 on income earned from job charges. Reliance is placed on the following case laws: ACIT Vs. Biotech Medicals P Ltd. (2009) 170 Taxman 3 (2009) 310 ITR 47 (AT) Hyd) (2009) 121 TTJ 858 Sec SOIB - Job Work/Conversion charges received by an industrial undertaking -entitled to 80IB. Profit on sale of scrap and interest on delayed payment have direct nexus with manufacturing activity. CIT Vs. Northern Arometics Ltd. (2005) 196 CTR 479 (Del) Warren Laboratories VS. DCIT (2005) 3 SOT 638 (Mum - Trib) Sec-80IA - Assessee engaged in job work - eligible for deduction u/s 801 A. ITO, Ludhiana V/s Impel Forge P Ltd. (2008) 36 ITRep 454 (Chd) Affirmed in( 2009) 183 Taxman 38 (P&H) S.80-IB - Deduction allowable to a manufacturing unit who does the job work involving the same processes for others. Section-80 IB-assessee is at liberty to do manufacturing for itself or for others, which makes no difference for purpose of deduction u/s 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June, 2004. The know-how has been provided by M/s ITC to the assessee and it further provides that the machinery provided by it will be used only for the manufacturing and packing the products of M/s ITC Ltd. The details of the machinery have also been provided in the agreement as Schedule 2 and Annexure F. On the perusal of the agreement it is cleared that the assessee is providing labour, electricity etc. while the quality supervision during the manufacturing and packing process is done by the employees of M/s ITC Ltd. M/s ITC is providing raw material and itself incurring the expenditure for the transportation of raw material and finished products. No separate record as per assessee is being maintained for labour or electricity expenses. The assessee has received ₹ 6,21,91,396/- as job charges. 10. The income u/s 80IC is exempted only which is derived by an undertaking from the business of manufacturing or producing any article or thing not prohibited by thirteenth schedule of the Income Tax Act, 1961. The nature of income of job charges cannot be treated to have been derived by the undertaking by manufacturing or producing any article or thing by providing only the lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributable to which has wider import, would have been used. Further, to avail of the benefit of deduction provisions, the assessee has to establish that the profits and gains are derived from its industrial undertaking and it is not sufficient that a commercial connection was established between profits earned and the industrial undertaking. The industrial undertaking itself has to be the source of the profit. When the industrial undertaking is engaged in manufacturing then the profit earned from the manufacturing alone qualify for the deduction 80IB. The nature of income of job charges cannot be treated to have £en derived by the undertaking by manufacturing or producing any article or thing by providing only the labour and electricity. Therefore, the proportionate income derived from the job work cannot be claimed as exempted u/s 80IC. Since the assessee has not maintained separate accounts for various expenses incurred on the job work done by it, the income earned from this activity cannot be determined accurately. However, to compute the exempted income and non exempted income u/s 80IC, I adopt the method to calculate it on proportionate basis i.e. Job charges recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT Vs. Northern Aromatics Ltd. (2005) 196 CTR 479 held that the assessee was entitled to claim deduct ion on profits earned on account of job work undertaken by i t holding as under: Further, the basic process is carried out by the appellant is the same whether the production is done for itself or job work. The Hon'ble Punjab and Haryana High Court in the case of CIT vs Impel Forge and Allied industries Ltd 326 ITR 27 has held that the assessee is at liberty to manufacture for itself or others which makes no difference for the purpose of deduction under section 80IB of the act. Similar view was taken by the Hon'ble Delhi High Court in the case of CIT vs Northern Aromatics Ltd (2005) 196 CTR (Delhi) 479. In view of the same, the reduction in the claim made by the appellant under section 80IC on this account deserves to be deleted. These grounds of appeal are allowed." 37. Before us, the Ld. DR did not point out any infirmity in the order of the Ld.CIT(Appeals) , nor did he bring to our notice any contrary decision of the jurisdictional High Court as opposed to that relied upon by the Ld.CIT(Appeals) while adjudicating the issue. In view of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned as "a small, soft, slightly sweetened roll, often with raisins, a soft bread roll". As such A.O's interpretation was misconceived. Then again as per proviso to section 80 IB (2) (iii), Schedule XI is not applicable to the SSI units. Reply to Para-2. It is submitted that Central Government introduced MICRO, Small and Medium Enterprises Development Act in 2006, according to which the investment criteria for small scale industrial undertaking stands increased to ₹ 500 lacs. The amount of total investment in plant and machinery in Noida Unit during the year under reference is far below the prescribed limit of ₹ 500 lacs. Reply to Para-3 It is humbly submitted that the circulars referred in preceding year are not relevant in our case. However the company has fulfilled all the conditions laid down in section 80IB of The Income Tax Act, 1961." 8.3 The Assessing Officer in the assessment order for A.Y. 2006-07 has observed on the issue of allowance of deduction u/s 80IB for Noida Unit which has been purchased by the assessee during the year. The facts are same and the observations of the Assessing Officer are relevant and reproduced as follows:- & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be considered to be controlled by other industrial undertaking or undertakings, ii. where two or more industrial undertakings are set up as partnership firms under the Indian Partnership Act, 1932 (1 of 1932) and one or more partners are common partner or partners in such firms, each such undertakings shall be considered to be controlled by the other undertaking or undertakings; iii. where industrial undertakings are set up by companies under the Companies Act, 1956(1 of 1956), an industrial undertaking shall be considered to be controlled by other industrial undertaking if,- (a) the equity holding by other industrial undertaking in it exceeds 24% of its total equity or (b) the management control of an undertaking is passed on to the other industrial undertaking by way of the Managing Director of the first mentioned undertaking being also the Managing Director or Directors in the other industrial undertaking or the majority of Directors of the Board of the first mentioned undertaking being the equity holders in the other industrial undertaking in terms of the provisions of (a) and (b) of subclause (iv); (iv) the extent of equity participation by other industrial un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efits u/s 801B of Income Tax Act, 1961. The definition of Small Scale industry undertaking as also been given u/s 80IB(14)(g) which states that an industrial undertaking on the last day of the previous year must be regarded as Small Scale Industry undertaking u/s 11(b) of the industries (Development and Regulations) Act, 1951. The assessee has not provided this certificate during the current assessment year. 6.1 The depreciation chart prepared by the assessee for Noida Unit shows the following plant and machinery under the head "fixed assets": - Sr. No. Particulars of assets Balance as on 31st March 2006 1 Crates and Moulds 39,38,644/- 2 Generator 1,86,916/- 3 Misc. Fixed Assets 18,65,078/- 4 Plant & Machinery 55,96,008/- 5 Transformer 1,47,859/- 6 Water Chilling Plant 3,62,554/- 7 Plant & Machinery (Lettuce plant) 1,04,611/- 8 Water Chilling Plant (Lettuce Plant) 3,29,200/- TOTAL 12530870/- 6.2 The total cost of plant and machinery amounts to ₹ 1,19,05,190/-:. The assessee vide order sheet entry dated 26th December, 2008 was asked as follows: "16. The total cost of Plant & Machinery on the following Plant & M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be given the benefit u/s 80IB. Since it is manufacturing an item listed in the Eleventh Schedule of the Income Tax Act, 1961. Therefore, in the above facts and circumstances as discussed in para 3 to 7, the claim of the assessee amounting to ₹ 39,14,380/- claimed as deduction u/s 80IB on Noida Unit is disallowed." Therefore, on the same facts and circumstances and legal issues the deduction amounting to ₹ 17,32,506/- claimed u/s 80IB is disallowed and added back to the taxable income of the assessee. 8.4 The Ld. CIT(A) deleted the addition based on the order of his predecessor. 8.5 The matter has further travelled to the Tribunal in the A.Y. 2006-07 which stands adjudicated in the favour of the assessee. For the sake of brevity the relevant portion of the order of the ITAT in the case of the assessee in ITA No. 39 & 40/CHD/2017 dt. 08/12/2017 in the case of M/s. Cremica Agro Foods Pvt. Ltd. for the A.Y. 2006-07. As pointed out above, the eligibility criteria for claiming deduct ion u/s 80IB as an SSI unit is that it should be regarded as an SSI undertaking u/s 11B of the IDR Act, 1951. Admittedly, the assessee has been issued such a certificate by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule XI of Income Tax Act , 1961. 24. On this issue, the Ld. counsel for assessee reiterated the content ion made before the Ld.CIT(Appeals) that the word "confectionery" as per the Webster's dictionary means "a candy" sweets and other confect ions collectively, while the word "bun" which is purely a bakery item is defined as "a small, soft , slightly sweetened roll , often with raisins, a soft bread roll . The Ld. counsel for assessee stated that interpretation of the Assessing Officer, therefore, is misconceived. I t was further brought to our notice that the bread and buns fall in product code No.20-21 which were items reserved for exclusive manufactured by micro and small enterprise sector. It was pointed out that SSI certificate issued to the assessee clearly mention the manufacture of bread, buns, etc. 25. We have heard both the parties. We concur with the Ld. counsel for assessee that the assessee is not manufacturing a confectionery i tem which is prohibited as per 11th Schedule of the Income Tax Act . The meaning of word "confectionery" and "buns" as per Webster's dictionary coupled with the fact as pointed out by the Ld. counsel for assessee that the breads and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y invoking provisions of section 14A of the Act as the assessee company has earned exempt dividend income not forming part of total income of the assessee company. 9.2 Before the Ld.CIT(A)the assessee submitted as under: The AO had disallowed a sum of₹ 29,90,386/- u/s 14A /Rule 8D by taking the interest element of₹ 2,19,62,710/- and further made the disallowance @ 0.5% on average investments amounting to ₹ 6,11,844/-. The total disallowance made was ₹ 36,02,230/-. The Ld. CIT(A) vide order dated 08.08.2011 had deleted the disallowance made u/s 14A / Rule 8D by following the judgment of Hon 'ble Bombay High Court in the case ofGodrej & Boyce Manufacturing Co. Ltd vs. DCIT 328 ITR 81 (Bom) which had held that rule 8D was not applicable in the assessment year 2007-08. Now the Hon 'ble Tribunal has set aside the issue again with the direction to decide the same afresh keeping in view the observations of the Hon 'ble Bombay High Court in the case of Godrej Boyce. i) That all the investments in mutual funds amounting to ₹ 76.12 Crores were made out of own funds. During the year the appellant had received a sum of ₹ 72 Crores f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. However it cannot be said that the assessee has not incurred any expenditure in respect of any exempt income. The total investment made by the company or to the tune of ₹ 76.12 crores and the dividend earned is ₹ 53.11 Crores. The assessee has got own funds for these investments which have been received in the form of share capital from M/s Goldman Sachs (Mauritius) to whom 360000 shares have been allotted. Keeping in view the peculiar facts and circumstances of the case a reasonable estimate of the expenses needs to be determined as Rule 8D cannot be invoked. We find that Ld. CIT(A) has reasonably estimated the disallowance keeping in view the entire facts and circumstances of the case. Hence we decline to interfere in the order of the Ld. CIT(A). 9.8 As a result the grounds of the Revenue as well as the assessee stands dismissed. 9.9 Regarding the assessment year 2008-09 the Ld. CIT(A) has rightly deleted the addition made by the Assessing Officer under Rule 8D(2)(i)&(ii). The Ld. CIT(A) has deleted the addition of ₹ 38,82,025/- out of the addition made by the Assessing Officer of ₹ 46,40,472/-. The Ld. CIT(A) has confirmed an amount of ₹ 7.58 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is bound by the provisions of sub section (2) of Section 14A to follow the prescribed method which at the relevant time was Rule 8D. 41. Questions (i) and (ii) are, therefore, answered in favour of the Revenue. Regarding Questions (Hi) the decision ofHon'ble court is as under: 46. We leave the question as to whether such a presumption is valid and if valid whether it arises in this case open. The Assessing Officer must determine the same after taking all the provisions of law and the precedents into consideration. 47. If the Assessing Officer justifiably is not satisfied with the correctness of the assessee's claim regarding the expenditure, he must resort to Rule 8D entirely for the determination of the expenditure incurred with respect to the exempt income for the purpose of section 14A. For instance, if the assessee claims that he has not incurred any interest expenditure but has incurred administrative expenses or vice-versa and the Assessing Officer disagrees with either claim, Rule 8D cannot be applied only in respect of any particular clause of sub-rule (2) of Rule 8D. He must then determine the amount of expenditure incurred in relation to exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again the Revenue was in appeal. The Court has noticed that the Tribunal has held that the expenditure on interest was set off against the income from interest and the investment in the share and funds were out of the dividend proceeds. In view of finding of fact, disallowance under Section 14A of the Act was not found to be sustainable. The Court observed that as to whether any expenditure incurred was to be disallowed is a question of fact. It was held to the following effect: "In view of the finding reproduced above, it is clear that the expenditure on interest was set off against the income from interest and the investment in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under Section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, it is a question of fact .......................... " In the present case, after examining the balance-sheet of the assessee, a finding of fact has been recorded that the funds utilized by the assessee being mixed funds, therefore, the interest paid by the assessee is also an interest on the investments made. Such being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be resorted. The same principle would apply in the case of expenditure incurred in earning exempt income." (iv) Hon'ble Delhi High Court decision in the case of India bulls Financial services Ltd vs DCIT, ITA No. 470 of 2016 dated 21/11/2016. The relevant extract is reproduced as under: "7. Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the amount offered by way of disallowance by the assessee. At the same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under a mandate to apply the formulae as it were under Rule 8D because of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figure on a fair working out of the provisions, he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof, ground Nos.8 to 8.4 raised by the assessee are partly allowed." And also the decision in the case of Dhampur Sugar Mills Vs. CIT (Alld) in ITA No. 131/2014 wherein it was held that half percent of average investment is justified on account of disallowance under Rule 8D(2)(iii) on account of other expenses. Since the decision of the Ld. CIT(A) is based on the orders of the ITAT and the Hon'ble High Court, we decline to interfere in the order of the Ld. CIT(A). 9.13 As a result this ground of appeal of the Revenue and that of the assessee stands dismissed. 9.14 For the A.Y. 2010-11 the assessee has taken the grounds that the disallowance made under Section 14A cannot be considered in determination of tax under section 115JB. 9.15 This matter has been dealt by the special Bench of ITAT, Delhi Bench in the case of ACIT VS. Vireet Investments Pvt. Ltd. in ITA no. 502/Del/2012 and C.O. No. 68/Del/2014. It was held by the special bench placing the reliance on the decision of Hon'ble Delhi High Court in the case of Pr. CIT V. Bhushan Steel Ltd.: ITA No.593/2015 wherein it upheld the decision of the Tribunal in holding that disallowance under section 14A read with Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e does not fall under any of the other four heads of income. Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head "profits and gains of business or profession". If cash assistance received or receivable against exports schemes are included as being income under the head "profits and gains of business or profession", it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head "profits and gains of business or profession", and not under the head "income from other sources". 10.6 The issue of transport subsidy is hereby remanded back to the file of the Ld. CIT(A) to adjudicate the matter in the light of the decisions and guidelines issued by the Hon'ble Supreme Court. 10.7 Regarding the sale tax subsidy, the Ld. AR of the assessee company has submitted before the Ld. CIT(A) that the Honorable ITAT, Division Bench, Chandigarh has decided the issue in favour of the assessee company vide it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame afresh. The order of the Chandigarh Bench of the I.T.A.T. in the case of Bhushan Limited in ITA No.744/Chd/2006 & Others dated 16.6.2015 has been delivered, whereby after deliberating the issue on the nature of sales tax subsidy, the same has been held to be revenue in nature. 6. The learned D.R. did not controvert the said submissions made by the learned counsel for the assessee. 7. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. We have carefully perused the order of I.T.A.T. in the case of Bhushan Limited (supra) and come to a conclusion that this is one of the cases which was before the Hon'ble High Court on the same issue of sales tax subsidy. However, the only difference in the facts of the case of Bhushan Limited (supra) and the current assessee is that in the case of Bhushan Limited (supra), the sales tax subsidy was received from the Government of West Bengal under "West Bengal Incentive Scheme 1999", while in the case of the assessee in question, the subsidy has been received from the Government of Gujarat under the "New Incentive Policy-Capital inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt in the hands of assessee has to be determined with respect to the purpose for which subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which subsidy is paid, is not relevant. The source is immaterial. The form of subsidy is immaterial. 25. Considering the facts of the case and the West Bengal Incentive Scheme, 1999 in the light of the judgement of the Hon'ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd. (supra), it is clear that the unit of assessee was set up as per scheme formulated by Government of West Bengal and assessee has been allowed remission of sales tax for 12 years upto 100% of gross fixed capital investment/asset of the approved project. The incentive scheme was available for location of the unit. No incentive is available to units located in group 'A'. The unit of assessee is located in group 'B' (Hooghly). The subsidy would help the growth of industry and not to supplement profit. Subsidy is determined with reference to the fixed capital investment/asset and not profit. No working capital is considered in the scheme. The ld. DR says that the subsidy is given for 12 years after production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is allowed. Further in the case of Mahavir Spinning Mills Ltd. in ITA No. 344/CHD/2009 wherein the Tribunal held similarly and treated the sale tax subsidy as capital in nature. In the case of Siya Ram Garg (HUF) Hon'ble Punjab & Haryana High Court held that the subsidy given for setting up of industrial unit in backward area was to be determined with reference to capital investment and distinguished Abhishek Industries Ltd. The excerpts of the judgment are as under: The assessee is engaged in manufacture of yarn. It received subsidy of ₹ 12,16,090 from Haryana Government and claimed to be exempt from tax on the ground that the same was capital receipt. The AO disallowed the claim of the assessee by holding that subsidy was granted on 27th Jan., 1995 while operations of the assessee commenced on 16th Nov., 1994. Reliance has been placed on judgment of the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd. v. CLT (1997) 142 CTR (SO 261 : (1997) 228 ITR 253 (SO and judgment of this Court in CIT v. Abhishek Industries Ltd. (2006) 205 CTR (P&H) 304 : (2006) 286 ITR 1 (P&H). The CIT(A) allowed the appeal of the assessee holding that the subsidy was for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was supported by the view taken by the Hon'ble Supreme Court in CITv. Ponni Sugars & Chemicals Ltd. f2008) 219 CTR (SC) 105 : (2008) 13 DTR (SO 1 : (2008) 306 ITR 392 CSC) which has been followed by the Tribunal and the view taken in Sahney Steel & Press Works Ltd. (supra) and Abhishek Industries Ltd. (supra) was distinguishable. Further in the case of Industrial Organic and Pharmaceuticals Ltd. the High Court of Punjab & Haryana in ITA No. 420 of 2007 held that the subsidy received for establishing new factory is capital subsidy. In the case of Talbros Engineering Ltd. 386 ITR 154 the Hon'ble Jurisdictional High Court has held that the sale tax subsidy received partakes the nature of capital as it is given for development encouraging the industries to set up their units in rural areas and for compensating for the hardship in setting up such industries in remote rural areas. The relevant portion of the judgment is as under: The assessee received a subsidy of sales tax amounting to ₹ 21,68,938/- which was claimed as a capital receipt not chargeable to tax. On being asked as to why the subsidy be not treated as revenue receipt, the assessee stated that it was given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and Facilities to Industrial Units in Himachal Pradesh, 2004" and the Notification of the Government of Himachal Pradesh, Excise 85 Taxation Department have been called for and studied. The relevant parts of the same are as under:- i) "As per the "Rules Regarding Grant of Incentives, Concessions and Facilities to Industrial Units in Himachal Pradesh, 2004", which have come into effect from the 31st December, 2004, relevant extracts in relation to the sales tax concession is as under:- 10.1 The following Sales Tax incentive would be provided subject to their fulfilling the eligibility conditions a laid down elsewhere under these rules- 1) Sales Tax incentive, that is, exemption from payment of C.S.T/G.S.T for 10 years from the date of their commencement of production in the Tax free Zone (now classified as category 'C areas under these Rules) shall be continued, as provided for under the 1999 incentive Rules. This incentive will be admissible to New Industrial Units and or existing Industrial units as on 07.01.2003(for the purpose of this incentive only) which undertake substantial expansion after 07.01.2003. This incentive will be available to al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be counted for determining the ceiling of 3 years. Interest subsidy will be admissible for the ttst 3 years of the original payment schedule finalized by the financial Institution at the time of sanctioning of loan." ii)"GOVERNMENT OF HIMACHAL PRADESH EXCISE AND TAXATION DEPARTMENT No. EXN-F(2)2/2004Shimla-l 71002 the 24th August, 2005 In exercise of powers conferred by sub-section(5) of section 62 of the Himachal Pradesh Value Added Tax Act, 2005(Act No. 12 of 2005) (hereinafter in this notification referred to as the "said Act") the Governor, Himachal Pradesh is pleased to direct that any dealeri) i) Who manufactures and sells goods and who immediately before the commencement of the said Act, was enjoying the benefit of any incentive of sale tax leviable on the sale of manufactured goods under the Himachal Pradesh General Sales tax Act, 1968) (hereinafter in this notification referred to as the 'repealed Act ' ) in accordance with the notifications issued under section 42 or 42-A of the repealed Act, and ii) ' Who would have continued to be eligible for such incentive on the date of commencement Option etc. by Industrial units r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial investment subsidy on fixed assets subject to a ceiling of ₹ 1,00,000/- per unit shall be allowed to such entrepreneurs out of State funds for establishment of Tiny units etc. Thus it is seen that the said Subsidies are in the nature of Capital Receipt and a one time benefit Granted to the Industrial Units. d) The Sales Tax Incentive was available to the assessee after it started its production. The Subsidy was given as help not for the setting up of the Industries which was already commenced production. Therefore, the Incentive cannot be treated as an aid to the setting up of Industry of the assessee and the incentive is in the nature of Operational Subsidy and not Capital Subsidy. e) There is no other document or material on which reliance is placed by the assessee to substantiate its contention that Sales Tax Incentive of the kind in consideration should be treated as Capital Receipt and not Revenue Receipt. The assessee has not referred to any other document or policy of the State Government to show that the kind of Subsidy under consideration was given to the assessee for creation of Capital Assets as an aid to setting up of the Unit. 10.11 We have heard a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nits or for substantial expansion of existing units or running of the business profitably. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant. In the case of Seaham Harbour Dock Co. quoted by the Hon'ble Supreme Court the assessee was obliged to spend the money for extension of its docks. This aspect is very important. In that case the receipt of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. Whereas in the instant case there is no such obligation to spent the subsidy to a specific capital purpose. Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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