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TMI Blog2019 (6) TMI 1441X X X X Extracts X X X X X X X X Extracts X X X X ..... id power project unit. Neither it is ascertainable from the order that any verification during the appellate proceeding was made before enhancing the income of the assessee by reducing the allocation of head office expenses to the said unit. In that view of the matter, we find it fit and proper to set aside the issue to the file of the Learned CIT(A) for verification of the same after going through the details of expenditure incurred by the head office in respect of Akrimota Power Project Unit and upon establishing linkage and/or nexus of such expenditure to that of the eligible Power Project Unit to pass the order in accordance with law keeping in view of the nature of expenditure as mentioned above. Therefore, the Learned CIT(A) should give categorical finding in respect of the expenditure which cannot be allocated to Akrimota Power Project Unit after due verification of the supporting documents provided by the assessee - Assessee s appeal is allowed for statistical purposes. Disallowance u/s 36(1)(iii) - assessee could not prove nexus of interest of interest free loans given to others with interest free fund - CIT(A) in directing to make proportionate disallowance - HELD THAT:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. Disallowance of depreciation - HELD THAT:- Issue decided in favour of assessee as relying on own case for A.Y. 2001-02 Deduction u/s 80IA to be allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... is no allocation of expenses to any of the project. On the contrary, the Learned DR relied upon the orders passed by the Learned CIT(A). 5. We have heard the respective parties, perused the relevant materials available on record. We find while reducing the allocation of head office expenses resulting into enhancement of the income of the appellant, the Learned CIT(A) observed as follows: "While deciding the issue related to deduction under section 80 I-A, it was noticed, that the appellant has not computed the deduction under section 80 I-A correctly. It was noted that the common expenditure which are incurred at the head office were not allocated to the eligible units. The head office looks after the activity and control the work of all different units of the assessee appellant company. Therefore, it is logical that all the head office expenses which are not unit specific should be allocated to all the units owned by the appellant in proportion of the turnover. The criteria for locating the expenses should be based on the turnover of each different unit as that is the most scientific basis on which the expenses can be allocated. Accordingly, the appellant was show caused as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenses 1262188 1262188 20152 Books & Periodicals 66714 66714 20155 G.S.L.I. Contribution 40529 40529 20158 L.T.C. / H.T.C Expenses 411643 411643 20160 Medical Expenses 2430373 2430373 20162 Staff Training Expenses 1027704 1027704 20164 Staff Welfare Expenses 1952584,6 1952584.6 20181 Edli Insurance Premium 876000 876000 20182 Group Gratuity Contribution 34606434 34606434 20185 Vrs Expenses 14631123 14631123 20401 Building Repairs & 1233485 1233485 20428 Dg Set Spares 167735 167735 20431 Electrical Goods 150926 150926 20439 Machinery Repairs And 100352 100352 20481 Computer Repairs And 46001 46001 20482 Electrical Repairs And 9012 9012 20485 Maintenance service charges 3584999 3584999 20487 Sundry Repairs And 567949 567949 20489 Vehicle Repairs And maint 780071 780071 20490 Vehicle Spares 24800 24800 20506 Survey & Data Collection 26401745 26401745 21004 Transportation Expenses 17150 17150 21201 Rates, Taxes & Land Revenue 2496460.69 2496460.69 21301 Insurance Premium Expenses 2904779 2904779 21501 Conveyance Expenses 269134 269134 21503 Petrol, Diesel & Oil (for 2173541 2173541 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 283393.27 0 24201 Prior Period Adjustments 5491725 0 24401 Income Tax Provision for 1960000000 0 24501 Wealth Tax for the Current 233000 0 24601 Deferred Provision for the 138239265 0 Total 2508681565 403678472 The claim of deduction under section 80IA will accordingly be reduced by this amount and the amount admissible for deduction would be as under: (I) 80IA deduction as claimed in the ROI - ₹ 31,15,94,168/- (II) Reduction for allocation of HO Expenses - ₹ 6,63,71,309/- Net allowable deduction u/s 80IA of the Act - ₹ 24,52,22,859/- Accordingly, the deduction claimed by the appellant is reduced to that extent and the income is enhanced." 6. It appears from the order that the assessee accepted the allocation made by the Learned CIT(A) in respect of the units except Akrimota Power Project which is eligible for deduction u/s 80IA of the Act. No explanation, whatsoever, has been forthcoming in this aspect. Taking into consideration the nature of expenditure as evident at Page 64, 65 & 66 of the impugned order, we find some of them may not be directly linked with the concerned Power Project Unit at Akrimota; the share transfer fee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) by us in ITA No.873/Ahd/2015 for A.Y. 2011-12. In that view of the matter, the instant appeal filed by the assessee becomes infructuous. Hence, the appeal is dismissed as infructuous. ITA No.1369/Ahd/2015 for A.Y. 2011-12: 8. The revenue has filed following grounds of appeal: "1. The Ld.CIT(A) has erred in law and on facts in directing the AO to make proportionate disallowance out of total disallowance of ₹ 47,83,671/- by the AO u/s 36(1)(iii) of the I.T. Act, 1961, though the assessee could not prove nexus of interest of interest free loans given to others with interest free fund. 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 42,90,471/- made by the AO u/s 14A r.w.r. 8D of the I.T Rules. Further, the Ld.CIT(A) has also erred in law and on facts by directing that the disallowance should not be done on Administrative expenses as no exempt income has been earned in this year. This is against CBDT Circular No.5/2014 dtd.11.02.2014 which warrants disallowance u/s 14A is to be done even in cases where no exempt income has been earned in a particular 3. The Ld.CIT(A) has erred in law and on facts in deleting the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of any supporting documents / evidences furnished by the assessee as opined by the Learned AO. It was also observed that the assessee failed to prove that it has ample interest free funds to prove his claim genuine. He, therefore, came to a conclusion that the appellant company had used borrowed fund for non interest bearing advances and proportionate interest of ₹ 47,83,671/- being 12% of the entire loan, advances to tune of ₹ 3,98,63,925/- given to those sister concerns was disallowed and added to the total income of the assessee which was in turn deleted by the Learned CIT(A). Hence, the instant appeal preferred by the revenue before us. 11. At the time of hearing of the instant appeal, the Learned Counsel appearing for the assessee submitted before us that the assessing officer failed to appreciate the underlying principle of own funds and borrowed funds as discussed in the matter of CIT vs. Reliance Utilities & Power Ltd reported in 178 Taxman 135 (Bombay). It was further contended that even if such companies are related company to the appellant then also during the year the appellant company paid up capital of ₹ 63,60,000/- and free Reserve & Surplus o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 36(1)(iii) of the Income Tax Act,1961. The Ld. Assessing officer had also failed to appreciate underlying principle of Own Funds & Borrowed Funds as set out in the case of Commissioner of Income Tax V. Reliance Utilities & Power ltd 178 Taxman 135(Bom.) Without prejudice to what is stated above, we would further like to state that even if such companies are related company to the appellant than also during the year the appellant company has paid up capital of ₹ 63,60,000/- and free Reserve & surplus of ₹ 1606,16,98,572/- for the purpose of making of such payments. 1.5. Without prejudice to what is stated above, We would like to state that on one hand the Ld. A.O. states that the appellant has failed to furnish and prove nexus that the advances were made from interest free funds, on the other hand, while calculating the deduction U/s 80IA of the Act in respect of Income from Power Plant, the appellant has considered Interest of ₹ 11,34,24,434/- as relatable to Income earned from such power plant. This fact is very much accepted. The balance amount of Interest of ₹ 3,25,59.873/- & ₹ 68,48,106/- represented Interest in respect of other Term Loans & In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the earlier decision taken by him in assessee's own case as for A.Y. 2010-11. The Learned CIT(A) further directed the Learned AO to re-compute the proportionate disallowance by taking the total interest expenditure at ₹ 11,53,706/- which in our considered view is without any ambiguity. Hence, we find no infirmity in the order passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Hence, revenue's appeal found to be devoid of any merit and dismissed. 13. Ground No.2: The revenue has also challenged the deletion of disallowance of ₹ 42,90,471/- u/s 14A r.w.r. 8D of the Income Tax Rule. 14. During the course of assessment proceeding, it was noticed that the appellant company has made total investment in shares & mutual funds to the tune of ₹ 1,32,60,88,170/-. The company has also earned exempt income i.e. dividend income to the tune of ₹ 3,28,01,063/-. Show-case, therefore, dated 17.12.2013 was served upon the assessee as to why disallowance u/s 14A of the Income Tax Act, 1961 r.w.r. 8D of the Income Tax Act, 1962 would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the basic presumption is that it is available from interest free funds. It was further contended that the assessee has paid up capital of ₹ 63 crores, and free Reserve & Surplus of ₹ 1606 crores as against the total investment of ₹ 132 crores. No interest bearing fund has been utilized for the purpose of making such investments and therefore disallowance as made by the Learned AO to the tune of ₹ 42,90,471/- upon application of section 14A r.w.r. 8D has been rightly deleted by the Learned CIT(A). On the contrary, the Learned DR relied upon the order passed by the Learned AO. 16. We have heard the respective parties, and perused the relevant materials available on record. We have carefully considered the order passed by the Learned CIT(A) which is as follows: "I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made disallowance under section 14A by applying the provisions of Rule 8D. It has been held by him that the appellant has not been able to explain that the investment has been made out of the interest-free funds and after giving the credit of the disallowance already made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds which have been utilised for making the investment giving exempt income. Accordingly, only this amount of interest should be taken for the purpose of making disallowance by applying the provisions of Rule 8D. The AO is accordingly directed to work out the disallowance by taking the interest of ₹ 11,53,706/-. It is, however, noted that certain disallowance out of this amount has already been made under section 36(i)(iii) of the Act which has been decided by me in the preceding ground of appeal. The total disallowance so made under both the sections should not exceed the total interest expenditure of ₹ 11,53,706/-. Regarding, the disallowance on account of administrative expenditure, it is noted that the claim of appellant that it has not earned any tax free income in respect of the investment of ₹ 29.20 crores and no disallowance under section 14A should be made on account of this investment is acceptable keeping in view the judgment of jurisdictional High Court in the case of Corrtech Energy Private Limited in Tax Appeal No. 239 of 2014 reported in 45 taxmann.com 116 (Gujarat). It has been held by the honourable court that, if no exemption on account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance on account of administrative expenditure is called for. The justification given by the Learned CIT(A), in our considered view is proper and does not warrant interference. Hence, the same is upheld. In the result, revenue's appeal is dismissed. 17. Ground No.3: The order passed by the Learned CIT(A) in deleting the depreciation of ₹ 5,00,000/- is also under challenge before us by the revenue. 18. The brief facts leading to the case is this that the assessee claimed depreciation on the assets in respect of multi-metal project at Ambaji. Since the said project was nonfunctional and did not operate at all during the year under consideration, the assessee was served with a show-cause dated 17.12.2013 as to why disallowance of the said amount should not be made on multi-metal project. However, the reply rendered by the assessee was not found acceptable by the Learned AO. He thus disallowed the same which was in turn deleted by the Learned CIT(A) in appeal. Hence, the challenge before us. 19. At the very outset of the hearing of the issue, the Learned Counsel appearing for the assessee submitted before us that the matter is squarely covered in the assessee's own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny the appellant company claimed such deduction u/s 80IA of the Act. Show-cause, dated 06.12.2013 was therefore, issued upon the assessee with a request to furnish a separate balance sheet and profit and loss account for ascertaining the profit of the said power project unit. The assessee was further directed to show-cause as to why the losses and depreciation which has been set off against other business income of the corporation should not be set off against the power project income of ₹ 31.16 crores. The assessee submitted as follows: "...Notional brought forward of loss of the earlier years u/s.80-IA(5): Your goodself has asked us to explain as to why as per the provisions of sub section (5) of section SOLA, loss of earlier years in respect of power project, though set off against the income of other units in earlier years, be not set off notionally in determining the deduction u/s.80IA. In this regard, we would like to submit as under; Analysis of S.80-IA(5): S.80-IA(5) reads as under: "Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The true intention of Ss.(5) can be easily understood by imagining the absence of it. For example, where the assessee has claimed deduction u/s.80-IA for three years and there is a loss in the 4th year of claim in a block of ten years, in absence of Ss.(5), the assessee can continue to deduction on the profit from 5th year ignoring loss incurred in the 4th year if it has been set off against any other income. By virtue of the fiction in Ss.(5), the loss of the 4th year is to be set off against the income before claiming deduction for the 5th year. Therefore, Ss(5) will operate only during the period of ten years of claim and only form the second year of the claim. Ss.(5) is thus not rendered redundant….." In support of the contention made by the assessee reliance was also placed on the judgment passed by different Court of Law. However, such plea of the assessee was not found tenable by the Learned AO. He, ultimately came to a conclusion that the initial assessment year for the purpose of Section 80IA(5) shall be the year of commencement of eligible business and the loss or unabsorbed depreciation shall be notionally brought forward from the said year even if the loss or un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/01/2015 for A Y 2010 - 11. For the sake of clarity the findings given by me in that order is reproduced hereunder:- "I have carefully perused the order and submission made by the AR of the appellant. The AO has recomputed the deduction under section 80IA of the Act claimed by the appellant. He has considered the unabsorbed depreciation of the eligible unit in earlier years as unadjusted depreciation and accordingly considered the same as brought forward depreciation of the eligible unit and after adjusting unabsorbed depreciation, the claim of deduction under section 80IA of the Act has been allowed. The appellant has commenced the production from A. Y. 2005 - 06, but made that claim for the first time in A Y 2010 - II. The appellant on the other hand has submitted that the losses from eligible business in the years prior to initial Assessment Year absorbed against the profit of other business need not be nationally brought forward and, therefore, the deduction should not be reduced." On a careful consideration of the entire facts of the case, if is noted that the issue whether the deduction under section 80IA of the Act is to be allowed without adjusting the notional br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 years of deduction out of 15 years, then only losses of years starting from initialassessment year alone are to be brought forward; loss prior to initial assessment year which has already been set-off cannot be brought forward and adjusted into period of ten years from initial assessment year-Held, yes- Whether where assessee had not suffered any loss in relevant years and brought forward loss or depreciation did not relate to initial years, same could not be reduced for determining amount for which deduction is to be allowed under section 80-IA - Held, yes [Para 28]" The judicial pronouncements relied by the AO such as Goldmine Shares & 6.3 Finance (P) Ltd (supra) is respectfully distinguished as the judgement has been considered by honourable ITAT Ahmedabad and honourable High Court of Madras in the case of Velayudhaswamy Spinning Mills Private Limited (supra). In view of the above discussion, the reduction- of claim under section 80 l-A made by the AO is directed to be deleted." Following the findings given by me in the above order, the disallowance made by the AO is directed to be deleted. He is directed to allow the claim of the appellant as per the calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, at his option, for any ten consecutive assessment years out of fifteen years (twenty years in certain cases) beginning from the year in which the undertaking commences operation, begins development or starts providing services etc. as stipulated therein. Sub-section (5) of section 80IA further provides as under- "Notwithstanding anything contained in any other prow'so-, of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that subsection for the assessment year immediately succeeding ino initial assessment year or any subsequent assessment yea/, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made". In the above sub-section, which prescribes the manner of determining the quantum of deduction, a reference has been made to the term 'initial assessment year'. It has been represented that some Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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