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TMI Blog2020 (6) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in which investment was made in the preceding years only. As noted by the ITAT in the case of the assessee for assessment year 2011 - 12 since the investment in subsidiaries do not require much administrative indulgence, the disallowance cannot be calculated as prescribed by Rule 8 D in the ratio of investments made and considering the past history of the assessee wherein against exempt income earned and in assessment years 2006 - 07 and 2007 - 08 [ 2018 (12) TMI 1623 - ITAT CHANDIGARH] disallowance has been upheld by the ITAT. We direct the disallowance in the present case wherein the facts indicate that the assessee has earned dividend income. Direct the AO to restrict the disallowance in all u/s 14 A in the present case. This ground of appeal raised by the assessee is, therefore, allowed in above terms. Treatment of interest earned - as income from other sources OR income from business and profession - HELD THAT:- Since the issue of interest income to be taxable under the head other sources stands adjudicated by the ITAT against the assessee the said decision will squarely apply in the present case also and following the directions of the ITAT in the said year, we u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agree with the Ld. Counsel for the assessee that the issue of claim of deduction u/ s 80 IB/ 80 IC of the Act on interest income received from customers and misc. receipts in the nature of ocean freight, forex gain already stand decided in favour of the assessee by the ITAT in preceding years in the case of the assessee itself. We therefore see no reason to interfere in the order of the LD. CIT(A) with respect to allowance of the aforesaid claims. As for claim of deduction u/ s 80 IB/ 80 IC of the Act on insurance claim received, the issue is restored back to the AO with the direction to adjudicate it in accordance with the direction of the ITA T in the case of the assessee on the identical issue in A. Y 2011- 12 Treatment of interest received under TUF Scheme as capital receipt . Sales tax subsidy to be treated as capital receipt - See Chaphalker Brothers Pune [ 2017 (12) TMI 816 - SUPREME COURT] Mat credit shall include surcharge and cess . See VMT Spinning Company Ltd. [ 2015 (7) TMI 1334 - ITAT CHANDIGARH] Interest income as assessable under the head Business Income is rejected but at the same time its plea of netting the said income is accepted and the AO is directed to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to ₹ 4, 00, 72, 000/- as capital expenditure instead of revenue expenditure." 4. Ground No. 2 relates to the issue of disallowance of expenses made pertaining to those incurred for the purpose of earning exempt income, as per the provisions of section 14 A of the Act r. w. r. 8 D of the Income Tax Rules. 5. Brief facts relating to the issue are that during the impugned year the assessee had earned substantial exempt income amounting to ₹ 1, 39, 15, 734 /- from holding of investments, for which voluntary and suo moto disallowance of ₹ 1 lac was made in the computation of income filed alongwith return of income. Not satisfied with the same the Assessing Officer (AO) invoked the provisions of section contained in Rule 8 D for making disallowance u/ s 14 A of the Act. Accordingly, the AO computed the disallowance under Rule 8 D(2) (ii)&(iii) at ₹ 1, 64, 14, 855 /- and ₹ 45, 94, 325 /- respectively. 6. The Ld. CIT(A), following the decision of the first appellate authority in the case of the assessee for assessment year 2013 - 14, directed the AO to recompute the disallowance after excluding interest expenditure of specific purpose borrowings, net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention to the fact that the exempt dividend income had been earned on the following investments: VMT Spinning Company = ₹ 1, 36, 62, 054 /- IDBI Limited = ₹ 2, 53, 680 /- Total: = ₹ 1, 39, 15, 734 /- 10. The Ld. Counsel for the assessee contended that almost the entire dividend income had been earned from VMT Spinning Company Limited which was subsidiary/ associate concern of the assessee and investment in which had been made in preceding years only. He, therefore, contended that the assessee company was not required to make any expenditure for the purpose of earning the exempt income since it was investment in a subsidiary company only for which no administrative efforts was required for monetary either for making the investment or earning the dividend income. He, therefore, pleaded that the disallowance be restricted to ₹ 2 lacs. 11. The Ld. DR, on the other hand, contended that the Ld. CIT(A) was just and fair having given all possible relief to the assessee as allowable under law by excluding interest paid on lines taken for specific purposes, allowing the netting of interest and further directing that only those investments which have earned ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n' ble Supreme Court in 'Maxopp Investment Ltd Vs. CIT.', 402 ITR 640 (SC) (supra) has been discussed by the Tribunal in the latest decision of the Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' (supra), wherein, the Tribunal after considering the ratio laid down by the Hon' ble Supreme Court in the case of 'Hero Cycles Pvt. Ltd. Vs. CIT', 379 ITR 347 (SC), and other decisions as well as in the case of 'Avon Cycles Ltd. Vs. CIT' of the Hon' ble High Court (supra) has decided the issue in favour of the assessee. At this stage, Ld. Counsel for the assessee has submitted that now the issue is squarely covered by the latest decision of the Hon' ble Supreme Court in the case of in the case of 'CIT (LTU) Vs. Reliance Industries Ltd.' [ 2010 ] 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, i t can be presumed that the investments are made from the interest free funds available with the assessee. In view of this, this question is now settled by the decision of the Hon' ble Supreme Court and the issue acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the assessee warrant no disallowance of interest in the present case, following the decision of the I TAT in the case of the assessee for assessment year 2011 - 12 as reproduced above. Similarly in the case of administrative expenses we have noted that almost entire amount of dividend income has been earned from subsidiary company of the assessee in which investment was made in the preceding years only. As noted by the ITAT in the case of the assessee for assessment year 2011 - 12 since the investment in subsidiaries do not require much administrative indulgence, the disallowance cannot be calculated as prescribed by Rule 8 D in the ratio of investments made and considering the past history of the assessee wherein against exempt income earned of ₹ 1. 59 crores and ₹ 2. 19 crores in assessment years 2006 - 07 and 2007 - 08, disallowance of ₹ 2 lacs and ₹ 2 lacs respectively has been upheld by the I TAT. We direct the disallowance of ₹ 2. 25 lacs in the present case wherein the facts indicate that the assessee has earned dividend income of ₹ 1. 39 crores. We, therefore, direct the AO to restrict the disallowance in all u/ s 14 A in the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eard the rival submissions on this issue. We do not find any infirmity in the order of the CIT(A) so far as the treatment of the interest from customers and suppliers as 'business income' and interest from bank and other sources as 'income from other sources' is concerned. However, a contention has been raised by the Ld. Counsel for the assessee that where there is a direct nexus between the interest income earned and the interest expenditure incurred in this respect, the assessee should be allowed netting of the same before computing the same under the head 'income from other sources'. We find merit in the above contention of the assessee and we order accordingly." 16. In view of the above, since the issue of interest income to be taxable under the head 'other sources' stands adjudicated by the ITA T against the assessee the said decision will squarely apply in the present case also and following the directions of the I TAT in the said year, we uphold the plea of the assessee to netting of interest expenditure against the said income directing the AO to allow netting of subject to there being direct nexus between the interest income earned as directed by the I TAT in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentical issue as under: "7. Ground No.2 : Vide ground No.2, the assessee has agitated the action of the CIT(A) indirecting the Assessing officer to reduce the eligible profits of the undertaking for the purpose of deduction u/s 10B, 80 IB and 80 IC of the Income- tax Act, 1961 (in short ' the Act') in respect of other income received. 8. The Ld. Counsel for the assessee has given details of other income which is mentioned in the ground No.2 itself. A perusal of the aforesaid details will reveal that the assessee claimed rent, Misc. receipts, DEPB, commission and interest income as 'other income' and has claimed deductions in respect of the same u/s 10B, 80 IB and 80 IC etc., as applicable in respect of the respective unit. The Ld. Counsel for the assessee has fairly agreed that except the brokerage from ocean freight, the other items do not constitute income derived from undertaking. So far as the brokerage of ocean freight is concerned, the Ld. Counsel for the assessee has submitted that the same is nothing but refund/rebate out of the freight expenditure incurred by the assessee which has resulted in increase in income of the assessee. 9. The Ld. DR also could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 80 IB/ 80 IC of the Act. Accordingly, we direct the AO to reduce expenses, i f any, incurred by the assessee for the purpose of earning rental income and disallow only the balance rental income deduction u/ s 80 IB/ 80 IC of the Act. As for the miscellaneous receipts, the damages against cancellation of orders from customers received by the assessee, we agree with the Ld. Counsel for the assessee, as direct nexus with the industrial undertakings of the assessee and we hold, is eligible for deduction u/ s 80 IB/ 80 IC of the Act. Similarly, the commission from shipping companies, we have noted, has been held by the I TAT in the case of the assessee itself in the preceding year i. e. assessment year 2006 - 07 as eligible for deduction u/ s 80 IB/ 80 IC of the Act. Accordingly, following the said decision we hold the commission from shipping companies to be eligible for deduction u/ s 80 IB/ 80 IC of the Act. For other receipts no arguments have been forwarded by the assessee and, therefore, the disallowance of deduction u/ s 80 IB/ 80 IC of the Act of the Act on the same amounting to ₹ 1, 00, 356 /- is upheld. As for the interest received from bank and other, we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iefly stated, the facts relating to the issue are that the assessee had paid line/ bay charges in its unit Anant Spinning Mills and Vardhman Yarns, both located in Madhya Pradesh Electricity Board amounting to ₹ 4,00,72,000 /-. The assessee had claimed the said expenditure as revenue contending before the AO that the said expenditure had been incurred for augmenting the business activities of the assessee company and the ownership of the assets so created vested with the State Electricity Board and the amount was not refundable at any stage. The explanation of the assessee did not find favour with the AO who treated the same as capital expenditure and allowed department on the same. 30. The Ld. CIT(A) upheld the order of the AO. 31. Before us the Ld. Counsel for the assessee pointed out that this issue stood adjudicated in favour of the assessee in its own case by the ITAT in assessment years 2011 - 12 and 2012 - 13 in ITA No. 787/Chd/ 2015 and ITA No. 483/Chd/ 2016 dated 14. 3. 2019. Our attention was drawn to the relevant findings of the ITAT in paras 33 and 34 of the order as under: " 33. Ground No. 14 : Vide ground No. 14, the assessee has agitated the action the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the outset itself it was pointed out by the Ld. Counsel for the assessee that the issues stood covered by the order of the I TAT in the own case of the assessee for assessment years 2006 - 07 and 2007 - 08 in ITA No. 1429/Chd/ 2010 and ITA No. 270/Chd/ 2011 dated 18. 12. 2018 wherein the ITAT had found no infirmity in the order of the CIT(A) treating the interest received on account of delayed payments from customers and suppliers as business income. No distinguishing facts have been brought to our notice by the Ld. DR. In view of the same the issue stands covered by the order of the ITAT in the preceding years in favour of the assessee and the order of the Ld. CI T(A) on this issue is, therefore, upheld. Ground of appeal No. 1 raised by the Revenue is accordingly dismissed. 38. Ground of appeal No. 2 raised by the Revenue reads as under: Q.2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IB and 80IC on interest from customers & employee, misc. receipts comprising Brokerage from ocean freights, forex gains, insurance claim & rebate discount ?" 39. The Revenue in the above ground has agitated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of foreign exchange gain, commission brokerage from ocean freight and interest received from customers and suppliers and that relating to insurance claim in preceding years holding at para 27 of the order in ITA No. 35/2011 as under: 27. Ground No.2 : Ground No.2 raised by the Revenue is in three parts. The Revenue in the Ist part has agitated the action of the CIT(A) in directing the Assessing officer to treat the interest received from the customers and suppliers to be income derived from industrial undertaking and eligible for exemption u/s 10B and deduction u/s 80IB and 80IC of the Act. Since we have already held that the interest income received on delayed payment is in fact part of the sale consideration/receivable from the customers and we have also held that the same to be treated as business income and since the aforesaid receipts are relating to the sale receipts of the assessee of the produced manufactured, hence, we do not find any infirmity in the order of the CIT(A) in this respect. In the second part of ground No.2, the Revenue has agitated the action of the CIT(A) in directing the Assessing officer to allow deduction u/s 80IB and 80IC and exemption u/s 10B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the facts. So far as the issue relating to the gains on the foreign exchange rate fluctuation is concerned, the Ld. Counsel for the assessee has submitted that g ain on foreign exchange rate fluctuation has been received on account of proceeds of exports receivable and that the same was a part of the sale consideration. The Ld. counsel has further submitted that this issue is squarely covered in favour of the assessee in the own case of the assessee for assessment years 2006 - 07 and 2007 - 08 vide common order of the Tribunal dated 18. 12. 2018 (supra)." Considering the above we agree with the Ld. Counsel for the assessee that the issue of claim of deduction u/ s 80 IB/ 80 IC of the Act on interest income received from customers and misc. receipts in the nature of ocean freight, forex gain already stand decided in favour of the assessee by the ITAT in preceding years in the case of the assessee itself. We therefore see no reason to interfere in the order of the LD. CIT(A) with respect to allowance of the aforesaid claims. As for claim of deduction u/ s 80 IB/ 80 IC of the Act on insurance claim received, the issue is restored back to the AO with the direction to adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under: "10. We have heard both the parties and have also gone through the order of the Ld. CIT(A). The issue before us relates to the nature of interest subsidy received under the TUF Scheme of the Government of India. The factual findings of the CIT(A) that the purpose of the interest subsidy was upgradation of plant & machinery and thus the capital apparatus of the assessee company, has not been controverted by the Revenue. The Ld. CIT(A), we find, has relied upon the decision of the Hon' ble Jurisdictional High Court in the case of CIT Vs. Sham Lal Bansal, ITA No. 472/2010 (P& H) and the decision of the Hon' ble High Court of Calcutta in the case of CIT Vs. Gloster Jute Mills Ltd.(2018) 96 Taxman. com 303 for holding the interest subsidy to be capital in nature. We have gone through the decision of the Hon' ble Jurisdictional High Court in the case of CIT Vs. Sham Lal Bansal(supra), copy of which order was placed before us, and we agree with the Ld. CIT(A) that in the said case also, the issue related to nature of subsidy received under TUF Scheme of the Ministry of Textiles. The Hon' ble High Court, held that for the purpose of determining the nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atment of interest received under TUF Scheme has already been adjudicated by the ITAT in assessee' s own case in the preceding years right from assessment years 2002 - 03 to 2005 - 06 in ITA Nos. 1479 to 1482/Chd/ 2018 (supra) treating the same as capital receipt and no distinguishing facts have been brought to our notice, we have no hesitation in upholding the order of the CIT(A) treating the interest subsidy as capital in nature. Ground of appeal No. 3 raised by the Revenue is, therefore, dismissed. 46. Ground of appeal No. 4 raised by the Revenue reads as under: 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the sale tax subsidy of ₹ 9, 60, 79, 071/- as capital receipts without comparing the scheme of Gujrat Government with that of Punjab Government scheme made by Hon'ble Punjab 85 Haryana High Court in the case of M/s Abhishek Industries Ltd., 286 ITR1?" 47. The issue raised in the above ground relates to the treatment of sales tax subsidy received by the assessee mounting to ₹ 9, 60, 79, 071 /- which the Department claims to be revenue in nature, while the Ld. CIT(A) has on the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in nature following the decision of the Hon' ble Apex Court in the case of CIT Vs. M/ s Chaphalker Brothers Pune & Others in Civil Appeal Nos. 6513 & 6514 of 2012 dated 7. 12. 2017 wherein it had been held that the sales tax subsidy is a Government incentive to set up new industrial unit in specified area and it is to be treated as capital receipt. The Ld. DR fairly conceded to the above though he contended that the Ld. CIT(A) ought to have examined the scheme of the Gujarat Government under which subsidy have been received in the present case and thereafter adjudicated the issue. 49. We have heard the contentions of both the parties. We have also gone through the orders of the ITAT in the case of the assessee in assessment years 2011 - 12 and 2012 - 13 to which our attention was drawn and we have noted that the ITAT in the said years has treated sales tax subsidy to be capital in nature taking note of the ratio laid down by the Hon' ble Apex Court in the case of in the case of M/ s Chaphalker Brothers Pune & Others (supra) wherein any subsidy received as an incentive for setting up an industrial unit was treated to be a capital receipt. The I TAT held that the sales t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 raised by the assessee in ITA No. 485/2019 reads as under: "2. That the Ld. CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions/submissions of the assessee. 55. It was common ground between the parties that the above ground was identical to ground No. 2 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with us above. Our decision rendered therein at para 12 - 13 above will apply mutatis mutandis to this ground No. 2 raised by the assessee. Accordingly disallowance of interest made as per Rule 8 D(2)(i i) of the Income Tax Rules, 1962, is directed to be deleted. Further the disallowance of administrative expenses as per Rule 8 D(2) (i i i) of the Rules, is directed to be restricted to ₹ 5 lacs in all considering the past history of the identical disallowance upheld by the ITAT and applying it to the facts of the present case wherein the assessee has earned exempt income to the tune of ₹ 11. 18 crs. Ground of appeal No. 2 raised by the assessee is allowed in the above terms. 56. Ground No. 3 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at para 27 will apply mutatis mutandis to ground No. 6 raised by the assessee in ITA No. 485/Chd/ 2019. Ground of appeal No. 6 raised by the assessee is accordingly dismissed 62. Ground No. 7 raised by the assessee in ITA No. 484/2019 reads as under: "7. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating line/bay charges amounting to ₹ 66, 61, 050/- as capital expenditure instead of revenue expenditure." 63. It was common ground between the parties that the above ground is identical to ground No. 7 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with us above. Our decision rendered therein at para 33 will apply mutatis mutandis to ground No. 6 raised by the assessee in ITA No. 485/Chd/ 2019. Ground of appeal No. 7 raised by the assessee is allowed in the above terms. 64. In effect the appeal of the assessee is partly allowed. ITA No. 612/Chd/ 2019 (A. Y. 2009 - 10 - Revenue's Appeal): 65. Ground No. 1 raised by the Revenue in ITA No. 612/2019 reads as under: 1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al receipts without comparing the scheme of Gujrat Government with that of Punjab Government scheme made by Hon'ble Punjab 85 Haryana High Court in the case of M/s Abhishek Industries Ltd., 286 ITR1?" 72. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 4 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 49 will apply mutatis mutandis to ground No. 4 raised by the Revenue in I TA No. 612/Chd/ 2019. Ground of appeal No. 4 raised by the Revenue is accordingly dismissed. 73. Ground No. 5 raised by the Revenue in ITA No. 612/2019 reads as under: 5. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing relief to the assessee by holding that MAT credit to be carried forward to subsequent years should be calculated after including of Surcharge and Cess?" 74. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 5 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 52 will apply mutati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct nexus between the interest income and expenditure incurred. Ground of appeal No. 3 raised by the assessee is allowed in the above terms. 80. Ground No. 4 raised by the assessee in ITA No. 486/2019 reads as under: "4. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of ₹ 1, 56, 47, 787/- and Miscellaneous receipts of ₹ 61, 52, 573/- from the profits of the units eligible for deduction u/s 80IC/80IA of the Income Tax Act, 1961." 81. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 5 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with us above. Our decision rendered therein at para 23 - 24 of our order above will apply mutatis mutandis to ground No. 4 raised by the assessee. Ground of appeal No. 4 raised by the assessee is partly allowed accordingly. 82. Ground No. 5 raised by the assessee in ITA No. 486/2019 reads as under: "5. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating line/bay charges amounting to ₹ 2, 89, 25, 454/- as capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 88. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 1 raised by the Revenue in its appeal for A. Y 2008 - 09 in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 37 will apply mutatis mutandis to ground No. 1 raised by the Revenue in ITA No. 612/Chd/ 2019. Ground of appeal No. 1 raised by the Revenue is accordingly dismissed. 89. Ground No. 2 raised by the Revenue in ITA No. 613/2019 reads as under: "2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IA and 80IC on interest from customers & employee, misc. receipts comprising Brokerage from ocean freights, forex gains and insurance claim?" 90. It was common ground between the parties that the above ground is identical to ground No. 2 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para- 41 will apply mutatis mutandis to ground No. 2 raised by the Revenue in ITA No. 612/Chd/ 2019. Ground of appeal No. 2 raised by the Revenue is partly allowed for statistical purposes. 91. Ground No. 3 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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