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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 ..... arising from identical set of facts. All the cross appeals were, therefore, taken up together for hearing. We shall first take up the cross appeal pertaining to assessment year 2008 - 09 i. e. in ITA No. 484/Chd/ 2019 & ITA No. 611/Chd/ 2019 and first deal with the appeal of the assessee in ITA No. 484/Chd/ 2019. ITA No. 484/Chd/ 2019 (A. Y. 2008 - 09 - Assessee's Appeal): 3. The effective grounds of appeal raised by the assessee read 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. 3. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs. 9, 89, 04, 000/- as 'Income from Other Sources' instead of 'Income from Business and Profession'. 5. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of Rs. 45, 75, 267/-, Interest from Other of Rs. 42, 40, 928/- and Miscellaneous receipts of Rs. 32, 18, 153/- from the profits of the units eligible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 12. 59 crores Rs. 5 lacs 2012 - 13 Rs. 14. 87 crores Rs. 6 lacs 8. Referring to the above the Ld. Counsel for the assessee pleaded that considering the same since the exempt income earned in the impugned year amounted to Rs. 1. 39 crores, drawing parity from the orders of the I TAT as above, the disallowance in the present case be restricted to Rs. 2 lacs. The Ld. Counsel for the assessee further pointed out that there were no change in facts and circumstances from the preceding year i. e. assessment year 2007 - 08 when the disallowance had been restricted by the I TAT to Rs. 2. 5 lacs since as in that year, in the impugned year also the assessee had sufficient own funds for the purpose of making the impugned investment. Our attention was drawn to the total investment made by the assessee in the said two years as reproduced in its synopsis as under: Investments 31.3.08 31.3.07 Subsidiaries/Associates = 95.16 Crs 84.63 Crs Investments generating taxable income = 0.25 Crs 0.25 Crs In section 25 companies = 0.85 Crs 0.85 Crs Investments which yield dividend = 0.89 Crs 0.89 Crs TOTAL Investments = 97.15 Crs 86.62 Crs and to the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance of Rs. 2 lacs and Rs. 2. 5 lacs in assessment years 2006 - 07 and 2007 - 08 respectively. In assessment years 2011 - 12 and 2012 - 13, on going through the order of the ITAT, we find that the ITAT in the said years had taken note of the fact that the assessee had sufficient own funds for the purpose of making the investments and accordingly following the decision of the Hon' ble Apex Court in the case of CIT LTU Vs. Reliance Industries Ltd. (2010) 410 ITR 466 held that no disallowance of interest is warranted u/ s 14 A of the Act. Accordingly, the disallowance calculated as per Rule 8 D(2) (i i) was deleted by the I TA T. As for the disallowance of administrative expenses the ITAT noted that the substantial amount of interest had been earned by the assessee from its subsidiary companies where not much of administrative resources were used. Accordingly, the ITA T held that the disallowance of administrative expenses could not be done solely in the ratio of quantum of investments shown. The ITAT, therefore, considering the past history of the assessee and overall facts and circumstances of the case upheld the disallowance of Rs. 5 lacs as justifiable. The relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for making investments in own subsidiaries, not much of administrative resources are used, hence, the disallowance on administrative expenditure cannot be disallowed solely in the ratio of the quantum of the investments shown. He, however, has fairly admitted that the assessee has also received dividend of Rs. 4. 6 cores from the investment in other companies. The Ld. counsel has further submitted that the assessee has suo motto disallowed a sum of Rs. 2 lacs for the year under consideration on account of administrative expenses u/ s 14 A of the I. T. Act. 10. Considering the over all facts and circumstances of the case and submissions of both the parties and also considering the quantum of investment made, the amount of divided earned by the assessee from its own subsidiary as well from outside/other companies, in our view, a total disallowance of Rs. 5 lacs will be justified in this case on account of administrative expenses. However, since the assessee itself has suo motu made disallowance of Rs. 2 lacs, the assessee will be given the benefit of the same." 13. Considering the above and further noting the fact that in the impugned year also the assessee has demonstrated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein the ITAT had dismissed assessee' s plea of treating it as income from business and profession but considering the plea of the assessee that the netting of interest expenditure be allowed, had directed the AO to allow the same where a direct nexus between the interest income earned and interest expenditure incurred was there. Our attention was drawn to paras 4 to 6 of the order dealing with the said issue in assessment year 2006 - 07 as under: "4. Ground No.1: Vide ground No.1, the assessee has agitated the action of the CIT(A) in treating the interest income amounting to Rs. 1, 65, 17, 422 /- as 'income from other sources' instead of 'income from business or profession' as was claimed by the assessee. 5. The facts relating to the above issue are that the Assessing officer had treated interest from customers and suppliers amounting to Rs. 355. 28lacs and further interest from bank &others amounting to Rs. 165. 17 lacs as 'income from other sources' as against the claim of the business income. The Ld. CIT(A) held that since income on the delayed payment from customers and suppliers was intrinsically l inked with the business activity of the assessee, hence, the same was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenses incurred for maintaining those accommodations for the employees should have been reduced therefrom and only the balance rental income ought to have been disallowed. 19. As for the miscellaneous receipts it was pointed out that the same related to the following: a) Damages against cancellation of orders from customers = Rs. 31, 10, 744 /- b) Commission from shipping companies = Rs. 7, 075 /- c) Other receipts = Rs. 1, 00, 356 /- 20. The Ld. Counsel for the assessee contended that there cannot be dispute about the fact that the damages received against cancellation of orders from customers had direct nexus with the industrial undertaking of the assessee and deduction u/ s 80 IC/ 80 IB of the Act was allowable in this regard. He relied upon the decision of the I TAT in the case of Pr. CI T, Delhi Vs. Bharat Sanchar Nigam Ltd. in ITA No. 476/2016 dated 1. 8. 2016 wherein the Ld. Counsel for the assessee pointed out that deduction u/ s 80 IA was allowed on liquidated damages. As for the commission from shipping companies, the Ld. Counsel for the assessee contended that the I TAT in the case of the assessee for assessment years 2006 - 07 and 2007 - 08 had allowed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the disallowance of deduction u/ s 80 IB/ 80 IC of the Act of the Act on the above incomes had been righty upheld by the Ld. CI T(A). 23. We have heard the contentions of both the parties. I t is settled law that the deduction u/ s 80 IB/ 80 IC of the Act is eligible on the incomes which have first degree nexus with the industrial undertakings of the assessee. There is no dispute about this proposition at all. In this backdrop, considering that the rental income had been received by the assessee from letting out accommodation to its employees, there is clearly no nexus of the said income with the industrial undertaking of the assessee and the claim of deduction u/ s 80 IB/80 IC of the Act, therefore, we hold has been rightly disallowed by the Ld. CIT(A). But at the same time, we are in agreement with the contention of the Ld. Counsel for the assessee that it is not the entire gross rental receipts which are to be disallowed out of the total profits claimed by the assessee as deductable u/ s 80 IB/ 80 IC of the Act, but on the profit element in the said income which is embedded in the profits earned by the assessee meaning thereby that the expenses, if any, incurred by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office expenses to units claiming deduction u/ s 80 IB/ 80 IC of the Act. 26. Briefly stated the AO had allocated head office expenses on the basis of turn over for the purpose of calculating the profits of the units eligible for deduction u/ s 80 IB/ 80 IC of the Act. The Ld. CIT(A) directed the AO to allocate head office expenses net of head office income for the said purpose following the decision of the ITA T in assessee' s own case for assessment years 2006 - 07 and 2007 - 08 in ITA No. 1429/Chd/ 2010 and ITA No. 270/Chd/ 2011. 27. Before us the Ld. Counsel for the assessee was unable to give any reason for not following the decision of the ITA T in the preceding year as done by the CIT(A). He was unable to point out any distinguishing facts in the present case. In view of the same, since the Ld. CIT(A) has followed the order of the ITAT in the case of the assessee for assessment years 2006 - 07 and 2007 - 08 on identical issue and no distinguishing facts have been brought to our notice by the Ld. Counsel for the assessee, we see no reason to interfere in the order of the Ld. CIT(A). Ground of appeal No. 6 raised by the assessee is dismissed. 28. Ground of appeal No. 7 rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been brought to our notice by the Ld. DR, the said decision will apply in the present case Assessing Officer, following which we hold that the line/bay charges to be revenue in nature. Ground of appeal NO. 7 raised by the assessee is accordingly, allowed. 34. In effect the appeal of the assessee is partly allowed. We now shall take up the departmental appeal in ITA No. 611/Chd/ 2019. ITA No. 611/Chd/ 2019 (A. Y. 2008 - 09 - Revenue's Appeal): 35. Ground No. 1 raised by the Revenue reads as under: Q.I. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from customers & suppliers amounting to Rs. 3, 19, 43, 971/- to be treated as business income as against A.O. treating the same as income from other sources?" 36. The issue raised in the above ground relates to the treatment of interest received from customers and suppliers and business income of the assessee. 37. At the outset itself, it was pointed out that the AO had treated the said income as 'income from other sources', while the Ld. CIT(A) allowed the assessee' s claim of treating the said income as 'business income' for the reason that the income on delaye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 163, 715 136, 281 8/27/2007 FIRE CLAIM OF BLOW ROOM (UNIMIX) IN HALL 4 372, 770 362, 432 10/26/2007 LOSS OF MOBILE BILL NOKIA 5, 600 5, 572 11/14/2007 TRANSIT CLAIM OF RIETER CARD COVER SHEET 8, 192 7, 447 3/31/2008 TRANSIT CLAIM OF AMSLER ATTACHMENTS (CSY) 4, 966, 956 4, 966, 956 5,517,233 5,478,688 40. Referring to the same he pointed out that the entire claim related to the loss in its business units/ business activities and, therefore, the entire claim was eligible for deduction u/ s 80 IB/ IC of the Act. He further pointed out that the issue of allowance of insurance claim also had been dealt with by the ITAT in favour of the assessee in assessee' s own case for assessment years 2011/12 and 2012 - 13 in ITA Nos. 787 & 894/Chd/ 2015 and ITA Nos. 483 & 518/Chd/ 2016 dated 14. 3. 2019. As for the claim of deduction u/ s 80 IB/ 80 IC on interest from customers and Misc. receipts comprising of brokerage, ocean freight, forex gain, Ld. Counsel for the assessee pointed out that these issues also stood ecided by the ITAT in favour of the assessee in assesses own case for A. Y 2006 - 07 & 2007 - 08 in ITA No. 35/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the foreign exchange fluctuation gain is in respect of export receipts/receivable of the assessee and any gain in respect of receivable on account of foreign exchange fluctuation in fact contributes to the profits of the assessee from the sale/ export of the products. We find force in the aforesaid contention. We do not find any infirmity in the order of the CIT(A) in this respect also. We have also gone through the order of the ITAT in ITA No. 787/2015 at para 23 as under: " 23. Ground No. 9. Vide this ground the assessee has agitated the action of the lower authorities in treating the income from the profits of the units eligible for deduction u/ s 80 IB/80 IC of the Act. So far as the claim of deduction in respect of the insurance claim, which admittedly was on account of loss of trading assets is concerned, i t has been held time and again that if the loss therein is indemnified by way of compensation received from insurance company that can be said to be not a separate income, rather, the same will have effect for reducing loss/expenditure. Hence, if the assessee has booked the aforesaid loss, in relation to which insurance claim has been received, as expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see was upheld by the Ld. CIT(A). Our attention was drawn to the findings of the Ld. CIT(A) at paras 23 to 25 of the order pointing out therefrom that the Ld. CIT(A) after examining the objects of the TUF Scheme from the resolution of the Ministry of Textiles (No. 28/1/99 CIT dated 31. 3. 1999) had found that the purpose of this subsidy was upgradation of plant and machinery and thus the capital apparatus of the assessee company. Thereafter referring to the decision of the Hon' ble Jurisdictional High Court in the case of CIT Vs. Sham Lal Bansal wherein identical issue of treatment of subsidy was examined by the Hon' ble High Court and found to be capital in nature and further relying on the decision of the Hon' ble High Court of Calcutta in the case of CIT Vs. Gloster Jute Mills Ltd. (2018) 96 Taxmann. com 303 wherein also the subsidy was treated to be a capital receipt, the Ld. CIT(A), it was pointed out, held that the interest received under TUF Scheme was a capital receipt. The Ld. Counsel for the assessee futher pointed out that this issue had been settled by the ITAT also in favour of the assessee in its own case for assessment years 2002 - 03 to 2005 - 06 in I T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid two decisions relied upon by the CIT(A), we find therefore, have already dealt with the nature of the subsidy received under TUFS Scheme and after analyzing the terms of the scheme and finding that the purpose of the scheme was to induce modernization of plant and machniery used in textile industry, held the same to be capital in nature following the proposition laid down by the apex court for determining the nature of subsidy in the case of Sawhney steels(supra) and Ponni Sugars(supra). The Ld. DR has been unable to bring to our notice any contrary decision either of the Hon' ble Jurisdictional High Court or the Hon' ble Apex Court on this issue nor was the decisions relied upon by the Ld. CIT(A) distinguished before us. 13. In view of the same, we have no hesitation in upholding the order of the CIT(A) that considering the objective of the TUF Scheme and judicial decisions of the Hon' ble Jurisdictional High Court and Hon' ble High Court of Calcutta, the interest received under TUF Scheme is capital in nature. Grounds of appeal raised by the Revenue are, therefore, dismissed." 44. The Ld. DR fairly conceded that the issue stood decided in earlier years i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' ble Supreme Court in 'CIT- I Vs. M/ s Chaphalkar Brothers, Pune and Others' in Civil Appeal Nos. 6513 - 6514 of 2012 order dated 7. 12. 2017, wherein, i t has been held that the sales tax subsidy is a government incentive to set up new industrial units in specified areas and to be is treated as capital receipt. Further, the Ld. counsel for the assessee has also invited our attention to the decision of the Tribunal dated 18. 12. 2018, (supra) wherein after considering the relevant decisions it has been so held that the sales tax subsidy is a capital receipt. This issue is accordingly decided in favour of the assessee." " 35. The assessee apart from above ground has also raised additional ground which reads as under:- " That the authorities below have erred in treating Sales Tax Subsidy of Rs. 1, 67, 984 /- under Madhya Pradesh Industrial Promotional Assistance Scheme - 2004 as Revenue receipt instead of capital receipt." 36. This issue is relating to sales tax subsidy received from M. P. government. This issue is identical to that has been taken in ground No. 12 of the appeal. Accordingly, the sales tax subsidy in respect of M. P. Unit is also ordered to be treated as ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge and cess from the quantum of Mat credit to be carried forward for set off in subsequent years which the Ld. CIT(A) held was incorrect since he noted that the ITAT had held in the case of VMT Spinning Company Ltd. for assessment year 2007 - 08 in I TA No. 1147/Chd/ 2014 dated 8. 12. 2016 that the surcharge and cess were to be included in MA T credit. He accordingly directed the AO to calculate and carry forward MAT credit in terms of the aforesaid order of the I TAT. 52. Before us the Ld. DR was unable to bring to our notice any contrary judgment of either the Hon' ble High Court or the Hon' ble Apex Court in this regard. In view of the above, since the issue already stands decided by the ITAT in the case of VMT Spinning Company Ltd. (supra) holding that the Mat credit shall include surcharge and cess, The issue in the present ground stands covered by the decision of the ITAT, which we hold that the Ld. CI T(A) has rightly followed and allowed the assessee' s claim. Ground of appeal NO. 5 raised by the Revenue is, therefore, dismissed. 53. In effect, the appeal of the Revenue is partly allowed for statistical purposes. We now shall take up the cross appeals assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the above terms. 58. Ground No. 5 raised by the assessee in ITA No. 484/2019 reads as under: "5. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Rental income of Rs. 58, 87, 394/-, Interest from Others of Rs. 1192962/- and Miscellaneous receipts of Rs. 1, 26, 569/- from the profits of the units eligible for deduction u/s 80IC of the Income Tax Act, 1961." 59. 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. 5 raised by the assessee. Ground of appeal No. 5 raised by the assessee is partly allowed in the above terms. 60. Ground No. 6 raised by the assessee in ITA No. 484/2019 reads as under: "6. That the Ld. CIT(A) has erred in law and on facts in upholding the action of the AO in allocating head office expenses to units claiming deduction u/s 80IB/80IC of the Act." 61. It was common ground between the parties that the issue raised in the above ground is ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accordingly partly allowed for statistical purposes. 69. Ground No. 3 raised by the Revenue in ITA No. 612/2019 reads as under: 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without giving an opportunity to assessing officer to examine the claim of assessee?" 70. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 3 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 45 will apply mutatis mutandis to ground No. 3 raised by the Revenue in I TA No. 612/Chd/ 2019. Ground of appeal No. 3 raised by the Revenue is accordingly dismissed. 71. Ground No. 4 raised by the Revenue in ITA No. 612/2019 reads as under: 4. "Whether on the facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Rules, is directed to be restricted to Rs. 5. 50 lacs in all considering the past history of the identical disallowance upheld by the ITA T and applying it to the facts of the present case wherein the assessee has earned exempt income to the tune of Rs. 13. 15 crs. Ground of appeal No. 2 raised by the assessee is allowed in the above terms. 78. Ground No. 3 raised by the assessee in ITA No. 486/2019 reads as under: "3. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to Rs. 19, 40, 80, 702/- as 'Income from Other Sources' instead of 'Income from Business and Profession'." 79. It was common issue between the parties that the above ground is identical to ground No. 3 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 16 of our order above will apply mutatis mutandis to this ground No. 3 raised by the assessee. Accordingly the plea of the assessee of treating the impugned interest income as assessable under the head Business Income is rejected but at the same time its plea of netting the said i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the authorities below here erred in treating sales tax subsidy of Rs. 2, 82, 71, 552/- under Madhya Pradesh Industrial Promotion Assistance Scheme - 2004 as revenue receipt instead of capital receipt." It was common ground between the parties that the above ground was covered by the decision in the departmental appeal in ITA No. 611/Chd/ 2019 being identical to ground Nos 4 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 49 of our order above, will apply mutatis mutandis to additional ground Nos. 7 raised by the assessee in ITA No. 486/Chd/ 2019. Ground of appeal Nos. 7 raised by the assessee is accordingly allowed. 86. The appeal of the assessee is accordingly partly allowed as above. ITA No. 613/Chd/ 2019 (A. Y. 2013 - 14 - Revenue's Appeal): 87. Ground No. 1 raised by the Revenue in ITA No. 613/2019 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 customers & suppliers amounting to Rs. 5, 23, 34, 571/- and interest earned from employee against housing loan granted to them to be treated as business income as against A.O. t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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