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TMI Blog2020 (9) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... income and to reach the correct amount of disallowance keeping in view the decision of ACB India Ltd [ 2015 (4) TMI 224 - DELHI HIGH COURT]. Disallowance u/s 10AA - Assessee claimed unit situated at Noida, SEZ is engaged in the manufacture and export of articles and things; that such unit commenced production from the financial year 2008-09 and has been 100% export oriented unit; and therefore, the profit of the unit is eligible for exemption under section 10AA - HELD THAT:- There does not seem to be anything illegality or irregularity in the observations of the authorities below as to certain expenses relating to the key man insurance, basic salary of Directors, audit fees, tax audit fees and certification, taxation matters and Directors meeting fee etc. No doubt the Directors do not work for head office alone. The fact that they also oversee the work of the exempt unit, makes it obligation on the part of the exempt unit to contribute to such expenditure. So also, in respect of the other expenditure, other than the one which was separately accounted for in the books of NSEZ. Authorities below missed to notice the contention of the assessee that the expenses relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenged vide ground No. 1.2, the addition of ₹ 5,87,09,737/- on account of dealings in shares based on actual delivery as speculation loss, during the course of arguments such a challenge was not pressed. 2. Brief facts of the case are that the assessee company is in the business of manufacture of flavoured chewing tobacco and Kiwam under the brand name Baba and the main ingredients for production of chewing tobacco are tobacco, perfumery compounds, sandal, saffron, menthol etc. and silver in flake forms. For the assessment year 2014-15 it has filed its return of income on 21/11/2014 declaring an income of ₹ 36,96,45,100/-, while declaring profit of ₹ 46,17,19,442/- and adjusting it against the brought forward depreciation resulting in the current years business income of ₹ 37,12,47,070/-. The assessee declared speculative loss of ₹ 2,22,46,177/- in the commodities which is carried forward; that the tax on the taxable income of ₹ 36,96,45,093/- was declared on which the tax and interest of ₹ 13,23,84,690/- was determined whereas the MAT credit available under section 115 JA of the Act of ₹ 3,09,73,335/- was adjusted in calculation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities below is under appeal before the Hon ble Supreme Court and therefore to keep the issue alive, this ground is maintained. 7. Be that as it may, as of now the issue is squarely covered by the decision of the Hon ble Jurisdictional High Court and it was rightly followed by the authorities below. In these circumstances, unless and until there is change in the facts and circumstances or in the law holding the field, we find it difficult not to follow the decision of the jurisdictional High Court. While respectfully following the same we dismiss this ground of appeal. 8. Now coming to ground No. 2, the challenge is in respect of the sustaining the disallowance under 14A of the Act read with Rule 8D of the Rules to the tune of ₹ 38,53,244/- against the similar dividend income.Argument of the Ld. AR is threefold on this aspect. Firstly he submits that no proper satisfaction was recorded by the learned Assessing Officer for not accepting the contention of the assessee that no expenditure was incurred for earning the exempt income, and therefore any consequent assessment is bad. Secondly, his contention is that a bare perusal of the Balance Sheet would show that the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessment order, learned Assessing Officer recorded that the assessee was showing substantial investments in shares of other companies; that the expenses are required to be incurred on manpower, office expenses etc. for the purpose of maintaining and keeping track of the fund; that the assessee also could not attribute the interest expenses to any particular income; that if the assessing officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of the total income, section 14A of the Act comes into force; and, therefore, learned Assessing Officer was not in agreement with the claim of the assessee that no expenditure was incurred by it in relation to the investments from which exempt income was likely to be received by it. 11. It is, therefore, clear that the learned Assessing Officer not satisfied with the plea of the assessee that it is did not incur any expenditure in relation to the investment from which exempt income was derived by it, because according to the learned Assessing Officer, the assessee must have incurred some expenditure on manpower, office expenses etc. for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in the case of ACB India Ltd. vs ACIT, 374 ITR 108 (Del) and REI Agro Ltd. vs DCIT, 144 ITD 141n (Kol-Trib), the appeal against which was dismissed by the Hon ble Calcutta High Court in ITA No.220 of 2013, while calculating the average investment under Rule 8D(2)(ii)(iii), only those investments which have actually yielded dividend income during the relevant year should be considered.We are, therefore, convinced with this argument of the Ld. AR. In fact, the Hon ble jurisdictional High Court in ACB India Ltd. (supra) held that the learned AO is required by the mandate of Rule 8D(2)(i) to (iii) detailed in the methodology to be adopted; and the learned AO cannot adopt the average value of the total investment instead of the average value of investment of which income is not part of a total income i.e. value of tax-exempt investment. In view of this binding precedent, we find that the learned AO had to consider only those investments which have actually yielded the tax-exempt income during the relevant year and not the total investment.Assessee furnished the details of the investments which yielded the exempt income, vide page No. 9 of the paper book. 15. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,50,923/- to NSEZ out of the total expenses of ₹ 2,46,56,200/- incurredby the head office in respect of key man insurance, basic salary of Director, transit goods insurance, cash transit insurance, motor car insurance so on and so forth and reduces the same from the profit of the eligible unit. 18. Learned Assessing Officer, on examination of the Balance Sheet of the eligible unit, further found that the liability towards head office as on 31/3/2013 was ₹ 3,03,77,120/- and as on 31/3/2014 was 3,51,69,570/-, the average of which comes to ₹ 3,27,73,345/- and therefore, considering the interest at 12% per annum reduced the profit of the eligible unit by ₹ 39,32,81/- and therefore he totally disallowed a sum of ₹ 45,83,724/- from out of ₹ 2,95,16,153/- claimed by the assessee under section 10AA of the Act and limited it to ₹ 2,49,32,429/-. 19. In the appeal before the Ld. CIT(A), it was argued on behalf of the assessee that the duties of the Directors of a company are not confined to just towards seeing the turnover of the company, that it is common knowledge that a major part of the duties of the Directors is to administer the affairs of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncrease in the exempted profits claimed under section 10 AA of the Act. He therefore confirmed this disallowance also. 23. Similar arguments are advanced before us by the Ld. AR. There does not seem to be anything illegality or irregularity in the observations of the authorities below as to certain expenses relating to the key man insurance, basic salary of Directors, audit fees, tax audit fees and certification, taxation matters and Directors meeting fee etc. No doubt the Directors do not work for head office alone. The fact that they also oversee the work of the exempt unit, makes it obligation on the part of the exempt unit to contribute to such expenditure. So also, in respect of the other expenditure, other than the one which was separately accounted for in the books of NSEZ. However, it seems the authorities below missed to notice the contention of the assessee that the expenses relating to transit goods insurance and Diwali expenses in respect of NSEZ were separately claimed in the books of NSEZ and therefore, the question of allocation of such expenses does not arise. This fact needs to be verified. 24. It is further submitted before us in respect of the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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