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TMI Blog2020 (12) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... - ITA. No: 1333/AHD/2013 - - - Dated:- 17-12-2020 - Shri Mahavir Prasad, Judicial Member And Shri Amarjit Singh, Accountant Member For the Appellant : Shri S. N. Soparkar, AR For the Respondent : Shri Lalit P. Jain, Sr. D.R. ORDER PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. This appeal filed by the Assessee is directed against the order of the Commissioner of Income Tax ( hereinafter called CIT(A) ) order no. CIT(A)- VI/ACIT(OSD)/R-1/331/2011-12 order dated 21/03/2013 arising out of assessment order dated 29/12/2011. Assessee has taken following grounds of appeal: 2. Brief facts of the case are that the appellant is engaged in the business of manufacturing water treatment plant and Ion exchange Resin in their plant. During the year under consideration the assesse company has maded slump sale to its subsidiary company M/s. Doshion Vealia Water Solutions Private Limited (DVWSPL). The primary facts leading to the addition are that appellant company disclosed long term capital gain of ₹ 3,89,29,011 on the slump sale. This calculation was based on the procedure prescribed under Section 50B of the Act r.w.r. 6H of the IT Rules. The computation of net w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 80IB @ 100% of profit derived from Tamilnadu Water Supply Drainage (TWAD) unit at ₹ 3,09,59,258/-. Assessee was asked to justify its claim for deduction u/s. 80IA in the light of the amended provisions of the Act. In its reply, the assessee stated that it has entered into agreement with TWAD for maintaining the infrastructure facility. It was strongly contended that the assessee satisfies all the conditions laid down in Section 80IA (4) of the Act and is therefore eligible for the deduction u/s. 80IA of the Act. The assessee is only a contractor and not the owner of the plant of TWAD but is a maintenance contractor. The A.O. was of the firm belief that the assessee is only executing works contract awarded by the State Government and therefore not eligible for the claim of deduction u/s. 80IA(4) of the Act. The A.O. accordingly denied the claim of deduction which was confirmed by the ld. CIT(A). 27. Before us, the ld. counsel for the assessee reiterated its claim of deduction. It is the say of the ld. counsel that the impugned project was commenced during A.Y. 2005-06 in which year the assessee had claimed deduction of ₹ 2,11,87,992/- and while allowing the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. These changes, however, would not alter the situation vis-avis the Explanation. The basic requirement of the enterprise carrying on the business of developing or operating and maintain or developing, operating and maintaining infrastructure facility was not done away with. Even as amended with effect from April, 2002, section 80IA(4)could be construed as not including execution of works contract as one of the eligible activities for claiming deduction. In 2007, the Explanation below sub-section (13) of section 80-IA came to be added which clarified that nothing contained in the section shall apply to a person who executes a works contract entered into with the undertaking or enterprise, as the case may be. However, this was not found to be sufficient. With a view to preventing such misuse of the tax holiday under section 80-IA, it was proposed to amend the Explanation to clarify that nothing contained in the section shall apply in relation to a business which is in the nature of a works contract executed by an undertaking. What the Explanation, did was to clarify a statutory provision which was at best possible of a confusion. If that be, so, the Explanation must be seen as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenditure of₹ 10,50,574/- by way of interest. The bifurcation of the said expenditure is reproduced herein below: Particulars Amount (Rs.) On term Loans taken for the specific purposes regarding business 10,45,012 On others 5,562 Total 10,50,574 On perusal of the above table, your good selves would appreciate that interest paid on term loans is directly attributable to business purposes. Hence application of Rule 8D cannot be made on interest specifically paid on term loans. Therefore, no disallowance u/s 14A is warranted. Without prejudice to above, the assessee states that no borrowed funds have been utilized for making investments, income from which is exempt from tax. . The assessee further states that H had sufficient own funds to cover the investments and that it is a well established fact that no disallowance u/s 14A can be warranted if assessee's own, funds cover the investments out of which exempt income is earned. As stated above, assessee submits that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115-0 of the Act is not applicable to the company other than a domestic company As income is Taxable (iv) Investment of ₹ 1,18,058/- in Ion Exchange (India) Ltd. Dividend from the same is exempt No expenditure has been incurred to earn dividend income. Very negligible amount of investment made out of surplus fund with assesse. The contentions of the assessee have been perused. It is pertinent to no1: here that a similar issue was before the Hon'ble Bombay High Court in the; case Godrej Boyce Mfg. Co. Ltd. Mumbai vs. DCIT and similar contentions including the ratio laid down by various Courts as relied upon by the assessee has been duly dealt by the Hon'ble Court and decided the matter in the favour of revenue. Section 14A clearly stipulates as under: Expenditure incurred in relation to income not includible to total income. For the purpose of computing the total under this chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said judgment is reproduced hereinabove wherein on similar facts and circumstances the Hon ble Gujarat High Court dismissed the appeal of the Revenue. 1. The Revenue has challenged the judgement of the Income Tax Appellate Tribunal dated 07.07.2016 raising following questions for our consideration: A. Whether on the facts and circumstances of the case and in law, the ITAT was justified in restricting the disallowance made of ₹ 1,02,82,049/- u/s. 14A to the extent of exempt income of ₹ 55,604/- only? B. Whether on the facts and circumstances of the case and in law, the ITAT was justified in restricting the disallowance of ₹ 1,02,82,049/- made u/s. 14A of the Act to the extent of income earned of ₹ 55,604/- without appreciating that the assessee had paid interest of ₹ 1,45,52,632/- on borrowed funds? 2. From the record it emerges that, during the period relevant to the assessment year 2008-09, the assessee had earned exempt income of ₹ 55,604/-. As against that, the Assessing Officer had worked out the disallowance of expenditure under section 14A of the Act read with Rule 8D to ₹ 1,02,82,049/-. The Tribunal, while re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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