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TMI Blog2021 (10) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-04 does not emanate from the order passed by Ld. CIT(A). Accordingly, we reject the grounds raised by the assessee relating to deduction u/s 80HHE. Allocation of head office expenses u/s 80I / 80IA - HELD THAT:- As decided in own case [ 2021 (7) TMI 1019 - ITAT BANGALORE] decision rests on the facts of that case, where it was found that common head office expenses were simple administrative expenses for running the business. - Decided against assessee. Disallowance u/s 14A - Sufficiency of own funds - HELD THAT:- As decided in own case [ 2021 (7) TMI 1019 - ITAT BANGALORE] the own funds available with the assessee in both the years are in far excess of the value of investments. Accordingly, as per the decision rendered by Hon ble Karnataka High Court in the case of Micro Labs Ltd. [ 2016 (4) TMI 219 - KARNATAKA HIGH COURT] , no disallowance out of interest expenditure is called for. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue in both the years under consideration and direct the A.O. to delete disallowance made u/s 14A. Disallowance of sum being technical and professional fees paid to M/s Kotawala - no services has been received by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his income was held to be not justified. - Decided against revenue. Excise duty and sales tax to be excluded from the total turnover for the purpose of deduction u/s 80HHC 80HHE - HELD THAT:- As decided in own case [ 2021 (7) TMI 1019 - ITAT BANGALORE] sales tax and central excise duty should not be included as a part of the total turnover while computing deduction under section 80HHC. Gross interest receipt or net interest income to be reduced for computing business profit under clause (baa) of Section 80HHC - HELD THAT:- As decided in own case [ 2021 (7) TMI 1019 - ITAT BANGALORE] principle of netting has been recognized by the various decisions of Hon ble High Courts and has also been affirmed by the Hon ble Supreme Court in the case of ACG Associated Capsules [ 2012 (2) TMI 101 - SUPREME COURT] The principle of netting is however applicable only on the assessee establishing nexus between the interest paid and the interest earned. If such nexus is proved, it is only the net interest that has to be excluded under explanation baa to section 80HHC. Deduction u/s 80HHC in respect of cash discount, excise duty recovered, scrap sales and exchange rate variation - H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee is a company engaged in the business of various engineering fabrication, manufacture and trading of mechanical, electrical and other engineering items. The dispute raised by the assessee in ground No.1 is with regard to deduction u/s. 80IA of the Act. It is not in dispute that the assessee was entitled to deduction u/s. 80IA. The AO while allowing deduction u/s. 80IA allocated Head Office expenses on the basis of turnover of the various undertakings of the assessee. Consequent to such allocation, deduction u/s. 80IA of the Act was allowed at a much lesser figure than what was claimed by the assessee. It is not in dispute before us that identical issue came up for consideration in assessee s own case in AY 1988-89 in ITA No.3809/MUM/2003, order dated 19.10.2012. In para 12.4, the Tribunal followed its decision in assessee s own case for the AY 1995-96. The issue was considered by the Mumbai Bench of the Tribunal in assessee s own case in AY 1997-98 in ITA No.2555/MUM/2003 by order dated 05.04.2007 and on identical issue it was held as follows:- The case of the assessee, however, is that the subject matter of deduction u/s. 80IA is the profits derived from the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s derived from the industrial undertaking in terms of the provisions of sections 29 to 43. In this view of the matter and in the absence of any better alternative, the CIT(A) is justified in holding assessee is entitled to deduction of the eligible amounts in respect of the profits derived from the eligible undertakings after the allocation of head office expenses in the ratio of turnover. We see no valid reason to take a view contrary to the one taken by the CIT(A) in this behalf. Ground no. 5 is dismissed. 3. This Tribunal following the aforesaid decision upheld similar allocation of head office expenses in Assessee s case for AY 1999-2000 in ITA No.3330/Mum/2004 order dated 5.4.2019 with the following observations:- 7. We have given a careful consideration to the rival submissions. We are of the view that the decision of the Tribunal in AY 1995-96 which was extracted in the earlier part of this order is applicable to the present assessment year also. We find no grounds to take a contrary view. The decision in the case of Zandu Pharmaceuticals Works Ltd. (supra) is with reference to apportionment of R D expenses and no parity of facts exist with the present case. As f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other income by Ld. CIT(A). Similar is the case with AY 2003-04 also. Accordingly, we are of the view that the impugned ground of the assessee raised in assessment year 2002-03 as well as in 2003-04 does not emanate from the order passed by Ld. CIT(A). Accordingly, we reject the grounds raised by the assessee relating to deduction u/s 80HHE of the Act. 4.2 Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the assessee. 5. Ground No.3 - Allocation of head office expenses u/s 801 / 801A 5.1 The coordinate bench of this Tribunal on identical facts in assessee s own case for AY 2002-2003 2003-04 in ITA No.790,791,896 897 /Bang/2008 order dated 23.7.2021 decided the issue. 57. The last common issue relates to deduction u/s 80IA of the Act. The A.O. deducted proportionate head office expenses while computing deduction u/s 80IA of the Act and the Ld. CIT(A) also confirmed the same. The Ld. A.R. submitted that this issue has been decided against the assessee in assessment year 2000-01. We also notice that the coordinate bench has decided the issue against the assessee by following the decision rendered in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the provisions of section 28 to 43. Perusal of the aforesaid provisions reveals that all those expenses, which are incurred for the purposes of the business of the industrial undertaking, are to be allowed while computing the business profit. It cannot be said that Head Office expenses or common expenses are not incurred or are uncommon for the purposes of the business of the industrial undertaking. What is now required to be computed is the profits derived from the business of industrial undertaking Therefore, there is no warrant for the proposition that only those expenses, which are directly attributable to earning of profits derived from the business of industrial undertaking alone should be considered. As already stated above the profits eligible for deduction u/s. 801A are net profits derived from the industrial undertaking and therefore they will have to be netted afteradjusting all the expenses attributable to them in terms of the provisions contained in sections 28 to 43 of the I.T. Act. Therefore all expenses, whether they are direct or indirect or fixed, semi-fixed or variable, must be adjusted to determine the profits derived from the industrial undertaking. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make as counter view. 5.3 Respectfully following the aforesaid decision of the Tribunal, we dismiss this grounds raised by the assessee. 6. Ground No.4 - Repairs and renovation 6.1 This ground is not pressed by the assessee, hence dismissed. 7. Ground No.5 - Disallowance u/s 14A 7.1 The coordinate bench of this Tribunal on identical facts in assessee s own case for AY 2002-2003 2003-04 in ITA No.790,791,896 897 /Bang/2008 order dated 23.7.2021, decided this issue as under: - 43. We heard Ld. D.R. on this issue and perused the record. We notice that the A.O. has extracted interest free funds available with the assessee as well as the value of investments in both the years under consideration. We notice that the own funds available with the assessee as on 31.3.2002 was ₹ 440.92 crores as against the value of investments of ₹ 12.95 crores. Similarly, as on 31.3.2003, the assessee was having own funds of ₹ 505.51 crores as against value of investments of ₹ 0.95 crores. Accordingly, we notice that the own funds available with the assessee in both the years are in far excess of the value of investments. Accordingly, as per the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the PAN number without confirming whether the recipient has reflected the amounts received by it in its return of income. The appellant has not produced any evidence regarding rendering of the service by the recipient of commission either at the assessment stage or at the appeal stage, except the copies of the agreement entered into by it with M/s.Kotawala (India) Ltd. dated 02/01/2002 and 18/10/2002 and the invoices raised by M/s.Kotawala (India) Ltd. dated 23/10/2003 and 24/10/2003. The appellant has not given any details regarding the projects awarded to it in pursuance of the said agreements such as the date of the award, the correspondence with MIs. Kotawala (India) Ltd., etc. It is noteworthy That the TDS certificate mentions the period of rendering service as 01/03/2004 to 31/03/2004 whereas the bills were raised by M/s Kotawala (India) Ltd. on 23/10/2003 and 24/10/2003 and on the same days the amounts have been credited to the account of M/s.Kotawala (India) Ltd. At no stage, the appellant has contradicted the statement given by the M.D. of M/s.Kotawala (India) Ltd. nor has it produced anything to disprove the statement so given. When the appellant itself has not produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is grounds raised by the revenue. 12. Ground No. 3 - Entrance and subscription fees paid to the club 12.1 The coordinate bench of this Tribunal on identical facts in Assessee s own case for AY 2002-2003 2003-04 in ITA No.790 791/Bang/2008 order dated 4.3.2021 decided this issue as under: 6. As far as the above ground is concerned, the law is well settled that entrance fee and membership fees paid where the employees become members is allowable as a business expenditure and was allowed as deduction in Assessee s own case in AY 1999-2000. When membership of a club is taken in the name of director, it is for the assessee-company to prove that membership was obtained solely for the purpose of business. [New India Extrusions (P) Limited v ACIT 10 Taxmann.com 165]. Further Entrance fees paid towards corporate membership of the club is an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit earning apparatus of a business enterprises and accordingly CIT (A) was justified in deleting the disallowances of entrances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason why the same should be disturbed. The decision in the case of Abdul Latif (supra) supports the plea of the Assessee. In the said decision, the facts were that the Assessee was engaged in business of manufacture of papers. In return of income for AY 2005-06, assessee had shown, inter alia, purchases of packing material as on 31-3-2005, but no amount of packing material was shown in closing stock. The Assessee submitted before Assessing Officer that; (i) packing material shown as purchases as on 31-3-2005 was actually purchased in earlier months and such packing material was consumed during process; (ii) on account of some computer problem, bills were posted on 31-3-2005, and (iii) entire packing material left after end of year became obsolete and, therefore, it was not shown in closing stock. The Assessing Officer rejected account books of assessee and made certain addition to his income. The Tribunal held that:- (i) it was not case of revenue that purchases as debited as on 31-3-2005 were not genuine, and (ii) assessee was following a consistent method of valuing closing stock by including packing material as consumed at time of purchase. Rejection of account books of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. Aggrieved by the order of the CIT(A), the Revenue has raised ground No.8 before the Tribunal. At the time of hearing, learned Counsel for the assessee brought to our notice decision of the Tribunal rendered on an identical year for Assessment Year 2001-02 in ITA No.562/Bang/2007 order dated 04.03.2021 wherein the Tribunal accepted a similar decision rendered by the CIT(A) in Assessment Year 2001-02. Learned DR reiterated the stand of the Revenue as reflected in the grounds of appeal. Learned Counsel for the assessee relied on the order of the Tribunal in assessee s own case on an identical issue for Assessment Year 2001-02. 25. We have considered the rival submissions and are of the view that the principle of netting has been recognized by the various decisions of Hon ble High Courts and has also been affirmed by the Hon ble Supreme Court in the case of ACG Associated Capsules Vs. CIT 343 ITR 89 (SC). The principle of netting is however applicable only on the assessee establishing nexus between the interest paid and the interest earned. If such nexus is proved, it is only the net interest that has to be excluded under explanation baa to section 80HHC of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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