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TMI Blog2022 (7) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income and disallowance u/s 14A - HELD THAT:- From perusal of orders passed in preceding and subsequent assessment years, forming part of the additional case law paper book, we find that suo moto disallowance offered by the assessee, by taking into consideration 5% of salary of CFO, Deputy CFO and Head Treasury, 5% of salary of staff as well as 10% overheads thereon, has been accepted by the Revenue. However, only in the year under consideration, the AO, while giving effect to the directions of learned CIT(A), did not consider the suo moto disallowance offered by the assessee. As the assessee has also in-principle agreed to the disallowance by invocation of provisions of section 14A of the Act and is also agreeable to methodology adopted by the Assessing Officer for assessment year 2006 07 and methodology upheld by the DRP for assessment year 2007 08, with a view to avoid litigation. In its appeal for assessment year 2005 06, which was heard along with present appeal, assessee has accepted the disallowance made under section 14A of the Act, pursuant to learned CIT(A) s directions. In view of the fact that that there is no change in facts insofar as disallowance under section 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Joshi a/w Shri Vanish Bhansali For the Revenue : Smt. Somogyan Pal, CIT DR ORDER PER SANDEEP SINGH KARHAIL, J.M. The present cross appeals have been filed by the assessee and Revenue challenging the separate impugned orders dated 21/01/2011, and 31/01/2012, passed under section 250 of the Income Tax Act, 1961, ('the Act') by the learned Commissioner of Income Tax (Appeals)-6, Mumbai, [‗learned CIT(A)'], for the assessment years 2004-05 and 2005-06, respectively. 2. Since both the cross appeals pertain to the same assessee and issues involved are, inter-alia, common, therefore these appeals were heard together as a matter of convenience and are being adjudicated by way of this consolidated order. Further, as the basic facts in both the cross appeals are same, we have elaborately mentioned only the facts for the first assessment year (i.e. 2004-05) before us for the sake of brevity. However, if any particular issue is arising in other year for the first time, facts pertaining to the same are discussed accordingly. ITA No. 2440/Mum./2011 Assessee's appeal - AY 2004-05 3. In this appeal, the assessee has raised the following grounds: "1. The learned Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and dealer of various types of organic, inorganic and heavy chemicals. The assessee is a major producer of soda ash, salt, cement and fertilisers. During the year, assessee continued to produce all these products. For the year under consideration, assessee filed its return of income on 01/11/2004 declaring total income of Rs.349,71,39,843, under the normal provisions of the Act. The assessee filed revised return of income on 20/04/2005 declaring total income of Rs. 371,48,26,981, under normal provisions of the Act. During the course of assessment proceedings, from the perusal of clause 17 (a) of tax audit report, it was observed that assessee has paid an amount of Rs.3,89,81,600 as subscription for brand equity, however, the same has not been treated as capital expenditure. Accordingly, following the approach adopted in earlier years, the Assessing Officer vide order dated 07/12/2006 passed under section 143(3) of the Act disallowed the aforesaid amount treating the same as non-business expenditure. 7. In appeal, before the learned CIT(A) assessee submitted that the said payment was made vide agreement dated 01/01/1999 titled 'Tata Brand Equity and Business Promotion Agreement' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the assessee in its own case for AY 2000-01 (ITA No. 5446/M/2014, dated 21.06.2017) and AY 2001-02 (ITA No. 6366/M/2014, dated 15.09.2017) by the Tribunal. Also in the case of its subsidiary company i.e. Rallis (India) Ltd., the same issue has been decided in favour of the assessee by the Tribunal in ITA No. 5257/M/2008 vide order dated 30.08.2001. Therefore, the Tribunal in AY 2002-03 affirmed the order of the Ld. CIT(A) deleting the addition made by the AO. Facts being identical, we follow the above order of the Co-ordinate Bench in assessee's own case and delete the addition of Rs.3,73,88,538/- made by the AO. Thus the 2nd ground of appeal is allowed." 11. The learned DR could not show any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided in favour of the assessee by the decisions of the coordinate bench of the Tribunal in preceding assessment years. Thus, respectfully following the order passed by the coordinate bench of Tribunal in assessee's own case cited supra, we direct the Assessing Officer to delete the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest related to exempt income = 13.54% of G Rs.7.88 crore Accordingly, an amount of Rs.7.88 crores is attributed as interest expense towards the investment in shares and securities and units of Mutual fund, income from which is exempt from tax and hence Rs.7.88.00.000/- is disallowed u/s. 14A of the I.T. Act. 14. In appeal, learned CIT(A) vide impugned order dated 21/01/2011, upheld the assessment order to the extent of disallowance under section 14A, was made by the Assessing Officer, however, directed the Assessing Officer to rework such disallowance on reasonable basis keeping in view the findings of Hon'ble jurisdictional High Court in Godrej and Boyce Manufacturing Co. Ltd. v/s DCIT, ITA No. 626/2010 and W.P. No.785 / 2010), without resorting to the provisions of Rule 8D. Being aggrieved, assessee is in appeal before us. 15. During the course of hearing, learned counsel submitted that subsequent to the impugned order, the Assessing Officer passed order dated 03/08/2011 giving effect to the directions of the learned CIT(A), whereby, disallowance under section 14A of the Act was estimated at 5% of the exempt income and accordingly, Rs. 1,84,43,450 was disallowed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance under section 14A is concerned, in preceding and subsequent assessment years and as the present appeal pertains to around 17 years old assessment year, therefore, in the larger interest of justice, we deem it appropriate to direct the Assessing Officer to apply the similar methodology as adopted and accepted in other assessment years and compute the disallowance under section 14A of the Act accordingly. Such an approach will also put a quietus to this recurring issue, insofar as the relevant assessment year is concerned. Thus, we order accordingly. As a result, ground no. 3 raised in assessee's appeal is allowed for statistical purpose. 19. The issue arising in ground no. 6, raised in assessee's appeal, is pertaining to disallowance of claim of deduction under section 80 IB of the Act in respect of fertiliser unit at Haldia. 20. The brief facts of the case pertaining to this issue, as emanating from record, are: The assessee, while filing the revised return of income, claimed deduction of 2,87,39,000 at 30% of the profits (being 5th year of claim) under section 80IB of the Act, in respect of erstwhile Hind Lever Chemicals Ltd. As in assessment year 2003-04, sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the relevant case law, we think it is necessary to set out Sections 80-IB and 80-IC insofar as they are relevant for the determination of the present case. "80-IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to (11), (11A) and (11B) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:- (i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of an industrial undertaking which is formed as a result of the re-establishment, reconstruction or rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustrial undertaking in an industrially backward State specified in the Eighth Schedule shall be hundred per cent of the profits and gains derived from such industrial undertaking for five assessment years beginning with the initial assessment year and thereafter twenty-five per cent (or thirty per cent where the assessee is a company) of the profits and gains derived from such industrial undertaking:.. "Provided that the total period of deduction does not exceed ten consecutive assessment years (or twelve consecutive assessment years where the assessee is a co-operative society) subject to fulfilment of the condition that it begins to manufacture or produce articles or things or to operate its cold storage plant or plants during the period beginning on the 1st day of April, 1993 and ending on the 31st day of March, 2004: Provided further that in the case of such industries in the North-Eastern Region, as may be notified by the Central Government, the amount of deduction shall be hundred per cent of profits and gains for a period of ten assessment years, and the total period of deduction shall in such a case not exceed ten assessment years. Provided also that no deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units in the region." 12. The reference to the 10 year tax holiday for the industries set up in the North Eastern Region is an obvious reference to the second proviso to sub-section (4) of Section 80-IB set out hereinabove. The speech of a Minister is relevant insofar it gives the background for the introduction of a particular provision in the Income Tax Act. It is not determinative of the construction of the said provision, but gives the reader an idea as to what was in the Minister's mind when he sought to introduce the said provision. As an external aid to construction, this Court has, in K.P. Varghese v. ITO [1981] 7 Taxman 13 (SC), referring to a Minister's speech piloting a Finance Bill, stated as under:- "Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this sub-section must fall in line with the advancement of that object and purpose. We must therefore accept as the underlying assumption of Sub-section (2) that there is under-statement of consideration in respect of the transfer and Sub-section (2) applies only where the actual consideration received by the assessee is not disclosed and the consideration declared in respect of the transfer is shown at a lesser figure than that actually received." 13. A series of decisions have made a distinction between "profit attributable to" and "profit derived from" a business. In one of the early judgments, namely, Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), this Court had to construe Section 80-E of the Income Tax Act, which referred to profits and gains attributable to the business of generation or distribution of electricity. This Court held: "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not direct but only incidental. The industrial undertaking exports processed sea food. By reason of such export, the Export Promotion Scheme applies. Thereunder, the assessee is entitled to import entitlements, which it can sell. The sale consideration therefrom cannot, in our view, be held to constitute a profit and gain derived from the assessees' industrial undertaking." (Para 13) 15. Similarly, in Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278/129 Taxman 539 (SC) , this Court dealt with the claim for a deduction under Section 80HH of the Act. The question before the Court was as to whether interest earned on a deposit made with the Electricity Board for the supply of electricity to the appellant's industrial undertaking should be treated as income derived from the industrial undertaking under Section 80HH. This Court held that although electricity may be required for the purposes of the industrial undertaking, the deposit required for its supply is a step removed from the business of the industrial undertaking. The derivation of profits on the deposit made with the Electricity Board could not be said to flow directly from the industrial undertaking itself. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 80-IB. They belong to the category of ancillary profits of such Undertakings.' (Paras 34, 35 and 36) 17. An analysis of all the aforesaid decisions cited on behalf of the Revenue becomes necessary at this stage. In the first decision, that is in Cambay Electric Supply Industrial Co. Ltd.'s case (supra) this Court held that since an expression of wider import had been used, namely "attributable to" instead of "derived from", the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. In short, a step removed from the business of the industrial undertaking would also be subsumed within the meaning of the expression "attributable to". Since we are directly concerned with the expression "derived from", this judgment is relevant only insofar as it makes a distinction between the expression "derived from", as being something directly from, as opposed to "attributable to", which can be said to include something which is indirect as well. 18. The judgment in Sterling Foods case (supra) lays down a very important test in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucting manufacturing cost and selling costs reimbursed to the assessee by the Government concerned. 19. Similarly, the judgment in Pandian Chemicals Ltd.'s case (supra) is also distinguishable, as interest on a deposit made for supply of electricity is not an element of cost at all, and this being so, is therefore a step removed from the business of the industrial undertaking. The derivation of profits on such a deposit made with the Electricity Board could not therefore be said to flow directly from the industrial undertaking itself, unlike the facts of the present case, in which, as has been held above, all the subsidies aforementioned went towards reimbursement of actual costs of manufacture and sale of the products of the business of the assessee. 20. Liberty India's case (supra) being the fourth judgment in this line also does not help Revenue. What this Court was concerned with was an export incentive, which is very far removed from reimbursement of an element of cost. A DEPB drawback scheme is not related to the business of an industrial undertaking for manufacturing or selling its products. DEPB entitlement arises only when the undertaking goes on to export the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the law on the subject, the Calcutta High Court held: 'Mr. Bandhyopadhyay, learned Advocate appearing for the appellant, submitted that the impugned judgment is contrary to a judgment of this Court in the case of CIT v. Andaman Timber Industries Ltd. reported in [2000] 242 ITR 204/109 Taxman 135 wherein this Court held that transport subsidy is not an immediate source and does not have direct nexus with the activity of an industrial undertaking. Therefore, the amount representing such subsidy cannot be treated as profit derived from the industrial undertaking. Mr. Bandhypadhyay submitted that it is not a profit derived from the undertaking. The benefit under section 80IC could not therefore have been granted. He also relied on a judgment of the Supreme Court in the case of Liberty India v. Commissioner of Income Tax, reported in (2009) 317 ITR 218 (SC) wherein it was held that subsidy by way of customs duty draw back could not be treated as a profit derived from the industrial undertaking. We have not been impressed by the submissions advanced by Mr. Bandhyopadhyay. The judgment of the Apex Court in the case of Liberty India (supra) was in relation to the subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unterparts in central (non-remote) areas. The huge transportation cost for getting the raw materials to the industrial unit and finished goods to the existing market outside the state, was making it unviable for industries in remote parts of the country to compete with industries in central areas. Therefore, industrial units in remote areas were extended the benefit of subsidized transportation. For industrial units in Assam and other north-eastern States, the benefit was given in the form of a subsidy in respect of a percentage of the cost of transportation between a point in central area (Siliguri in West Bengal) and the actual location of the industrial unit in the remote area, so that the industry could become competitive and economically viable." 25. The decision in Sahney Steel and Press Works Ltd.'s case (supra) dealt with subsidy received from the State Government in the form of refund of sales tax paid on raw materials, machinery, and finished goods; subsidy on power consumed by the industry; and exemption from water rate. It was held that such subsidies were treated as assistance given for the purpose of carrying on the business of the assessee. 26. We do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having wrongly interpreted the judgments in Sterling Foods (supra) and Liberty India's cases (supra) to arrive at the opposite conclusion, is held to be wrongly decided for the reasons given by us hereinabove. 023. Hon Supreme Court has considered whether various types of subsidies received by the assessee manufacturer are eligible for deduction u/s 80 IB / IC of the act or not. It held hat these subsidies are income derived from business of eligible industrial undertaking. The above decision of the honourable Supreme Court has already considered the other decisions of the honourable Supreme Court which are relied upon by the learned CIT - A. Therefore, based on the ratio laid down by the honourable Supreme Court, assessee is eligible for deduction u/s 80 IB of the Income Tax Act on fertilizer subsidy received by it. Accordingly, we hold that the fertilizer subsidy income received by the assessee is income derived from the business of the industrial undertaking and is eligible for deduction u/s 80 IB of the income tax act. Accordingly, ground number 5 of the appeal is allowed to that extent." 23. The learned DR could not show any reason to deviate from the aforesaid order an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame was not originally made in the return of income. In view of this discussion, this ground is dismissed. Being aggrieved, assessee is in appeal before us. 27. During the course of hearing, learned counsel fairly agreed that this issue has been decided against the assessee by coordinate bench of the Tribunal in preceding assessment year. 28. We have considered the submissions and perused the material available on record. We find that coordinate bench of the Tribunal in assessee's own case in Tata Chemicals Limited vs DCIT, in ITA No. 2965/Mum./2015, for assessment year 2002-03, vide order dated 22/04/2019, dismissed the appeal filed by the assessee on similar issue, by observing as under: "8.5 We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. We refer here to the case laws cited by the assessee before the Ld. CIT(A). In the case of CIT v. Ishar Dass Tilak Chand (1979) 120 ITR 440 (P&H), the assessee-firm derived income from selling country liquor as licensed contractor. Annual license fee was payable in specified equal installments. Prescribed percentage was payable in lump sum as security deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss loss and not a capital loss. The security amount deposited under a contract is not for obtaining the contract but for the due performance of its items. Moreover, in the instant case, it was obvious that the contract with the corporation was not a new business started by the assessee but was only a venture in the course of business which the assessee was already carrying on and, therefore, it could in no sense be held that the deposit of security was made for acquiring a business. Accordingly, the loss resulting from the forfeiture of security money was a revenue loss." In CIT v. Textool Co. Ltd. (1982) 135 ITR 200 (Mad), the assessee imported certain items necessary for its manufacturing business under licensing scheme, requiring the assessee to deposit advance premium representing full amount of value of licensed imports with Indian Cotton Mills Federation, with stipulation that if assessee did not utilize full import entitlement, Federation would forfeit premium to the extent of resultant short fall. Owing to business exigencies, the assessee could not fully utilize import entitlements and Federation forfeited part of premium which it wrote off as revenue loss. On appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Vide another application dated 07/11/2020, assessee sought admission of following additional ground of appeal: "That the Sales Tax Incentive money of Rs.51,81,985 being the amount retained by the company in accordance with section 41 of the West Bengal Sales Tax Act, 1944 (read with The West Bengal Incentive Scheme 1999), was a capital receipt not chargeable to fax under the Income Tax Act. The appellant craves the leave to add, amend, alter and/or delete any of the grounds of appeal before the time of hearing of the appeal." 33. As the issue raised by the assessee, by way of additional ground of appeal, is purely legal issues which can be decided on the basis of material available on record, we are of the view that same can be admitted for consideration and adjudication in view of the ratio laid down by Hon'ble Supreme Court in NTPC Ltd vs CIT: 229 ITR 338. 34. We find that, while deciding similar issue in favour of the assessee, the coordinate bench of the Tribunal in assessee's own case in Tata Chemicals Limited vs DCIT, in ITA No. 2439/Mum/2011, for the assessment year 2003-04, vide order dated 16/02/2022, observed as under: "016. In the additional ground number 3 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. 36. In the result, appeal by the assessee is partly allowed. ITA No. 2733/Mum/2011 Revenue's appeal - AY 2004 - 05 37. At the outset, learned counsel submitted that total adjustment to income in respect of revenue's appeal is Rs. 85,62,609 and the tax thereon at 35.875% will be Rs. 30,71,836, which is below the revised monetary limit of Rs. 50 lakhs applicable to appeal is before the Tribunal, as per CBDT Circular no.17 of 2019, dated 8th August 2019. Further, he submitted, none of the exceptions provided in CBDT Circular no.3 of 2018, dated 11th July 2018 r/w circular F. no.279/Misc./142/2007-ITJ-(Pt) dated 20th August 2018, would apply to Revenue's appeal. Thus, the learned A.R. submitted that Revenue's appeal being covered under the aforesaid Circulars is not maintainable. 38. The learned DR could not produce any material before us to controvert the submission so made on behalf of the assessee. 39. Having considered the submissions and perused the material available on record, we are of the view that the tax effect on the amount disputed by the Revenue in the present appeal is below the revised monetary limit of Rs. 50 lakh as per CBDT Circular no.17/2019, dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanating from record, are: During the year under consideration, assessee received dividend income on shares and income from units on mutual funds amounting to Rs. 31,17,04,902, which was claimed as exempt under section 10 of the Act. The Assessing Officer vide order dated 20/12/2007 passed under section 143(3) of the Act made the disallowance of Rs. 9,87,85,245 under section 14A of the Act. In appeal, the CIT(A) vide impugned order dated 31/01/2012 directed the Assessing Officer to compute disallowance under section 14A in the manner computed for the assessment year 2006-07. Being aggrieved, the assessee is in appeal before us. 47. During the course of hearing, learned counsel submitted that following the learned CIT(A)'s direction, the Assessing Officer vide order dated 23/02/2012 restricted the disallowance under section 14A to Rs. 4,80,000. Learned counsel further submitted that with a view to avoid litigation assessee is agreeable to methodology adopted by the Assessing Officer for assessment year 2006-07 and methodology upheld by the DRP for assessment year 2007-08. 48. In view of the fact that the suo moto disallowance offered by the assessee has been accepted by the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the precedents in assessee's own case. Being aggrieved, Revenue is in appeal before us. 54. During the course of hearing, learned DR vehemently relied upon the order passed by the Assessing Officer. On the other hand, learned counsel submitted that this issue has been decided in favour of the assessee by the coordinate bench of Tribunal in preceding assessment year. 55. We have considered the rival submissions and perused the material available on record. From the perusal of the impugned order passed by the learned CIT(A), we find that this issue is recurring nature. We further find that the coordinate bench of Tribunal in DCIT vs Tata Chemicals Limited, in ITA Nos. 3383/Mum/2015, for assessment year 2002-03, vide order dated 22/04/2019, while deciding similar issue, observed as under: "11.3 We have heard the rival submissions and perused the relevant materials on record. As per the decisions filed by the Ld. counsel, we find that the above issues have been decided by the ITAT in favour of the assessee in assessee's own case for earlier assessment year. In the case of Tata Sports Club, similar issue has been decided by the Tribunal in favour of the assessee in AY 1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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