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TMI Blog2022 (10) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... income yielding assets. Since, the Ld. CIT(A) followed binding precedent of Hon'ble Jurisdictional High Court, we do not find any error in the order of the Ld. CIT(A) on the issue-in-dispute. Disallowance under Rule 8D(2)(iii) for administrative expenses is concerned Assessing Officer has made disallowance - CIT(A), however, in view of the decision of the Hon'ble Bombay High Court in the case of Nirved Traders [ 2019 (4) TMI 1738 - BOMBAY HIGH COURT] wherein it is held that disallowance u/s. 14A is to be limited to the extent of tax exempted income earned during the year, sustained the suo moto disallowance and deleted the remaining disallowance made by the Assessing Officer u/s. 14A of the Act. Since, the Ld. CIT(A) has followed the binding precedent of the Hon'ble Jurisdictional High Court, therefore, we do not find any error in the order of the Ld. CIT(A) on the issue-in-dispute. Accordingly, the ground No. 1 of the appeal of the Revenue is dismissed. Nature of receipt - subsidy receipt in the form of Technology Upgradation Fund (TUF) - revenue v/s capital receipt - HELD THAT:- We find that the TUF scheme was launched by the Ministry of Textile of the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax (Appeals)-51 [in short 'the Ld. CIT(A)']. The cross appeals of the assessee and the Revenue for assessment years 2014-15 2015-16 are directed against the two separate orders, both dated 27.10.2021, passed by the Ld. CIT(A)-51, Mumbai. In these appeals, common issue-in-dispute are involved, therefore, same were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts. 2. The grounds of assessee for assessment year 2013-14 are reproduced as under: 1.a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition to the extent 9,35,400/- made by the AO to the income of the Appellant by way of disallowing administrative expenses on flat rate claimed to have been incurred relating to exempt income invoking provisions of section 14A. b) The Ld. CIT(A) failed to appreciate that having regard to the accounts there is no reason and basis in reaching to dissatisfaction with the correctness of the claim of the Appellant that no expenditure was incurred in relation to dividend income which does not form part of the total income. c) In reaching to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the year under consideration without appreciating the Circular No. 5 of 2014 dated 11.02.2014 of CBDT The Ld. CIT(A) erred in deleting the disallowance of Rs. 681255/- under rule 8D(2)(iii) of the Income Tax Rules 1962, on the ground that the assessee himself disallowed Rs. 7,34,844/- without realizing the fact that in the computation under rule 8D(2) of Income Tax Rules 1962, the AO allocated Rs. 7,34,844/- towards direct expenses and the disallowance of Rs. 6,81,2551/- is in excess of direct expenses computed as per rule 8D(2) of Income Tax Rules 1961 and since the Ld. CIT(A) himself upheld the disallowance under rule 8D(2)(iii) on merit, the same should have been confirmed. 2. The Ld. CIT(A), has erred in considering the subsidy received in the form of Technology Upgradation Fund as a capital receipt, without appreciating the fact that the assessee has not proved that the application of the money received was for the purpose of acquiring a capital asset.' 3. The Ld. CIT(A) has erred in directing the assessing officer to delete the adjustment to book profit on account of disallowance u/s. 14A r.w.r. Rs. 3,08, 8D without appreciating the provision of clause) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issued and complied with. In the assessment completed on 23.12.2016, the Assessing Officer made various disallowances including disallowance u/s. 14A and treating the technology upgradation fund subsidy of ₹ 1,72,22,271/- as revenue in nature. 5. On further appeals, the Ld. CIT(A) allowed the appeal partly in favour of the assessee. Aggrieved with the finding of the Ld. CIT(A), both the parties are in appeal before the Tribunal raising the grounds as reproduced above. 6. The Revenue in Ground No. 1 of the appeal is aggrieved by the deletion of disallowance made by the Assessing Officer under Rule 14A r.w.r. 8D of the Income-tax Rules, 1961 (in short 'the Rules'). 6.1. Brief facts qua the issue-in-dispute are that the assessee shown receipt of exempted income of ₹ 3,73,165/- from its investment in shares mutual fund etc. and in the return of income filed made suo motu disallowance of ₹ 7,34,844/- u/s. 14A of the Act. During the assessment proceedings, the Assessing Officer was of the view that assessee failed to link the investment in shares mutual fund etc. with its own fund/surplus fund available at it disposal and therefore, invoking provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 is of Rs. 112.96 crores which comprises of share capital of Rs. 39.23 crores and reserves surplus of Rs. 73.72 crores. On the other hand, the investments made by the assessee which result into exempt income is of Rs. 18.70 crores only. Therefore, as per the ratio of the decision of the Jurisdictional High Court in the cases cited by the assessee, no disallowance us. 14A can be made out of interest expenditure. Therefore, the action of the AO of computing disallowance out of interest expenditure as per Rule 8D(2)(ii) is incorrect. Accordingly, the entire addition made by the AO out of interest expenditure after invoking rule 8D(2)(ii) is deleted. 7.1. Regarding the disallowance under Rule 8D(2)(iii), the Ld. CIT(A) noted that suo moto disallowance made by the assessee of ₹ 7,34,844/- was more than the exempted income of ₹ 3,73,165/-. Therefore, following the decision of the Hon'ble Bombay High Court in the case of Nirved Traders (WP ITA No. 149 of 2017 dated 23.04.2019), deleted the addition observings under: 7.7 The AO has computed the disallowance of indirect expenses other than interest as per Rule 8D(2)(ii) at Rs. 6,81,255/-, It is noted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Ld. CIT(A) on the issue-in-dispute be set aside. The Ld. DR also pointed out that addition which was sustained by the AO in assessment order included separate addition under Rule 8D(2)(iii) other than the suo moto disallowance by the assessee. Therefore, the Ld. CIT(A) is not justified in deleting the addition u/s. 14A r.w.r. 8D of the Rules. 9. On the other hand, the Ld. Counsel of the assessee relied on the order of the Ld. CIT(A). The Ld. Counsel of the assessee has also filed a paperbook containing pages 1 to 286. 10. We have heard rival submissions of the parties on the issue-in-dispute and perused the relevant material on record. We find that the assessee has made suo moto disallowance of ₹ 7,34,844/- against the exempted income of ₹ 3,73,165/-. The Ld. Assessing Officer rejected the disallowance computed by the assessee mainly on the ground that there was no direct link of the investment made in shares/mutual funds out of own funds or surplus funds available on the disposal of the assessee. The Ld. Assessing Officer treated the suo moto disallowance of ₹ 7,34,844/- made by the assessee as incurred directly against the earning of exempted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the assessee. 12. We have heard rival submissions of the parties on the issue-in-dispute and perused the relevant material on record. The finding of the Ld. CIT(A) on the issue-in-dispute is reproduced as under: 8.9 Before me, the assessee has claimed that it is engaged in the business of manufacturing and processing of synthetic yarn. During the previous year the Appellant company received interest subsidy of Rs. 1,72,22,271/- from the Government of India under the credit Linked Capital Subsidy Scheme under Technology Upgradation Fund Scheme of Ministry of Textiles, Government of India. The purpose of the Scheme under which the subsidy is given was to sustain and prove the competitiveness and overall long term viability of the textile industry. The concerned Ministry of Textile adopted the TUFS Scheme, envisaging technology upgradation of the industry. The subsidy was not given for running the business. Hence interest subsidy is a capital receipt. 8.10 In order to support its view, the assessee has relied on various judicial pronouncements- i. In the case of Gloster Jute Mills Ltd. 67 SOT 21 (Kol.) the ITAT was of the view that in order to sustain co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT Circle 9(1). New Delhi v. Sutlej Textiles and Industries Ltd. 8.11 It is noted that the issue of interest subsidy granted under TUFS scheme has been held to be in the nature of capital receipt by all the judicial authorities. It is noted that in addition to the decisions quoted by the assessee, the Rajasthan High Court, in the case of Nitin Spinners Ltd., [2020] 116 taxmann.com 26 (Rajasthan), has taken the view that the amount of such subsidy is capital in nature. The High Court has observed that: 6. This Court notices that the Punjab and Haryana High Court took into account the previous binding ruling of the Supreme Court in CIT v. Ponni Sugars Chemicals Ltd. [2008) 174 Taxman 87/306 ITR 392 and Sahney Steel Press Works Ltd. v. CIT [1997) 94 Taxman 368/228 ITR 253. In these circumstances, the Court is of the opinion that the amount was received as capital stream and therefore, not taxable. 7. A similar view was taken by the Calcutta High Court in CIT v. Gloster Jute Mills Ltd. [2018] 96 taxmann.com 303/257 Taxman 512/2019) 416 ITR 458. 8.12 In light of the overwhelming judicial pronouncements in favour of the assessee on this issue, the ground is decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im allowable under the Act has been omitted or the quantum thereof is not correct. If the return has been filed by the due date as prescribed and a period of one year from the end of the relevant assessment year has not elapsed, he may revise the return by filing a revised return. However, in this case, it is an admitted fact that the assessee has not claimed the deduction in the return of income, neither filed any revised return of income. The claim has not even been made before the assessing officer. 8.18 In the case of Jute Corporation of India Ltd. V. CIT [53 Taxman 85 (SC)], the Hon'ble Apex Court has held that the CIT(A) has a power coterminous with the Assessing Officer. Furthermore, in the case of Goetze (India) Ltd. v. CIT 284 ITR 323 (SC), it was held by the Hon'ble Apex Court that the claim of deduction not made in the return cannot be entertained by the Assessing Officer otherwise than by filing a revised return. In the case of the assessee, it is evident that the claim of the deduction made by the assessee is a fresh claim and not a revised claim. The assessee has not claimed the deduction in the return of income, neither filed any revised return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he given facts and circumstances of the case, I am of the considered view that the additional claim of the assessee which was a fresh claim and not a revised claim could not be entertained as alternative mechanism for recourse is available in the Act itself which could be availed of as prescribed in section 119(2)(b) of the Act. Ground No. 2 is accordingly dismissed. 14.1. However, the Ld. CIT(A) also disallowed the claim of the assessee on merit observing as under: 8.21 Without prejudice to the above, the matter is examined on merits. The issue of adjustments which can be made to the book profits under section 115JB of the Act is no longer res judicata. The Hon'ble Supreme Court has confirmed in many cases that section 115JB is a complete code in itself and the book profits of an assessee can only be altered in line with the items enumerated in the section itself (Apollo Tyres Limited [2002] 122 Taxman 562 (SC)/255 ITR 273 (SC). 8.22 In its submission, the assessee has relied on the above decision of the Supreme Court to conclude that an item which cannot be brought to tax under section 4 cannot be brought to tax under section 115JB. For this, reliance has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en brought to tax, for instance section 68 of the Act, some provisions of section 56 of the Act, the provisions related to charge of income on capital gains, these are all related to charge of tax on capital account. The inference to be drawn is that a capital account receipt can be brought to tax if the law so mandates. It is noted that section 115JB, which has been accepted by judicial authorities as a complete code in itself mandates that a book profit, once computed under Companies Act and certified by the auditor, cannot be altered it espe computed under com income included in such account, unless the items are covered under the Explanation 1 contained in this section, As such, the claim of the assessee that section 4 of the Act excludes receipts on capital account from taxation is totally misplaced and deserves to be outrightly rejected. 8.25 The assessee has brought to my notice the contents of Explanation 1 wherein certain income of an assessee is required to be excluded while computing the book profit. For clarity, the relevant provisions are reproduced below: Explanation 1:........................... if any amount referred to in clauses (a) to (i) is debite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited before us. and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statue including, charging, computation and exemption clause fat the threshold stage should be interpreted strictly. Further, in case of ambiguity in a charging provisions, the benefit must necessarily go in favour of subject/assessee, but the same is not true for an exemption notification wherein the benefit of ambiguity must be strictly interpreted in favour of the Revenue/State. 8.28 Item (I) to Explanation 1 of section 115JB, at no place, allows all capital items included in the P L account to be excluded from computation of book profits. The Section is absolutely clear. The Hon'ble Supreme Court has also a clear mandate that the book profits of the company have to be computed in accordance with the provisions of section 115JB and the authorities cannot travel beyond. The Hon'ble Supreme Court also holds that the statute is to be interpreted strictly at the threshold stage. (Apollo Tyres(Supra)) 8.29 In light of the above clear guidance given by the statute as well as the Highest Court of the Country, the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtilizer Ltd. 192 ITD 618. The relevant part of the said decision is reproduced as under: 8.3.13 Attention is drawn on the following decisions of the Tribunal/High Courts/Apex Court in the submission filed, wherein it has been held that subsidy treated as capital receipt shall not taxable even in book profit u/s. 115JB: i. In CIT v. Harinagar Sugar Mills Ltd. (ITA No. 1132 of 2014, dated 04-01-2017) (Born) (HC) wherein it has been held that, a) The issue raised in this question is consequential to question No. (i). We have already held that the subsidy received by the respondent assessee from the State of Bihar was in the nature of capital receipt. Hence the same cannot be added to arrive at book profits of the respondent assessee under Section 1151 of the Act. (b) Thus, the question as proposed herein does not give rise to any substantial question of law as it also stands concluded against the Revenue. ii. Recently in PCIT v. Ankit Metal Power Ltd. (ITA 155 of 2018, dated 0907-20 19) it has been held that, But where a receipt is not in the nature of income at all it cannot be included in book profit for the purpose of computation under Section 115JB of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded from the Net profit.... since the said profit does not fall under the definition of income at all and since it does not enter into the computation provisions at all, there is no question of including the same in the Book Profit as per the scheme of the provisions of sec. 115JB of the Act. 8.3.14 I have considered the submission and the contention of the appellant carefully, since the subsidy received is capital in nature and not chargeable to tax in computing the total income as per the normal provisions of the Act, the said subsidy is not termed as Income to be fall under the section 4 of the Income-tax Act being the charging section. As stated by the Apex Court Padmaraje R. Kadambande (supra) wherein it has been held that Capital Receipts are not income within the definition of section 2(24) of the Act and hence are not at all chargeable under the entire Income-tax Act. Further, recently Hon'ble Calcutta High Court in the case of Ankit Metals (supra), Hon'ble Rajasthan High Court in the case of Shri Cement Ltd. (supra) and Jurisdictional High Court in the case of Harinagar Sugar Mills Ltd. (supra) and Jurisdictional Tribunal in the case of Alok Industries Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be added while computing the book profits u/s. 115JB. The appeal filed by the Department against the decision of the Hon'ble ITAT in the case of JSW Energy Ltd. has been dismissed by the Hon'ble Jurisdictional High Court. 10.4 On this issue, recently the Spl Bench of ITAT, Delhi vide its order dated 16.06.2017 in the case of Vireet Investments P Ltd. (82 Taxmann.com 415) after considering the various decisions on this issue has also taken a similar view that disallowance u/s. 14A cannot be added while computing the book profits us. 115JB. This view has also been taken by the Hon'ble Delhi High Court in the case of Bhushan Steel Ltd. in ITA No. 593/2015. Respectfully following the said decisions of the Hon'ble Delhi High Court, Spl Bench ITAT Delhi and the decision of ITAT, Mumbai wherein the appeal of the Department has been dismissed, the contention of the assessee that the disallowance made u/s. 14A cannot be considered while computing the book profits us. 115JB is accepted. Accordingly, the addition made by the AO of the disallowance us. 14A while computing the book profits u/s. 115JB, is deleted. Ground No. 6 raised by the assessee is allowed. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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