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TMI Blog2023 (4) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... Kiwam under the brand name "BABA". Assessee electronically filed its return of income for A.Y. 2013-14 on 23.09.2013 declaring loss of Rs.2,68,66,417/-. In the computation of income assessee had declared profit of Rs.16,70,45,622/- which was adjusted against the brought forward losses and depreciation resulting into Nil income. The case of the assessee was selected for scrutiny and thereafter, assessment was framed u/s 143(3) of the Act vide order dated 21.03.2016 and the total business loss before set off was determined at Rs.23,44,85,808/- and income from other sources at Rs.11,71,940/-. Thus the total income was assessed at Rs.11,71,940/-. 5. Aggrieved by the order of AO, Assessee carried the matter before CIT(A) who vide order dated 27.04.2018 in Appeal No.47/16-17/2474/40/16-17 granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now in appeal and has raised the following grounds: "1.1 That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-10, New Delhi (CIT (A) for short) erred in confirming the action of the Asst. Commissioner of Income Tax, Central Circle-29, New Delhi AD for short) in hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2014, noted that for invoking disallowance u/s 14A, it is not material that assessee should have earned exempt income during the financial year under consideration and Rule 8D of the Income Tax Rules provides the basis of computing the expenditure relating to earning of income which was not included in the total income. AO thereafter, by invoking the provisions of Rule 8D worked out the disallowance u/s 14A at Rs.97,92,030/- and made its additions. 10. Aggrieved by the order of AO, assessee carried the matter before CIT(A) who by relying on the decision of Hon'ble Supreme Court cited in the order restricted the disallowance of Rs.28,14,818/-, being exempt income earned by the assessee. He accordingly granted relief to the extent of Rs.69,77,212/-. Aggrieved by the order of CIT(A), assessee is now before us. 11. Before us, Learned AR reiterated the submissions made before AO and CIT(A). He thereafter pointing to the copy of the Balance Sheet placed at page 110 of the paper book submitted that Interest Free funds in the form of Share Capital and Reserve and Surplus are at Rs.156.40 cr. (rounded off) which are much more than the investments made and in such situation the presumpti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the interest free funds available with the assessee are more than the investments and the investments which have yielded tax free income. We find that identical issue arose before the Co-ordinate Bench of Tribunal in assessee's own case in A.Y. 2014-15 and the Co-ordinate Bench of Tribunal vide order dated 07.09.2020 in ITA No.4460/Del/2017 had restored the issue back to the file of AO. The relevant findings of the Co-ordinate Bench of Tribunal are as under: 12. Now coming to the contention of the Ld. AR about the utilisation of the own funds of the assessee for investment in shares, it could be seen from the assessment order vide paragraph No. 5.2 that the assessee contended before the learned Assessing Officer that the investment in shares was made out of substantial reserve and surplus is of the assessee company and no expenditure was incurred to earn the dividend income and therefore, no disallowance under section 14 A of the Act could be made. Learned Assessing Officer had not considered this aspect as to the availability of the funds with the assessee in the shape of share capital and Reserves & Surplus. So also, the Ld. CIT(A). In the circumstances, we are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hape of share capital and Reserves & Surplus exceeds the investment in the current year, the question of interest component under rule 8D(2)(ii) of the Rules does not arise. Further we direct the learned Assessing Officer to verify the investments yielding exempt income and to reach the correct amount of disallowance keeping in view the decision of the Hon'ble jurisdictional High Court in the case of ACB India Ltd (supra). Ground No. 2 is therefore, allowed for statistical purpose." 15. Since the issue raised in the present ground as admitted by Learned AR is identical to that of A.Y. 2014-15, we following the same reasoning of the Co-ordinate Bench while deciding the issue for A.Y. 2014-15 and similar reasons restore the issue back to the file of AO and direct him to rework that disallowance under Section 14A r.w.r 8D in accordance with law and the decisions of Hon'ble Jurisdictional High Court. AO shall be free to call for such information and explanations as he deems fit to adjudicate the claim of the assessee. Assessee shall also be free to file such documents, explanations, submissions as it deems fit in respect of the claim. Needless to state that AO shall grant adequate opp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that assessee has a pan masala, gutka, tobacco manufacturing unit at Noida Special Economic Zone and had claimed profit of Rs.1,00,12,142/- of the unit being exempt u/s 10AA of I.T. Act. AO also noted that the auditor had computed the exemption under Section 10AA of the Act at Rs.96,12,694/-. The assessee was therefore asked to explain as to how the exemption u/s 10AA of the Act was claimed at Rs.1,00,12,142/- in place of Rs.96,12,694/- as computed by the Auditor and also justify the claim of exemption. In response to the query of AO, assessee inter alia submitted that the unit at Noida, SEZ had commenced production from F.Y. 2008-09 and it is 100% export oriented unit and therefore assessee is eligible for exemption. As far as quantum of exemption, it was submitted that the exemption as computed by the Auditor by allowed. AO noted that as per provision of Section 10AA(6) of the Act, the profit of the unit has to be determined after set off the carry forward losses u/s 72(1) or 74(1) / 74(3) of the Act. AO noted that assessee had brought forward the losses of the unit amounting to Rs.2,73,862/-. AO therefore in view of the provision u/s 10AA(6) of the Act, set off the loss from p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upholding the action of AO noted that each and every items included in the figure of head office expenses benefits the business as a whole and assessee has not been able to substantiate as to which all expenses did not pertain to the business as well. With respect to the allocation of interest, CIT(A) at para 7.1 had upheld the action of AO by noting that plea of the assessee that Section 80IA(8) contemplated transfer of goods and services only and therefore the argument of the assessee that interest was not covered to be farfetched and misleading. He thus upheld the action of AO. Aggrieved by the order of CIT(A), Assessee is now before us. 28. Before us, Learned AR reiterated the submissions before AO and CIT(A) and further submitted that before CIT(A) assessee has made the submissions which though noted by CIT(A) at pages 21 and 22 of the order but has not considered the same while deciding the issue. He further submitted that identical issue arose in assessee's own case before the Tribunal for A.Y. 2014-15 and the Co-ordinate Bench of Tribunal in ITA No.4460/Del/2017 dated 07.09.2020 has restored the issue back to the file of AO. He thereafter pointed to the relevant findings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s resulted into overstatement of profits of the eligible undertaking which are exempt from the tax. On this premise, taking the turnover as the basis for apportionment of certain expenses at 2.64%, the learned Assessing Officer allocated a sum of Rs. 6,50,923/- to NSEZ out of the total expenses of Rs. 2,46,56,200/- incurred by 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 Rs. 3,03,77,120/- and as on 31/3/2014 was 3,51,69,570/-, the average of which comes to Rs. 3,27,73,345/- and therefore, considering the interest at 12% per annum reduced the profit of the eligible unit by Rs. 39,32,81/- and therefore he totally disallowed a sum of Rs. 45,83,724/- from out of Rs. 2,95,16,153/- claimed by the assessee under section 10AA of the Act and limited it to Rs. 2,49,32,429/-. 19. In the appeal before the Ld. CIT(A), it was argued on behalf of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses incurred on interest towards finance to NSEZ unit was not allocated and all the expenditure towards finance cost was debited in the head office account and other taxable units, it also resulted in artificial increase 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 separa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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