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TMI Blog2024 (1) TMI 1187X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable amount of share capital, reserve and surplus was more than investment in shares for AY 2011-12, 2012-13, 2013-14 and 2014-15 respectively. In such a scenario, the decision of the CIT(A) cannot be faulted on the ground that he erred in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income i.e dividend. We, therefore, reject the Revenue s stand in this regard. Moreover, the decision of the Ld. CIT(A) is in consonance with the view expressed by the Hon ble Supreme Court in the case of South Indian Bank Ltd. ( 2021 (9) TMI 566 - SUPREME COURT] . Mandation of recording satisfaction - Non-recording of satisfaction as embedded in sub-section (2) of section 14A is a legal infirmity committed by the Ld. AO which cannot be ignored. Computation of book profit u/s 115JB - The Hon ble Karnataka High Court has held in its decision in Shobha Developer Ltd. ( 2021 (1) TMI 378 - KARNATAKA HIGH COURT] that once disallowance made u/s 14A r.w. Rule 8D is deleted, said disallowance cannot be made while computing book profit u/s 115JB of the Act. No contrary decision has been brought to our notice by the Ld. CIT-DR. We th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handra, Judicial Member For the Assessee : Shri M.P. Rastogi, Advocate For the Department : Shri T. James Singson, CIT,DR ORDER PER ASTHA CHANDRA, JM These cross appeals filed by the assessee and the Revenue arise out of the order of the Ld. Commissioner of Income Tax, (Appeals)-29, New Delhi ( CIT(A) ) dated 29.01.2018 pertaining to Assessment Year ( AY ) 2011-12 and orders dated 30.01.2018 pertaining to Assessment years ( AYs ) 2012-13, 2013-14 and 2014-15. 2. In AY 2011-12, the grounds taken by the assessee and Revenue are as follows:- AY 2011-12 - assessee 1. The lower authorities are wrong on facts and bad in law in disallowing a sum of Rs. 88,16,520/- without recording the satisfaction required under Section 14A of the Income Tax act, 1961 ( Act ) and rule BD of the Income tax Rules, 1962. 2. That on the facts and in the circumstances authorities erred in disallowing and immediate connection of the case, the lower expenses without examining the direct with dividend income. There was no expenditure incurred in relation to dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts and in law in not reducing the claim of excise duty (Cenvat) refund of Rs. 8,35,89,921 being a capital receipt under section 115JB of the Act 5. The appellant craves leave to add, to alter, delete, modify or vary the above grounds of appeal at or before the time of the hearing. AY 2012-13 - Revenue 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding that no interest bearing funds were used by the assessee in making investment giving rise to tax exempt income and thus restricting the disallowance u/s. 14A of the Act to Rs. 61,66,493/- against the disallowance of Rs. 1,47,09,493/- made by the AO in accordance with the provision of Rule 8D of the Income Tax Rules, 1962. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in holding the income of Rs. 4,31,95,000/- in respect of scrap sales of Rs. 4,31,95,000/- as being generated out of its manufacturing activity and allowable as deduction u/s. 80IB. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in allowing deduction u/s. 80IB in respect of ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation and discount and holding it as part of profit of the industrial undertaking. 4. That the grounds of appeal are without prejudice to each other. 5. The assessee and the Revenue has raised the following grounds in AY 2014-15:- AY 2014-15 - assessee 1. That on the facts and in the circumstances of the case, the lower authorities erred in law disallowing expenditure of Rs. 81,04,615/- under rule BD of the Income tax rules 1962 read with section 14A of the Income Tax Act ( Act ) without satisfying the nexus of expenditure and dividend income earned. 2. That on the facts and in the circumstances of the case, the lower authorities erred in disallowing expenses without examining the direct and immediate connection with dividend income. There was no expenditure incurred in relation to dividend exempt income 3. That on the facts and in the circumstances of the case, the lower authorities erred in law in adding a sum of Rs. 81,04,615/- disallowed under section 14A read with rule 8D while computing the book profits under section 115JB of the Act. 4. The lower authorities erred on facts and in law in not reducing the excise duty (Cenvat) refund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal provisions of the Act and book profit of Rs. 3,88,66,49,517/- under MAT provisions. The case was taken up for scrutiny. Notices under section 143(2) and 142(1) along with questionnaire were issued. In response requisite information/details were filed. The Ld. Assessing Officer ( AO ) completed the assessment on 31.03.2016 under section 153A r.w. section 143(3) of the Act making certain additions / disallowances in computation of income under the normal provisions of the Act as also in computation of Book Profit under section 115JB of the Act. 11. Aggrieved thereby, the assessee filed appeal before the Ld. CIT(A) who allowed part relief to the assessee. 12. Dissatisfied, the assessee as also the Revenue is in appeal before the Tribunal. 13. We take up the appeal of the assessee for adjudication first. 14. Ground No. 1 2 of the assessee s appeal relate to disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (the Rules ). The Ld. AO has discussed this issue in para 7 at pages 10-15 of the assessment order. The Ld. AO found that the assessee earned dividend income of Rs. 1,70,12,884/- during the year. He required the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion as required under section 14A r.w. Rule 8D has been recorded as held by the Tribunal in the assessee s own case for AY 2010-11. 15.2 As regards identical disallowance made by the Ld. AO and confirmed by the Ld. CIT(A) under section 115JB of the Act against which the assessee has raised ground No. 3, the Ld. AR relied on the decision of the ITAT, Delhi Special Bench in ACIT vs. Vireet Investment Pvt. Ltd. reported in 165 ITD 27 (Delhi) (SB) and the decision of Hon ble Karnataka High Court in Shobha Developers Ltd. vs. DCIT (LTU) (2021) 434 ITR 266 (Kar) for the proposition that where disallowance made under section 14A r.w. Rule 8D were deleted, addition for said disallowance cannot be made to book profits under section 115JB of the Act. 16. The Ld. CIT-DR supported the order of the Ld. CIT(A). 17. We have given our careful thought to the submission of the parties and perused the records. The facts are not in dispute. The Ld. CIT(A) has recorded finding of fact in para 9.1 of his appellate order: I am of the view that the investments were made out of own funds, hence no disallowance on account of interest can be made under section 14A read with Rule 8D. Thus, foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the Assessing Officer. 5.1 Since no satisfaction has been recorded by the Assessing Officer as per the mandate of section 14A (2), then no disallowance under Section 14A can be made and accordingly, disallowance worked out by the Assessing Officer under Rule 8D is deleted. 20. We respectfully follow the decision (supra) of the Tribunal and hold that non-recording of satisfaction as embedded in sub-section (2) of section 14A is a legal infirmity committed by the Ld. AO which cannot be ignored. 21. The Hon ble Karnataka High Court has held in its decision in Shobha Developer Ltd. (supra) that once disallowance made under section 14A r.w. Rule 8D is deleted, said disallowance cannot be made while computing book profit under section 115JB of the Act. No contrary decision has been brought to our notice by the Ld. CIT-DR. We therefore, accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be having the characteristic of income. There is a fundamental difference between the income and capital that the income is liable to tax, whereas capital is not liable to tax. In the case of Padmaraje R. Kadambande vs. CIT in 195 ITR 877. the Hon'ble Supreme Court held that the capital receipts are not income within the definition of Section 2(24) of the Act and hence are not chargeable under the Income Tax Act. The learned counsel further stated that the provision of Section 115-JB of the Act is alternative mechanism for computation of income based on book profit without claiming any deduction or incentive allowable under the Act, but the fact remains that taxability has to be restricted to the income and once a receipt is considered as capital, it should be excluded even while computing book profit u/s. . 115-JB of the Act. He relied upon the following judgements: (i) ITA No. 923/Bang/2009 dated 13th January 2017 JSW Steels Ltd. vs. ACIT (ii) ITA No. 5124/Del/2011 dated 29th June 2018 Montage Enterprises Pvt. Ltd. vs. DCIT (iii) ITA No. 2199/Del/2009 dated 20th March 2019 Ultimate Flexipack Ltd. vs. DCIT (iv) 416 ITR 591 (Cal) Pr. CIT vs. Ankit Metal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ultimate Flexipack Ltd. (ITA No. 1418/Del/2018) dated 06.09.2021 has been decided by the B Bench of Delhi Tribunal against the Revenue and in favour of the assessee following the decision of Hon ble Delhi High Court in Sadhu Forging Ltd. (supra). 30. Since the issue is covered in favour of the assessee and against the Revenue by the decision of the Hon ble Delhi High Court in Sadhu Forging Ltd. (supra) which has been followed by the Ld. CIT(A) as also by the Coordinate Bench of the Tribunal, we decline to interfere with the order of the Ld. CIT(A) on the point and reject this ground of the Revenue. 31. Ground No. 3 relates to other income of Rs. 17,15,720/- comprising of freight, exchange rate fluctuation and insurance recovery held by the Ld. CIT(A) as part of sale proceeds and hence an allowable deduction under section 80IB of the Act. In para 10 of assessment order the Ld. AO observed that on the aforesaid receipts deduction under section 80IB is not admissible. On appeal, the Ld. CIT(A) opined and recorded his finding in para 13 of appellate order as under: I have considered the facts and circumstances of the case and the judicial pronouncement relied upon by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/- in Jammu Units - I to III, the nature of the other income is as under: 1. Jammu Unit I Miscellaneous Operating Income Rs. 10,48,682/- 2. Jammu Unit II Foreign exchange fluctuations Rs. 74,11,989/- 3. Jammu Unit III - Exchange rate fluctuations Rs. 24,26,235/- - Discount Rs. 2,19,415/- - Other miscellaneous income Rs. 77,000/- Rs. 1,11,83,321/- 9.4 Other income of Rs. 10,48,682/- in Jammu Unit I represents Insurance recoveries which has been received from insurance company against damaged goods. Regarding the foreign exchange fluctuation of Rs. 74,11,989/- for Jammu Unit Il and Rs. 24,26,235/- for Jammu Unit III, the appellant has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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