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TMI Blog2025 (3) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... apital assets. The process of demerger generally consists of following transactions - Transfer of assets and liabilities by the transferor company to the resulting transferee company, Transfer/ extinguishment of shares of the transferor company and Issuance of shares of resulting transferee company to the shareholders of the transferor company. All the abovementioned transactions have been specifically exempted from the levy of capital gains tax by virtue of various clauses forming a part of Section 47 of the IT Act subjected to the applications of provisions of Section 2(19AA) of the Act. It is also settled position of law that the scheme of demerger once approved by the Hon'ble Jurisdictional High Court, it cannot be re-visited by any statutory authority. At the same time, the provisions of Income-tax Act had prescribed the conditions under which the benefits can be accorded in the case of demerger which means that mere fact that ipso facto does not entitle an assessee to claim benefit. The harmonious interpretation of the Corporate Law and Income-tax Law and the Orders of the Hon'ble High Court is sine qua non for the benefit of the tax payer as well as for the interest of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Cadila Healthcare Ltd. [2012 (6) TMI 13 - ITAT AHMEDABAD] wherein on identical facts on claim of deduction from eligible profits derived by a Baddi unit of a pharmaceutical company it is held that that eligible profits should not be artificially segregated in to manufacturing, marketing and brand profits. Scrap Sale Income - assessee had earned miscellaneous income comprises of scrap income from Baddi unit - HELD THAT:- We find that the issue stands covered by the decision of Tribunal in assessee's own case for AY 2009-10 [2022 (3) TMI 919 - ITAT AHMEDABAD] as held that compensation received by industrial undertaking from insurance companies on account of loss raw materials and finished products in fire, would be eligible for deduction u/s. 80IA of the Act. In view of the above, we do not find any infirmity on the order of ld. CIT(A) in allowing the claim of deduction u/s. 80IC of the Act on scrap income. Deduction u/s 80IC on the disallowance made under section 40(a)(ia) was disallowed - DR argued that the enhancement of profit on account of disallowance u/s 40(a)(ia) cannot increase the deduction u/s 80IC - HELD THAT:- AO has erred in disallowing the deduction and we uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demerger of the treasury undertaking as non-qualifying demerger. 1.1 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in considering demerger of the treasury undertaking ('undertaking') pursuant to a scheme of arrangement under section 391 to 394 of the Companies Act, 1956 sanctioned by Hon'ble Gujarat High Court as non-qualifying demerger under section 2(19AA) of the Act and artificially rewriting the transaction of demerger as transfer of individual assets chargeable to tax under section 45 of the Act. 1.2 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in proceeding on predetermined manner and misinterpreted facts, inter alia, that: 1.2.1 if the undertaking had not come into existence in AY 2007-08, the comparative figures for the undertaking in the balance sheet of AY 2008-09 should be shown at Nil. 1.2.2 the Appellant had selectively allotted the activities to the undertaking by not considering investment in core operation subsidiaries as part of undertaking. 1.2.3 share investments in Blue Information Limited, Trent Limited, IDBI Limited and Shivalik Waste Management Limited were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble CIT(A) has erred in affirming the order of the learned AO and failed to appreciate that in order to levy capital gains tax on the Appellant, it is a condition precedent that the consideration on transfer of alleged capital assets must have been received by the Appellant from the resulting company, which condition is not satisfied in the present case. 1.8 Without prejudice to above, on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in affirming the order of the learned AO and failed to appreciate that even if demerger of undertaking is treated as taxable transfer under section 45 of the Act, the consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts with, namely, money or money's worth and it cannot be an average book value of shares of Sterling (resulting company). Ground No. 2: Levy of dividend distribution tax 2.1 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in affirming the order of the learned AO considering demerger of the treasury undertaking pursuant to a scheme of arrangement under section 391 to 394 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o transparent method of allocation of indirect expenses has been followed by the Appellant and thereby invoking provisions of Rule 8D of the Rules even though when separate Trial Balance for Treasury Undertaking was duly submitted during the assessment proceedings. 3.1.2. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in stating that the Appellant failed to produce cogent evidence to prove that investments were made out of non- interest bearing funds. 3.1.3. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in observing that learned AO had given clear cut finding where the investments in equity shares were made out of interest bearing funds even though no such findings were recorded by the learned AO in his assessment order for the year under consideration. 3.1.4. On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding disallowance under section 14A of the Act read with Rule 8D of the Rules merely on the basis of assumptions that investment would have been made using interest bearing funds without considering details submitted by Appellant which substantiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any rearrangement to be considered as demerger is that all the assets and liabilities of the undertaking being demerged have to be transferred and that the undertaking has to be transferred as a going concern. Further, the property and the liabilities of the undertaking being transferred have to be transferred at values appearing in its books of account and to qualify as demerger within the meaning of the Income-tax Act, it is essential to examine as to whether the essential conditions have been fulfilled. The Assessing Officer, on examination of the transfer held that there was never a clear demarcation or separation of the assets of the Treasury segment from the assets of the assessee as a whole and that the very basic condition of transfer of all assets and liabilities of the undertaking being demerged has not been fulfilled. The Assessing Officer observed that all the assets and liabilities of the treasury segment have not been transferred to the resulting company pursuant to the scheme of demerger and that the treasury segment has not been transferred as a going concern and therefore, it is a clear violation of the conditions prescribed u/s 2(19AA)(i) and (ii) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution of new shares allotted by Sterling as being distributed by the assessee to its shareholders as dividend under section 2(22) of the Act. The Ld. DR relied on the order of the Ld. CIT(A). The Ld. DR submitted as under:- * the assessee has not transferred the treasury undertaking on a going concern basis to Sterling, and it was only a transfer of capital asset and not a demerger of treasury undertaking as per section 2(19AA) of the Act. * the assessee has selectively allotted the activities to be undertaken by treasury undertaking and all the similarly placed investments or activities were never part of the treasury undertaking, viz. the investment made by the assessee in the two subsidiary companies namely M/s. Paras Overseas Holding Ltd. and Paras Inc. USA. The treasury segment included dividend income from investments made in mutual funds as well as profit from sale of investments, but never handled the core investments. * the assets of the Treasury Segment were reflected at Rs. 56,96,25,000/-, at the same time the shares of Blue Information Ltd., Trent Limited and bonus shares of IDBI Ltd., shares of Shivalik Waste Management Pvt. Ltd. were not reflected as assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 2(19AA) of the Act as a going concern, being demerged, has not been fulfilled. Further, the A.O has pointed out that out of total shares of Sterling i.e. 2,68,01,490 shares; 2,00,510 shares were purchased in F.Y.2006-07, 2,50,000 shares were purchased in F.Y.2007-08 and 31,000 shares were purchased in F.Y2009-10. The balance of 2,63,19,980 shares of Sterling were purchased before the Treasury Segment came into existence i.e. AY 2007-08. According to AO the appellant has not reflected the details of corresponding liability incurred for acquisition of shares of Sterling. Thus the AO has analysed the functioning of treasury segment as an 'undertaking' and the treatment given by the appellant for inclusion of certain assets and exclusion of liabilities from the treasury segment. Based on this AO has concluded that the appellant has never treated the treasury segment as an 'undertaking'. I agree with the finding of the AO based on facts discussed above. On the issue of 'liability' of Treasury segment, according to A.O., as on 31/3/2009, the Treasury Segment had assets of Rs. 39,23,05,436/- and the liabilities were at Rs. 37,15,82,049/-. The accounts for the year ending 31/3/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lus funds available with the appellant. Therefore, the transfer of assets as per the petition No.88 of 2010 cannot be treated as qualifying demerger of undertaking by the appellant when read with section 2(19AA) of the Act. It has been held by the Bombay High Court in the case of Thomas Cook Insurance Services in the Company Scheme Petition No. 99 of 2015 with Company Summons for Direction No. 892 of 2014 dated 10/09/2015 that (para 5 of the order) "In any event, by sanctioning the present scheme, this court is not in any way accepting the company's case that the scheme, as framed, complies with the provisions of 'demerger' within the meaning of 2(19AA). In fact, this court is inclined to clarify that the sanction of the scheme, as proposed by this court, does not in any way bind the Income-tax Department to take any particular view of the scheme of arrangements sanctioned by this court insofar as the tax implications of the transaction are concerned." The A.O has also further pointed out that even after the demerger of the Treasury Segment the appellant has continued its investments in mutual funds etc. Thus, it appears that the treasury segment which had the holding of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by hon'ble High Court and the shareholders of the appellant received 2,68,01,557 shares worth of Rs. 61,91,15,966/- of Sterling in return. I agree with the stand taken by the A.O and with due regards and respect to the order of Hon'ble High Court I hold that the said demerger was not as per the provisions of sec.2(19AA) of the Act for the reasons mentioned above. It is not a case wherein the AO is not accepting the order of Hon'ble High Court. It is case where the AO is applying section 2(19AA) of the Act to the appellant. Hon'ble High Court has not referred to section 2(19AA) of the Act in its order. With due respect the order of Hon'ble High Court, it is to be seen that for not considering a transaction as a transfer and thereby claiming exemption u/s 47(vib) r.w.s. 45 of the Act, whether the appellant has fulfilled all the conditions prescribed u/s 2(19AA) of the Act or not. I agree with the stand taken by the AO and based on the discussions above, hold that the appellant has not fulfilled all the conditions u/s 2(19AA) of the Act, thereby attracting tax under the head 'income from capital gain' on transfer of its assets. Transaction between the appellant company and Sterli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) the shareholders holding not less than three-fourths in value of the shares in the demerged company become share-holders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; (vi) the transfer of the undertaking is on a going concern basis; (vii) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of section 72A by the Central Government in this behalf. Explanation 1.-For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity. Explanation 2.-For the purposes of this clause, the liabilities referred to in sub-clause (ii), shall include- (a) the liabilities which arise out of the activities or operations of the undertaking; (b) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31/03/2009 at Rs 37.15 crores were not transferred in the scheme of demerger." 6.5.2 In this regard, it is submitted that liabilities for the year ended 31 March 2009 of Rs 37,15,82,049 represents the inter-unit balance which was knocked off during next year. Therefore, as on 31 March 2010, there existed no liability in the Treasury Undertaking which is required to be transferred on demerger carried out during the Financial Year 2010-11 6.5.3 As per provisions of clause (ii) of section 2(19AA) of the Act, all the liabilities relatable to the undertaking, being transferred by the demerged, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger In other words, clause (i) of section 2(19AA) of the Act only requires that if there are liabilities on the date of demerger of the undertaking, the same is required to be transferred to the resulting company. In the present case, there were no liabilities on the date of demerger and therefore no liability was required to be transferred. The liability till earlier year was an inter- unit balance and not a third party liability." 5.7 From the concurrent reading of the provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the investment in SAIL as well as it also handled the investments in mutual funds etc. but it did not handled the investments in two other subsidiaries of appellant as mentioned earlier. Thus, it is clear that the appellant has selectively allotted the activities to be undertaken by treasury undertaking and all the similarly placed investments or activities were never part of the treasury undertaking. This has lead the A.O. to doubt whether the treasury undertaking has been demerged as a going concern in toto as per the scheme of compromise and arrangements approved by the Hon'ble High Court or not? The A.O has viewed the transactions and the order of Hon'ble High Court from the point of view of sec.2(19AA) of the Act. The A.O has pointed out that as on 31/3/2011 as per Schedule-17 and Note 16 to the Notes on accounts the treasury segment included dividend income from investments made in mutual funds as well as profit from sale of investments. However, the A.O has also observed that this is not correct as all the investments made by the appellant were not handled by the Treasury Segments. According to the A.O, it is evident from balance sheet for A.Y.2008- 09, the assets of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the A.O this involves violation of sub-clause-3 of sub sec.(19AA) of sec.2. According to AO, the shares of Blue Information and Trent Ltd. have not been transferred at value as per the books. The A.O has further pointed out that the trial balance of Treasury Segment as on 31/3/2010 had reflected investments in mutual funds at Rs. 4,01,66,417/- and total investment of Rs. 36,24,90,963/-. The total investment figure matches with the total assets of the Treasury Segment as per the segment reporting in the audited balance sheet. However, as per the consolidated balance as on 31/3/2010 the investment in mutual fund was reflected at Rs. 1,00,09,392/- only. The appellant had admitted that the total assets of the Treasury Segment actually stood at Rs. 33,23,5,845/- and the figure of Rs. 36,24,90,963/- as total assets of the Treasury Segment reported in the audited accounts was a 'mistake'. On admission of the mistake the A.O has held that the appellant has failed to reconcile the difference between mutual funds held as on 31/3/2010 by the Treasury Segment. As on 7/10/2010 the value of mutual funds at market value has been reflected at Rs. 5,09,783/- before the Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liabilities were internal liabilities pertaining to the other segments of the company and hence they are not in the trial balance. I agree with the AO that if the liabilities of the treasury segments have been reduced to NIL then there has to be a corresponding effect on the assets of the treasury segment. The appellants explanation of liabilities belonging to other segments of the appellant does not hold good if the treasury segment had been treated as an undertaking by the appellant. Thus, the A.O has questioned the action of the appellant that in one year the liabilities were accounted for in the trial balance of the Treasury unit but were not accounted for in the subsequent years. This has resulted into transfer of only assets and NIL liabilities to SAIL as on 07/10/2010. Thus, the A.O has concluded that the Treasury Segment has not been transferred as a going concern leading to violation of sections prescribed u/s.2 (19AA) (i), (ii) of the act. According to the appellant the income generated out of the activities of the Treasury Segment has been offered to tax under the head capital gain and dividend income is claimed as exempt and no income of Treasury Segment was offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to SAIL in order to avoid the payment of tax under the head 'capital gain'. The appellant through its audited accounts of earlier years as well as the year under consideration, has not treated the Treasury segment as an 'undertaking' which is one unit, or one division handling similar activities. The appellant has attributed certain activities only to the treasury segment as per its convenience. This has resulted into and it is clear from the submission of the appellant as well as the findings of the A.O that the profit of Treasury Segment was not ascertainable. The investment activities of the appellant, as rightly pointed out by the AO, have continued even after the treasury segment that was suppose to handle these activities, was transferred to SAIL. Thus, the intention of the appellant was never to transfer the investment activities undertaken by the treasury segment but to transfer certain assets only to SAIL without any liabilities. The liabilities of the treasury segment were reduced to Nil on the ground that they pertain to different divisions/segments. If a Macro view is taken on the overall transaction that has been undertaken by the appellant then it appears that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant to SAIL the sale consideration of Rs. 61,91,15,966/- of the transferred assets was to be received by the appellant from SAIL. Instead, SAIL had paid this amount to shareholders of the appellant. Therefore, the assets of the appellant were distributed to the shareholders. Therefore, I agree with the AO that as per section 2(22) of the Act, the appellant has distributed its assets/receivable from SAIL to its shareholders thereby attracting Dividend Distribution Tax on Rs. 61,91,15,966/-. Accordingly, the ground of appeal 1 & 2 are hereby dismissed." 5.9 There is no conflict between the order of Hon'ble High Court and order of the Revenue authorities. The legal obligation of the Revenue Authorities to examine the taxability as per Section 2(22) and Section 2(19AA) cannot be treated as pre-empted by the Hon'ble High Court. A demerger is a corporate reorganization that involves separating a company into two or more entities. The Company Act governs demergers as a scheme of arrangement. Demerger requires approval by majority of shareholders holding shares representing three-fourths value in meeting convened for the purpose and sanction of Hon'ble High Court. It is a form of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be accorded in the case of demerger which means that mere fact that ipso facto does not entitle an assessee to claim benefit. The Income-tax Act operates in its own arena in conjunction with the order of the Hon'ble High Court. The harmonious interpretation of the Corporate Law and Income-tax Law and the Orders of the Hon'ble High Court is sine qua non for the benefit of the tax payer as well as for the interest of the exchequer. The vary purpose of demerger which is for better conducting of the business cannot be curtailed by the Income-tax Department and the assessee would be eligible for business in accordance with the provisions of Section 2(19AA) Section 2(22)(a) & Section 47. In the instant case, the assessee failed to comply with the provisions of Section 2(19AA) (ii) & (iii). Hence, the order of the Ld. CIT(A) on these grounds are affirmed. In the result, Ground Nos. 1 & 2 of the assessee's appeal are dismissed. 6. Ground No. 3: Disallowance under section 14A of the Act. 6.1 The brief facts relating to this issue are that the assessee has investment of Rs. 47,93,23,273/- at the beginning of the year and Rs. 48,17,13,569/- at the end of the year. In the computation of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 3098/Ahd/2013 for AY 2008-09. 6.6. We have heard the rival contentions and perused the material available on record on this issue. We find that the similar issue has been decided by the Tribunal in assessee's own case for the AY 2008-09 in ITA No. 3098/Ahd/2013, wherein the Tribunal has held as under:- "7. We have heard both the sides and perused the material on record carefully on this issue. We noticed that during the year under consideration assessee company had earned dividend income of Rs. 89,27,021/- which was claimed as exempt u/s. 10(34) of the act. In the computation of income, the assessee had disallowed an amount of Rs. 8,34,503/- u/s. 14A of the act as expenses incurred towards earning tax free income. We have gone through the balance sheet and profit and loss account filed and noticed that assessee has share capital and reserves funds totalling of Rs. 146,71,08,964/- as on 31st March, 2008. As per balance sheet as on 31st March, 2008, the assessee has secured loan amount was Rs. 5,54,55,955/- which was Rs. 3,73,068,602/-as on 31 March, 2007. We have noticed that there is no unsecured loan appearing in the balance sheet of the assessee as on 31st March, 2008. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods/drugs have to pass through a series of tests and studies of bio-equivalence and clinical research to the satisfaction of the authorities of those countries. The Assessing Officer held that once the product is registered and approval is granted by the particular country, the assessee can continue to export its goods over a long period of time; but unless and until, the product is registered, those goods cannot be exported to those countries. The Assessing Officer held that the Marketing Intangibles are created by these product registration expenses and hence, it is a capital expenditure not allowable u/s 37(1) of the Act. 7.2 Aggrieved, the assessee went in appeal before the Ld. CIT(A), who relied on the decisions of Ld. CIT(A) for the preceding years i.e. AYs 2008- 09 to 2010-11, deleted the disallowance of Rs. 1,57,98,657/- on account of product registration. 7.3 We find that the Tribunal affirmed the action of the Ld. CIT(A) on this issue. For the sake of ready reference, the relevant part of the order of the ITAT in ITA No. 126/Ahd/2014 for AY 2008-09 (para 12) is reproduced hereunder:- "12. During the course of appellate proceedings before us we have heard both the sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed only on the profits attributable to its manufacturing activity. He also held that the expenditure allocated to the Baddi unit during the year under consideration does not represent marketing expenses incurred earlier. He, accordingly, reduced the profits eligible for deduction u/s 80IC of the Act to Rs. 49,99,64,899/-, by disallowing Rs. 48,95,15,652/- being 15% of Rs. 326,34,37,682/-. 8.2 Aggrieved by the addition made by the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who, relying on the order of his predecessor on this issue for AY 2011-12, allowed the claim of deduction of the assessee. 8.3 Aggrieved by the relief given by the Ld. CIT(A) on this issue, the Revenue is in appeal before the Tribunal. 8.4 Before us, the Ld. DR argued that :- * Since the Baddi unit has only manufacturing assets and carries out only manufacturing function/activities, profits of Baddi unit should be restricted to profits attributable towards manufacturing activities only. * The profits would need to be segregated in to profits derived from manufacturing activity, derived from brand value of the assets and derived from the marketing network. * By setting up of the un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to customers only and not transferred to any other units of the Appellant for the further value addition. * It is not alleged that there is transfer of goods/ services between eligible unit and ineligible units and therefore there is no question of applicability of provisions of section 80-IC (7). * In the given case, brands are owned by the Appellant, a legal entity and not by any division or unit. Further, brands are self-generated brands and not acquired by the Appellant and hence notional adjustment for charging of royalty is not permissible. * It was also submitted that if Baddi unit should bear the cost of royalty, in that scenario entire selling and distribution expenses incurred by them are required to be excluded while computing the commercial profits of the Baddi unit as the same is the responsibility of the brand owner. * It is submitted that that the profit to turnover of Baddi unit (16.43%) is less as compared to the Kalol unit (19.79%). * There is no change is facts and circumstances as compared to AY 2007-08 and since, claim of deduction under section 80-IC was allowed by the AO after due verification, therefore principle of consistency is applicable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 wherein on identical facts on claim of deduction from eligible profits derived by a Baddi unit of a pharmaceutical company it is held that that eligible profits should not be artificially segregated in to manufacturing, marketing and brand profits." 8.7 Respectfully following the order of the co-ordinate bench of this Tribunal in assessee's own case in ITA Nos. 3098/Ahd/2013, 1272 & 1547/Ahd/2015 (order dated 27.08.2018), and in the absence of any change in the factual matrix and the legal preposition, we decline to interfere with the order of the ld. CIT(A) on this issue. This ground of appeal of the Revenue is dismissed. 9. Scrap Sale Income - Rs. 35,05,685/- 9.1 The brief facts leading to this issue are that the assessee had earned miscellaneous income comprises of scrap income of Rs. 3505,685/- from Baddi unit for the year under consideration. Assessee claimed it as deduction u/s 80IC of the Act as it was disposed off having no alternative use. The assessee submitted before the Assessing Officer that the same is eligible for deduction under section 80IC of the Act as the income from scrap sale generated through production process reducing the cost of production and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at :- * Scrap generated during manufacturing process does not have any alternative use and hence the same is disposed off. * The income generated from sale of scrap reduces the actual cost of production of the products manufactured by the respective units and hence is considered as part of profits derived by the units from its business of manufacture for deduction under section 80IC of the Act. * Business of manufacture can be said to commence not only when the raw material is subjected to the physical process of manufacture but it also cover the incidental processes of preparation for manufacture, finishing and packing. * There is no change is facts and circumstances as compared to AY 2008-09 to AY 2010-11 and since, claim of deduction under section 80-IC was allowed by ITAT vide MA after due verification, therefore principle of consistency is applicable and claim of deduction under section 80-IC cannot be disturbed for the year under consideration. 9.6 Heard both the parties and perused the material available on record. We find that the issue stands covered by the decision of Tribunal in assessee's own case for AY 2009-10 in ITA No.1366/Ahd/2015 [Para 14]. For the sake o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeming fiction created under any provisions of the Act cannot be imported into a beneficial provisions of the Act. In this case, the addition made on account of disallowance of expenditure is due to the deeming fiction created by the penal section 40(a)(ia) of the Act. Thus, the effect of the same cannot be imported into a beneficial provision vis-a-vis section 80-IB(10) of the Act. While computing deduction u/s 80-IB (10) of the Act, the plain meaning of the language of the Act has to be given effect. The legal fiction created by virtue of section 40(a)(ia) cannot be extended to determine the profit of the business for the purpose of computing deduction u/s 80- IB(10) of the Act. Section 80-IB(10) of the Act has to be applied only for the definite and limited purpose for which it is created. In the case of Executors & Trustees of Sir Cawasji Jehangir v. CIT [1959] 35 ITR 537 (Bom), it has been explained that unless it is clearly and expressly provided, it is not permissible to impose a supposition on a supposition of law. It is not permissible to sub-join or track a fiction upon fiction. In the light of the above, it is apparent that as far as arriving at the deduction u/s 80 IB o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40 ( a)( ia) of the Act would qualify for deduction under section 80 - IB of the Act. This view was taken by the courts in the following cases: * Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012 , December 10 , 2012 , Gujarat High Court.' * Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.2 (ii) If deduction under section 40A(3 ) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80 -IB of the Act. This view was taken by the court in the following case: * Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. 3 The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In view of the above, the Board has accepted the settled positi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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