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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the revenue is directed against the order dated 28.09.2017 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) arising out of the order dated 23.03.2016 passed by the Deputy Commissioner of Income Tax, Circle – 1(1)(2), Ahmedabad for the Assessment Year 2013-14 with the following grounds: i. “That the ld. CIT(A) has erred in law and on facts in restricting the disallowance u/s 14A of Rs.44,78,261/- to Rs.1,50,000/-. ii. That the ld CIT(A) has erred in law and on facts in deleting the disallowance of interest of Rs.5,02,548/- u/s 36(1)(iii) of the I.T. Act, 1961. iii. That the ld CIT(A) has erred in law and on facts in deleting the disallowance u/s 80IA of Rs.6,15,58,478/-.
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 2 - iv. The appellant craves, to leave, to amend and/or to alter any ground or add a new ground which may be necessary.”
Assessee filed its return of income on 29.11.2013 through electronic media declaring total income at Rs.8,22,04,010/- after claiming deduction of Rs.6,15,58,478/- u/s 80IA of the Act, which was processed u/s 143(1) of the Act. Upon scrutiny notice dated 04.09.2014 u/s 143(2) was served followed by a further notice dated 27.05.2015 u/s 142(1) calling for preliminary details and ultimately notice u/s 142(1) dated 11.06.2015 and 03.08.2015 along with the detailed questionnaire was issued upon the assessee.
Ground No.1: During the course of assessment proceeding, it was found upon verification of the balance sheet that the assessee company had made huge investment in shares, the income from which is exempt from tax. The assessee has earned Rs.1,18,62,026/- as dividend income in the year under consideration. It also appears that the assessee has claimed interest payments to the loans and incurred other expenses. However, the assessee has not deducted such interest payment and expenses relating to the investment in shares for earning interest. According to the Learned AO, the expenditure relatable to investment in shares and securities is required to be disallowed u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 and ultimately made disallowance of Rs.44,78,261/- invoking the provision of section 14A. The case of the assessee was this that no borrowed fund was used for making investment in shares/mutual funds and therefore no disallowance was required to be made. The assessee had huge balance in share capital and reserve and surplus and therefore to that extend if funds are invested, no disallowance was required to be made. Further that, these investments in shares was much more then share capital and reserve and surplus. It was further the case of the
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 3 - assessee that the investment in shares of Nandan Exim Ltd. was made to comply with the statutory provision as prescribed under Electricity Rules, 2005 to be eligible to use captive power plant of Nandam Exim Ltd. and therefore such investment in shares was not made to earn any exempt income but the same was done wholly and exclusively for the business purpose which is outside the purview of section 14A.
Since no disallowance u/s 14A can be made when the assessee is having ample interest free funds as held by the Hon’ble Jurisdictional High Court in the matter of Hitachi Home & Life Solutions (I) Ltd. reported in 221 Taxman 109, the Learned CIT(A) in appeal directed the Learned AO to delete the addition on interest of Rs.26,40,992/-. However, so far as the administrative expenditure debited in the profit and loss includes different expenditure, the Learned CIT(A) further observed that appellant has made investment in shares for which various administrative expenditure is bound to incur. However, the disallowance of administrative expenditure to the tune of Rs.18,37,269/- as done by the Learned AO has been directed to restrict to the lump sum of Rs.1,50,000/- as administrative expenses incurred to earn exempt income. Hence, the instant appeal before us.
At the time of hearing of the instant appeal the Learned Advocate appearing for the assessee submitted before us that the assessee’s share capital and reserve and surplus stood at Rs.246.64 crores whereas investment in share was only at Rs.39.39 crores which again included a sum of Rs.28.79 crores in respect of strategic investment in Nandan Exim Ltd., which is practically and legally outside the purview of section 14A of the Act. In that view of the matter, order passed by the Learned CIT(A) in deleting the addition of interest
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 4 - of Rs.26,40,992/- as disallowed u/s 14A is justifiable. So far as the administrative expenditure is concerned, he relied upon the judgment passed by the Co-ordinate Bench in the case of Chudgar Ranchodial Jethalal Trade Pvt. Ltd. in ITA No.245/Ahd/2013, wherein relying upon the judgment passed by the Delhi High Court in the case of Joint Investment Pvt. Ltd.-vs-CIT in ITA No.117 of 2015 that the window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”…. and GMM PFAUDLER Ltd.- vs-JCIT passed by this Co-ordinate Bench and by Gujarat High Court in the case of PCIT-vs-Sintex Industries Ltd. reported in [2017] 82 taxmann.com 71 (Gujarat) where it was held that when the assessee is having its own surplus fund against which minor investment was made, no question of making any disallowance of expenditure in respect of interest and administrative expenses u/s 14A arose and, therefore, there was no question of any estimation of expenditure in respect of interest and administrative expenses under rule 8D. It was further submitted that the similar issue was already decided in assessee’s own case by Hon’ble ITAT for A.Y. 2011-12 & 2012-13 also; copy whereof is also been part of the paper book before us. However, Learned DR relied upon the order passed by the Learned AO.
Heard the representative of the respective parties, perused the relevant materials available on record. The Learned AO while making addition observed as follows: “3.1. The finding of the Assessing Officer in this regard is as under: i. On verification of the balance sheet, it is seen that the assessee company had made huge investment in shares, the income from which is exempt from tax. Further, as per the P & L A/c. the assessee has claimed interest payment to the loans and incurred other expenses. However, the assessee has not deducted such interest
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 5 - payment/expenses relating to the investment in shares for earning interest. Therefore, expenditure refutable to investment in shares and securities is required to be disallowed U/s. 14A of the Act r. w. Rule 8D of the Income Tax Rule- 1962. As such, vide Point No. 6 of notice u/s. 142(1) dated 11/06/2015, the assessee was requested to furnish working of disallowance u/s.14A of the Act and also show-cause as to why disallowance u/s. 14A of the Act should not be worked out invoking Rule 8D of I. T. Rules, 1962. In response thereto, the assessee vide letter dated 21/12/2015 stated that we hereby confirm that we have not claimed any expenditure relating to investment shown in the balance sheet Therefore, the disallowance u/s. 14A r.w.r. 8D of IT Rules not applicable. ii. The submission of the assessee that it has not claimed any expenditure relating to investment in balance sheet is found to be devoid of any merit. The investment in shares is an indivisible part of the assessee's business which is evident from the balance sheet inasmuch as it has made investment in quoted and unquoted shares in large amount. A prudent business does not leave the investment made by him without checking its ups and downs. When the assessee has made a handsome amount in shares, it has to keep track on it for which the assessee has to incur some expenditure. In view of the above, the assessee's submission that it has not incurred any expenditure in investment in shares is found to be not, acceptable. There is no denying the fact that the assessee has made investment in shares and securities income from which is exempt from tax. Equally, it is also a fact that the assesses has taken unsecured loan and on which it is paying large sum of money as interest The motive of the assessee in investing in shares and securities is amply clear that it should earn dividend income from which is exempt from tax. The assessee also failed to substantiate with evidence for its claim that it has not incurred any expenditure in the investment activity. As stated above, the assessee has made investment in shares and securities only for the purpose of earning dividend. iii. It is pertinent to note here that a similar issue was before the Hon'ble Bombay High Court in the Case Godrej & Boyce Mfg. Co. Ltd. Mumbai vs. DCIT and similar contentions including the ratio laid down by various Courts as relied upon by the assessee has been duly dealt by the Hon'ble Court and decided the matter in the favour of revenue. “Section 14A clearly stipulates as under:
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 6 - [Expenditure inclined in relation to income not includible in total income. 14A. [(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred— by the assessee in relation to income which does not form part of the total income under this Act.] [(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act. iv. Further the assessee must have incurred administrative expenses such as documentation, salaries of employees, handling the investment port folio, administrative overheads like stationery, telephone, computer, office equipments, vehicles etc. every year, a part of which can be attributed to the investment port folio. This view finds support from the following case laws. (1) Rajasthan State Warehousing Corp. Ltd V/s. CIT (242 ITR 450) (Raj.) (2) Maruti Udyog Ltd. Vs. Dep. Comm. (Delhi) 92 TTJ 987 (3) Wipro Information Technology Vs. Dep. GIT (Bang) 88 TTJ 378 (4) Dep. Comm. of I. Tax vs. Shree Synthetics Ltd. (Indore) 88 TTJ 717. (5) Harish K Bhatt vs. ITO 85 TTJ 872 v. It is also to benoted that the matter has been extensively covered and decided in favour of the Revenue in the case of ITO vs. M/s. Daga Capital Management Pvt. Ltd. vide ITA No.8057/Mum/03 for A.Y. 2001-02, by Hon’ble Mumbai ITAT (SB). It is also to be noted that S.14A disallows expenditure “in relation to income which does not form part of total income” and in order for the expenditure to be disallowed, actual income need not be earned. This view has been confirmed in the case of Cheminvest Ltd. vs. ITO(ITAT, Delhi (SB)) in ITA No.87/Del/2008. vi. In view of the discussion made above and the position of law with regard to the applicability of provisions of section 14A r.w.r. 8D of
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 7 -
I.T. Rule as interpreted by various Hon’ble High Courts, I am not satisfied with regards to the accounts of the assessee – company in relation to earning income that does not form part of the total income of the assessee- company. vii. In view of the above, the provisions of section 14A r.w.r. 8D is clearly applicable in the assessee’s case. Accordingly, disallowance u/s 14A r.w.r. 8D is worked as under:
(i) The amount of expenditure directly relating to income which does not form part of total income; 0 (ii) In a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely – A X B/C - Where (A) Amount of expenditure by way of interest other than the amount of interest included in clause 43019854 2640992 (i) incurred during the previous year; (B) The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous day P.Y. 395546202 C.Y. 339361262 Total 734907464 2 367453732 Invest. Invest. PY+CY (C) The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous day. P.Y. 6104397603 C.Y. 5866714339 Total 11971111942 2 5985555971 Invest. Invest. PY+CY (A) (B) (C) AXB/C Interest 43019854 Avg. 367453732 Avg. 5985555971 Total 2640992 Exp. Invest. Assets AXB/C (A) (B) (C) (iii) An amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day of the previous year. Avg. Investment 367453732 05 100 1837269 1837269 AGGREGATE OF (i) + (ii) + (iii) 4478261
Therefore, an amount of Rs.4478261/- is disallowed u/s 14A r.w.r. 8D as worked out as above.”
It appears that the similar issue was decided by the Co-ordinate Bench in an appeal preferred by the assessee in ITA No.833/Ahd/2016 for A.Y. 2011- 12; the relevant portion thereof is as follows: “16. The assessing officer has made disallowance of Rs. 52,23,911/- after invoking the provision of section 14A on the ground that assessee has not disallowed interest and administrative expenses u/s. 14A for earning exempt income. In this connection the has assessee has stated that no borrowed funds were used for making investment in shares/mutual fund therefore no disallowance was required to be made. It is noticed that the assessee was having huge interest free fund in the form and share capital and reserves funds to the amount of Rs. 174.74 crores whereas the investment was made to the amount of Rs. 18.90 crores only. It is also noticed that assessee has claimed exempt dividend income to the amount of Rs. 13,951/- only during the year under consideration. The assessing officer has made addition to the amount of Rs. 52,23,911/- which was much more than exempt income earned
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 8 - by the assessee during the year consideration. However, the ld. CIT(A) has deleted the proportionate interest disallowance made by the assessing officer to the amount of Rs. 44,68,770/- and confirmed the addition to the amount of Rs. 7,55,141/- by referring amount to be disallowed for administrative expenses. We have also considered that Co-ordinate Bench of the ITAT Ahmedabad in the case of Jivraj Tea Ltd. vs. DCIT ITA No. 886/Ahd/2012 order dated 28th August, 2014 related to assessment year 2008-09 restricting the disallowance to the extent of exempt After perusal of the facts, we are of the view that disallowance in the case of the assessee after referring the number of decision of Co-ordinate Benches cannot exceed the amount of exempt income earned by the assessee during the year under consideration, therefore, we restrict the disallowance u/s. 14A to the amount of Rs. 13,951/- exempt income earned by the assessee. Therefore, the appeal of the assessee is partly allowed.”
The facts of the case is slightly different from the earlier year. In this year the assessee earned dividend income of Rs.1,15,62,026/- i.e. much higher than the earlier year which is why taking into consideration the entire gamut of the matter, the Learned AO applied the provision of Section 14A r.w.r. 8D of the Act. However, we find from records that the interest to the tune of Rs.26,40,992/- needs to be deleted in view of the particular fact that the own fund of the assessee exceeds investment. Therefore, a presumption can be drawn that such investment was made out of the own fund of the assessee.
So far as the administrative expenses is concerned the Assessing Officer has calculated disallowance of administrative expenditure to the tune of Rs.18,37,269/- but it was repeatedly argued and the case made out by the assessee that no such expenditure has been incurred. It is also a fact that the assessee has sufficient profits generated in current assessment year and it had mixed funds. On the other hand, Learned AO while calculating the disallowance of administrative expenditure as mentioned hereinabove failed to establish the nexus as to whether investment was made out of the interest bearing funds of the assessee. In this aspect, the Learned AR relied upon the
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 9 - judgment passed by the Co-ordinate Bench in ITA No.2627/Ahd/2008, 2923/Ahd/2008 & 3280/Ahd/2010 in the matter of GMM Pfaudler Ltd.-vs- JCIT. The ratio laid down in the said judgment is in favour of the assessee to this effect that under the specific circumstances when the AO has failed to establish the nexus that investment was made out on interest bearing funds disallowance towards administrative expenditure is not permissible. We find the fact of the case before us and that of the judgment cited upon is similarly situated and in the absence of any changed facts of the case, we do not find any reason to deviate from the same in confirming the estimated disallowance to the tune of Rs.1,50,000/- as made by the Learned CIT(A) which is not permissible and therefore, bad in law. Thus the same is liable to be quashed. Hence, we delete such addition made by the Learned CIT(A). The assessee’s appeal is thus allowed.
Ground No.2: Upon verification of details filed by the assessee during the course of assessment proceeding, it was seen that the assessee debited an amount of Rs.21,04,633/- being interest paid on short term funds and interest on others. It was further observed that it has given interest free advances to the parties. By and under a show-cause dated 29.02.2016, the assessee was asked to explain as to why proportionate interest should not disallowed. The explanation rendered by the assessee was not found suitable and the Learned AO, therefore, disallowed of Rs.5,02,548/- out of interest on the ground that the appellant had given interest free advances totaling to Rs.41,87,900/- to three parties on which no interest was charged. Such disallowance was made upon calculation of interest @12%. The Learned CIT(A), however, deleted the same relying upon the order passed by his predecessor in assessee’s own case for A.Y. 2011-12 and 2012-13.
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 10 -
At the very outset of proceeding, the Learned Counsel submitted before us that issue is entirely covered in assessee’s own case by the Learned Tribunal in ITA No.1547/Ahd/2016 for A.Y. 2012-13 in revenue’s appeal. On the contrary, the Learned DR failed to contradict the submissions made by the Learned AR.
Heard the representative of the respective parties, perused the relevant materials available on record. It appears that the Co-ordinate Bench in assessee’s own case in ITA No.1547/Ahd/2016 for A.Y. 2012-13 decided the issue in favour of the assessee by confirming the deletion of addition made by the Learned AO on interest in the A.Y. 2012-13. The relevant portion thereof is as follows: “32. During the course of assessment proceedings, the assessing officer has disallowed a sum of Rs. 2,74,548 out of interest on the ground that assesse had given interest free advances totaling to Rs. 22,87,900/- to three parties on which no interest was charged. In this connection, we have noticed that assessee has explained that the advances were given in the ordinary course of business and the same was not in the nature of loan. In this connection, we have noticed that assessee was having interest free fund in the form of share capital and reserves and surplus to the amount of Rs. 233.93 crores and as the interest free fund enjoyed by the assessee were far in excess of the interest free fund made by the assessee, therefore, no disallowance u/s. 36(1)(iii) can be made as adjudicated in the decision of Torrent Finance Vs. ACIT TTJ 624. Ld. CIT(A) has deleted the addition. Relevant part of the decision of ld. CIT(A) is reproduced as under:- “4.3. I have carefully considered the Assessment Order and submission filed by the Appellant. The Assessing Officer has observed that the assessee has debited an amount of Rs. 2,92,57,770/- being interest paid on short term funds and interest on others and" it is noticed that the assessee has not charged interest from the persons/parties to whom it has given advance. It is observed that the assessee has advanced interest free loan to Vraj Integrated Textile Park of Rs. 10,00,000/-, Vraj Mega Food Park Pvt. Ltd. of Rs. 10,00,000/- and Hirabhai S. Bharward of Rs. 2,87,900/- totaling of Rs.
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 11 - 22,87,900/-. The assessee on the one hand paying heavy interest on secured and unsecured loans and on the other hand it has diverted such interest bearing fund to interest free advances to others. The expenditure u/s. 36(1))(Hi) of the Act is allowable if the borrowed fund are utilized for the purpose of business. The assessee has not utilized the interest bearing fund for its business purpose but advanced the same as interest free. In view of the above, proportionate @12%on advance of Rs. 22,87,9007- which works out to Rs 2,74,548/- is disallowed u/s. 36(1) (Hi) of the I. T. Act, treating the same is not incurred wholly and exclusively for the purpose of business. The appellant has submitted that Assessing Officer has failed to appreciate that the advances were given in the ordinary course of business and the same were not in the nature of any loan. Therefore, the appellant cannot be expected to charge interest which is not receivable. It was not a case where any interest free advance was given to any related party, here out of the business compulsion the advance was given and it was not possible for the company to charge interest on it. It is submitted that the funds borrowed by the appellant company have been used by it in its business only and hence the interest expenditure incurred for such borrowings was invariably allowable u/s. 36(1)(iii) of the Act-the appellant further submits that it had sufficient fund available in form of share capital, Reserve and surplus for giving the loans and advances and therefore interest on borrowed funds cannot be disallowed. It has share capital, Reserve and surplus of Rs.232,93,95,958/-. As the interest free funds enjoyed by the appellant are far in excess of the interest free advances made by appellant, no disallowance u/s 36(i)(iii) can be made in case of appellant. In this connection the appellant relies on the decision of Torrent Vs. ACIT 73 TTJ 624(Ahd). The entire interest-free funds include owner's own capital, accumulated profits and other interest-free creditors and loans, if total interest-free advances including debit balances of partners do not exceed the total interest-free funds available with the assesses, no interest is disallowable on account of utilisation of funds for non-business purposes. Even the CIT vs. & Reliance Utilities & Power Ltd. 435 221 has held that Investment of interest bearing funds in sister concerns - Tribunal having recorded a clear finding that the assessee possessed sufficient interest free funds of its own which were generated in the course of the relevant financial year, apart from substantial shareholders fund, presumption
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 12 - stands established that the investments in sister concerns were made by the assessee out of interest-free funds and therefore no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds.” In view of the facts of the case and judicial ratios (supra), and also following order of my predecessors for earlier years, the addition made by the AO is directed to be deleted. The ground of the appellant is allowed.” In view of the detailed finding as elaborated in the decision of ld. CIT(A), that the interest free funds enjoyed by the assessee were far in excess of the interest free advances made by assessee and after considering the decsion of CIT vs. & Reliance Utilities & Power Ltd. we do not find any error in the decision of Ld.CIT(A). Therefore, the appeal of the revenue on this issue is dismissed.”
Respectfully relying upon the above judgment passed by the Hon’ble Co-ordinate Bench, we find no infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeals fails and accordingly dismissed.
Ground No.3 : This ground of appeal relates to the order passed by the Learned CIT(A) in deleting disallowance u/s 80IA of the Act to the tune of Rs.6,15,58,478/-.
Upon verification of the computation of income, it was found that the assessee has claimed deduction of Rs.6,15,58,478/- u/s 80IA of the Act, 1961. It was further found that the assessee has shown activity of Power Generation and the total value of Machinery and Plant used for the said activity shown at Rs.766.44 lacs. According to the Learned AO, the assessee claimed deduction u/s 80IA of the Act on a much higher amount than its claim of deduction u/s
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 13 - 80IA of the Act as compared to earlier years, and ultimately finalized the issue by making addition of the entire amount of Rs.6,15,58,478/- u/s 80IA of the Act. In appeal, the same was deleted by the Learned CIT(A) relying on the decision made by his predecessor in assessee’s appeal for A.Y. 2012-13. Hence, the instant appeal before us.
At the very outset of the proceeding, the Learned AR submitted before us that the issue is squarely covered by the Co-ordinate Bench in assessee’s own case; copy of the order passed by the Co-ordinate Bench in ITA Nos.2092/Ahd/2015, 900 & 1547/Ahd/2016 for A.Ys. 2010-11 to 2012-13 has been handed over to us by the Learned AR. However, the Learned DR failed to controvert the contentions made by the assessee.
Heard the representative of the respective parties, perused the relevant materials available on record. We have also carefully considered the judgment passed by the Hon’ble Co-ordinate Bench in assessee’s own case as relied upon by the Learned AR. The relevant portion thereof is as follows: “25. We have heard both the sides and perused the material on record carefully. It was undisputed fact that that entire plant was new one and machinery were purchased by Shanti Processor Ltd which was amalgamating company and since the same were not used prior to 01/04/2005 and in the assessment order u/s. 143(3) for A.Y.2009-10 & A.Y.2010-11 the assessing officer had allowed the deduction on identical issue and similar facts. The assessee has started the generation of energy in the previous year relevant to A.Y. 2006-07 and started claiming deduction u/s. 80IA(4) of the Act from assessment year 2009-10, which was first year of its claimed and the same was allowed meaning thereby the A.O. was satisfied that the assesseet had fulfilled all the conditions. It is also noticed that the assessee has explained its entitlement for the impugned claim of deduction under section 80IA(12) as under:-
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 14 - "The power plant, in question, was transferred to assessee company under the scheme of Amalgamation of two companies viz Shanti Processors Ltd & Chiripal Petro chemicals Ltd. M/s Shanti Processors Ltd. was amalgamating company & Chiripal Petro Chemicals Ltd. was amalgamated Company under the provisions of the Companies Act, 1956. The scheme of Amalgamation was approved by Hon'ble High Court of Gujarat, vide its order dated 31/03/2006 w.e.f. 01/04/2005. It is also added that name of the company Chiripal Petro Chemicals Ltd. was changed to Chiripal Industries Ltd. as per approval of Registrar of Companies of Gujarat (A copy of both the orders are enclosed herewith for your honour's kind perusal and record purpose.) At this point, the assessee company would like to submit the definition of amalgamation , tax concessions available to amalgamated company and other provisions, for your honours kind perusal as under: A. Definition of amalgamation : According to section 2(1B) of the Income-tax Act, 1961 (hereinafter referred to as the Act), amalgamation in relation to companies means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that:- a. All the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of amalgamation. b. All the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of amalgamation. Shareholders holding not less than 3/4th in value of the shares in amalgamating company or companies (other than shares held there is immediately before the amalgamation or by a nominee for the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property one company by another company pursuant to the purchase of such property by the other company as a result of distribution of such property to the other company after the winding up of first mentioned company. B. Tax concessions to the amalgamated company:
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 15 - The amalgamated company shall be eligible for tax concessions only if the following two conditions are satisfied: I. The amalgamation satisfies all the three conditions laid down in section2(IB) and II. The amalgamated company is an Indian company. If the above conditions are satisfied the amalgamated company shall be eligible for following tax concessions: (a) Expenditure on Scientific Research Section 35(5): (b) Expenditure on acquisition of patent rights or copy rights Section 35A(6): (c) Expenditure of know-how Section 35AB(3): (d) Treatment of preliminary expenses Section 35D(5): (e) Amortization of expenditure in case of amalgamation Section 35DD (f) Treatment of capital expenditure on family planning Section 36(1)(ix): (g) Treatment of Bad debts section 36(1)(vii): (h) Deduction available u/s 80IA & 80IB: (i) Carry forward and set off Business Losses & unabsorbed depreciation of the amalgamating company. "We observe the assessing officer has not disproved these material facts and disallowed the claim of deduction on presumption basis without considering the relevant legal provision as elaborated in the findings of the Ld.CIT(A). The relevant legal provision has already been elaborated by the Ld. CIT(A) in his findings that as per the provisions of section 80IA(12) when any undertaking of an Indian Company which is entitled to deduction under this section is transferred before the expiry of the period specified in this section to another Indian Company then as per clause (b) the provision of this section shall apply to the amalgamated Company as they would have applied to the amalgamating Company if the amalgamation had not taken place and the provisions of subsection (12) would only apply if the amalgamating Company was eligible for claiming deduction u/s 80IA. It is demonstrated from the above facts and circumstances that the assessing officer has disallowed the claim of the assessee on presumption basis that addition of Rs. 71,12,34,167- was old plant and machinery without bringing on record evidence to substantiate that specified machinery was purchased by Shanti processor Ltd and the assessing officer has also failed to disproved the material fact that similar claim was allowed to the assessee in the assessment year 2009-10 on fulfilling of all the conditions.
ITA No.2743/Ahd/2017 DCIT vs. Chiripal Industries Ltd. Asst.Year –2013-14 - 16 - In the light of the above facts, legal findings and elaborated findings of the Ld.CIT(A) as supra in this order we do not find any error in the decision of the Ld.CIT(A),therefore the appeal of the revenue is dismissed.”
Respectfully relying upon the judgment passed by the Hon’ble Co- ordinate Bench, we find no infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeal fails and accordingly dismissed.
In the result, revenue’s appeal is partly allowed. This Order pronounced in Open Court on 06/06/2019
Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 06/06/2019 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Ahmedabad. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad