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Income Tax Appellate Tribunal, ‘’C’’ BENCH, AHMEDABAD
Before: SHRI MAHAVIR PRASAD & SHRI WASEEM AHMED
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’C’’ BENCH, AHMEDABAD BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.2466/AHD/2016 �नधा�रण वष�/Asstt. Year: 2012-2013
D.C.I.T, M/s P.G. Foils Ltd., Circle-3(1)(1), Vs. 6, Neptune Towers, Ahmedabad. Opp. Nehru Bridge, Ashram Road, Ahmedbad. PAN: AAACP9274C
(Applicant) (Respondent) : Revenue by Shri L.P. Jain, Sr.D.R Assessee by : Shri Gaurav Nahata, A.R सुनवाई क� तार�ख/Date of Hearing : 12/03/2019 घोषणा क� तार�ख /Date of Pronouncement: 27/05/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax,(Appeals)-9, Ahmedabad [Ld.CIT(A) in short], dated 07/07/2016 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here- in-after referred to as "the Act") dated 18/03/2015 relevant to Assessment Year (AY) 2012-13.
The Revenue has raised the following grounds: 1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.45,87,046/- made on account of disallowance u/s.80-IA of the Act.
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1.1 The Ld. CIT(A) has erred in law and on facts in not appreciating that the assessee has not profit from the eligible undertaking after allowing the set off of brought forward loss of the unit from the earlier years. 2. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.35,27,007/- on account of disallowance of deduction u/s. 14A of the Act. 3. The CIT(A) has erred in law and on facts in deleting the addition of Rs.1,63,739/- made on account of interest on CWIP u/s.36(l)(iii) of the Act. 3.1 The Ld. CIT(A) has erred in law and on facts in not appreciating that the assessee has claimed interest on loans borrowed in earlier years to acquire fixed assets which were not put to use during the year. 4. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.
It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.
The 1st issue raised by the Revenue in ground No. 1 is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 45,87,046.00 for not allowing the deduction under section 80-IA of the Act.
Briefly stated facts are that the assessee in the present case is a limited company and engaged in the business of manufacturing aluminum foil. The assessee in the year under consideration has claimed the deduction in respect of its eligible unit for ₹ 45,87,046.00 under section 80-IA of the Act. However, the AO found that there was no profit of such eligible unit in the year under consideration. Accordingly, he disallowed the deduction claimed by the assessee under section 80-IA of the Act.
The aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO after having a reliance on the order of his predecessor for the assessment year 2011-12.
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Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
Before us, both the learned DR and the AR relied on the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. The assessee in the present case declared a profit of Rs. 45,87,046.00 in respect of its unit eligible for deduction under section 80-IA of the Act. Accordingly, the assessee claimed the deduction for such profit under section 80-IA of the Act for the amount stated above.
5.1 However, the AO was not satisfied with the amount of the profit calculated by the assessee in respect of such eligible unit under section 80-IA of the Act for the following reasons:
There was the loss incurred by the assessee in respect of such eligible unit in the earlier assessment years which needs to be set off against the profit of the current year before claiming the deduction under section 80-IA of the Act.
The assessee has not allocated the interest cost incurred by it against the profit of the eligible unit. 5.2 The AO after giving the effect of the above adjustments, concluded that there was no profit for the year under consideration in respect of such eligible unit. Accordingly, there was no question of claiming the deduction under section 80-IA of the Act. Thus the AO denied the deduction claimed by the
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assessee for ₹ 45,87,046.00 under section 80 IA of the Act which was claimed as a profit of the eligible unit for the year under consideration.
5.3 However, the learned CIT (A) reversed the order of the AO after having a reliance on the order of his predecessor for the assessment year 2011-12.
Now the issues arise before us for our adjudication are detailed as under:
Issue 1 Whether the assessee was required to carry forward the loss of the eligible unit incurred by it before the initial assessment year for the set off against the profit of the subsequent year of such eligible unit if any.
Issue 2
Whether the assessee was required to allocate the interest expense incurred by it to the unit eligible for deduction under section 80-IA of the Act in the present facts of the case.
5.4 To decide the issue No. 1, we find important to refer the provisions of section 80-IA(5) of the Act which reads as under:
Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc.2 3 80-IA. 4[(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per
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cent of the profits and gains derived from such business for ten consecutive assessment years.] XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub- section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year46 and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.
5.5 A plain reading of the above provisions reveals that the assessee can claim the set off of the loss incurred by it in respect of eligible unit before the initial assessment year against the income of non-eligible units as per the provisions of law. Thus there remains no ambiguity that the assessee was not required to carry forward losses of the eligible unit before the initial assessment year to claim the set off such losses against the income of the subsequent assessment years.
5.6 In this regard, we place our reliance on the judgment of Hon’ble Madras High Court in the case of Velayudhaswamy Spinning Mills (P.) Ltd. v. Assistant Commissioner of Income-tax wherein it was held as under: “Under section 80-IA(1), deduction is given to eligible business and the same is defined in sub-section (4). Sub-section (2) provides option to the assessee to choose 10 consecutive assessment years out of 15 years. Option has to be exercised and if it is not exercised, the assessee will not be getting the benefit. Fifteen years is outer limit and the same is beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure activity etc. Sub- section (5) deals with quantum of deduction for an eligible business. The words "initial assessment year" are used in sub-section (5) and the same is not defined under the provisions. It is to be noted that 'initial assessment year' employed in sub-section (5) is different from the words "beginning from the year" referred to in sub-section (2). When the assessee exercises the option, the only losses of the years beginning from initial assessment year alone are to be brought forward and not the losses of earlier years which were already set off against the income of the assessee.
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Looking forward to a period of ten years from the initial assessment is contemplated. It does not allow the revenue to look backward and find out if there is any loss of earlier years and bring forward notionally even though the same were set off against other income of the assessee and the set off against the current income of the eligible business. Once the set off is taken place in earlier year against the other income of the assessee, the revenue cannot rework the set off amount and bring it notionally. Fiction created in sub-section does not contemplates to bring set off amount notionally. Fiction is created only for the limited purpose and the same cannot be extended beyond the purpose for which it is created. Thus, loss in the year earlier to initial assessment year already absorbed against the profit of other business cannot be notionally brought forward and set off against the profits of the eligible business, as no such mandate is provided in section 80-IA(5).”
5.7 In view of the above, we disagree with the finding of the AO and upheld the order of the learned CIT-A.
Issue 2
Regarding this, we note that the assessee’s own fund exceeds the amount invested in the eligible unit. This fact can be verified from the financial statement of the assessee, which is available on pages 14 to 30 of the paper book. Therefore it can be presumed that the assessee has invested own fund in the eligible unit. Accordingly, there cannot be any question of allocation of the interest cost incurred by the assessee in respect of other non- eligible units to eligible unit. Regarding this, we find support and guidance from the judgement of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- “The principle therefore would be that if there are funds available both interest- free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal”.
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6.1 Similarly, we also rely on the judgment of the Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:- “Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A.”
6.2 Similarly, we also find support from the judgment of Hon’ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : “If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A”.
6.3 In view of the above proposition, we hold that no interest expense claimed by the assessee can be allocated to the unit eligible for deduction under section 80-IA of the Act. Accordingly, we are of the view that the order passed by the learned CIT (A) does not require any interference. Accordingly, we uphold the same. Hence the ground of appeal of the Revenue is dismissed.
The 2nd issue raised by the Revenue in ground No. 2 is that learned CIT (A) erred in deleting the addition made by the AO for ₹ 35,27,007.00 on account of disallowance of deduction under section 14A of the Act.
The assessee in the year under consideration has shown divided income of ₹ 1,28,529.00, which was claimed as exempt under section 10(34) of the Act. However, the assessee has not made any disallowance of expenses under section 14-A of the Act against such exempted income. Therefore the AO
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invoked the provisions of rule 8D of Income Tax Rule and made the following disallowances:
i. Direct expenses NIL ii. interest expenses 27,45,127.00 iii. administrative expenses 7,81,879.00 total 35,27,007. 00 7.1 The AO made the disallowance of ₹ 35,27,007.00 under section 14- read with rule 8-D of Income Tax Rule and added to the total income of the assessee.
7.2 The assessee carried the matter to the learned CIT (A) who deleted the addition made by the AO in part for ₹ 33,98,478.00 and upheld the addition to the extent of dividend income shown by the assessee.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
Before us, both the learned DR and the AR relied on the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. It is an undisputed fact that the dividend income on by the assessee in the year under consideration is of ₹1,28,529.00 only which was claimed as exempt under section 10(34) of the Act. There is no dispute that the own fund of the assessee exceeds the investment. Therefore there cannot be any disallowance o the interest expenses.
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9.1 Similarly, the Tribunal in the case of Sagar Yeswantrai Mehta Vs. ACIT in ITA No. 1684/AHD/2018 for the assessment year 2015-16 vide order dated 19th February 2019 has held that the disallowance under section 14-A read with rule 8D cannot exceed the amount of dividend income. The relevant extract is extracted below: 4. In ground No.2, the assessee has pleaded that Ld.CIT(A) has erred in confirming the addition of Rs.8,05,.8567- which was added by the Assessing Officer with the help of Section 14A r.w.r.SD of the Income Tax Rules, 1962. 5. With the assistance of Ld.Representative, we have gone through the record carefully. It emerges out from the record that assessee has filed his return of income on 30/10/2015 declaring total income of Rs. 1,57,94,5307-.- The case was selected for scrutiny assessment and notice-u/s. 143(2) of the Act was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has declared dividend income of Rs.22,697/- which was claimed as exempt from taxes u/s. 10(35) of the Act. The Ld.AO made an analysis of the expenditure required to be disallowed for earning this tax free income. He worked out the disallowance with the help of Rule 8D of the Income Tax Rules, 1962. Such disallowance has been worked out at Rs.8,05,856/-. It is pertinent to observe that the Hon'ble Gujarat High Court on the issue in the case of CIT vs. Corrtech Energy Pvt.Ltd. reported in (2014) 223 Taxman 0130 and Hon'ble Delhi High Court in the case Cheminvest Ltd. vs. CIT reported in 378 ITR 033 have concurred with each other that if there is no dividend income or tax free income in a year, then no disallowance U/S.14A can be made. This explication was amplified and employed subsequently by the ITAT to construe that working of expenditure for disallowance u/s.HA of the Act should not exceed more than dividend income itself. In the case of Joint Investments Pvt.Ltd. vs. CIT (ITA No.ll7/Ahd/2015 decided on 25/02/2015), the Hon'ble Delhi High Court has observed that by no stretch of imagination section 14A or Rule 8D could be interpreted so as to mean -that entire tax-free income is to be disallowed. The ITAT Ahmedabad has restricted the disallowance equivalent to exempt income (a reference could be made to ITA No,3266/Ahd/2015 decided on 7/12/2016 and ITA No.750/Ahd/2016 in the case of CIT vs. Nirma Chemical Works Pvt.Ltd. decided on 03/12/2018). 6. Following the above, we are of the view that ends of justice would meet if we restrict the disallowance equivalent to the tax-free income shown by the assessee i.e. Rs.22,697/-. This ground is accordingly partly allowed. The Ld.AO consider the disallowance at Rs.22,697/- instead of Rs.8,05,856/-.
9.2 In view of the above, we hold that the disallowances in the present case under section 14-A read with rule 8D cannot exceed the amount of dividend income for ₹ 1,28,529.00 only. Hence we do not find any infirmity in the
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order of the learned CIT (A). Thus the ground of appeal of the Revenue is dismissed.
The 3rd issue raised by the Revenue is that learned CIT (A) erred in deleting the addition made by the AO for ₹ 1,63,739.00 under section 36(1)(iii) of the Act on account of interest expenses attributable to capital working progress.
The assessee in the year under consideration has shown capital working progress amounting to ₹ 50,54,006.00 in its balance sheet as on 31st March 2012. The AO during the assessment proceedings observed that the assessee had not allocated the interest expenses on such capital working progress. Accordingly, the AO worked out the amount of interest expenses attributable to such capital working progress at ₹1,63,739.00 and added to the total income of the assessee.
The aggrieved assessee preferred an appeal to the learned CIT (A) who has deleted the addition made by the AO by observing that owned fund of the assessee exceeds the amount of such capital work in progress.
Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.
Before us, both the learned DR and the AR relied on the order of the authorities below as favorable to them.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the identical issue
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was decided by this tribunal in favor of the assessee in its own case vide ITA No. 912/AHD/2015 for the assessment year 2011-12 order dated 11th December 2018. The relevant extract of the order is reproduced as under: 22. We have heard the rival contentions and perused the material available on record. At the outset, we note that the own interest-free fund available with the assessee exceeds the amount of investment made in the capital work-in-progress. Therefore, we can presume that the assessee in such capital work-in-progress invested the own fund. In holding so, we find support and guidance from the judgment of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- "The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the findings of fact both by the CIT(A) and Tribunal”. 22.1. Similarly, we also rely on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:- "Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A. " 22.2. Similarly, we also find support from the judgment of Hon'ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : "If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A ". 22.3 In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of fund invested in the capital work in progress as discussed above. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made by him. Thus the ground of assessee's appeal is allowed.
13.1 As the facts of the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same we do not find any
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reason to interfere in the order of the learned CIT(A). Hence the ground of appeal of the Revenue is dismissed.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the Court on 27/05/2019 at Ahmedabad.
-Sd- -Sd- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 27/05/2019 manish