INDIAN METALS AND FERRO ALLOYS LIMITED,BHUBANESWAR vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1), BHUBANESWAR

IN THE INCOMETAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK (VIRTUAL HEARING AT KOLKATA) SHRI DUVVURU RL REDDY, VICE PRESIDENT SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

ITA No. 67/CTK/2026 Assessment Year :2016-17

Indian Metals And Ferro Vs. Deputy Commissioner Alloys Limited of Income Tax, Circle 1(1), Bhubaneswar IMFA Building, Bomikhai, Rasulgarh, Bhubaneswar Aayakar Bhawan, Rajaswa Vihar, Odisha- 751010 Bhubaneswar [PAN: AAACI4818F] Orissa- 751007 APPELLANT RESPONDENT

Assessee by : Tushar Jarwal & Viyushti Rawat, ARs Revenue by : Vijay Singh, Sr. D.R.

Date of hearing : 08.07.2026 Date of Pronouncement : 06 .10.2026

O R D E R PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

This is an appeal filed by the assessee against the order passed by the NFAC Delhi hereinafter referred to as Ld. CIT(A) dated

25.11.2025,DIN&Order No. ITBA/NFAC/S/250/2025-26/1082962216(1) on the following grounds of appeal :-

6.1. That NFAC erred on facts and in law, in confirming disallowance under Section 14A of the Act, without recording necessary satisfaction as per sub- section (2) and (3) of Section 14A as to how alleged expenditure incurred was in order to earn exempt income by the Appellant during the year 6.2. That NFAC erred in law by disallowing expenditure without expressing satisfaction as to how the Appellant's claim of incurring Nil expenditure with respect to earning exempt income was incorrect having regard to the books of account of the Appellant. 6.3. That NFAC erred in law and on facts in not considering that, the Appellant company had infused its interest free funds in its subsidiary, ie, IMFA Alloys Finlease Ltd, and accordingly disallowance under section 14A is liable to be deleted. 6.4. That Ld. NFAC/ Ld. AO failed to appreciate that the investments made in IMFA Alloys Finlease Ltd was subscription pursuant to the allotment of equity shares made by the subsidiary to the Appellant parent, which was funded by the appellant through internal accruals and therefore there were neither any borrowed costs or administrative costs in such facts and circumstances. Without prejudice to Ground 7 raised herein above, even if it were to be assumed without admission, that Rule 8D of the Rules is applicable, NFAC/Ld. AO erred in facts and law in incorrectly applying provisions of Rules 8D of the Rules. 7.1. That NFAC/Ld. AO erred in considering all investments in the Appellant's balance-sheet, without appreciating that only investments yielding exempt income were to be considered. 7.2. That NFAC erred in facts and law in failing to consider that provisions of Rule 8D(2)(iii) can only be applied on average of opening and closing balances of investment yielding exempt income during the year under consideration and not of all the investments which yielded exempt income in preceding year(s) or can yield exempt income in succeeding year(s) if the law is not amended 7.3. That the impugned order passed by NFAC is without application of mind, as Appellant vide submission filed on 10.01.2020 provided calculation for computing disallowance under Rule 8D, which was brushed aside and not considered by NFAC 7.4. That on dividend of INR 92,00,000 earned by the Appellant, disallowance of INR 83.91,250 made by NFAC/Ld. AO under section 14A of the Act read with Rule 8D is arbitrary and capricious. The Appellant craves leave to raise any other ground at the time of hearing of the appeal. The assessee filed paper book on 13.05.2026, we observe that the

assessee has also made an application under rule 11 of the Income Tax

Appellate Tribunal, Rule 1963 for admission of additional grounds of appeal which are as under:-

In support of the additional grounds above the assessee has filed written submission stating as the Appellant has filed an appeal for the AY 2016- 17 before the Income Tax Appellate Tribunal ("ITAT"), Cuttack bench challenging the additions made by AO and confirmed by the ld. CIT(A) order passed under section 250 of the Income-tax Act, din&Order No. ITBA/NFAC/S/250/20256-26/1082962216(1) (the "Act") by the

National Faceless Appellate Centre, Delhi ["NFAC"] here-in-after referred to as ld. CIT(A) dated 25.11.2025, which arose from the assessment order passed by the Deputy Commissioner of Income Tax, Circle 1(1), Bhubaneswar under section 143(3) of the Act dated 30.12.2019. The assessee is entitled to incentives under the provisions of Foreign Trade Policy 2009-14 and the Foreign Trade Policy 2015-20 In the present AY 2016-17, the Appellant received export incentive under the Merchandise Exports from India Scheme ("MEIS") of Rs. 16,21,28,067, Focus Product Scheme ("FPS") of Rs. 7,93,53,805 and Status Holder Incentive Scrip Scheme ('SHIS") of Rs. 1,95,94,924, which were inadvertently offered to tax in the return of income for AY 2016-17 Copy of ledger and scrips of export incentives schemes received by the Appellant under various schemes is attached herewith as Annexure-1. Owing to an inadvertent bona fide error, the aforesaid export incentives were treated as revenue receipts and offered to tax under both the normal provisions of the Act as well as under the MAT provisions by the Appellant in AY 2016-17 It is submitted that the said incentives were granted under the Foreign Trade Policy 2009-14 and Foreign Trade Policy 2015-20 with the object of promoting exports and compensating exporters for infrastructuralinefficiencies and other inherent disadvantages faced in international trade. On applying settled principle of "purpose test" it has been held that where a subsidy or grant is linked not to trading operations but to a capital outlay or economic policy, it must be viewed as capital in nature and is therefore not subject to tax either under the normal provisions or under the MAT provisions of the Act. Reliance in this regard is placed on the following decisions: (1) Commissioner of Income-tax, Madras vs. Ponni Sugars & Chemicals Ltd. [2008] 174 Taxman 87 (SC)/[2008] 306 ITR 392 (SC)/[2008] 219 CTR 105 (SC)[16-09-2008] (11) Deputy Commissioner of Income-tax vs. Alembic Pharmaceuticals Ltd. [2025] 181 taxmann.com 170 (Ahmedabad-Trib.)[25-11-2025] (iii) Leshark Global LLP vs. Deputy Commissioner of Income-tax [2025] 177 taxmann.com 375 (Mumbai - Trib.) [31-07-2025] (iv) Deputy Commissioner of Income-tax vs. Armstrong Knitting Mills [2025] 177 taxmann.com 445 (Chennai Trib.)/[2025] 214 ITD 219 (Chennai - Trib.) [01-08-2025]

In continuation to the grounds of appeal raised by the Appellant in the captioned appeal, the Appellant craves leave of the Hon'ble Tribunal to raise the following additional grounds of appeal and prays the same maybe admitted and considered as a part of the captioned appeal, while adjudicating the same: 8. On the facts and in the circumstances of the case and in law, the Appellant submits that export incentives received under the Merchandise Exports from India Scheme ("MEIS"), Focus Product Scheme ("FPS") and Status Holder Incentive Scrip Scheme ("SHIS") are capital receipts in nature, granted under the Foreign Trade Policy with the object of promoting exports and compensating exporters for infrastructural and other disadvantages faced in international trade, and are capital in nature, thus not being chargeable to tax under the normal provisions of the Income-tax Act, 1961 ('the Act'). 9. On the facts and in the circumstances of the case and in law, the Appellant submits that export incentives amounting to Rs. 16,21,28,607/- received under MEIS, Rs. 7,93,53,805/- received under FPS and Rs. 1,95,94,924/ received under SHIS were erroneously and inadvertently treated as revenue receipts and offered to tax in the return of income for AY 2016-17, even though the said receipts ought to have been treated as capital receipts not liable to tax under the provisions of the Act. 10. On the facts and in the circumstances of the case and in law, the appellant submits that the aforesaid export incentives, being capital receipts not chargeable to tax, could not have been included while computing book profit under section 115JB of the Act and ought to have been excluded from the computation of liability under the MAT provisions of the Act. 11. The Appellant craves leave to add, amend, alter, vary or withdraw any of the aforesaid grounds of appeal at or before the time of hearing"

The Appellant hereby humbly wishes to claim the same as non- taxable income by way of additional grounds of appeal for the first time before the Hon'ble Tribunal placing reliance on the following decisions:  Jute Corporation of India v CIT [187 ITR 688 (SC)]  National Thermal Power Corporation v CIT [229 ITR 383 (SC)]  Ahmedabad Electricity Co. Ltd [199 ITR 351 (Bom) (FB)]  Pruthvi Brokers & Shareholders Pvt. Ltd., [349 ITR 0336 (Bom.)]

It is humbly submitted that the Hon'ble Tribunal has jurisdiction to consider new and/or additional claims/deductions subsequently which were not claimed in return of income &/or before the Learned Assessing Officer &/or before the Hon'ble CIT(A)/NFAC as it is incumbent to ensure that tax in collected as per law and the

correct computation of taxable income of an assessee must be computed so that the collection of tax is in accordance with law. Reliance is also placed on CBDT Circular No. 14 (XL-35) dated April 11, 1955, which, inter alia, provides that the tax authorities are duty-bound to to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs. The Circular further emphasizes that where proceedings or other particulars indicate that a taxpayer is entitled to relief, the authorities should take the initiative in ensuring that such relief is granted.

During the course of hearing, the learned counsel did not argue on additional grounds raised before us. Accordingly, we dismiss the additional grounds noted (Supra).

supporting documents, in response the assessee submitted the ledger abstract copy of entertainment expenses from which it was seem that the above expenses are made towards board meeting , AGM dinner, Diwali gift for Co’s guest, expenses on account of flowers, hotel bill, fooding expense, purchase for liquor for party, corporate gifts, business meeting, trade exhibition, club expenses and other business promotion, expenses however, the assessee could not furnish complete original bills/vouchers in support of the business promotion expenses. Also, some expenses such as liquor, gift and club expenses are apparently to be not incidental to the business. The assessing officer relied on the judgment of the Hon’ble Apex Court and further the assessee was asked to substantiate the commercial expediency towards incurring of these expenditures and he further noted that, to be permissible deduction u/s 37, there must be a direct and intimate connection between expenditure and business. It was noted that the expenditure must be incidental to the business of the assessee. There must be close nexus between the expenditure and the character of the assessee’s trade. Thus, it has been held that in order to justify deduction, the expenditure must be incidental to the business and must have been necessitated are justified by commercial expediency and there must be direct and intimate connection between the expenditure and the business during the course of normal business activity. The

assessee was confronted with the issue and asked to justify the business connection regarding some of the payments but the assessee was not able to furnish complete bills/vouchers for verification. Accordingly, the assessing officer disallowed 20% of Rs. 100,159,82/- which comes to Rs. 20,15,982/. further during course of assessment proceedings, the assessing officer observe that there is an expenses debited in the profit and loss account of Rs. 231,99,715/- towards ‘Export Promotion Directors Foreign Tour’ under he head “Other Expenses”. In this regard the assessee was asked to furnish the ledger copy along with supporting documents in response the assessee submitted the details from which it was seem that the assessee has claimed foreign travel expenses in respect of Managing Director, Director, Executive Chairman, Vice Chairman for visit of several places such as Turkey, Abudhabi, Korea, London, USA, Paris, Croatia, Zurich, Honkong, New York, Frankfurt, Thailand, Doha. However, the assessee could not furnish any bills/vouchers regarding the utilization of expenses and he further noted that some of the expenses are apparently to be related to travelling for personal purposes of director’s and others, which is not incidental to business. The assessee could not furnish the details of order procured or any income attributable to such foreign visit. Further the assessee also could not furnish any tour itinerary or any board approval for such

foreign visit . In the absence of the complete bills/vouchers or any other supporting document, it was not possible to verify the genuineness/purpose of visit of the above said expenses and he noted that to be permissible deduction, there must be a direct and intimate connection between the expenditure and the business and the expenditure must be incidental to the business and must have been necessitated are justified by commercial expediency and assessee was confronted but assessee could not furnish any satisfactory explanation regarding the purpose of visit of sum of the date and any business connection regarding foreign tours. Accordingly, he disallowed 20% of the total expense of Rs. 231,99,715/-. Accordingly, he made an addition of Rs. 46,39,943/-. Further on perusal of the financial statements, it was seen that the assessee has made investments in the following companies for Rs. 1,67,77,00,000/- for the year 31.03.2015,however, it got increased to Rs. 1,67,88,00,000/- as on 31.03.2016 and assessee was asked to furnish the details of investment income from which do not form part of total income and also asked to explanation why provisions of section 14A of the Act should not be invoked in its case the assessee furnished return reply which is as under:-

“As per the query, we submit here with the details along with copies of Ledger Accounts and some relevant copies of Bank Statements showing interest payments during the financial year 2015-16.

As regards to interest expenses u/s 14A of the Act for the exempted income claimed in the return, we would like to state that there is no such expense attributable to exempted income as the investments are m ade out of own funds.

While in the subject, it may please be noted that the entire dividend amount of Rs. 92,00,000/- claimed as an exempted income received from our subsidiary company/M/s. INFA Alloys Finlease Limited, in which major investments in shares were made by the company during 2011-11”

The assessing officer was not satisfied, the Assessing Officer after referring to Section 14A and rule 8D(2) discussing in details calculated the disallowance as per rule 8D(2)(iii)@0.5% of average value of investments which comes to Rs. 83,91,250/- and assessee has received dividend exempt income of Rs. 92 Lakhs on its investments. During the course of assessment proceedings, the addition was made u/s 43B as per Para 3 of his order for Rs. 6,45,79,132/-. Accordingly, the loss was reduced to Rs. 60,01,90,328/-.

additions made by the AO from 20% to 10% towards business promotion expenses and entertainment expenses and addition made u/s 14A was dismissed. Accordingly he partly allowed the appeal of the assessee.

has not recorded proper satisfaction before invoking section 14A of the Act, it is violation of invoking section of 14A of the Act and he further submitted that the assessing officer has calculated 0.5% disallowance on the entire average value of investments. The assessee received Rs. 92 lakhs dividend income which is exempt. in support of his arguments he has filed written submission which is as under:-

"As per the query, we submit here with the details along with copies of Ledger Accounts and some relevant copies of Bank Statements showing interest payments during the financial year 2015-16. As regards to interest expenses u/s 14A of the Act for the exempted income claimed in the return, we would like to state that there is no such expense attributable to exempted income as the investments are made out of own funds While in the subject, it may please be noted that the entire dividend amount of Rs.92,00,000/- claimed as an exempted income received from our subsidiary company-M/s. INFA Alloys Finlease Limited, in which major investments in shares were made by the company during 2010-11." 5. On the other hand, the Ld. DR relied on the order of the lower authorities and submitted that in respect of the disallowance towards entertainment of expenses, the Assessing Officer has examined the issue in details and he noted that some of the expenses are appears to be personal in nature viz club expenses and various other expenses as observe by the AO and no any evidences/bills were submitted further in respect of foreign travel expense,the details of the bills/evidences were not submitted only the details of the country travelled submitted which is not sufficient to prove the genuineness of expenditure. Accordingly, the

personal nature of expense cannot be denied, even the assessee is not furnished any business visa to show that it can be proved that there was a business tour. The Ld. DR further submitted in respect of the disallowance u/s 14A, since the assessee has received 92 lakhs of exempt income and it has crores of investments. The sum of the expense must have been incurred by the assessee to control, manage of the investments. The assessee has not calculated any disallowance separately and made investments and received exempt income and further the AO has calculated the disallowance i.e. there is satisfaction recorded by the AO. It is not required to separately record satisfaction. There is no any separate rule or provision for recording satisfaction.

Considering the rival submissions and perusing the entire materials available on records and order of authorities below we observe from the order of the Assessing Officer and submission of the assessee, during the course of assessment proceedings, the Assessing officer has observed from the details submissions of the assessee that various kinds of expenses have been incurred by the assessee towards entertainment expenses . We also gone through the details of expenditure incurred which is placed at paperbook page No. 263 to 285, on random basis we noted that the assessee has incurred some expenses which are in the nature of personal expenditures as under:-

Vr. No. Date VType Description Debit Credit

CHO-00742/1516 09/04/15 JNL DEL-B No. Nil Dt. 06-APR-15 for Being fooding 100 exp of Rs-8320/-, pet animals exp &otherof Rs- 1797/-, CD dist purchased of Rs-100/-, misc exp of Rs-150/-, electrical items purchase of Rs- 35811, photo copy exp of Rs-937/-, guest taxi charges of rs-216/-, as per bills and detail attached-MADAN MOHAN

CHO-01858/1516 20/04/15 JNL DEL-Bill No Ni DL 16-APR-15 for Being fooding 250 exp of Rs-1700/-, medicen exp of Rs-75 Pet animals foods exp of Rs-9595/-, dist tv recharge of Rs-250/-, stationery exp of Rs-1250/-charger purchased of Rs-1999/-, courier exp of Rs-171-, sanitary items purchased of Rs-2705/-misc exp of Rs-2050/-, and LC of rs-258 at (21) as per bills and detail attached-MADAN MOHAN

CHO-01969/1516 21/04/15 PAY BBSR CLUB BILL OF MR. ASHOK BEHERA FOR 1000 THE MONTH OF APRIL – 2015 ADJUSTED WITH BRE FOR 2015-16

CHQ-01969/1516 21/04/15 PAY BBSR CLUB BILL OF MR. ASHOK BEHERA FOR 1576 THE MONTH OF APRIL – 2015 GUEST ENT

CHQ-01974/1516 21/04/15 PAY CHQ ISSUED TWDS BBSR CLUB BILL OF MR 1205 CHITTA RANJAN RAY FOR THE MONTH OF

APRIL - 2015

CHQ-04707/1516 13/05/15 PAY CHQ. NO. 702636/13.05.2015, ISSUED TO BBSR 3124 CLUB LTD. TWDS ENTERTAIN FEES FOR THE MONTH OF MAY – 2015, OF MR. ACHARY D. SURENDRANATH

CHQ-05990/1516 26/05/15 PAY Settlemetn of Petty Cash IDCHQ-PTY/825-1516 1404 for Being payment made of Delhi Golf Club Ltd. Towards Club exp of Ms. Shaifalika Panda for the period 01.04.2015 to 30.04.2015 as per in favour of Delhi Golf Club Ltd. Cheque No.

CHQ-06282/1516 27/05/15 JNL DEL Bill No. Nil DL 21-MAY-15 for Being amount 7259 paid to Mr. Vinod Kumar Rana towards watch repair of Rs-2500/-, fooding exp at restaurant of RS-7259/-, medicen exp of Rs-1059/- Miscellaneous exp ofRs-4500/- at (21) as per bills and detail attached-VINOD KUMAR RAN

CHQ-06500/1516 28/05/15 PAY Settlement of Petty Cash IDCHQ-PTY/897-1516 35000 for Being payment made of RBL Credit Card No- 5425051314464354 towards purchased Sony Z3 compact mobile for Gift at (21) as per bill & massage attached dated 28-May-2015 in favour of RBL Credit Card No-5425051314464354 Cheque No. 40671 dated 28-MAY-15 PAY

CHQ-06500/1516 28/05/15 PAY Settlement of Petty Cash IDCHQ-PTY/900-1516 60000 for Being payment made of RBL Credit Card No- 5425051314464354 towards purchased Mont Blanc for Gift at (21) as per bill & massage attaached dated 28-May-2015 in favour of RBL Credit Card No-5425051314464354 Cheque No. 40671 dated 28-MAY-15

CHO-06501/1516 28/05/15 PAY Settlement of Petty Cash IDCHQ-PTY/891-1516 10388 for Being payment made of M/s Constitution Club towards club exp of VC Sir as per bill & Massage attached dated 28-May-2015 in favour

On going through the above observation only for two months the

personal expenditure of others have been paid by the assessee company

and we also noted that in support of the expenditure incurred the

assessee did not produce any bills and vouchers. Accordingly, we justify

the order of Ld. CIT(A) for the restricting the additions from 20%

disallowance to 10%. Accordingly ground No. 4 is dismissed. The

judgement of the assessee’s own case is not applicable in the peculiar

facts and circumstances of the case since the details of bills and

vouchers were not submitted and our above observation noted supra in

the table which are in the nature of personnel expenses.

we noted from the ground No. 2&3 that the assessee has raised that while adjudicating the appeal of the assessee by NFAC, the NFAC did not grant proper opportunity is not tenable since the entire details have not been furnished. The appeal has been decided through E-Proceedings and assessee is not opted for V.C (Video Conferencing) and not submitted any proof, accordingly ample number of opportunities were granted to the assessee, therefore, ground NO. 2 & 3 are also dismissed.

dismissed further the ground No. 6 to 7 the assessee has raised disallowance u/s 14A computed by the AO for Rs. 83,91,250/- we are in agreements on the argument advanced by the Ld. DR regarding satisfaction has been recorded by the AO. There is no requirement to record separate satisfaction note, once the AO is not agreed and proceeded to calculate disallowance is sufficient, since there is no any separate rules or proforma provided in the Act and IT Rules. We further noted from the computations made by the AO for disallowance u/s 14A r.w.s rule 8D(2)(iii) is very much clear, which states as an amount equal to half percent of the of the monthly average of the investments which yielded exempt income has to be disallowed. During the course of proceedings before us the Ld. Counsel submitted that the assessee has made investments for sum of Rs.167.77 crores as opening balance and closing balance was Rs. 167.88 crores. From the submissions it was noticed that there was no exact income from the all/entire investments received only the few investments have generated exempt income. There are various judgments decided in favour of the assessee which are placed on record and considering the same, that only those enhancements have to be considered for computation of disallowance on which only the exempt income have been received and not the total value of average investments.

Accordingly we are remitting this issue back to the file of the AO for fresh computation and decide as per law after giving reasonable opportunity of being held to the assessee and assesseeis directed to produce the details of the investments on which the assessee has not received exempt income and has received exempt income . We further noted regarding additional grounds the assessee has filed return submission noted (Supra) but did not argue. Since the assessee counsel did not argue on the additional grounds raised by the assessee. Accordingly, we dismiss the additional ground. To sum up the appeal sum up the appeal of the assessee is partly allowed for statistical purpose.

Order pronounced on 06 .10.2026. Sd/- Sd/- (Duvvuru RL Reddy) (Laxmi Prasad Sahu) Vice President Accountant Member

Dated: 06 .10.2026 DC

Copy of the order forwarded to: 1. Appellant 2. Respondent 3. Pr. CIT

//True copy// By order

In result,