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Facts
The appeals concerned the allowability of deductions under Section 80IC/80IB of the Income Tax Act for various assessment years. A survey action was conducted, and during scrutiny, the AO disallowed deductions claimed by the assessee for its Uttaranchal unit, opining that the assessee was not manufacturing an eligible item. The CIT(A) however, allowed the claim based on previous tribunal decisions.
Held
The Tribunal held that the assessee was eligible for deductions under Sections 80IB and 80IC. It was noted that deductions had been allowed in initial assessment years and were not withdrawn in subsequent years. The Tribunal followed the principle of consistency and the decision of the Bombay High Court in Simple Food Products (P) Ltd. vs. CIT, stating that once a deduction is granted in the initial year, it continues for the specified period unless withdrawn.
Key Issues
Whether the assessee is eligible for deductions under Sections 80IC/80IB when the claim was allowed in initial assessment years but disallowed in subsequent years without withdrawal of the initial relief. Also, issues related to allocation of interest and finance costs, and disallowance under Section 14A were considered.
Sections Cited
80IC, 80IB, 133A, 131, 143(2), 143(3), 2(29BA), 148, 143(1), 80IA, 50C, 234A, 234B, 243C, 14A, 8D
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
सुनवाई की तारीख/Date of Hearing : 30/07/2025 घोषणा की तारीख /Date of Pronouncement: 06/08/2025 आदेश/O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
The captioned appeals by the revenue and cross-objections by the assessee are preferred against the orders for AY 2016-17 to AY 2023-24. This bunch of appeals were heard together and are disposed off by this common order for the sake of convenience and brevity as the underlying facts in the issues and the grounds taken by the rival sides are identical.
The first grievance of the revenue in all the captioned AYs relate to the allowability of deduction u/s 80IC/80IB of the Act. The underlying facts are taken from AY 2016-17 which appeal was argued before us. Briefly stated the facts of the case are that the survey action u/s 133A of the Act was carried out on Jyothy Labs Limited and its associated concerns by the Investigation Wing, Mumbai, which started on 02/11/2022, and ended on 06/11/2022. During the survey, statements of various key persons were recorded u/s 131 of the Act, and few registers, data, documents were found and impounded. 2.1. While scrutinizing the return of income, the AO noticed that the assessee has claimed deduction u/s 80IB/IC of the Act in Uttaranchal unit as the process of preparation of Ujala Supreme was claimed as I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 3 eligible for deduction. The AO was of the opinion that the claim of deduction u/s 80IB/IC of the Act is not allowable as the assessee is actually not producing or manufacturing any eligible item or thing as per the definition in the Act. The AO further observed that deduction claimed by the assessee for production of fabric, whiteners in its Ujala Factory was disallowed in assessments u/s 143(2) from AY 2009-10 to AY 2018-19. Taking a leaf out of the past history, the AO disallowed the claim of deduction. When the matter was agitated before the ld. CIT(A), the ld. CIT(A) was convinced with the claim of deduction and drawing support from the decision of the Co-ordinate Bench, the ld. CIT(A) allowed the claim of deduction.
After carefully considering the order of the authorities below, we find that the Co-ordinate Bench in & 3876/Mum/2018 for AY 2013-14 & 2014-15 has considered a similar quarrel and held as under:- “7.2 We have also perused the finding of ld. CIT(A) as elaborated supra where exhaustive discussion has been made on the process of manufacturing of Ujala Supreme. It is explained that the acid violet-49 is the main raw material actually purchased from outside market and then added with water in stipulated proportion and then filtered for impurities after stirring it electronically under strict as Quality Control by respective staff. Thereafter, the material are transferred to the HDPE container in the requisite quantity of 30 ml, 75 ml, 250 ml capacity along with dropper which will dispense requisite 4 drops for1 litre of water. It was also explained that production of the assessee was not listed in the Thirteenth schedule and the raw material is purchased from the outside market and assessee company is not producing the said Violet-49. It is also explained that scheme of classification under the VAT Act is different from the Income Tax Act and the classification under the VAT cannot be used for interpreting the provisions of Thirteenth Schedule under the Income Tax Act.
I.T.A. No. 3863/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 4 7.3 The assesse had employed more than 300 persons in the Uttranchal Unit and machines were used for the purpose of manufacturing and the end product is Ujala Supreme (Fabric Whitener) list of machines installed were also furnished before the A.O showing the appropriate value of Rs.8.4 crore as on 31.03.2013. The assesse explained that making of Ujala Supreme amounts to manufacturing within the meaning of section 2(29BA) of the Act. The assesse’s unit is a composite unit manufacturing the product liquid and plastic container for filling the same. The process of manufacture of Ujala Supreme (Fabric whitener) are as follows:
(a) Blow Moulding of High Density Polyethylene (HDPE) containers required for the above product. These containers are not sold but used for production of end product Ujala Supreme (Fabric Whitener). (b) Injection Moulding of closures for captive consumption only. (c) Sleeve labelling of the containers with brand name, commodity name, instruction to use and other statutory descriptions. (d) Blending (mixing) of the raw material acid violet 49 paste (hereinafter referred to as 'AVP' or "Acid Violet Paste") in water in a specified proportion (1% of AVP mixed with 99% of water) and stirring for 45 minutes using electrically operated stirrer. This dilution is undertaken with the use of plant and machinery involving electric power as well as manpower. (e) This liquid is pumped through filter cloth to remove impurities/undissolved particles & stored in distribution tank from where it is transferred to filling stations using pipe. (f) Filling the labelled HDPE containers of 30 ml, 75 ml and 250 ml capacity with the above liquid Fabric Whitener and closing/capping to market the end product to be used by consumers for obtaining super whiteness of clothes. (g) The quality assurance is ensured by the designated department at various stages from receipt of materials till final dispatch of the end product. (h) Filling in polypropylene covers for retail dispensation. (i) Secondary packaging in corrugated boxes (j) Storing and outward dispatch.”
A different commodity (fabric whitener) comes into existence which has a different name character and use. The revenue could not substantiate that assesse company is not manufacturer of goods as defined in section 2(29BA) of the Act contrary to the facts and findings as discussed above and in the findings of ld. CIT(A). Therefore, we don’t find any infirmity in the decision of ld. CIT(A). Therefore, after following the decision of the ITAT as supra grounds of appeal of revenue stand dismissed.”
4. While coming to the aforesaid decision, the Co-ordinate Bench has followed the decision of another Co-ordinate Bench in ITA No. I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 5 7280/Mum/2016, wherein, the relevant issue was decided after following the decision in the case of assessee for AY 2011-12 vide ITA No. 7281/Mum/2016. The relevant part of the decision is reproduced as under:- “7.1 With the assistance of the ld. Representative we have gone through the decision of the ITAT vide ITA No. 7280/Mum/2016 wherein the relevant issue was decided after following the decision of the ITAT in the case of the assessee for assessment year 2011-12 vide ITA No. 7281/Mum/2016. The relevant part of the decision is reproduced as under: “7. Heard both the side and perused the material on record. Without reiterating the facts as elaborated above during the course of assessment the A.O has not allowed the claim of deduction u/s 80IC in respect of Uttaranchal Unit of the assessee and deduction u/s 80IB in respect of Himachal Unit of the assessee on the reasoning that the process of making of Ujala Supreme did not result into any new product. During the course of appellate proceedings before us the ld. Counsel submitted that coordinate bench of the ITAT in the case of assessee itself for A.Y. 2011-12 has adjudicated identical issue on similar facts vide ITA No. 7281/Mum/2016 in favour of the assessee. With the assistance of the ld. representative we have gone through the above referred decision of the ITAT. The relevant part of the decision is reproduced as under:
“7. Before us the learned A.R. for the respondent assessee made a preliminary point in defence of the ultimate conclusion of the CIT(A), which is based on the judgement of the Hon'ble Bombay High Court in the case of Simple Food Products (P) Ltd. vs. CIT (2017) 84 taxmann.com 239.
The point raised is that when the deductions under section 80IC as well as under section 80IB of the Act have been granted in the initial assessment years, the same could not be rejected for the subsequent assessment years unless the relief allowed for the initial year was withdrawn. It has been pointed out by the learned A.R. that the deductions under Section 80IB and 80IC of the Act are allowable to an assessee over a specified number of consecutive assessment years, and in the instant case, such claims have not been withdrawn in the initial assessment years, therefore the action of the Assessing Officer to deny the claim in the instant assessment year is untenable. In support, reliance has also been placed on the principle laid down by the Hon'ble High Court in the case of CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom.), which has been subsequently reiterated and applied by the Hon'ble High Court in the case of Simple Food Products (P) Ltd. (supra).
I.T.A. No. 3863/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 6
The learned D.R. has not joined issue with the respondent-assessee on factual matrix, but pointed out that the Assessing Officer has denied the claim in the instant year on a justified basis. The learned D.R. has reiterated the stand of the Assessing Officer on the merit of the controversy, which we are not inclined to go into for the present, as we deal with the preliminary point brought out by the learned A.R. for the respondent assessee.
In order to appreciate the preliminary point raised by the respondent assessee, the following factual position is relevant. In so far as the assessee’s claim for deduction under section 80IC of the Act with respect to Uttranchal Unit is concerned, the first year of claim was Assessment Year 2009-10 and the instant year is the third year of claim. Similarly, the claim of deduction under section 80IB of the Act in respect of Wayanad Unit was made by the assessee for the first time in Assessment Year 2002- 03 and the instant year is the eighth year of claim. In respect of Himachal Unit, the first year of claim of deduction under section 80IB of the Act was Assessment Year 2003-04, and thus the instant year is the seventh year of claim. Pertinently, the reliefs under sections 80IB and 80IC of the Act are available for ten consecutive years starting from the initial assessment year when the relevant undertaking of the assessee commences manufacture or production. Therefore, factually speaking, the instant assessment year is not the initial year of the claim, either for section 80IB or for section 80IC of the Act. At the time of hearing, the learned A.R. furnished a copy of the assessment year passed under section 143(3) of the Act for A.Y. 2002-03 dated 24.12.2004, which is the first year of claim of deduction under section 80IB of the Act with regard to Wayanad Unit, whose date of commencement of production/manufacture is 23.05.2001. Similarly, the date of commencement of manufacture/production of Himachal Unit is 25.08.2002, and the initial assessment year being 2003- 04 for which also, a copy of the assessment order passed under section 143(3) of the Act dated 30.01.2006 has been furnished, wherein the relevant claim under section 80IB has been allowed. In so far as the claim under section 80IC for Uttranchal Unit is concerned, the date of commencement of manufacture/production is 06.05.2008, and therefore the initial assessment year of claim is Assessment Year 2009-10. For Assessment Year 2009-10 also, a copy of the assessment order passed under section 143(3) of the Act dated 23.03.2011 has been furnished wherein the claim under Section 80IC of the Act has been accepted. In Assessment Year 2010-11 also, vide order under section 143(3) of the Act dated 06.12.2012 aforesaid claims have been accepted. It has also been pointed out that when the two claims were denied in the instant assessment, the claims allowed in the respective initial assessment years were not withdrawn. In this background, the moot question is as to whether in the instant year, can the Assessing Officer deny the claim of deduction under section 80IB as well as under section 80IC of the Act I.T.A. No. 3863/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 7 considering that the said claims were not withdrawn for respective initial assessment years.
11. So far as the point of controversy before us is concerned, the mechanics of Section 80IB of the Act are similar to that of Section 80IC of the Act. For the present purpose, it is sufficient to note that both the deductions are eligible for a period of ten consecutive assessment years starting from the initial assessment year when the Undertaking of the assessee commences manufacture/production. As the factual matrix of the present case shows, the initial assessment year for the claim of deduction under Section 80IB of the Act for Wayanad Unit and Himachal Unit is 31.03.2002 and 31.03.2003 respectively, meaning thereby Assessment Years 2002-03 and 2003-04. Similarly, in the context of Uttranchal Unit, the initial assessment year for claim of deduction under Section 80IC of the Act is Assessment Year 2009- 10 and the year of end of the benefit is 31.03.2018, meaning thereby Assessment Year 2018-19. As has been seen in the earlier part of this order, in the initial assessment years, i.e. Assessment Years 2002-03, 2003-04 and 2009-10, the respective deductions under Section 80IB and/or Section 80IC of the Act were allowed by the Assessing Officer. It has also been brought out before us, without any controversion from the other side, that the deductions have been allowed thereafter till the immediately preceding Assessment Year, i.e. Assessment Year 2010-11. It is only in the instant Assessment Year, i.e. Assessment Year 2011-12 that the claims have been denied.
In the context of the preliminary point raised by the respondent assessee, the judgment of the Hon'ble Bombay High Court in the case of Simple Food Products (P) Ltd. (supra) squarely covers the controversy. In the said case, the issue related to claim of deduction under Section 80IB of the Act in relation to Assessment Years 1999-2000 to 2005-06. In Assessment Year 1999-2000, the Assessing Officer disallowed the claim of deduction under Section 80IB of the Act for the first time even when in the initial Assessment Year of 1996-97 the deduction under Section 80IB of the Act stood allowed. The point raised by the assessee was that the claim of deduction in respect of Assessment Year 1999-2000 onwards could not be rejected as the deduction granted in Assessment Year 1996-97, i.e. the first year, had not been withdrawn. In this background, the following discussion in the judgment of the Hon'ble Bombay High Court is relevant:- “(j) According to us, the entire issue is no longer res-integra. The impugned order of the Tribunal has, after recording that the appellant – Assessee relies upon the decision of this Court in Paul Brothers (supra) has not dealt with the same. It gives no finding as to why and in what manner it would not apply to the present facts. Further, we find that distinction which has been made in the impugned order of the Tribunal with regard to Dinshaw Frozen Foods Ltd. (supra) viz. that the assessment in that case has been completed under Section 143(3) of the Act in initial year and it is only in such cases I.T.A. No. 3863/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 8 that the Revenue be barred from denying the claim for deduction in the subsequent Assessment Years, unless the claim for deduction has been withdrawn in the initial year when deduction was claimed and allowed unlike an assessment which iscompleted under Section 143(1) of the Act. We have perused the decision of this Court in Dinshaw Frozen Food Ltd. Nagpur (supra) which in turn has followed the decision Paul Brothers (supra). We note that there is no finding in the two orders to the effect that the in the initial year the claim under Section 80IA/IB of the Act was granted by virtue of an order passed under Section 143(3) of the Act. Nothing has been brought on record to indicate that there has been some change in manufacturing process from that existing when the claim was allowed in the initial year i.e. Assessment Year 1996- 1997 and subject Assessments. The intent/object of the deduction under Section 80IA/IB of the Act is to encourage setting up of industries to manufacture goods which are not specified in the Eleventh Schedule to the Act. (k) The distinction sought to be made by Mr. Bhattad, learned counsel for the Revenue that the claim for deduction in Paul Brothers (supra) the deduction was an investment based deduction, while in the present case, we are concerned with the performance base deduction. This is in -fact, no distinction. In absence of the Revenue being able to establish that for the subject Assessment Years, the facts with regard to the performance were different from facts with regard to the performance in which the claim for deduction in initial year was allowed, the grant of deduction in the subsequent subject Assessment Year cannot be withheld. The other issue raised by Mr. Bhattad that merely because a claim was allowed in an earlier year would not prohibit the revenue from disallowing the claim in subsequent assessment years is no longer res-integra as this Court in Paul Brothers (supra) as it is categorically held that in absence of deduction granted in the initial Assessment Years being withdrawn, the relief for subsequent Assessment Years could not be withheld. The basis for the same is found in sub-clause (3) under Section 80IA/IB of the Act Which gives deduction for 10 consecutive years to the profit and gains of an Industrial undertaking from initial year of assessment when the deduction was allowed, subject to the condition laid down therein. It is not the Revenue's contention that the condition in clause (3) of Section 80IB of the Act has not been fulfilled. Therefore, once deduction is granted in the initial Assessment year, the same would continue for the period of 10 consecutive year unless the relief for initial year is also withdrawn at the time of withholding the relief under Section 80IA/IB of the Act."
The aforesaid discussion by the Hon'ble High Court clearly brings out that once deduction is granted in the initial assessment year, the same would continue for the period of ten consecutive years unless the relief for initial assessment year is also withdrawn. We are conscious of the fact that in I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 9 coming to such decision, the Hon'ble High Court aid notice the absence of the Revenue to establish that for the subsequent assessment years in dispute, the facts were different from the facts on which the claim for deduction in the initial year was allowed.
14. A point that has been raised is that when the assessment for the instant year was finalised under Section 143(3) of the Act dated 31.03.2014, a notice under Section 148 of the Act was issued on 21.03.2014 to reopen the assessment for Assessment Year 2009-10 in order to withdraw the claim earlier granted under Section 80IC of the Act, therefore, it could be said that the claim in the initial assessment year was disturbed. On this aspect, the learned representative for the respondent assessee vehemently pointed out that issuance of a notice under Section 148 of the Act to reopen assessment to withdraw a claim would not mean withdrawal of claim ipso facto'. It was emphasised that at the time of rejecting the claim in the instant assessment year, ie. on the date of passing of the assessment order, the claim under Section 80IC of the Act for Assessment Year 2009-10 (which was the initial assessment year) was not withdrawn and it remained undisturbed as the assessment order dated 23.03.2011 for Assessment Year 2009-10 continued to hold the Wield. I5. In our view, the aforesaid objection of the Revenue does not come in the way of applying the proposition laid down by the Hon'ble Bombay High Court in the case of Simple Food Products (P) Ltd. (supra) in the instant case. In fact, to recapitulate, the following observation of the Hon'ble High Court is worthy of notice and provides an answer to the objection raised by the Revenue;- "Therefore, once deduction is granted in the initial Assessment Year, the same would continue for the period of 10 consecutive year unless the relief for initial year is also withdrawn at the time of withholding the relief under Section 80IA/IB of the Act." [underlined for emphasis by us.] 16. As per the Hon'ble High Court, once the deduction is granted in the initial assessment year, the same would continue for the specified period unless the relief for initial year is also withdrawn at the time of withholding the relief under Section 80IA/80IB of the Act. Clearly, in the instant year when the claim of deduction is rejected by the Assessing Officer, the relief allowed in the initial assessment year has not been withdrawn. Mere initiation of proceedings under Section 148 of the Act to reopen the assessment of the past year cannot be understood to mean that claim is withdrawn. Therefore, in our view, the Assessing Officer could not have rejected the claim for deduction under Sections 801B as well as 80IC of the Act in the subject assessment order because the relief allowed in the initial assessment year was not withdrawn at the time of such rejection in the instant year.
I.T.A. No. 3863/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 10
In the above background, we, therefore, find merit in the preliminary point made out by the respondent-assessee and the appeal of Revenue on this point deserves to be dismissed. Thus, in the final analysis, we uphold the ultimate conclusion of the CIT(A) to allow the benefit under Sections 80IB and 80IC of the Act to the assessee, albeit on a different ground."
After taking into consideration the facts and finding in the order of the ITAT in the case of the assessee itself as supra we find that facts and circumstances in this order are also similar to the A.Y. 2011-12 except variation in the amount of quantum of addition. There is nothing before us on hand to differ from the issue raised in the case of the assessee cited (supra) to take a different view on this issue. Therefore, since the issue on hand being squarely covered following the principle of consistency, we find merit in submission of the assessee and allow the claim of deduction us 80IB & 80IC of the Act. Therefore, this ground of appeal of the revenue stand dismissed."
5. As no new facts have been brought to our notice, respectfully following the decisions of the Co-ordinate Bench (supra), Ground Nos. 1 & 2 are dismissed in the appeals of the captioned assessment years.
6. The next common grievance in the captioned assessment years is the allocation of interest and finance costs to the units claiming deduction u/s 80IC/IB of the Act. This issue is common in AY 2016-17 and 2021-22. 7. While scrutinising the return of income, the AO noticed that the interest expense had been incurred by the assessee which had not been allocated to the units claiming deduction u/s 80IB/80IC of the Act leading to higher profits and higher deductions. The AO was of the opinion that the interest cost should have been allocated to the factories claiming deduction u/s 80IB/80IC of the Act. The AO on his belief that any expenses incurred for running or establishing a plant has to be I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 11 matched with the revenue receipt from such plant by not allocating such expenses. The assessee has claimed deduction twice. Once by claiming such expenses as a revenue expenditure and setting it off against the revenue which is not eligible for deduction u/s 80IB/80IC and second time by claiming the inflated income from the units eligible for deduction. The AO proceeded by allocating borrowing cost to the units claiming deduction and accordingly allocated the borrowing cost. 7.1. The matter was agitated before the ld. CIT(A). Before the ld. CIT(A), assessee submitted year-wise details of investments made to its units, borrowings, reserves and cash flow available as on balance sheet dates as under:-
I.T.A. No. 3863/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 12 7.2. From the above chart, the ld. CIT(A) was convinced that sufficient interest free funds were always available with the assessee which were sufficient to cover the required investments in the aforementioned units. The ld. CIT(A) further found that year-on-year profits generated in the said units were significantly higher than the working capital requirements and thus, the cash accruals were sufficient to fund the units for the entire period when the deduction was claimed. The assessee had strongly contended that it had raised funds from various sources including raising debt funds from financial institutions to fund the acquisition in Henkel. Necessary details were also supplied to the ld. CIT(A). On perusal of the same, the ld. CIT(A) was convinced that the assessee had borrowings/loan funds which were utilized for servicing the original debt created during Henkel group acquisition. After thoroughly examining the facts, the ld. CIT(A) was convinced that the investment in setting up the units for the initial assessment years was made out of surplus/interest free funds and accordingly held that I.T.A. No. 3863/Mum/2025 I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 13 interest cost cannot be allocated towards the said units and accordingly deleted the addition.
8. Before us, the ld. D/R strongly supported the findings of the AO. The ld. Counsel for the assessee reiterated what has been stated before the lower authorities.
9. After giving a thoughtful consideration to the findings of the ld. CIT(A) and finding that the facts considered by the ld. CIT(A) have not been controverted by the revenue, we do not find any reason to interfere with the findings of the ld. CIT(A). This common ground in all the appeals pertaining to AY 2016-17 to 2021-22 is dismissed.
10. The next common ground in the captioned appeals by the revenue relates to the deletion of the disallowance u/s 14A r.w.r. 8D.
At the very outset, we find that in AY 2016-17, 2018-19, 2020-21, 2021-22 and 2022-23, there is no exempt income. The undisputed fact is that the assessee did not earn any exempt income during the years under consideration. Therefore, provisions of Section 14A r.w.r 8D, do not apply as held by the Hon’ble Madras High Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd. [2017] 248 Taxman 55, wherein the Hon’ble High Court has held that Section 14A of the Act cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year. SLP was dismissed by the Hon’ble Supreme Court preferred against this order of the Hon’ble High Court in [2018] 257 Taxman 2 (SC). Further, the insertion to the explanation in Section I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 14 14A of the Act, is prospective as held by the Hon’ble Delhi High Court in the case of Era Infrastructure 141 taxmann.com 289.
12. Now, coming to the AYs 2017-18, 2019-20 and 2023-24, the assessee had earned exempt income being share profit from partnership firm. It is the say of the ld. Counsel for the assessee that since the share profit is already taxed in the hands of the partnership firm, the same cannot be said to be exempt from tax and, therefore, no disallowance has to be made u/s 14A of the Act. In the alternative, it was pleaded that only those investments should have been considered which actually yielded exempt income 13. After giving a thoughtful consideration, we find force in the alternative claim of the assessee. It is a trite law that only investment yielding exempt income needs to be considered while applying the formula laid down under Rule 8D of the Income Tax Rules, 1962 (hereinafter the ‘Rules’). Therefore, we direct the AO to re-compute the disallowance after considering the investments yielding actual exempt income. The assessee is directed to furnish the necessary details of investments and the AO is directed to examine the same and decide the issue afresh as per the directions given hereinabove. This common grievance is partly allowed.
In the result, the captioned appeals by the revenue are partly allowed.
Now, we will address the captioned cross-objections of the assessee for AY 2016-17 to 2023-24. At the very outset, the ld. Counsel I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 15 for the assessee fairly stated that the grounds challenging the reopening of the assessment and the validity of the resultant order are to be treated as infructuous and the same are accordingly dismissed.
Insofar as the issue relating to the ground of TDS credit is concerned, the assessee has filed a detailed chart showing the rectification application pending before the AO which have not been considered till date. Be that as it may, the AO is directed to grant the credit of TDS as per the provisions of law or in the alternative dispose of the rectification application as early as possible. Charging of interest u/s 234A, 234B and 243C of the Act is consequential.
17. In C.O. No. 180/Mum/2025 pertaining to AY 2019-20, Ground No. 7 relates to the addition of Rs. 1,04,09,422/- to the total income of the assessee by invoking the provisions of Section 50C of the Act.
Briefly stated, the underlying facts in the issue are that the assessee has sold two immovable properties in the state of West Bengal (i) situated at Panditia Road, Kolkata and (ii) situated at Siliguri. The property at Kolkata resulted into long term capital loss of Rs. 4,38,116/- whereas the property situated at Siliguri resulted into long term capital gain of Rs. 63,27,329/- and accordingly, net long term capital gain was shown at Rs. 58,89,213/-. However, taking the stamp duty value of the aforesaid properties, addition of Rs. 1,04,09,422/- was made which was confirmed by the ld. CIT(A). Before us, the ld. Counsel for the assessee strongly contended that the impugned sale was a distress sale and the market value was much lesser than the stamp duty value. It is the say I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 16 of the ld. Counsel for the assessee that the AO ought to have referred the matter to the DVO to decide clearly.
We find force in the contention of the ld. Counsel. In our considered opinion, when the assessee is contending that there was a distress sale, the authorities below ought to have referred the matter to the DVO to settle the dispute. We restore this issue to the file of the AO. The AO is directed to refer the matter to the DVO as per the relevant provisions of the law and the assessee is directed to put up his case of distress sale before the DVO. Ground No. 7 is allowed for statistical purposes.
Ground No. 9 relates to the disallowance on account of delay in deposit of employees share of contribution to provident fund (PF). This issue has now been settled by the Hon’ble Supreme Court in favour of the revenue and against the assessee in the case of Checkmate Services P. Ltd. & Ors. vs. CIT & Ors. (2022) 448 ITR 518 (SC). Respectfully following the same, Ground No. 9 is dismissed.
There is a grievance of not allowing the TDS credit and not allowing the set off of MAT credit available. These issues are restored to the files of the AO with a direction to allow the TDS credit after verification as per the provisions of law and allow the MAT credit available after verification and as per the relevant provisions of the law.
Similar grievance are also there in C.O. Nos. 183 & 184/Mum/2025 for AYs 2022-23 & 2023-24, vide Ground Nos. 5 & 6. We I.T.A. No. 3884/Mum/2025 I.T.A. No. 3885/Mum/2025 I.T.A. No. 3879/Mum/2025 I.T.A. No. 3880/Mum/2 I.T.A. No. 3881/Mum/2025 I.T.A. No. 3882/Mum/2025 & C.O. No. 177 to 184/Mum/2025 17 accordingly set aside the issues to the file of the AO with a direction to allow the credit after verification as per the provisions of law.
In the result, the captioned appeals by the revenue are partly allowed and cross-objections are allowed in part for statistical purposes.