DCIT, CIRCLE- 23(2), NEW DELHI vs. SICPA INDIA PVT. LTD., NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER

Present cross appeals filed by the assessee as well as by the

Revenue are being disposed off by way of composite order to avoid

repetition of discussion.

to as ‘the assessee’) by filing the present appeals sought to set aside

the impugned orders dated 25.03.2015, 16.06.2016 & 08.08.2017

passed by the CIT (A)-3, Kolkata, CIT (A)-3, Kolkata & CIT (A)-

12, Kolkata in ITA No.704/Kol/2015, 1586/Kol/2016 &

7048/Del/2017 qua the assessment years 2009-10, 2010-11 &

2011-12 respectively on the grounds inter alia that :-

3 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 “ITA No.704/Kol./2015 FOR AY: 2009-10 (Assessee’s Appeal) 1. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the action of the AO in making allocation for foreign exchange fluctuation loss to the profits and gains of business of the undertaking eligible for deduction u/ s 801e. 2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs.7,19,216/-. 3. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred by sustaining the disallowance u/s 14A r.w. Rule 8D without appreciating the fact that the no expenditure has been incurred to earn exempt income. 4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction for Education Cess on Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to Rs.46,34,854/- in computing total income under the normal provisions of the Act.

ITA No.1586/Kol./2016 FOR AY : 2010-11 (Assessee’s Appeal) “l(a). That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred by sustaining the disallowance u/s 14A r.w. Rule 8D without appreciating the fact that no expenditure has been incurred to earn exempt income. l(b). That on the facts and in the circumstances of the case and without prejudice to Ground No. l(a) taken here in above, the Ld. CIT (Appeals) was not justified and grossly erred in holding that the A.O. has recorded his dissatisfaction before making disallowance u/s 14A by applying Rule 8D. 2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs.3,04,000/-. 3. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction for Education Cess on Income Tax and Dividend Distribution Tax aggregating to Rs.84,71,689/- in computing total income under the normal provisions of the Act. 4. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in disallowing on ad-

4 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 hoc basis a sum of Rs.1,16,473, being 15 % of business promotion expenses.”

ITA No.7048/Kol./2017 FOR AY : 2011-12 (Assessee’s Appeal) 1. The Learned Commissioner Of Income-Tax (Appeals) ("Ld. CIT(A)") has grossly erred both on facts and in law on confirming the action of the Learned Assessing Officer ('Ld. AO') in making disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('the Rules') without appreciating the fact that no expenditure has been incurred to earn exempt income. 2. Without prejudice to Ground No.1, the Ld. CIT (A) has grossly erred both on facts and in law in holding that the Ld. A.O. has recorded his satisfaction for invoking Section 14A of the Act and applying Rule 8D of the Rules . 3. The Ld. CIT(A) was not justified rather grossly erred both on facts and in law in confirming the action of the Ld. AO in not allowing deduction of leave encashment claimed on provision basis amounting to INR 597,487/- . 4. The Ld. CIT(A) has grossly erred both on facts and in law in confirming the action of the Ld. AO in not allowing deduction for Education Cess on Income Tax and Dividend Distribution Tax aggregating to INR 4,742,7851- in computing total income under the normal provisions of the Act.”

New Delhi (hereinafter referred to as ‘the Revenue’) by filing the

present appeals sought to set aside the impugned orders dated

25.03.2015 & 08.08.2017 passed by the CIT (A)-3, Kolkata & CIT

(A)-12, Kolkata in ITA No.838/Kol/2015 & 7483/Del/2017 qua the

assessment years 2009-10 & 2011-12 respectively on the grounds

inter alia that :-

5 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 ITA No.838/Kol./2015 FOR AY : 2009-10 (Revenue’s appeal) 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction under section 80IC of the Income tax Act, 1961 on the transport subsidy of Rs.3,04,561/- as this subsidy is in nature of capital receipt and external aid, and is not directly related to manufacturing activities of the assessee. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction under section 80lC of the Income tax Act, 1961 on the excise duty subsidy to the tune of Rs.2,39,40,228/-, as this subsidy is in nature of capital receipt and external aid, and is not directly related to manufacturing activities of the assessee. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in reducing the foreign exchange loss pertaining to Sikkim Unit to Rs.68,33,228/ - instead of Rs. 1crore made by the AO in the assessment order dated 30.03.2013, as the assessee has failed to correctly apportion the loss claimed on account of foreign exchange transaction. 4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in excluding the amount of investment made by the appellant in its subsidiary company namely Newby Indus (P) Ltd. for the purpose of computing disallowance u/s 14A of the Income tax Act, 1961, read with Rule 8D of the Income tax Rule 1962, despite the fact that the income earned by the assessee from its investment would consist of exempt income, thereby attracting the provision of section 14A read with Rule 8D, when the assessee is unable to show the correct quantum of expenses incurred for earning such exempt income. 5. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing exclusion of excise duty exemption in computing book profit under section 115JB of the Income tax Act, 1961 despite the fact that the explanation 1 to section 115JB(2) of the Act stipulates that the only item mentioned in clauses (i) to (viii) should be reduced from the net profit to compute the book profit of the assessee. 6. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance under section 14A of the Income tax Act, 1961 read with Rule 8D of the Income tax Rules 1962 while computing book profit under section 115JB of the Income tax Act, 1961 despite the fact that explanation 1 (f) of section 115JB of the Income tax Act, 1961 stipulates that for the purpose of section 115JB, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by the amount of expenditure relatable to any income to which section 10 or section 11 or section 12 of the Income tax Act, 1961 apply.”

6 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017

ITA No.7483/Kol./2017 AY: 2011-12 (Revenue’s appeal) 1. Whether the Ld. CIT(A) was justified in deleting the addition to the extent of Rs.15,28,408/- (transport receipt of Rs.12,43,233/-, Misc. Income of Rs.1,31,647/- and written back amount of Rs.1,53,528/-) out of total addition of Rs.39,97,952/- made by the AO on account of exclusion of other income not eligible for deduction u/s 80-IC of the LT. Act, 1961. 2. Whether the Ld. CIT(A) was justified in deleting the addition of Rs.1,97,06,900/- made by the AO on account of apportioned indirect head office expenses e.g. advertisement and publicity expenses, Rent, Depreciation on vehicles & donation and contribution paid for scientific research, not eligible for 80-IC unit. 3. Whether the Ld. CIT(A) was justified in treating the forward contract gain of Rs.19,32,946/- as business income eligible for deduction u/s 80-IC without verifying transaction wise import of raw material/goods vis-a-vis the forward contracts executed by the assessee. In case there is no one to one nexus between the imports and the forward contracts, the profit/loss arising due to forward contracts were liable to be held as speculation transactions.”

controversy at hand are : The assessee is engaged in the business of

manufacturing and trading of printing inks having its

manufacturing facility at Mamring, Sikkim for which deduction in

terms of section 80IC of the Income-tax Act, 1961 (for short ‘the

Act’) is being claimed for Assessment Years 2006-07 to 2015-16.

Assessee has debited a sum of Rs.5,97,44,548/- on account of

foreign exchange loss but without allocating any such loss to its

Sikkim Unit. Assessing Officer (AO) however proceeded on the

premise that since entire manufacturing was carried out at Sikkim

7 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 unit, hence any exchange loss relating to import of raw material

would be attributable to said unit and thereby calculated the

eligible deduction u/s 80IC at Rs.25,48,25,717/- for AY 2009-10.

read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 (for short

‘the Rules’) made disallowance of Rs.41,49,725/-, Rs.46,32,475/-

& Rs.10,90,925/- for AYs 2009-10, 2010-11 & 2011-12

respectively on the ground that the assessee company has not

maintained any separate details/accounts relating to management of

its investment portfolio as it cannot earn dividend without its

existence and management.

on account of education cess to the tune of Rs.46,34,854/-,

Rs.84,71,689/- and Rs.47,42,785/- for AYs 2009-10, 2010-11 &

2011-12 respectively on the ground that the term ‘tax’ is wide

enough to include surcharge, education cess, higher education cess,

etc..

account of disallowance of business promotion expenses @ 50%

8 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 out of the total expenditure of Rs.7,76,489/- claimed by the

assessee.

Rs.3,04,561/- on account of excise duty exemption subsidy and

transport subsidy respectively qua the claim made by the assessee

for deduction u/s 80IC on the ground that excise duty exemption

subsidy and transport subsidy cannot be treated as profits & gains

derived from the industrial undertaking of Sikkim unit. AO, after

making disallowance of Rs.41,49,725/- u/s 14A of the Act added

the same back in computing the income in normal provisions of the

Act as well as not computing the book profit u/s 115JB of the Act.

AO also excluded the amount of Rs.2,39,40,228/- and

Rs.3,04,561/- disallowed as claim of deduction u/s 80IC on

account of excise duty exemption subsidy and transport subsidy

respectively towards profit of the unit in computing the income

under normal provisions of the Act as well as in computing the

book profit u/s 115JB of the Act.

(Rs.12,43,233/- + Rs.1,31,647/- + Rs.153,528/- on account of

freight income, misc. income and provision of expenses returned

9 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 back respectively) on the ground that the assessee has not furnished

the details if expenses of freight is the liability of the assessee and

assessee is earning the freight income as facilitator or transport

agent which cannot be directly linked to the business of the

undertaking and for misc. income, on the ground that these income

are not having any business nexus with the assessee’s business

undertaking and for provision for expenses written back, on the

ground that the assessee has not provided any proof and having no

direct connection with the business of the assessee undertaking.

AO also made addition of Rs.19,74,690/- on account of

proportioned indirect head ‘office expenses’ eg. Advertisement and

publicity expenses, rent expenses, depreciation on vehicles and

donations & contribution paid for scientific research being not

eligible for deduction u/s 80IC of the Act. AO also made addition

of Rs.1,93,946/- by not treating the forward contract gain as

business income eligible for deduction u/s 80IC on the ground that

the assessee has not provided copy of forward contract nor has

been able to produce any invoice pertaining to the transaction.

Rs.40,65,33,730/-, Rs.80,04,21,590/- & Rs.41,69,35,099/- under

10 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 normal provisions of the Act for AYs 2009-10, 2010-11 & 2011-12

respectively and at book profit of Rs.64,44,33,730/- &

Rs.99,86,22,263/- u/s 115JB for AYs 2009-10 & 2010-11

respectively.

filing the appeal who has given partial relief in AYs 2009-10 &

2011-12 to the assessee. Feeling aggrieved by the orders passed by

the ld. CIT (A), the assessee as well as the Revenue have come up

before the Tribunal by way of filing the present cross appeals for

AYs 2009-10 & 2011-12. In AY 2010-11, ld. CIT (A) confirmed

the addition made by the AO against which the assessee has come

up in appeal before the Tribunal.

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

GROUND NO.1 OF AY 2009-10 (ASSESSEE’S APPEAL)

GROUNDS NO.1, 2 &3 OF AY 2009-10 (REVENUE’S APPEAL)

amount of Rs.5,97,44,548/- on account of foreign exchange loss

11 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 but no such loss was allocated to the Sikkim Unit. AO, however,

after considering the turnover of trading business of manufacturing

unit of Sikkim unit of the assessee, considered Rs.1 crore as

allocable expenditure relating to the Sikkim unit and considered the

same for calculating the profit and eligible deduction u/s 80IC of

the Act.

subsidy of Rs.2,39,40,228/- and transport subsidy of Rs.3,04,561/-

by including the profit of Sikkim unit as a claim eligible for

deduction u/s 80IC. Assessee company however excluded excise

duty exemption subsidy from the book profit for the computation

of income u/s 115JB of the Act. AO however excluded excise duty

exemption subsidy and transport subsidy of Rs.2,39,40,228/- and

Rs.3,04,561/- respectively for the purpose of computation of

deduction eligible to the assessee under section 80IC of the Act.

AO thereby computed the eligible deduction u/s 80IC at

Rs.25,48,25,717/-.

exemption subsidy and transport subsidy to be eligible for

deduction u/s 80IC by including the same in profit of Sikkim unit.

12 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 Ld. CIT (A) also reduced the foreign exchange loss of Sikkim unit

to Rs.68,33228/- instead of Rs.1 crore made by the AO. Both

assessee company as well as Revenue are in appeal before the

Tribunal.

activities in the Estate of Sikkim received excise duty exemption

subsidy & transport subsidy of Rs.2,39,40,228/- & Rs.3,04,561/-

respectively. Ld. AR for the assessee contended that the subsidy

extended by the Government helped the assessee in reducing the

cost of manufacturing and had direct nexus with the industrial

undertaking and has also contended that identical relief on account

of excise duty grant and transport subsidy has already been granted

by the ld. CIT (A) for AYs 2010-11 and 2011-12 which has not

been challenged before the Tribunal. This factual position has not

been controverted by the ld. DR for the Revenue.

Ltd. 383 ITR 217 (SC) by referring the decision of Hon’ble Delhi

High Court in CIT vs. Dharampal Premchand Ltd. 317 ITR 353

in which SLP preferred by the Revenue in the Hon’ble Supreme

Court was dismissed and upheld the view that refund of excise duty

13 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 should not be excluded in arriving at the profit “derived from”

business for the purpose of claiming deduction u/s 80IB of the Act.

17.1 In case of CIT vs. Meghalaya Steels Ltd. (S.C.) (supra),

Hon’ble Supreme Court held that, “transport subsidy is a revenue

receipt which was reimbursed to the assessee for elements of cost

relating to manufacture or sale of their products and there could

certainly be said to be a direct nexus between profits and gains of

the industrial undertaking and reimbursement of such subsidies”

So, when the transport subsidy is in the nature of revenue receipt

having been directly related to manufacturing activities of the

assessee company which went to reimbursement of cost in the

production of goods in a particular business would also be included

under the head “profits & gains of the business & profession”.

Even an iota of material has not been brought on record by the

Revenue as to why rule of consistency had not been followed.

When identical relief has been given by the ld. CIT (A) to the

assessee on account of excise duty grant and transport subsidy for

AYs 2010-11 & 2011-12 which has since been attained finality.

17.2 So, ld. CIT(A) had rightly allowed deduction on account of

excise duty exemption subsidy and transport subsidy u/s 80IC of

14 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 the Act having been directly related to manufacturing activities of

the assessee company.

pertaining to Sikkim unit to the tune of Rs.68,33,228/- for the

purpose of computing deduction u/s 80IC is concerned, the ld. AR

for the assessee contended that since the foreign exchange

fluctuation loss is in the nature of indirect/non-operating expenses,

it must be allocated to the eligible industrial undertaking. Ld. DR

for the Revenue, however, relied upon assessment orders passed by

AO.

exchange loss incurred on account of import of raw material used

at the industrial undertaking, available at page 193 of the paper

book. Ld. CIT (A) after taking into account working given by the

assessee company at page 193 of the paper book restricted the

allocation to the tune of Rs.68.33 lakhs. No doubt, foreign

exchange loss being in the nature of indirect/non-operating

expenses must not be allocated to the eligible industrial

undertaking. However, when the assessee company has come up

with specific working/details of suffering foreign exchange loss on

15 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 account of import of raw material used at the industrial

undertaking, the ld. CIT (A) has rightly thrashed the issue on facts

and directed the AO to reduce such allocation to Rs.68.33 lakhs as

against Rs.1 crore estimated by the AO. So, again we find no

illegality or perversity in the findings returned by the ld. CIT(A).

Consequently, Ground No.1 of assessee’s appeal for AY 2009-10

is allowed and Grounds No.1, 2 & 3 of Revenue’s appeal for AY

2009-10 are dismissed.

GROUND NO.2 OF AY 2009-10 (ASSESSEE’S APPEAL)

GROUND NO.2 OF AY 2010-11 (ASSESSEE’S APPEAL)

GROUND NO.3 OF AY 2011-12 (ASSESSEE’S APPEAL)

& Ground No.3 of AY 2011-12 in assessee’s appeals are not

pressed during the course of hearing.

GROUND NO.3 OF AY 2009-10 (ASSESSEE’S APPEAL) GROUND NO.1 OF AY 2010-11 (ASSESSEE’S APPEAL) GROUNDSNO.1 & 2 OF AY 2011-12 (ASSESSEE’S APPEAL)

lakhs & Rs.4.71 lakhs for AYs 2009-10, 2010-11 & 2011-12

respectively by invoking the provisions contained u/s 14A of the

Act r/w Rule 8D(2)(iii) of the Rules. Undisputedly, assessee has

16 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 earned exempt income to the tune of Rs.5.22 crores, Rs.5.24 crores

& Rs.3.24 crores for AYs 2009-10, 2010-11 & 2011-12

respectively by investing in debt oriented mutual funds. The

assessee has come up with pointed argument that since primary

business of assessee company is manufacturing and selling of

printing inks and its entire manpower is engaged in carrying out

main activities and only idle funds have been invested in pre-

decided investment avenues to earn the reasonable income, thus

has not incurred any additional expenses to earn the dividend

income. It is also the case of the assessee company that it has

earned taxable income by way of capital gains during the year

under assessments and brought on record details thereof. It is also

argued by the ld. AR for the assessee that no proper satisfaction has

been recorded by the AO before invoking the provisions contained

under Rule 8D and relied upon the decisions of Eicher Motors Ltd.

vs. CIT 398 ITR 51 (Del.) and HT Media Ltd. vs. PCIT 399 ITR

576 (Del.). However, on the other hand, ld. DR for the Revenue

relied upon the orders passed by the AO as well as ld. CIT (A).

the AO for all the three assessment years i.e. 2009-10, 2010-11 &

17 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 2011-12 in order to invoke the provisions contained under Rule

8D, no satisfaction has been recorded by the AO that the working

provided by the assessee company that no expenditure has been

incurred to earn the dividend income except with general

observations that, “a company cannot earn dividend without its

existence and management. Investment decisions are very complex

in nature which are generally taken by management personnel or

other professional experts employed for the purpose for which

administrative, managerial and administrative expenses are

incurred.”

22.1 To our mind, this is no satisfaction rather AO proceeded on

the basis of assumptions and guesswork. In AY 2011-12, AO

while invoking the provisions contained under Rule 8D recorded

that, “since the assessee has not maintained any separate books of

account for accounting of expenses incurred in relation to income

not includible in its total income the amount of expenses actually

incurred cannot be ascertained from the assessee’s books of

account satisfactorily and proceeded to invoke the provisions

contained u/s 14A of the Act r/w Rule 8D of the Rules.”

18 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 23. Hon’ble Apex Court in Godrej & Boyce Manufacturing

Company Ltd. vs. DCIT – 394 ITR 449 (SC) thrashed the issue in

controversy as to invoking of the provisions contained under Rule

8D of the Rules by observing as under :-

“37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.”

CIT (supra) also held that broad and general nature of observation

made by the AO are not enough to invoke the provisions contained

under Rule 8D. So, we are of the considered view that when AO

has failed to comply with the mandatory provisions of section 14A

(2) of the Act r/w Rule 8D(1)(a) of the Rules to record a valid

satisfaction, provisions contained under Rule 8D(2)(iii) cannot be

invoked.

19 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 25. Moreover, it is categoric case of the assessee company that it

has invested in debt oriented mutual fund as is evident from page

41 of the paper book for AY 2009-1-. So, this investment has

earned taxable income in the capital gain in which case provisions

contained under section 14A are otherwise not attracted.

the Tribunal in favour of the assessee in case of Avshesh

Mercantile (P) Ltd. vs. ITO 148 TTJ 607 (ITAT Mumbai) by

following the judgment of Hon’ble Bombay High Court in Delite

Enterprises Pvt. Ltd. (ITA No.110 of 2009) by returning following

findings :-

“22. We have heard the rival submissions and also perused the relevant material on record. It is observed that the proceeds of premium notes (OCPN) on which the impugned redemption premium was paid by the assessee had been invested in the shares/debentures of RUPL and although the dividend income and income from long term capital gain from the said investment was exempt from tax u/s 10(23G), perusal of the copy of relevant Notification issued u/s 10(23G) placed at page No. 24 of the paper book, shows that such exemption was initially granted only for the specific period i.e. assessment year 1999-2000 to 2001- 2002. No doubt, the said exemption was further extended upto assessment year 2004-05 as submitted by the learned DR, a perusal of the copy of relevant notification placed at page No. 29 of the paper book clearly shows that such extension was granted subject to satisfaction of certain conditions. Keeping in view all these uncertainties and contingencies, we are inclined to agree with the contention of the learned counsel for the assessee that the premium paid by the assessee on redemption of premium notes (OCPN) utilized for making investment in the shares/debentures of RUPL cannot be regarded as expenditure incurred exclusively in relation to earning of exempt income so

20 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 as to invoke the provisions of section 14A. Moreover, the said investment had the potential of generating taxable income also as explained by the learned counsel for the assessee in the form of short term capital gains etc. In this regard, the learned DR has submitted that no such taxable income however was actually earned by the assesses during the years under consideration. The learned counsel for the assessee on the other hand has pointed out that no exempt income from the said investment was also actually earned by the assessee in the years under consideration. He has also relied on the decision of coordinate bench of this Tribunal in the case of Delite Enterprises Pvt. Ltd. (supra) as affirmed by the Hon’ble Bombay High Court stating that in the similar facts and circumstance, disallowance made under section 14A was held to be not sustainable.”

Rs.17.76 lakhs in AY 2009-10, 2010-11 & 2011-12 respectively

earned by the assessee as capital gain from debt oriented mutual

funds cannot be placed in the category of exempt income u/s 14A

of the Act and in these circumstances, Rule 8D(2) cannot be

invoked.

which non-exempt income has been earned by the assessee

company in AY 2011-12 for purpose of computing average

investment under Rule 8D(2)(iii) of the Rules.

the AO and sustained by the ld. CIT (A) u/s 14A of the Act r/w

Rule 8D(2)(iii) of the Rules is not sustainable, hence ordered to be

21 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 deleted. Consequently, Ground No.3 of AY 2009-10, Ground No.1

of AY 2010-11 & Grounds No.1 & 2 of AY 2010-11 in assessee’s

appeals are allowed.

GROUND NO.4 OF AY 2009-10 (ASSESSEE’S APPEAL)

GROUND NO.3 OF AY 2010-11 (ASSESSEE’S APPEAL)

GROUND NO.4 OF AY 2011-12 (ASSESSEE’S APPEAL)

assessee company on account of education cess on income-tax,

dividend distribution tax and fringe benefit tax amounting to

Rs.46.35 lakhs, Rs.84.71 lakhs & Rs.47.42 lakhs for AYs 2009-10,

2010-11 & 2011-12 respectively on the ground that it is in the

nature of surcharge and the term tax includes surcharge, education

cess and higher education cess.

allowable cess and relied upon the decision rendered by the

Hon’ble Rajasthan High Court in case of M/s. Chambal Fertilizers

and Chemicals Ltd. vs. Pr.CIT (D.B. ITA No.52/2018 judgment dated 31.07.2018) and CBDT Circular No.91/58 dated 19.05.1967.

Ld. AR for the assessee further contended that cess has already

been specifically excluded from section 40(a)(ii) of the Act and

22 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 relied upon the CBDT circular dated 19.05.1967 (supra). He

further contended that cess is not in the nature of tax. However, ld.

DR for the Revenue relied upon the orders passed by the AO as

well as ld. CIT (A).

categoric enough that view of ITO disallowing the cess paid by the

assessee is not correct and the Select Committee has decided to

omit the word ‘cess’ from the clause and its effect is that only taxes

paid are to be disallowed in the assessment for the year 1962-63

and onwards.

Rajasthan in case of Chambal Fertilizers and Chemicals Ltd.

(supra) in the light of the interpretation of Circular dated

19.05.1967 (supra) in favour of the assessee by returning following

findings :-

“13. On the third issue in appeal no.52/2018, in view of the circular of CBDT where word “Cess” is deleted, in our considered opinion, the Tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no.3 is required to be reversed and the said issue is answered in favour of the assessee.

23 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 34. So, in these circumstances, education cess is not a

disallowable expenditure u/s 40(a)(ii) of the Act having been

expressly excluded from section 40(a)(ii) of the Act. Moreover,

cess is not in the nature of tax as has been held by Hon’ble

Supreme Court in case of Smith Kline Amp; French (India) Ltd.

and Ors. vs. CIT (1996) 219 ITR 581 (SC). So, we are of the

considered view that AO/CIT(A) have erred in disallowing the

deduction for education cess on income-tax, dividend distribution

tax and fringe benefit tax for AYs 2009-10, 2010-11 & 2011-12 in

computing the total income under normal provisions of the Act,

consequently ordered to be deleted. Hence, Ground No.4 of AY

2009-10, Ground No.3 of AY 2010-11 & Ground No.4 of AY

2010-11 in assessee’s appeals are allowed.

GROUND NO.4 OF AY 2010-11 (ASSESSEE’S APPEAL)

expenses of Rs.7,76,489/- to the tune of 50% and consequently

disallowed an amount of Rs.3,88,244/-. However, ld. CIT (A) has

restricted the disallowance to 15%. AO as well as ld. CIT (A) have

agreed in principle that for every business house, business

24 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 promotion expenses are required to promote its business by holding

meeting with its prospective clients and by extending gifts on a

festive occasions but proceeded to make ad hoc disallowance of

50% by AO and then 15% by the ld. CIT (A). We are of the

considered view that when the details submitted by the assessee

have not been disputed, such ad hoc disallowance cannot be made

on the basis of surmises.

Corporation Ltd. vs. CIT (2002) 258 ITR 575 (Del.) held that

when there are no findings that part of the expenditure on sales/

business promotion was for non-business purposes, part of the

expenditure not to be disallowed u/s 37 of the Act. So, we are of

the considered view that AO/CIT(A) have purely disallowed 50%

& 15% respectively of the sales promotion expenses on ad hoc

basis without pointing out if any part of the business promotion

expenses claimed by the assessee company have not been incurred.

So, we delete the addition of Rs.1,16,473/- being 15% of the

business promotion expenses disallowed by the ld. CIT (A)., hence

Ground No.4 of assessee’s appeal in AY 2010-11 is determined in

favour of the assessee.

25 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017

GROUND NO.4 OF AY 2009-10 (REVENUE’S APPEAL)

of Rule 8D(2)(iii) of the Rules considered the investment of

Rs.1.41 crores made by the assessee company in its subsidiary,

namely, M/s. Newby India Pvt. Ltd.. However, ld. CIT (A)

directed to exclude the said investment made by the assessee in

M/s. Newby India Pvt. Ltd. for the purpose of computing

disallowance under Rule 8D by relying upon the decisions

rendered by the coordinate Bench of the Tribunal in case of Inter

Globe Enterprises Ltd. vs. DCIT, J.M. Financial Ltd. vs. Addl. CIT

ITA No.4521/Mum/2012 and UP Electronics Corpn. Ltd. vs.

DCIT.

37.1 We are of the considered view that when undisputedly

strategic investment has been made by the assessee company in its

subsidiary company to have control over it, the same has to be

excluded for the purpose of computing disallowance under Rule

8D. When undisputedly there is no exempt income no

disallowance u/s 14A can be made. Revenue itself has allowed the

identical relief to the assessee company in AY 2011-12 which has

not been contested before the Tribunal. So, we are of the

26 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 considered view that ld. CIT (A) has rightly directed to exclude the

amount of investment made by the assessee company in its

subsidiary for the purpose of computation of disallowance made

u/s 14A r/w Rule 8D, hence ground no.4 of Revenue’s appeal for

AY 2009-10 is dismissed.

GROUND NO.5 OF AY 2009-10 (REVENUE’S APPEAL)

in nature excluded the same for the purpose of calculation of book

profit u/s 115JB of the Act, which the AO has declined. However,

ld. CIT (A) by following the earlier order for assessment year

2007-08 allowed the claim of the assessee.

assessment, assessee company is liable to pay the tax as per normal

provisions of the Act and not in terms of section 115JB and relied

upon the decision of the coordinate Bench of the Tribunal in case

of Sicpa India Pvt. Ltd. vs. DCIT (ITA No.885/Kol/2012 order

dated 22.03.2017) for AY 2007-08 in assessee’s own case.

by the coordinate Bench of the Tribunal shows that identical issue

27 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 has been dealt with and decided in favour of the assessee, operative

part thereof is extracted for ready perusal as under :-

“21. The main issue that arises for consideration on the basis of the grievance projected by the Revenue in the aforesaid ground No.2 is as to whether the excise duty refund which were held by the CIT(A) to be capital receipts not chargeable to tax can still be considered as part of the book profits u/s.115JB of the Act, even though these sums have been credited in the profit and loss account and treated as income and even though the exclusion of these sums for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. In rejecting the claim of the Assessee in this regard, the AO held that these sums have been credited in the profit and loss account and treated as income and exclusion of these incomes (sums) for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec. 115JB (2) of the Act. 22. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec. 115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee. being a company, the income- tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on Of after the 1st day of April, 200l, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec. 115JB of the Act were applicable. Every assessee, being a company, shall, for the purposes of section 115jB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (l of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation as is adopted while preparing its accounts that are laid before the company at its annual general meeting in accordance with provisions of Sec.210 of the Companies Act. Explanation below Sec. 115JB of the Act provides that for the purposes of section 115JB of the Act, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- certain items debited in the profit and loss account in arriving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in

28 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act. 23. We have already seen that the issue whether subsidies in question can be regarded as income at an is no longer res integra and has been concluded by the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J & K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of Income. 24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Binani Industries Ltd. ITA NO.144/Ko1l2013 order dated 2.3.2016 reported in (2016) 178 TTJ 0658 (Kol) : (2016) 137 DTR 0185 (Kol)(Trib) had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to Rs. 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon 'ble Apex Court in case of Indo Rama Synthetics (I) Ltd vs CIT 330 ITR 336 (SC), Apollo Tyres Ltd. 255 ITR 273 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. Vs. DCIT (2010) 131 TTJ (Hyd)(SB) 514, ITAT Lucknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vice versa in ITA Nos. 417 ,418 & 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P) Ltd. Vs. DCIT (2015) 173 TTJ (Mumbai) 238 dated 19.8.2015, came to the conclusions (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec.l15JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company. (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P&L a/c and not otherwise. (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12,65,75,000/- by the Assessee in its notes on accounts vide Note No.6 to Schedule II of Financial Statements for year ended 31.3.2009. Profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, included notes on accounts thereon and accordingly in order to determine real profit of Assessee,

29 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 adjustment need to be made to disclosures made in notes on accounts forming part of profit and loss account of Assessee. Profits arrived after such adjustment, should be considered for purpose of computation of book profits u/s 115JB of the Act and thereafter, AO had to make adjustments for additions/deletions contemplated in Explanation to section 115JB of the Act. 25. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of L.H.Sugar Factory Ltd.(supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture Pvt. Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income" u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: "26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation I to sec. 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income.

30 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point." 26. The admitted factual and legal position in the present case is that subsidies in question is not in the nature of income. Therefore they cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s. 115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and dismiss Gr.No.2 raised by the Revenue. 41. So, following the decision rendered by the coordinate Bench

of the Tribunal on this issue, we are of the considered view that ld.

CIT (A) has rightly allowed the exclusion of excise duty exemption

in computing book profit u/s 115JB of the Act. Consequently,

ground no.5 of Revenue’s appeal for AY 2009-10 is determined

against the Revenue.

GROUND NO.6 OF AY 2009-10 (REVENUE’S APPEAL)

to the book profit of the assessee company, which the ld. CIT (A)

allowed by following its own order for AY 2007-08. It is categoric

case of the assessee company that for the year under assessment,

the assessee is liable to pay the tax of the normal provisions of the

31 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 Act and not in terms of section 115JB of the Act. When this

identical issue has been allowed by the ld. CIT (A) in AY 2007-08

and there is no change in the facts and circumstances of the case

and the said decision has never been contested before the higher

appellate authority, the rule of consistency has to be followed by

the Revenue. When section 115JB being not a non-obstante clause

having no overriding effect upon the other provisions of the Act

and profit & loss account for the year under assessment has been

made accordingly by the assessee in accordance with the

provisions of Part II & III of Schedule VI to the Companies Act, no

further adjustment can be made except expressly provided in the

Act. So, the AO has no jurisdiction to travel beyond the net profit

shown in the P&L account except to the extent that profit in the

Explanation to section 115JB of the Act under which disallowance

u/s 14A is not covered.

Teleholdings Ltd. vs. DCIT (ITA No.3850/Mum.2010 for AY

2005-06 order dated 29.07.2011) held that, “no addition to the

book profit shall be made on account of expenditure as per Rule

8D r/w section 14A of the Act while computing income u/s 115JB

32 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 of the Act.” So, in view of the matter, we are of the considered

view that ld. CIT (A) has rightly deleted the disallowance u/s 14A

read with Rule 8D while computing the book profit u/s 115JB. So,

ground no.6 of Revenue’s appeal for AY 2009-10 is dismissed.

GROUND NO.1 OF AY 2011-12 (REVENUE’S APPEAL)

of other income viz. income earned by way of scrap sales, misc.

income, freight income, transport subsidy and cash discount not

eligible for deduction u/s 80IC of the Act by relying upon the

decision rendered by Hon’ble Supreme Court in case of CIT vs.

Sterling Foods (1999) 237 ITR 579 (SC) on the ground that a

direct and proximate connection is absent in respect of the

aforesaid incomes earned by the assessee company.

44.1 However, ld. CIT (A) restricted the addition to the tune of

Rs.15,28,408/- (transport receipt Rs.12,43,233/-, misc. income

Rs.1,31,647/- and provisions for expenses written back

Rs.1,53,528/-) against the total addition of Rs.39,97,952/- by

following the decision rendered by the ld. CIT (A) in case of

assessee in AYs 2007-08, 2009-10 & 2010-11 and by relying upon

33 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 the decision rendered by Hon’ble Supreme Court in case of Liberty

India vs. CIT (2009) 28 DTR (SC).

Rs.12,43,233/- received by the assessee and excluded by the AO

being not eligible for deduction u/s 80IC of the Act is concerned,

as discussed in the preceding paras, there is direct nexus between

profit and business and transport subsidy given by the Government

being reimbursement of cost in production of goods as has been

held by Hon’ble Supreme Court in CIT vs. Meghalaya Steels Ltd.

383 ITR 217. So, we are of the considered view that transport

subsidy certainly reduced the cost of production would amount to

profits derived to industrial undertaking, hence eligible for

deduction u/s 80IC of the Act.

Rs.1,53,528/- on account of written back amount is also eligible for

deduction u/s 80IC being directly inter-linked and derived from the

business as has been held by Hon’ble Supreme court in Liberty

India vs. CIT (supra). Moreover, identical issue has been decided

in favour of the assessee by the Revenue itself in AY 2007-08

which has been accepted by the Revenue and no new facts or law

34 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 has been brought on record by the ld. DR for the Revenue as to

why the Revenue has departed from the earlier binding precedent.

So, we are of the considered view that there is no scope to interfere

the findings returned by the ld. CIT (A) on ground no.1, hence

ground no.1 of Revenue’s appeal for AY 2011-12 is decided

against the Revenue.

GROUND NO.2 OF AY 2011-12 (REVENUE’S APPEAL)

publicity expenses Rs.35,100/-, Rent expenses Rs.15,90,300/-,

Depreciation on vehicles Rs.4,50,281/-, deduction u/s 35 in respect

of contributions Rs.1,53,36,000/- & deduction u/s 80G in respect of

donations Rs.23,08,500/-) on proportioned indirect Head Office

expenses eg. advertisement and publicity, rent, depreciation on

vehicles, donation and contribution paid for scientific research

being not eligible for deduction u/s 80IC of the Act. However, ld.

CIT (A) deleted the proportionment of Head Office expenses made

by the AO by following the decisions rendered by the coordinate

Bench of the Tribunal for AY 2006-07 in assessee’s own case.

Tribunal in AY 2006-07, available at pages 151 to 153 of the paper

35 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 book, goes to prove that the identical issue has been decided in

favour of the assessee by returning following findings :-

“4. We have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. D.R. has contended that the profit eligible for deduction under section 80IC is to be worked out after deducting al l the direct and indirect expenses, the deduction under section 80IC, as pointed out by the ld. Counsel for the assessee, is in respect of any profit and gains derived by the eligible Undertaking. As submitted by the ld. Counsel for the assessee in this regard, the words “derived from” has a narrow meaning, inasmuch as it contemplates first degree connection with the eligible Unit as held, inter alia, by the Hon’ble Supreme Court in the case of Pandian Chemicals Limited reported in 262 ITR 278 and this principle laid down by the Hon’ble Supreme Court in the context of income is also applicable for the al location of expenses as held by the Coordinate Bench of this Tribunal in the case of Balarampur Chini Mills Limited –vs.- DCIT reported in 140 TTJ 73. In the said case, it was held by the Tribunal that expenses incurred by the assessee under the general head of Office Expenses, which are not directly incurred for the eligible Unit, cannot be said to have first degree connection with such Unit so as to reduce the same on pro rata basis for computing the profit of such Unit eligible for deduction. In our opinion, the issue involved in the present case thus is squarely covered by the decision of the Coordinate Bench of this Tribunal in the case of Balarampur Chini Mills Limited (supra) and respectfully following the same, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue.

of the tribunal, we are of the considered view that ld. CIT (A) has

rightly decided the issue in favour of the assessee in deleting the

proportionment of Head Office expenses to the unit eligible for

deduction u/s 80IC of the Act. Consequently, ground no.2 raised

36 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 by the Revenue’s appeal for AY 2011-12 is determined against the

Revenue.

GROUND NO.3 OF AY 2011-12 (REVENUE’S APPEAL)

company qua transaction of entering into forward contracts for

hedging the risk associated with payment of foreign currency trade

payables as speculation income u/s 43 (5) of the Act. However, ld.

CIT (A) treated the forward contract gain of Rs.19.32 lakhs as

business income eligible for deduction u/s 80IC of the Act on the

ground that purpose of entry into forward contract was to hedge the

foreign currency exposures qua import of raw materials and

finished goods for relying upon the decision of coordinate Bench

of the Tribunal in case of ITO vs. LGW Ltd. (2015) 45 CCH 0103.

50.1 In case of LGW Ltd. (supra) relying upon by the ld. CIT (A),

it is held by the coordinate Bench of the Tribunal that forward

contract entered to safeguard against loss arising out of fluctuation

in foreign currency are not speculative transaction having been

entered into normal course of business. Ld. CIT (A) thrashed the

law and facts on this issue and consequently, we are of the

37 ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 considered view that when forward trading contract was arrived at

by the assessee company merely to safeguard against loss arising

out of foreign exchange in foreign currency, the same cannot be

treated as speculation transaction as business income eligible for

deduction u/s 80IC, so we find no ground to interfere the findings

returned by the ld. CIT (A), hence ground no.3 of Revenue’s

appeal for AY 2011-12 is determined against the Revenue.

10, 2010-11 & 2011-12 are allowed and the appeals filed by the

Revenue for AYs 2009-10 & 2011-12 are dismissed. Order pronounced in open court on this 31st day of January, 2020.

Sd/- sd/- (DR. B.R.R. KUMAR) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 31st day of January, 2020 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(A) 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.