JAY SHREE TEA & INDUSTRIES LTD.,KOLKATA vs. JCIT, CIR-4, KOLKATA, KOLKATA

ORDER Per M.Balaganesh, AM

Jay Shree Tea & Industries Ltd. A.Yr. 2009-10 3. The brief facts of this issue is that the assessee has derived dividend income and had claimed the same as exempt income in the return of income and disallowed the sum of Rs. 30,57,783/- under Rule 8D(2)(iii) being 0.5% of average value of investment and also considering certain direct expenses incurred for the purpose of earning exempt income. The ld. AO recomputed the disallowance under Rule 8D and arrived at the figure as below under Rule 8D(2)(ii) Rs. 1,00,55,126/- Rule 8D(2)(iii) Rs. 22,75,746/- Total Rs. 1,23,30,872/- Less: Disallowed by the assessee Rs. 30,57,783/- Balance disallowed by AO Rs. 92,73,089/- The Ld. CIT(A) appreciated the contentions of the assessee that it is having sufficient own funds which are much more than the investments made and also giving finding that the investments were made only out of own funds of the assessee and not out of borrowed funds. Accordingly, he deleted the disallowance made under Rule 8D(2)(ii) of the Rules. No finding whatsoever was given by the Ld. CIT(A) for the disallowance made under Rule 8D(2)(iii). Aggrieved the assessee is in appeal before us on the following ground:

1. For that the learned CIT(Appeals) confirmed the disallowance made by the Learned Assessing Officer u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 although the Learned Assessing Officer did not establish the nexus of expenditure incurred with the earning of exempted income.

3.1 We have heard the rival submissions. We find that the assessee itself has disallowed Rs. 30,57,783/- u/s 14A by duly considering the direct expenditure and also indirect

Jay Shree Tea & Industries Ltd. A.Yr. 2009-10 expenditure in terms of Rule 8D(2)(iii) of the Rules. Against the disallowance deleted by the Ld. CIT(A) under Rule 8D(2)(ii), the revenue is not in appeal before us. We find that the ld AO had not looked into the workings given by the assessee having regard to the accounts and had to record satisfaction as to why the calculation made by the assessee is incorrect and as to why he is ignoring the same and proceeding to invoke the computation mechanism provided in Rule 8D(2) of the Rules. This has to be done with cogent reasons by the ld AO. This is the requirement of Hon’ble Jurisdictional High Court in the case of CIT vs Ashish Jhunjhunwala …………………. (mention the citation here which I gave you in IMC Ltd case) . Hence, we hold that no disallowance is to be made u/s 14A of the Act over and above Rs. 30,57,783/- which has already been disallowed by the assessee. Accordingly ground no. 1 raised by the assessee is allowed.

4.1. The brief facts of this issue is that the assessee is engaged in the business of growing and manufacturing of tea, manufacturing chemical and fertilizers, trading of tea, warehousing and development of real estate. The assessee claimed deduction of Rs. 1,30,08,824/- u/s 80IE of the Act in respect of following units situated at North- Eastern States.

Jay Shree Tea & Industries Ltd. A.Yr. 2009-10 The ld. AO did not discuss anything about the claim of deduction u/s 80IE of the Act in the assessment order but merely proceeded to disallow the deduction u/s 80IE while completing the assessment. The Ld. CIT(A) on going through the accounts of the assessee as well as audit report submitted in form 10CCB in respect of eligible units, observed that the assessee had carried out substantial expansion and had not completed the same within the same year in which such substantial expansion were undertaken. In other words, in the opinion of Ld. CIT(A), the substantial expansion once undertaken should be completed within the same financial year in order to claim deduction u/s 80IE of the Act. The Ld. CIT(A) also made a passing reference that the additions to plant and machineries were made in 2 to 3 years time by the assessee in the normal way which are on account of replacement of old machineries. The Ld. CIT(A) did not agree to the contention of the assessee that there is no time limit prescribed in Section 80IE of the Act to complete the substantial expansion within the year in which it was undertaken.. Based on this observation, the Ld. CIT(A) upheld the action of the ld. AO in denying deduction u/s 80IE of the Act. Aggrieved, the assessee is in appeal before us on the following grounds:

Jay Shree Tea & Industries Ltd. A.Yr. 2009-10 2. For that the learned CIT(Appeals) confirmed the action taken by the learned Assessing Officer for not allowing deduction against income earned from our unit/garden situated in the north-east, which is deductible u/s 80IE of the Income Tax Act, 1961 although the appellate has increase in the investment in the plant and machinery by more then twenty-five per cent of the books value of plant and machinery (before taking depreciation in any year), as on the first day of the previous year in which the substantial expansion is undertaken.

4.2 We have heard the rival submissions. It is not in dispute that the assessee had set up tea estates in North-eastern States. The assessee had carried out certain substantial expansion in its existing eligible undertakings and had claimed deduction u/s 80IE of the Act in the return of income. It is a fact that the ld. AO had not discussed anything about the claim of deduction u/s 80IE of the Act in his assessment order. We find that the deduction u/s 80IE of the Act is eligible to assessee who begins to manufacture in any of the North Eastern States during the period 01.04.2007 to 31.03.2017 either by setting up a new unit or by undertaking substantial expansion to manufacture or produce any eligible article or thing. The provision of Section 80IE(1) stipulates that the assessee would be entitled to 100% of the profits and gains derived from such business as deduction for 10 assessment years commencing with the Initial Assessment Year. The expression ‘Initial Assessment year’ is defined in section 80IE(7) as under: (7) For the purposes of this section,— (i ) "initial assessment year" means the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things, or completes substantial expansion; [Underlining provided by us] From the aforesaid definition of ‘initial assessment year’, it could be inferred that the initial assessment year shall be the year in which the substantial expansion is completed by the assessee which would enable it to generate revenues and claim deduction thereon u/s 80IE of the Act. This goes to prove that there is no time limit prescribed in Section 80IE as to when the substantial expansion should be completed by the assessee. The provisions of section 80IE(2) of the Act stipulates that if an undertaking begins to 5

Jay Shree Tea & Industries Ltd. A.Yr. 2009-10 manufacture or eligible article or thing by undertaking substantial expansion on any date after 01.04.2007 and before 31.03.2017. This is the only requirement with regard to time limit specified in section 80IE of the Act. Nowhere it mandates, as pointed out by the revenue herein, that the substantial expansion once commenced should be completed within same financial year. Hence, the denial of deduction u/s 80IE of the Act by the revenue is not tenable as per law. However, we find that the expression ‘substantial expansion’ is also defined in 80IE(7)(iii) of the Act wherein, it should result in increase in investment of plant and machinery by at least 25% of the book value of plant and machinery. This factual aspect as to whether the assessee had indeed invested in plant and machinery more than 25% of the book value of plant and machinery (before depreciation in any year); as on the first day of the previous year in which substantial expansion is undertaken, was not verified by the authorities below. Hence, in the interest of justice and fair play, we deem it fit and appropriate, to remand this issue to the file of the ld. AO, for this limited purpose of verification of quantum of investment in plant and machinery so as to satisfy the definition of substantial expansion within the meaning of 80IE(7)(iii) of the Act. If the assessee is found to be so satisfied, then deduction u/s 80IE of the Act should be allowed to the assessee. Accordingly, ground no. 2 raised by the assessee is allowed for statistical purposes.

Order pronounced in the Court on 16.03.2018