DCIT 15(2)(1), MUMBAI vs. HERCULES HOISTS LTD, MUMBAI

This appeal by the Revenue is directed against the order of the CIT(A)- 22, Mumbai dated 16.09.2014 for A.Y. 2010-11. The assessee has also preferred cross objections (CO) against the aforesaid order of the CIT(A)-22, Mumbai.

2 ITA 7312/M/2014 & CO No. 82/M/2016 M/s. Hercules Hoists Ltd.

1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the assessee company is eligible for deduction u/s.80-IA.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in interpreting the relevant provisions that un-absorbed depreciation of the eligible unit need not be necessarily set off from the profits of the same units, but could be set-off from other non-eligible unit as well.

3. The appellant craves leave to add, amend; vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.

4. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the Assessing Officer be restored."

3 ITA 7312/M/2014 & CO No. 82/M/2016 M/s. Hercules Hoists Ltd. 3.2 The grounds raised by Revenue (supra) challenge the impugned order of the learned CIT(A) in holding that the assessee is eligible for deduction under section 80IA of the Act. The learned D.R. was heard in support of the grounds raised and prayed that the finding of the learned CIT(A) be reversed and that of the Assessing Officer (AO) be restored. 3.3. Per contra, the learned A.R. for the assessee contended that the impugned order of the learned CIT(A) holding that the assessee is eligible for deduction under section 80IA of the Act was in order. It is submitted that in holding so, the learned CIT(A) followed the decision of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2009-10 in dated 13.09.2012. The learned A.R. for the assessee contends that since the issue is squarely covered in favour of the assessee by the aforesaid decision of the Coordinate Bench (supra), Revenue’s appeal is liable to be dismissed. 3.4.1 We have heard the rival contentions and perused and carefully considered the material on record. We find that, as submitted by the learned A.R. for the assessee, this issue before us, i.e. whether the assessee is eligible for deduction under section 80IA of the Act, has been adjudicated in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2009-10 in ITA No. 2342/Mum/2012 dated 13.09.2012 wherein at para 2.4 thereof it has been held as under: - “2.4 Having heard both the sides and perused the material on record, it is observed that the ITAT in ITA Nos. 7944, 7946, 2255 & 7943/Mum/2011 for the AYs. 2005-06 to 2008-09 in the assessee’s own case while deciding an issue, i.e., ‘section 80-IA (5) being applicable for the current year, whether the assessee’s claim for set off of loss/allowance u/s 32(2) 70 and 71 is against other income, admittedly from a not eligible business source, sustainable in law’, has held the same in affirmative in favour of the assessee and against the Revenue. It has further been held that the Revenue is not correct in law in denying the set off of the unabsorbed depreciation allowance/loss of the assessee’s eligible units against it income from other sources in terms of u/s 32(2) 70 & 71 of the Act. In the case of M/s Prashant Caterers in ITA No. 4093/Mum/2012 for the Assessment Year 2007-08, the ITAT while deciding a similar issue has decided as follows:

4 ITA 7312/M/2014 & CO No. 82/M/2016 M/s. Hercules Hoists Ltd. “We have carefully considered the submissions of the Ld. Representative of the parties and also perused the orders of the authorities below. We have also gone through the earlier orders of the Tribunal dated 6.2.2013, copy of which are placed at pages 28 to 31 of the paper book and the order dated 8.2.2013, copy of which is placed at pages 32 to 44 paper book (supra). We observe that the Tribunal has stated that the above issue is squarely covered in favour of the assessee by the decisions of the Hon’ble Madras High Court, wherein it has been held that the assessee company is eligible for deduction u/s 80-IA in respect of the income from Windmill installed by it and the unabsorbed depreciation set off in earlier years cannot be reduced from the profits for computing the deduction u/s 80IA of the Act. However, the Tribunal stated that the matter be restored to find out the claim of the assessee that the losses were already adjusted against the profits of ineligible units of the assessee in earlier years and directed the Ld.CIT(A) for adjudicating the issue afresh accordingly. Respectfully following the earlier orders of the Tribunal in assessee’s own case (supra), we set aside the impugned order of the Ld.CIT(A) and restore the issue to the Ld.CIT(A) to adjudicate the same by following the earlier orders of the Tribunal after giving due opportunity of hearing to the parties. Hence Grounds of appeal taken by the assessee are allowed for statistical purpose.” In view the aforementioned decisions of the ITAT, we are of the considered opinion that the assessee company is eligible for deduction u/s 80IA. However, it would be just and fair that the matter is restored to find out the claim of the assessee that the losses have already been adjusted against the profits of ineligible units of the assessee in earlier years with a direction to the Ld.CIT(A) for adjudicating the issue afresh after giving due opportunity of hearing to the parties. We order and direct accordingly.” 3.4.2 Following the above cited decision of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2009-10 (supra), we uphold the finding of the learned CIT(A) that the assessee is eligible for deduction under section 80IA of the Act and also the directions of the learned CIT(A) to the AO to verify as to whether the losses have already been set off against the income of non-eligible unit in the earlier years and in case the losses were already set off then the same cannot be notionally carried forward for setting off against for computing the deduction under section 80IA of the Act. We hold and direct accordingly. Consequently, the grounds at S.No. 1 to 4 raised by Revenue are rejected.

4. In the result, Revenue’s appeal for A.Y. 2010-11 is dismissed.

5. Assessee’s CO No. 82/Mum/2016 for A.Y. 2010-11 5.1 In this CO the assessee has raised the following objections: - 5 ITA 7312/M/2014 & CO No. 82/M/2016 M/s. Hercules Hoists Ltd. “I. DISALLOWANCE UNDER SECTION 14A OF THE ACT RS. 2,39,3421-: 1.1 On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) [CIT(A)] in confirming the disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 at Rs. 2,39,342/-. It is submitted that the disallowance under Section 14A of the Act computed by the learned Assessing Officer and confirmed by the CIT(A) is excessive, unreasonable and unwarranted. The appellant prays that the disallowance made on assessment may kindly he deleted. II. INCOME FROM HOUSE PROPERTY RS. 13,00,681: 2.1 On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in confirming the computation of Income from House Property at Rs.13,00,681, made by the learned Assessing Officer, resulting into an addition to the income of the Appellant in respect thereof. It is submitted that the addition made by the learned Assessing Officer and confirmed by the CIT(A) is arbitrary and based on conjecture and surmises and hence bad in law. The appellant prays that the addition made by the learned Assessing Officer may be deleted or alternatively be restricted to the municipal ratable value thereof.”

6. Objection No. 1(1.1)- Disallowance under section 14A: `2,39,342/- 6.1 In the course of assessment proceedings the AO noticed that the assessee had earned dividend income of `34,18,289/- which was claimed as exempt. The assessee made a suo moto disallowance of `3,31,749/- as expenditure incurred for earning the said exempt income. The AO, however, was not satisfied with the assessee’s explanation in respect of the working of the expenditure incurred for earning the exempt income that investments in shares have been made partly from out of its own funds and internal accruals and partly from borrowings. In that view of the matter, the AO, following the decisions of the Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (2010) 328 ITR 81 (Bom) and of the Special Bench of the ITAT, Mumbai in the case of Daga Capital Management (P) Ltd. (2009) 117 Income Tax Officer 169 (Mum) (SB) worked out the disallowance under section 14A r.w. Rule 8D at `5,71,091/- and proceeded to disallow an amount of `2,39,342/- (i.e. `5,71,091/- less `3,31,749/- disallowed by the assessee suo moto).

6 ITA 7312/M/2014 & CO No. 82/M/2016 M/s. Hercules Hoists Ltd. 6.2 On appeal, the learned CIT(A) was of the view that the assessee has neither proved that borrowed funds were not utilized for the purchase of shares of Bajaj Auto Ltd. or Mutual Funds nor that the same were purchased only with own funds and internal accruals. In this view of the matter, the learned CIT(A) upheld the disallowance of `2,39,342/- made by the AO. 6.3 Before us, the learned A.R. reiterated the contentions put forth in the grounds of appeal that the learned CIT(A) erred in confirming the disallowance of `2,39,342/- under section 14A r.w. Rule 8D, since it was made in respect of interest expenditure incurred on Term Loans taken for purchase of Windmills. 6.4 Per contra, the learned D.R. for Revenue supported the orders of the authorities below. 6.5.1 We have heard the rival contentions and perused and carefully considered the material on record. It is the submission of the assessee before the learned CIT(A) that interest expenditure incurred during the year to the extent of `39,20,797/-, and in respect of which the disallowance under section 14A r.w. Rule 8D of `2,39,342/- is made by the AO, pertains to Term Loan availed for acquiring Windmill Plants referred to in the earlier years as reflected in Schedule ‘18’ to the Audited Balance Sheet as on 31.03.2010. In these circumstances, the assessee contends that the aforesaid interest expenditure which related to term loan for acquisition of Windmills cannot be considered for working out disallowance under section 14A r.w. Rule 8D as such term loan and related interest expenditure do not have any nexus, direct or indirect with the earning of exempt dividend income but pertain to business income which is taxable. We find that these factual submissions by the assessee though made before the learned CIT(A), as reflected at para 3.2 of his order, have not been examined or addressed by him in the impugned order. 6.5.2 In the above factual matrix placed before us we are of the view that the facts on record reveal that the interest expenditure of `39,20,797/- incurred towards term loans taken for purchase of Windmills by the