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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI G. PAVAN KUMAR
आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against order of Commissioner of Income-tax (Appeals)-VI, Chennai in ITA No.1270/13-14/A-VI, Dated 21.02.2014 for the assessment year 2008- 2009 passed u/s.143(3) r.w.s.92CA(4) and 250 of the Income Tax Act, 1961.
ITA No.1008/Mds/2014. :- 2 -:
The assessee has raised two grounds i.e (i) disallowance u/s.14A of the Act and (ii) disallowance of setting off of loss u/sec.10AA of the Act.
The Brief facts of the case are that the assessee company is engaged in the business of manufacturing of cold forged auto parts and filed return of income on 23.09.2008 declaring total income of �6,08,73,560/- after claiming deduction u/s.10B of the Act. The Return was processed u/s.143(1) of the Act and was selected for scrutiny and notice u/s.143(2) was issued. In compliance to the notice the ld.AR of the assessee appeared from time to time and filed details. Further, the ld. Authorised Representative also furnished details of international transaction entered with the Associated Enterprises alongwith Accountant report u/s.92E in form No.3CEB. The Assessing Officer for the purpose of computing the ‘Arms Length Price’ referred the case to Transfer Pricing Officer with necessary approval from the Commissioner of Income Tax and subsequently, Transfer Pricing Officer vide order dated 23.08.2011 has submitted the same to the Assessing Officer and held that no adjustment needed to the value of the International Transaction entered by the assessee. The Assessing Officer has examined the details furnished and also written submissions and clarifications and perused the Transfer Pricing Officer order passed u/s.92CA(3) of the Act and finalized the assessment.
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The Assessing Officer on perusal of profit and loss account found an amount of �1,64,06,932/- as dividend income received on shares and mutual funds units and claimed exempted. The ld. Authorised Representative submitted that the assessee company has made investments in shares and mutual funds �47,31,60,062/- and earned dividend income and explained that assessee has not incurred any expenditure for earning exempted income. On perusal of the Balance sheet and profit statement, the assessee has secured loan and has been paying interest of �53,94,901/- apart from administrative overheads. Under the provisions of Sec.14A of the Act, the assessee has not disallowed any portion of expenditure attributable to the exempted income in the computation of total income. The ld. Authorised Representative filed written submissions and relied on the decisions of Supreme Court in the case of Rajasthan State Warehousing Corporation vs. CIT (242 ITR 450) and Punjab and Haryana High Court in the case of CIT vs. Hero Cycles Ltd (323 ITR 518) and submitted that no expenditure is incurred for earning above exempt income were no disallowance of expenditure was worked out.
Further, Rule 8D has come into effect from 24.03.2008 for the assessment year 2008-2009 and relied on decisions and applicability of law. But, the Assessing Officer has calculated disallowance u/s.14A under Rule 8D relying on judicial decisions and attributed expenditure
ITA No.1008/Mds/2014. :- 4 -: under Rule 8D �46,82,087/- and added to the returned income. The Assessing Officer also further not allowed the set off of loss of the assessee company. The assessee company SEZ unit is eligible for deduction u/s.10AA of the Act and which has resulted in a loss of �39,96,024/- and the same was claimed as set off with business income for taxation purpose. The assessee has filed explanations that there is no bar in set off of loss against business income as there is no specific provisions that business income/ income of the SEZ shall be separately considered and also the provisions of Sec.70 of the Act.
The Assessing Officer completed assessment by disallowing deduction u/s.10B and u/s.14A disallowance and loss of SEZ unit assessed total income of �19,98,99,336/- and raised demand. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals).
The ld. Commissioner of Income Tax (Appeals) has upheld 4. the findings of the Assessing Officer on Sec.14A, disallowance and applied the judicial decisions for disallowing expenses u/s.14A under Rule 8D of the Income Tax Rules based on the decision of Supreme Court in the case of Wallfort Share and Stock Pvt. Ltd 41 DTR 233 and also Bombay High Court decision in the case of Godrej Boyce Manufacturing Co. Ltd 328 ITR 81 and confirmed the addition. In the case of loss of SEZ unit, the set off of loss are governed by Sec.70 &
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71 of the Act and there is no specific mention in the provisions for set off of loss having SEZ unit against profit from normal business activities and rejected the submissions by upholding the order of the Assessing Officer. Aggrieved by the order of the CIT(A) the assessee has filed an appeal before the Tribunal.
Before us, the ld. Authorised Representative reiterated his submissions made in assessment proceedings and in the appellate proceedings. In respect of dividend income the ld. Authorised Representative demonstrated that the company has made investments in shares and mutual funds out of surplus funds available and no part of borrowed funds have been utilized for the purpose of investment and during the financial year 2007-2008. The assessee company has received an amount of �1,64,06,932/- as dividend income and further exhibited that there is no expenditure incurred in earning such dividend income. Therefore, there is no disallowance was made in the computation of income and relied on the judicial decisions of the Court and also argued on allowing setoff normal business profit with loss of SEZ unit u/sec.10AA of the Act.
On the other hand, the ld. Departmental Representative relied on the order of the Commissioner of Income Tax (Appeals) and contested the issues.
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We heard the rival submissions of both the parties, perused the material on record and also judicial decisions cited. The assessee company has made investment from earlier years and received dividend income every year and demonstrated that funds utilized for investments are surplus funds or interest free funds. The assessee earned exempt income �1,64,06,932/-. Since Rule 8D provisions was introduced with effect from 24.03.2008, which was prospective in operation and cannot be regarded as being retrospective as held by Delhi High Court in the case of Maxopp Investment Ltd vs. CIT 347 ITR 272. However, incurring certain administrative expenses cannot be ruled out. Accordingly, placing reliance on the judgment of the jurisdictional High Court in the case of Simpson & Co Ltd in T.C.
No.2621/2006, dated 15.10.2012, we direct the Assessing Officer to disallow 2% of exempt income as expenditure towards earning that income. Hence, the ground of the assessee is allowed.
The next ground of appeal with regard to set off of loss 8. from Sec.10AA unit �39,96,024/- against the normal business income.
The ld. Authorised Representative explained that the assessee is having two separate units and as per the provisions of Secs.70 and 71 set off of loss from one source against the income from any other source under same head of income is allowed except capital loss and relied on CBDT circular No.07/2013. We after analyzing the provisions
ITA No.1008/Mds/2014. :- 7 -: of set off and Sec.10A, the assessee company loss from the SEZ unit has to carried forward and set off against profit of eligible units only.
We draw support from the decision of Delhi High Court in the case of CIT vs. KEI Industries Ltd 373 ITR 575, wherein it was held that loss suffered by the assessee in a unit entitled for exemption cannot be set off against income from any other unit not eligible for such exemption.
In the present case by applying the above ratio, we are not inclined to interfere with the order of the Commissioner of Income Tax (Appeals) on this ground and accordingly dismiss the ground of the assessee.
In the result, the appeal of the assessee is partly allowed. 9.
Order pronounced on Wednesday, the 6th day of January, 2016, at Chennai.