DEPUTY COMMISSIONER OF INCOME TAX ,CENTRAL CIRCLE 3(3)), BANDRA KURLA COMPLEX, MUMBAI V. WELSPUN LIVING LIMITED (FORMERLY KNOWN AS WELSPUN INDIA LTD), MUMBAI

ITA 4564/MUM/2024

AI Insights

The case involves the Deputy Commissioner of Income Tax (Dy. CIT) contesting the decisions of the Commissioner of Income Tax (Appeals) regarding various disallowances made under the Income Tax Act, 1961, for the assessment year 2018-19 against Welspun Living Limited. The primary issues revolved around the disallowances made under section 14A read with Rule 8D concerning expenses incurred in earning exempt income, the addition under section 69A regarding unaccounted cash compensation, and the disallowance under section 80IA related to deductions claimed for specific undertakings. The Tribunal's decision favored the respondent, Welspun Living Limited, on all counts, leading to the dismissal of the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473747 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARSH M. KAPADIA; AJAY NAGPAL
• Assessee Lawyers: KISHOR DHULE; WAY OF
• Keywords: Search and seizure; Earning of tax free income; Rule 8D
• Section: 139(1); 69A; 14A; 115JB; 80IA

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VP AND SHRI NARENDRA KUMAR BILLAIYA, AM ITA No.4564/Mum/2024 (Assessment Year: 2018-19) Dy. CIT, Central Circle-3(3) Room No. 406, Kautilya Bhawan, Bandra Kurla Complex, Bandra (E), Mumbai-400 051 Vs. Welspun Living Limited (Formerly known as Welspun India Ltd.) B Wing, 9th Floor, Trade World, Lower Parel, Delisle Road, S.O. Mumbai-400 013 PAN/GIR No. AAACW 1259 N (Appellant) : (Respondent) Appellant by : Shri Harsh M. Kapadia & Shri Ajay Nagpal Respondent by : Dr. Kishor Dhule Date of Hearing : 25.02.2025 Date of Pronouncement : 07.03.2025 O R D E R Per Saktijit Dey, VP: This is an appeal by the Revenue against order dated 12.07.2024 of learned Commissioner of Income Tax (Appeals)-51, Mumbai (‘ld.CIT(A) for short), pertaining to assessment year (A.Y.) 2018-19. 2. In ground nos. 1 and 2, the Revenue has challenged deletion of disallowance made u/s. 14A of the Income Tax Act, 1961 read with Rule 8D, while computing income under the normal provisions of the Act, as also, while computing book profit u/s. 115JB of the Act. 2 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited 3. Briefly the facts are, the assessee is a resident corporate entity stated to be engaged in the business of manufacturing of Terry Towels, Cotton Yarn, Bath rugs and bedding products and trading in cotton yarn and fabric, etc. It is also engaged in generation of power. Be that as it may, for the assessment year under dispute, the assessee had filed its return of income on 01.12.2018, declaring total income of Rs.222,39,01,090/- under the normal provisions of the Act and book profit of Rs.3,81,32,06,474/- u/s. 115JB of the Act. In course of assessment proceeding, the Assessing Officer (AO) noticed that the assessee had made substantial investment in assets capable of generating exempt income. Whereas, the assessee had not made any disallowance u/s. 14A read with Rule 8D. He, therefore, called upon the assessee to show cause why disallowance should not be made u/s. 14A read with Rule 8D. In response to the query raised, the assessee submitted that in the year under consideration it had shown exempt income of Rs.4/- only. Thus, it was submitted that no disallowance in excess of the exempt income can be made. The assessee further submitted that since it had not incurred any expenditure for earning exempt income, no disallowance should be made. The A.O. however, did not accept the contentions of the assessee. Applying Rule 8D(2)(iii), he disallowed 0.5% out of the average value of investment towards expenses incurred for earning exempt income, in terms u/s.14A of the Act. Ultimately, he worked out the disallowance at Rs.5,19,76,494/-. 4. The assessee contested the aforesaid disallowance before first appellate authority. Having factually found that in the year under consideration, the assessee had earned exempt income only to the extent of Rs.4/-, the first appellate authority directed 3 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited the A.O. to restrict the disallowance to the quantum of exempt income earned by the assessee. 5. We have considered rival submissions and perused the materials available on record. Undoubtedly, the disallowance computed by A.O. u/s. 14A read with Rule 8D is based on the average value of investment made by the assessee in exempt income yielding assets. Whereas, it is a fact on record that in the previous year relevant to assessment year under dispute, the assessee had earned exempt income only to the tune of Rs.4/-. Now, it is fairly well settled that disallowance u/s. 14A read with Rule 8D in a particular assessment year cannot exceed the quantum of exempt income earned in the said year. Therefore, the disallowance made by the A.O. u/s. 14A read with Rule 8D could not have exceeded the quantum of income earned by the assessee. In view of the aforesaid, we do not find any infirmity in the decision of the first appellate authority in deleting the disallowance made u/s. 14A read with Rule 8D, while computing income under the normal provisions of the Act. Insofar as, similar disallowance made while computing book profit u/s. 115JB of the Act, we concur with the decision of first appellate authority that since the provisions contained u/s. 115JB of the Act do not provide for any disallowance with reference to section 14A read with Rule 8D, no such disallowance could have been made. In view of the afore-said, grounds are dismissed. 6. In ground no. 3, the Revenue has challenged the deletion of disallowance of Rs.48,50,000/- made u/s. 69A of the Act. Briefly the facts are, as alleged by the A.O., in course of a search and seizure operation carried out in case of the assessee, evidences were found indicating that the assessee had received an amount of Rs.48,50,000/-, being 4 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited compensation in cash from an Indian entity, namely, M/s. Bianco Textiles India Ltd. towards defective machinery supplied by its parent company in Italy, namely, M/s. Bianco SPA. He further observed that in course of such search and seizure operation, statements u/s. 132(4) of the Act was recorded from one of the employees of the assessee, namely, Shri Amit Bhandari, Vice President (Projects), wherein he confirmed that Rs.48,50,000/- was received in two installments from Biacon Textiles India Pvt. Ltd. towards cash compensation for a defective machine purchased from its parent company in Italy. In this context, the A.O. further observed that the fact of receipt of cash compensation was also corrborated by an email communication received from Shri Dhaval Gandhi. Though, the assessee completely denied of having entered into any such transaction, however, rejecting assessee’s explanation, A.O. proceeded to add the amount of Rs.48,50,000/- u/s. 69A of the Act. 7. The assessee contested the afore-said addition before first appellate authority. 8. After considering the submissions made and evidences available on record, the first appellate authority, being convinced with the fact that the assessee had not received any cash compensation as alleged by the A.O., deleted the addition. 9. We have considered rival submissions and perused the materials available on record. It is evident that the A.O. has made the disputed addition primarily based on the statement recorded from Shri Amit Bhandari working as VP (Projects) with the assessee company and an email communication between the assessee company and Biacon Textile India Ltd. Insofar as, the statement recorded u/s. 132(4) of the Act from Shri 5 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited Amit Bhandari is concerned, it is a fact on record that subsequently the concerned person has retracted the statement on the ground that it was taken under compelling circumstances. Furthermore, in course of hearing, we had an occasion to factually verify the email communication between the assessee and Biacon Textile. On such verification, we observed that the finding of first appellate authority that the said email nowhere speaks of anything about any cash compensation, is clearly borne out. Therefore, the email communication cannot be considered as an evidence, demonstrating cash compensation transaction between the assessee and another Indian company. We have further observed, the first appellate authority has recorded a factual finding that in course of assessment proceeding, the A.O. had not made any independent enquiry either with Biacon Textile Ltd. or its parent company in Italy. When the assessee has denied of receiving any cash compensation, the logical thing to do for the A.O. was to make enquiry and bring enough corroborative evidence on record to prove receipt of cash compensation by taking up enquiry with the other party, who, allegedly paid cash compensation. Admittedly, no such enquiry has been taken up by the A.O., to elicit the actual facts. Thus, in absence of any corroborative evidence on record to back his finding that the assessee has actually received the cash compensation amounting to Rs.48,50,000/-, no addition can be made merely on conjectures and surmises. Therefore, we uphold the decision of the first appellate authority on the issue. Ground raised is dismissed. 10. In ground nos. 4 & 5, the Revenue has challenged the deletion of disallowance made u/s. 80IA of the Act. Briefly the facts are in the return of income filed for the 6 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited impugned assessment year, the assessee had claimed deductions u/s. 80IA and 80JJ/JJA of the Act. While verifying assessee’s claim of such deductions, A.O. noticed that the return of income for the impugned assessment year was not filed within the prescribed time limit as provided u/s. 139(1) of the Act. Further, insofar as the claim of deduction u/s. 80IA of the Act is concerned, the A.O. observed that the undertaking in respect of which the assessee had claimed deduction was acquired by the assessee by way of slump sale. Therefore, he held that the assessee is not eligible to claim deduction in respect to such undertaking. Accordingly, he disallowed assessee’s claim. Subsequently, the A.O. having been appraised of the fact that the delay in filing the return of income was condoned by Central Board of Direct Taxes (CBDT), allowed the assessee’s claim of deduction u/s. 80JJ /80JJA of the Act. However, he stuck to his decision of disallowing the deduction u/s. 80IA of the Act on the ground that the undertaking /unit was acquired by the assessee through a slump sale. 11. Being aggrieved with such disallowance, the assessee challenged it before the first appellate authority. 12. While considering assessee’s submission in context of facts and materials on record, ld. CIT(A) being convinced that the conditions of section 80IA are fulfilled, allowed assessee’s claim of deduction. 13. We have considered rival submissions and perused the materials on record. As discussed earlier, the A.O. disallowed assessee’s claim of deduction u/s. 80IA of the Act primarily on two grounds. Firstly, the return of income for the year under 7 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited consideration was filed belatedly and secondly, the plant and machinery having been acquired through a slump sale, the assessee does not satisfy the eligibility conditions. Insofar as, belated filing of the return of income is concerned, undisputedly, CBDT has condone such delay and A.O. accepts such factual position. Thus, the only thing which needs to be addressed is whether the assessee satisfies the condition of section 80IA of the Act. As could be seen from the facts and materials on record, the assessee had claimed deduction u/s. 80IA of the Act, for an amount of Rs.30,49,31,288/-. The deductions claimed is split between the following two units: 1. Captive Power Plant 15MV – Vapi (Rs.26,01,68,676/-) 2. Captive Power Plant 12MV – Anjar (Rs.4,47,68,612/-) 14. Thus, as could be seen from the above, the deduction u/s. 80IA of the Act was in respect of two independent undertakings/units. Whereas, in the assessment order, the A.O. has mixed up the facts and wrongly concluded that the entire deduction was in respect of Captive Power Plant at Anjar, which was acquired by assessee through slump sale. On perusal of materials on record, it is evident, in course of assessment proceeding itself the assessee had furnished enough evidence to demonstrate that deduction claimed u/s. 80IA of the Act was in respect of two separate units. In fact, the tax audit report also discloses such fact. It is further relevant to observe, the Captive Power Plant at Vapi was set up by the assessee itself, whereas, the Captive Power Plant at Anjar was acquired through slump sale. In course of appellate proceeding, the first appellate authority has gone through the entire gamut evidences available on record and recorded a factual finding that not only deduction u/. 80IA of the Act was in respect of two separate and independent units, but the Captive Power Plant at Vapi was set up by the 8 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited assessee on its own. Therefore, as far as the claim of deduction u/s. 80IA of the Act for the unit at Vapi is concerned, the finding of the A.O. is factually incorrect. Hence, unacceptable. Therefore, the claim of deduction u/s. 80IA of the Act in respect of Captive Power Plant at Vapi land is clearly allowable. Insofar as, Captive Power Plant at Anjar is concerned, acquired through slum sale, the facts on record clearly reveals that the undertaking was eligible for deduction u/s. 80IA of the Act due to fulfillment of the conditions mentioned in the said provision. Merely because of change of the ownership of the undertaking it would not get disentitled from availing deductions u/s. 80IA of the Act for remaining years for which deduction has not been claimed. As rightly observed by the first appellate authority, deduction u/s. 80IA of the Act is qua undertaking and not qua the assessee. Since, the Revenue has not brought on record any cogent material to controvert the factual findings of the first appellate authority, while deciding the issue, we are inclined to uphold the decision of first appellate authority by dismissing the ground raised. 15. In the result, the appeal is dismissed. Order pronounced in the open court on 07.03.2025 Sd/- Sd/- (Narendra Kumar Billaiya) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 07.03.2025 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 9 ITA No. 4564/Mum/2024 (A.Y. 2018-19) Dy. CIT vs. Welspun Living Limited 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "