THE SUPREME INDUSTRIES LTD, MUMBAI V. ASST CIT CEN CIR 29, MUMBAI

ITA 3138/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1480 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 07-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 08-05-2012
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Keywords: Depreciation; Earning of tax free income; Wholly owned subsidiary; Commercial expediency; Unabsorbed depreciation
• Section: 143(3); 14A; 115JB; 80IB; 56; 11

Judgement Text

, , E, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.3138/MUM/2012 ASSESSMENT YEAR: 2006-07 THE S UPREME INDUSTRIES LTD. 612 RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 / VS. A C IT CENTRAL CIRCLE 29, MUMBAI ( APPELLANT ) (RESPONDENT ) P.A. NO. AA ACT1344F ITA NO.3808/MUM/2012 ASSESSMENT YEAR: 2006-07 ACIT CENTRAL CIRCLE 29, MUMBAI / VS. THE S UPREME INDUSTRIES LTD. 612 RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 ( REVENUE ) (RESPONDENT ) P.A. NO. AAACT1344F ITA NO.3139/MUM/2012 ASSESSMENT YEAR: 2007-08 TH E S UPREME INDUSTRIES LTD. 612 RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 / VS. ACIT CENTRAL CIRCLE 29, MUMBAI (APPELLANT ) (RESPONDENT ) P.A. NO. AAACT1344F ITA NO.3807/MUM/2012 ASSESSMENT YEAR: 2007-08 SUPREME INDUSTRIES LTD. 2 ACIT CENTRAL CIRCLE 29, MUMBAI / VS. THE S UPREME INDUSTRIES LTD. 612 RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 (REVENUE ) (RESPONDENT ) P.A. NO. AAACT1344F ITA NO.3140/MUM/2012 ASSESSMENT YEAR: 2008-09 THE S UPREME INDUSTRIES LTD. 612 RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 / VS. D CIT 28 TH FLOOR, CENTRE-I, WORLD TRADE CENTRE, CUFFE PARADE (APPELLANT ) (RESPONDENT ) P.A. NO. AAACT1344F ITA NO.3809/MUM/2012 ASSESSMENT YEAR: 2008-09 DCI T 28 TH FLOOR, CENTRE-I, WORLD TRADE CENTRE, CUFFE PARADE / VS. THE S UPREME INDUSTRIES LTD. 612 RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400021 (REVENUE ) (RESPONDENT ) P.A. NO. AAACT1344 F APPELLANT BY SHRI NITESH JOSHI ( A R) REVENUE BY SHRI ANUPAMA SINGLA (DR) / DATE OF HEARING: 24/11/2016 / DATE OF ORDER: 21/12/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE APPEALS INVOLVE IDENTICAL ISSUES, AND THEREFO RE THESE WERE HEARD TOGETHER AND ARE DISPOSED OF BY TH IS COMMON ORDER. SUPREME INDUSTRIES LTD. 3 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI NITESH JOSHI, AUTHORISED REPRESENTATIVES (AR) ON BEHALF OF THE ASSESSEE AND BY SHRI ANUPAMA SINGLA, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE R EVENUE. FIRST WE SHALL TAKE ASSESSEES APPEAL IN ITA NO.3138/MUM/2012 FILED AGAINST THE ORDER OF LD. CIT (A) DATED 14.03.2012 PASSED AGAINST THE ORDER OF AO DAT ED 24.12.2008 U/S 143(3) FOR A.Y. 2006-07 ON THE FOLLO WING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN LAW IN REJECTING THE CLAIM OF THE APPELLAN T OF GIVING CONSEQUENTIAL EFFECT OF DEPRECIATION TO THE TUNE OF RS.2,63 ,78,903/- AND SET-OFF OF UNABSORBED DEPRECIATION ALLOWANCE OF EARLIER YEARS OF RS.6,89,21,767/- WHILE COMPUTING TAXABLE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AFTER CONSIDERING THE OUTCOME OF APPEAL FOR THE EARLIER ASSESSMENT YEARS. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW IN DISALLOWING A SUM OF RS.20,27,786/- BEING 5% OF DIVIDEND INCOME UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT) WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISION OF THE ACT AN D UNDER SECTION 1 15JB OF THE ACT. 3.WITHOUT PREJUDICE TO WHAT IS STATED IN GROUND NO. 2 ABOVE, THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN LAW IN REJECTING THE SCIENTI FIC WORKING OF DISALLOWANCE UNDER SECTION 14A OF THE AC T SUBMITTED BY THE APPELLANT. 4.WITHOUT PREJUDICE TO WHAT IS STATED IN 2 AND 3 ABOVE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT RESTRICTING THE DISALLOWANCE TO RS.4,05,557/- UNDER SECTION 14A OF THE ACT BEING 1% OF DIVIDEND INCOME WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 11 5JB OF THE ACT. SUPREME INDUSTRIES LTD. 4 THE APPELLANT SUBMITS THAT THE LEARNED ASSESSING OFFICER BE DIRECTED: (I) TO GIVE CONSEQUENTIAL EFFECT IN RESPECT OF PEND ING APPEALS OF EARLIER YEARS IN RESPECT OF DEPRECIATION ALLOWANCE OF RS.2,63,78903/- AND SET-OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION ALLOWANCE OF RS.6,89,21,767/WHILE COMPUTING THE TAXABLE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. (II) TO DELETE THE DISALLOWANCE OF RS.20,27,786/- U NDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABLE INCO ME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 11 5JB OF THE ACT; (III) WITHOUT PREJUDICE TO WHAT IS STATED IN (II) ABOVE, TO RESTRICT THE DISALLOWANCE TO RS.6,066/- UNDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABL E INCOME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 115JB OF THE ACT; (IV) WITHOUT PREJUDICE TO WHAT IS STATED IN (II) AN D (III) ABOVE, TO RESTRICT THE DISALLOWANCE TO RS.4,05,557/ - UNDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISION OF THE ACT AN D UNDER SECTION 115JB OF THE ACT, AND TO MODIFY THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 3. GROUND NO.1: IN THIS GROUND, THE ASSESSEE HAS REQUESTED FOR GIVING DIRECTIONS TO GIVE CONSEQUENTIAL EFFECT OF DEPRECIATION TO THE TUNE OF RS.2,63,78,903/- AND SE T-OFF OF UNABSORBED DEPRECIATION ALLOWANCE OF EARLIER YEARS OF RS.6,89,21,767/- WHILE COMPUTING TAXABLE TOTAL INCO ME UNDER THE NORMAL PROVISIONS OF THE ACT, AFTER CONSI DERING OUTCOME OF THE APPEAL OF EARLIER ASSESSMENT YEARS. 3.1. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY T HE LD. COUNSEL OF THE ASSESSEE THAT IN THIS CASE THE A SSESSEE DID NOT CLAIM DEPRECIATION IN EARLIER YEARS AND THE REFORE IN THE IMPUGNED YEAR THE DEPRECIATION WAS CLAIMED ON H IGHER AMOUNT OF REOPENING WRITTEN DOWN VALUE (WDV). BUT, AO SUPREME INDUSTRIES LTD. 5 REJECTED THE CLAIM AND ALLOWED THE DEPRECIATION BY TAKING OPENING WDV AS IF DEPRECIATION WAS ALLOWABLE IN EAR LIER YEARS. THE STAND OF THE AO HAS BEEN CONFIRMED UP TO THE HIGH COURT. IT WAS INFORMED THAT ASSESSEE HAS FILED APPEAL BEFORE THE SUPREME COURT OF INDIA. UNDER THESE CIRCUMSTANCES, IT WAS REQUESTED THAT IN CASE RELIEF IS GRANTED BY THE SUPREME COURT, THEN, THE ASSESSEE SH OULD GET THE BENEFIT OF DEPRECIATION IN THE YEAR BEFORE US BY TAKING OPENING WDV AT HIGHER AMOUNT, AND FOR THIS P URPOSE REQUISITE DIRECTION SHOULD BE GIVEN TO THE AO. 3.2. PER CONTRA, LD. DR SUBMITTED THAT NO SUCH DIRECTIO N CAN BE GIVEN AT THIS STAGE. 3.3. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES AS WELL AS SUBMISSIONS MADE BEFORE US. DURING THE COURSE OF HEARING, LD. COUNSEL HAD PLACED RELIA NCE UPON THE JUDGMENT OF MUMBAI BENCH OF TRIBUNAL IN THE CAS E OF M/S. CASTROL INDIA LIMITED. V. ACIT (MA NO.117/MUM/2014 (ARISING OUT OF ITA NO.3938/MUM/201 0 WHEREIN IDENTICAL SITUATION AROSE AND THE SAID ASSE SSEE HAD REQUESTED FOR SIMILAR DIRECTION BEFORE THAT BENCH. IT IS NOTED THAT IN THIS REGARD THE BENCH HAD PASSED FOLLOWING ORDER: 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD . BY WAY OF THIS MISC. APPLICATION, THE ASSESSEE IS SEEK ING A DIRECTION FROM THE TRIBUNAL TO THE EFFECT THAT THE DEPRECIATION FOR THE YEAR UNDER APPEAL BE RE-DETERM INED WHENEVER WRITTEN DOWN VALUE AT THE END OF THE PRECEDING YEAR I.E. 31 ST MARCH 2001 UNDERGOES A CHANGE IF THE ASSESSEE SUCCEEDS BEFORE THE SUPREME COURT O N THE ISSUE OF DEPRECIATION IN THE EARLIER YEARS. IN OUR OPINION, SUCH A DIRECTION BASED ON HYPOTHETICAL SIT UATION WAS NOT NECESSARY FOR DISPOSAL OF THE APPEAL OF THE SUPREME INDUSTRIES LTD. 6 ASSESSEE ON THE ISSUE OF DISALLOWANCE OF DEPRECIATI ON INVOLVED IN GROUND NO.3 AND IT THEREFORE CANNOT BE SAID THAT THERE IS ANY MISTAKE IN THE ORDER OF THE TRIBU NAL IN NOT GIVING SUCH DIRECTION. MOREOVER THE ISSUE OF RE - DETERMINING THE DEPRECATION FOR THE YEAR UNDER APPE AL AS A RESULT OF ANY CHANGE IN THE CLOSING WRITTEN DO WN VALUE IF THE CLAIM OF THE ASSESSEE IS ALLOWED BY TH E SUPREME COURT IN THE EARLIER YEARS IS PURELY A CONSEQUENTIAL ISSUE AND THE AO, IN OUR OPINION, IS BOUND TO CONSIDER THE SAME WHILE GIVING EFFECT TO THE ORD ER OF THE HONBLE SUPREME COURT IN CASE THE ASSESSEE SUCCEEDS ON THE RELEVANT ISSUE IN THE EARLIER YEARS . WE THEREFORE, FIND NO MERIT IN MISC. APPLICATION FILED BY THE ASSESSEE AND DISMISS THE SAME. 3.4. WE HAVE GONE THROUGH AFORESAID ORDER, WHEREIN SIMI LAR FACTS WERE INVOLVED. WE ALSO FEEL THAT AT THIS STAG E NO SPECIFIC DIRECTION CAN BE GIVEN BY PRESUMING HYPOTH ETICAL SITUATION. BUT, WE ALSO FIND THAT, AS OBSERVED IN T HE AFORESAID ORDER, THE ISSUE OF RE-DETERMINING THE DE PRECIATION FOR THE YEAR UNDER APPEAL AS A RESULT OF ANY CHANGE IN THE CLOSING WRITTEN DOWN VALUE OF THE PRECEDING YEARS I S A PURELY CONSEQUENTIAL ISSUE AND THE AO IS BOUND TO CONSIDER THE SAME AS PER LAW WHILE GIVING EFFECT TO THE ORDER OF THE HONBLE SUPREME COURT IN CASE THE ASSESSEE SUCCEEDS ON THE IMPUGNED ISSUE FOR WHICH APPEAL IS PENDING BEFO RE THE HONBLE SUPREME COURT. IN CASE, THE AO DOES NOT FOL LOW PROPER COURSE AS PER LAW, THEN AT APPROPRIATE STAGE AND TIME, THE ASSESSEE SHOULD SEEK APPROPRIATE REMEDIAL MEASURES AS PRESCRIBED UNDER THE LAW. WE ORDER ACCORDINGLY. THIS GROUND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. SUPREME INDUSTRIES LTD. 7 4. GROUND NOS. 2, 3 & 4: IN THESE GROUNDS THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS THAT LOWER AUTHORIT IES ERRED IN DISALLOWING A SUM OF RS.20,27,786/- BEING 5% OF DIVIDEND INCOME U/S 14A OF THE ACT. 4.1. THE BRIEF FACTS ARE THAT THE ASSESSEE DID NOT MAKE SUO MOTTO ANY DISALLOWANCE U/S 14A IN THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME. IN THE AS SESSMENT ORDER, THE AO MADE DISALLOWANCE OF INTEREST AS WELL AS DISALLOWANCE OF ADMINISTRATIVE EXPENSES. BEFORE LD. CIT(A), THE ASSESSEE GOT RELIEF ON THE DISALLOWANCE ON INTE REST, AGAINST WHICH REVENUE HAS FILED AN APPEAL BEFORE TH E TRIBUNAL. BUT, WITH RESPECT TO DISALLOWANCE OF ADMINISTRATIVE EXPENSES, THE DISALLOWANCE WAS SUSTA INED AT RS.20,27,786/- BEING 5% OF THE DIVIDEND INCOME OF RS.4,05,55,716/- 4.2. DURING THE COURSE OF HEARING, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT PERUSAL OF SCHEDULE OF INVE STMENT ENCLOSED IN THE BALANCE SHEET SHOWS THAT THERE WAS NO CHANGE IN INVESTMENT DURING THE YEAR AND ALL THE INVESTMENTS WERE BROUGHT FORWARD FROM EARLIER YEARS . THUS, NO EXPENSES WERE INCURRED AND RECEIPT OF DIVIDEND W AS SPONTANEOUS EXERCISE AND THEREFORE NO DISALLOWANCE SHOULD BE MADE DURING THE YEAR ON ACCOUNT OF EXPENSES. IT WAS ALSO SUBMITTED THAT SINCE IT IS A.Y. 2006-07, THEREFORE RULE 8D WAS NOT APPLICABLE IN THIS YEAR. 4.3. PER CONTRA, LD. DR SUBMITTED THAT IT CANNOT BE BEL IEVED THAT NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE . THUS, SUPREME INDUSTRIES LTD. 8 SOME DISALLOWANCE MUST BE MADE AND SHE REQUESTED FO R MAKING DISALLOWANCE @ 2% OF DIVIDEND INCOME. 4.4. WE HAVE GONE THROUGH THE FACTS OF THE CASE AND ORD ERS PASSED BY THE LOWER AUTHORITIES. NOTHING WAS BROUGH T BEFORE US TO INDICATE THAT WHETHER ANY FRESH INVESTMENT WA S MADE BY THE ASSESSEE DURING THE YEAR OR ANY OTHER ACTIVI TY WAS DONE IN THIS REGARD. BOTH THE PARTIES FAIRLY SUBMIT TED THAT SOME DISALLOWANCE SHOULD BE MADE. LD. DR REQUESTED OF DISALLOWANCE @ OF 2% WHEREAS LD. COUNSEL REQUESTED FOR DISALLOWANCE @ 0.5 % OF THE TOTAL EXEMPT INCOME REC EIVED DURING THE YEAR. AFTER CONSIDERING ALL THE FACTS AN D CIRCUMSTANCES OF THE CASE, WE FIND IT APPROPRIATE T O SUSTAIN THE DISALLOWANCE @ 1% OF DIVIDEND INCOME RECEIVED B Y THE ASSESSEE DURING THE YEAR. THE BALANCE AMOUNT OF DISALLOWANCE IS DIRECTED TO BE DELETED. THE AO IS D IRECTED TO SUSTAIN DISALLOWANCE @ 1% OF DIVIDEND INCOME OF RS.4,05,55,716/- RECEIVED BY THE ASSESSEE DURING TH E YEAR AND DELETE THE BALANCE DISALLOWANCE. THUS, THESE GR OUNDS MAY BE TREATED AS PARTLY ALLOWED. NOW WE SHALL TAKE UP APPEAL FILED BY THE REVENUE IN ITA NO.3808/MUM/2012 FOR ASSESSMENT YEAR, 2006-07 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF DISALLOWA NCE MADE BY THE A.O U/S 14A OF THE LT ACT, 1961. 2.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO RS.20,27,786/- AS AGAINST THE DISALLOWANCE OF RS SUPREME INDUSTRIES LTD. 9 1,50,25,048/- MADE BY THE A.O. FOR THE PURPOSE OF COMPUTING BOOK PROFIT AS PER THE PROVISIONS OF SECT ION 1 15JB OF THE ACT. 3.THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 5. IN THIS APPEAL, THE SOLITARY GROUND RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF LD. CIT(A) IN DELET ING THE DISALLOWANCE OF INTEREST MADE BY THE AO U/S 14A OF THE ACT. 5.1. THE BRIEF FACTS IN THIS REGARD ARE THAT AS DISCUSS ED BY US IN OUR ORDER PASSED IN THE CASE OF ASSESSEES AP PEAL, THE AO HAD MADE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.1,33,06,157/- WHICH WAS DELETED BY LD. CIT(A). DURING THE COURSE OF HEARING, LD. DR RELIED UPON THE ORDER OF THE LD. CIT(A). BUT, SHE WAS NOT ABLE TO POINT OUT ANYT HING WRONG ON FACTS OR LAW, IN THE DETAILED AND WELL REA SONED FINDING OF LD. CIT(A). WE FIND IT APPROPRIATE TO RE PRODUCE WELL REASONED FINDING OF LD. CIT(A) ON THIS ISSUE: 5. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE. I FIND THAT THE ASSESSING OFFICER HAS HELD THAT DISALLOWANCE IS REQUIRED TO BE MADE U/S.14A ONLY FOR THE REASON THAT THE COMPANY HAS AGGREGATE INVESTMENTS OF RS.33.97 CRORES AS ON 31/03/2006 OUT OF WHICH RS.33.37 CRORES HAD BEEN INVESTED IN GROUP COMPANIE S AND THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENTS IN THE SHARES WERE OUT OF SURPLUS FUNDS WAS NOT ACCEPTABLE WHEN THE ASSESSEE HAD HUGE BORROWINGS AND IT HAD NOT ESTABLISHED DIRECT NEXUS OF INVESTMENTS OUT OF SURPLUS FUNDS. ACCORDINGLY, HE H AS DISALLOWED INTEREST EXPENDITURE IN RELATION TO INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME BY THE SUPREME INDUSTRIES LTD. 10 METHOD PRESCRIBED IN RULE 8D (2)(II) WHILE OTHER EXPENDITURES HAVE BEEN DISALLOWED BY THE METHOD PRESCRIBED IN RULE 8D(2)(III). 5.1 IN THIS MANNER, THE ASSESSING OFFICER HAS DISALLOWED INTEREST EXPENDITURE OF RS.1,33,06,157/- AND OTHER EXPENDITURE OF RS.17,18,891/TOTALLY AMOUNTING TO RS. 1,50,25,048/- . 6. AS PER THE PROVISIONS OF SEC.14A, ONLY THOSE EXPENDITURES CAN BE DISALLOWED WHICH HAVE BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. IN THE PRESENT CASE, IT IS THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED BY IT IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE (EXEMPT INCOME), EITHER ON ACCOUNT OF INTEREST OR ON ACCOUNT OF OTHER EXPENDITURE. IN GODREJ & BOYCE MFG. CO. LTD REPORTED IN 328 ITR 81, IT HAS BEEN HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT THAT THE ASSESSING OFFICER CAN INVOKE RULE 8D ONLY IF HE DOES NOT FIND THE CLAIM OF THE ASSESSEE REGARDING THE EXPENDITURE IN RELATION TO INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME ACCEPTABLE. HOWEVER, THE ASSESSING OFFICER IS TO RECORD HIS OBJ ECTIVE SATISFACTION AS TO WHY HE DOES NOT FIND THE CLAIM O F THE ASSESSEE ACCEPTABLE. IN THE CASE OF MXOPP INVESTMENTS LTD, THE HON'BLE DELHI HIGH COURT HAS HELD THAT THE OBJECTIVE SATISFACTION OF THE ASSESSI NG OFFICER WAS REQUIRED EVEN BEFORE 01/04/2007 BEFORE HE COULD REJECT THE CLAIM OF THE ASSESSEE REGARDING THE EXPENDITURE IN RELATION TO THE EXEMPT INCOME. THE CONCLUSION OF THE ASSESSING OFFICER THA T EXPENDITURE TO BE DISALLOWED IS TO BE WORKED OUT BY THE METHOD PRESCRIBED IN RULE 8D IS CORRECT CNLY IF THE ASSESSING OFFICER SHOWS THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS NOT CORRECT AND RECORDS HIS OBJECTI VE SATISFACTION IN THIS RESPECT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AS IS PROVIDED IN SEC.14A( 2) AND 14A(3) OF THE I.T. ACT, 1961. 7. ADVERTING TO THE FACTS OF THE PRESENT CASE, I FI ND THAT THE ASSESSING OFFICER HAS GIVEN NO OBJECTIVE SUPREME INDUSTRIES LTD. 11 REASON AS TO WHY HE DID NOT FIND THE CLAIM OF THE ASSESSEE ACCEPTABLE. HE HAS GIVEN A VERY GENERAL REASON THAT SINCE THE ASSESSEE HAD SUBSTANTIAL INVESTMENTS AND ALSO HAD HUGE BORROWINGS, IT WAS NOT ACCEPTABLE THAT THE INVESTMENTS IN SHARES WAS OUT OF THE FUNDS OF THE ASSESSEE. THIS AT BEST, IN MY OPINION, IS A PRESUMPTION ON THE PART OF THE ASSESSING OFFICER AND IS NOT AN OBJECTIVE FINDING O F THE ASSESSING OFFICER. 7.1 MERELY BECAUSE THE ASSESSEE HAS MADE INVESTMENTS AND AT THE SAME TIME HAS BORROWINGS WOULD NOT LEAD TO AN AUTOMATIC CONCLUSION THAT THE BORROWINGS HAVE BEEN UTILIZED FOR MAKING THE INVESTMENTS. THE ASSESSEE HAS MADE INVESTMENTS IN THE SHARES OF SUPREME PETROCHEMICAL LTD. IN THE FOLLOWING PERIODS AS PER THE DETAILS SUBMITTED BY T HE ASSESSEE. YEAR A.Y. NO. OF SHARES COST(RS) 1992 - 93 1993 - 94 95,00,000 9,50,00,000 1993 - 94 1994 - 95 85,00,000 8,50,00,000 1998 - 99 1999 - 00 75,00,000 7,50,00,000 2003 - 04 2004 - 05 34,36,400 3,34,64,000 TOTAL 33,37,49,544 7.2 IT IS THE SUBMISSION OF THE ASSESSEE THAT IT HAD ENOUGH INTERNAL ACCRUALS BY WAY OF CASH PROFITS TO MAKE STRATEGIC INVESTMENT. IT HAD SUFFIC IENT INTERNAL RESOURCES AT RELEVANT TIMES WHEN INVESTMENTS WERE MADE BY WAY OF EQUITY CONTRIBUTION AND/OR INTERNAL RESOURCES. IT HAD OWN FUNDS WHICH FAR EXCEEDED INVESTMENTS MADE IN THE SHARES, ETC. HENCE, NO DISALLOWANCE U/S. 14A WAS CALLED FOR. THIS CLAIM OF THE ASSESSEE HAS NOT BEEN CONTROVERTED BY THE ASSESSING OFFICER BY WAY OF ANY FACTUAL EXAMINATION. SUPREME INDUSTRIES LTD. 12 7.3 AS PER THE DETAILS SUBMITTED BY THE ASSESSEE, I FIND THAT THE ASSESSEE HAD COME OUT WITH A RIGHTS ISSUE OF SHARES AND PARTLY CONVERTIBLE DEBENTURES I N JULY, 1993. AS PER THE 'TERMS OF OFFER', THE COMPANY PROPOSED TO MAKE INVESTMENTS IN THE SHARES OF GROUP COMPANIES, INCLUDING SUPREME INDUSTRIES LTD. AGGREGATE INVESTMENT OF RS.3 1.54 CRORES IN THE GROUP COMPANIES WAS TO BE MET OUT OF THE PROCEEDS OF THE EQUITY ISSUE TO THE EXTENT OF RS.17.72 CRORES AND OUT OF INTERNAL ACCRUALS TO THE EXTENT OF RS.13.82 CRORES. THE ASSESSEE MADE INVESTMENTS OF RS.8.50 CRORES IN THE F.Y.1993-94 RELEVANT TO THE A.Y.1994-95 IN THE EQUITY SHARES OF SUPREME INDUSTRIES LTD. HENCE, THE SOURCE OF THIS INVESTMENT IS DIRECTLY OUT OF THE RIGHTS ISSUE OF SHARES AND CANNOT BE LINKED WITH OR ATTRIBUTED TO ANY BORROWINGS ON WHICH THE ASSESSEE HAS PAID INTEREST DURING THE A.Y.2006-07. INVESTMENTS IN THE A.Y.1993-94 IS CLAIMED TO HAVE BEEN MADE OUT OF INTERNAL ACCRUALS. THE ASSESSING OFFICER HAS NOT SHOWN THAT THE ASSESSEE HAD MADE THESE INVESTMENTS OUT OF BORROWINGS ON WHICH THE ASSESSEE CONTINUED TO PAY INTEREST IN THE A.Y.2006-07 ALSO AND, HENCE, SUCH INTEREST EXPENDITURE WAS NEEDED TO BE DISALLOWED. AS REGARDS THE INVESTMENTS MADE IN THE A.Y.1999-2000 AND 2004-05 AS ALSO IN THE EARLIER ASSESSMENTS YEARS., THE ASSESSEE HAS SHOWN THAT IT HAD SUFFICIENT INTERNAL ACCRUALS BY WAY OF CASH PROFITS YEAR AFTER YEAR AND IT WAS THESE CASH PROFI TS WHICH WERE AS 1 'PILABLE WITH IT WHICH WERE UTILIZED FOR MAKING THE INVESTMENTS IN THE GROUP COMPANY. THE DETAILS OF SUCH CASH PROFIT AS FURNISHED BY THE ASS ESSEE ARE AS FOLLOWS: FROM TO A.Y. CASH PROFIT 01.07.86 30.06.87 88-89 456.33 01.07.87 30.03.89 89-90 899.23 01.04.89 31.03.90 90-91 828.89 01.04.90 31.03.91 91-92 1,076.85 SUPREME INDUSTRIES LTD. 13 01.04.91 31.03.92 92-93 1,035.57 01.04.92 31.03.93 93-94 1,044.41 01.04.93 31.03.94 94-95 1,300.56 01.04.94 31.03.95 95-96 3,895.46 01.04.95 31.03.96 96-97 2,524.89 01.04.96 31.03.97 97-98 3,106.50 01.04.97 31.03.98 98-99 3,478.90 01.04.98 31.03.99 99-00 4,340.64 01.04.99 31.03.00 00-01 4,531.45 01.04.00 31.03.01 01-02 3,068.25 01.04.01 31.03.02 02-03 4,620.14 01.04.02 31.03.03 03-04 3,937.09 01.04.03 31.03.04 04-05 7,897.46 01.04.04 31.03.05 05-06 5,014.88 01.04.05 31.03.06 06-07 7,746.20 8. THE ASSESSING OFFICER HAS NOT SHOWN THAT THE FUN DS FOR THE INVESTMENTS IN THE EQUITY SHARES CAME OUT F ROM THE BORROWINGS MADE BY THE ASSESSEE ON WHICH INTEREST EXPENDITURE WAS CLAIMED. IN THE ABSENCE OF THE SAME AND IN VIEW OF THE DETAILS FURNISHED BY TH E ASSESSEE, THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENTS IN QUESTION WERE MADE OUT OF THE INTERN AL CASH ACCRUALS AND PROCEEDS OF ISSUE OF EQUITY SHARES AND OUT OF THE COMPANY OWN FUNDS IS REQUIRED TO BE ACCEPTED. DISALLOWANCE OF EXPENDITUR E ON ACCOUNT OF INTEREST U/S.14A CANNOT BE MADE AUTOMATICALLY ON THE GROUND THAT INTEREST EXPENSES HAVE BEEN CLAIMED IN THE P & L ACCOUNT WHEN THE ASSESSEE HAS FURNISHED EXPLANATION CLAIMING THAT NO INTEREST BEARING FUNDS HAVE BEEN UTILIZED IN MAKING THE INVESTMENT IN QUESTION AND THE ASSESSING SUPREME INDUSTRIES LTD. 14 OFFICER HAS NOT FOUND THE SAID EXPLANATION AS NOT ACCEPTABLE. FOR MAKING THE DISALLOWANCE OF EXPENDITURE, THE ASSESSING OFFICER IS REQUIRED TO S HOW AS TO WHY HE IS NOT SATISFIED WITH THE ASSESSEE'S EXPLANATION AND HE IS ALSO TO SHOW THAT INTEREST- BEARING FUNDS WERE UTILIZED FOR MAKING THE INVESTMENTS, INCOME FROM WHICH WAS BEING CLAIMED AS EXEMPT. THIS IS WHAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS HELD IN THE CASE OF GODREJ & BOYCE MFG CO. LTD (SUPRA) AND THIS IS WHAT HAS BEEN HELD BY THE HON'BLE DELHI COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. (SUPRA). 9. THE ASSESSEE HAS ALSO SHOWN THAT THE BORROWED FUNDS ON WHICH INTEREST HAS BEEN PAID IN THE A.Y.2006-07 ARE EARMARKED EITHER FOR WORKING CAPITAL OR FOR FURTHER EXPANSION AND THE LOANS ARE MONITORED BY THE BANKS AS TO THEIR UTILIZATION FOR THE PURPOSE FOR WHICH THEY HAVE BEEN GIVEN. HENCE, THE DECISION OF THE HON'BLE DELHI TRIBUNAL IN THE CASE OF MAHARASHTRA SEAMLESS LTD(ITA NO.4063/DEI/2006) AND DECISION OF THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF YATISH TRADING CO.(P ) LTD. (ITA NO.456/MUM/2009) IS DIRECTLY APPLICABLE I N FAVOUR OF THE ASSESSEE. FURTHER, IN THE ABSENCE OF THE ASSESSING OFFICER SHOWING THAT INTEREST-BEARING FUNDS OF THE ASSESSEE WERE UTILIZED FOR MAKING THE INVESTMENTS IN QUESTION, AND THE ASSESSEE SHOWING THAT IT HAD SUFFICIENT INTERNAL ACCRUALS BY WAY OF CASH PROFITS AT THE RELEVANT POINTS OF TIME WHEN SU CH INVESTMENTS WERE MADE, AND THAT THE INVESTMENTS WERE MADE OUT OF INTEREST-FREE FUNDS, THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIAN CE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340(BO M) WOULD BE DIRECTLY APPLICABLE IN FAVOUR OF THE ASSES SEE. ALSO, IN THE CASE OF CIT-II VS. HERO CYCLES LTD. REPORTED IN 323 FIR 518( P & H), IT HAS BEEN HELD B Y THE HON'BLE HIGH COURT AS FOLLOWS: 'MERELY BECAUSE THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE ON FUNDS BORROWED WOULD NOT IPSO FACTO INVITE THE DISALLOWANCE UNDER SECTION 14,4, UNLESS THERE IS EVIDENCE TO SHOW THAT SUCH INTEREST SUPREME INDUSTRIES LTD. 15 BEARING FUNDS HAVE BEEN INVESTED IN THE INVESTMENTS WHICH HAS GENERATED THE 'TAX EXEMPT DIVIDEND INCOME THERE IS NO NEXUS ESTABLISHED BY THE ASSESSING OFFICER IN THIS REGARD AND THEREFORE ON MERE PRESUMPTION PROVISIONS OF SEC. 14A CANNOT BE APPLIED.' 'EVEN UNDER RULE 8D OF SECTION 14A, DISALLOWANCE CA N BE MADE ONLY IF THERE IS ACTUAL NEXUS BETWEEN TAX- FREE INCOME AND EXPENDITURE. THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITUR E IS ALWAYS INCURRED WHICH MUST BE DISALLOWED U/S. 14A CANNOT BE ACCEPTED. THE CONTENTION OF THE REVENUE EVEN IF THE ASSESSEE HAS MADE INVESTMENTS IN SHARES OUT OF ITS OWN FUNDS, THE SAID OWN FUNDS ARE MERGED WITH THE BORROWED FUNDS IN A COMMON KITT Y AND, THEREFORE, DISALLOWANCE U/S 14A CAN BE MADE IS ALSO NOT JUSTIFIED. DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITU RE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A CANNOT STAND' 10. IN VIEW OF THE AFORESAID REASON, IN MY OPINION, THE ACTION OF THE ASSESSING OFFICER OF DISALLOWING INTEREST EXPENDITURE U/S.14A IS NOT JUSTIFIED AND THEREFORE, CANNOT BE UPHELD. THE SAME IS ACCORDINGLY DIRECTED TO BE DELETED. 5.2. IT IS NOTED FROM THE PERUSAL OF THE ORDER OF THE L D. CIT(A) THAT ELABORATE ANALYSES HAVE BEEN MADE BY TH E LD. CIT(A) BEFORE ARRIVING AT THE CONCLUSION THAT ASSES SEE HAD SUFFICIENT TAX-FREE FUNDS TO MAKE INVESTMENT IN THE TAX-FREE SECURITIES. UNDER THESE CIRCUMSTANCES, NO DISALLOWA NCE CAN BE MADE IN VIEW OF JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340(BOM). NOTHING WRONG WAS POINTED OUT BY THE LD. DR IN THE FACTUAL FINDINGS OF LD. CIT(A). U NDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY NEED TO MAKE INTERFERENCE IN THE WELL REASONED FINDINGS OF LD. C IT(A) AND SUPREME INDUSTRIES LTD. 16 THEREFORE, THESE ARE UPHELD. THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 6. AS A RESULT, THE APPEAL FILED BY THE REVENUE IS DI SMISSED. NOW WE SHALL TAKE UP APPEAL FILED BY THE ASSESSEE IN ITA NO.3139/MUM/2012 AGAINST THE ORDER OF THE LD. CIT(A) PASSED AGAINST THE ASSESSMENT ORDER DATED 24.12.2009 U/S 143(3) OF THE ACT, FOR ASSESSMENT YEAR 2007-08 ON THE FOLLOWING GROUNDS: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW IN REJECTING THE CLAIM OF THE APPELLAN T OF GIVING CONSEQUENTIAL EFFECT OF DEPRECIATION TO THE TUNE OF RS.2,13,41,938/- WHILE COMPUTING TAXABLE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AFTER CONSIDERING THE OUTCOME OF APPEAL FOR THE EARLIER ASSESSMENT YEARS. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW IN DISALLOWING A SUM OF RS.15,12,134/- BEING 5% OF DIVIDEND INCOME UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT) WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISION OF THE ACT AN D UNDER SECTION 1 15JB OF THE ACT. 3.WITHOUT PREJUDICE TO WHAT IS STATED IN GROUND NO. 2 ABOVE, THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN LAW IN REJECTING THE SCIENTI FIC WORKING OF DISALLOWANCE UNDER SECTION 14A OF THE AC T SUBMITTED BY THE APPELLANT. 4.WITHOUT PREJUDICE TO WHAT IS STATED IN 2 AND 3 ABOVE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN NOT RESTRICTING THE DISALLOWANCE TO RS.4,05,557/- UNDER SECTION 14A OF THE ACT BEING 1% OF DIVIDEND INCOME WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 11 5JB OF THE ACT. 5. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN LAW IN UPHOLDING THE ACTION OF THE ADDITIO NAL COMMISSOENR OF INCOME TAX, LTU, MUMBAI (HEREINAFTER SUPREME INDUSTRIES LTD. 17 REFERRED TO AS THE ASSESSING OFFICER) TO REDUCING THE CLAIM OF DEDUCTION UNDER SECTION 80IB OF THE ACT TO A SUM OF RS.2,68,44,966/- AS AGAINST THE CLAIM OF RS.2,75,51,761/- AS PER ITS RETURN OF INCOME IN RES PECT OF ITS UNIT AT SILVASSA. THE APPELLANT SUBMITS THAT THE LEARNED ASSESSING OFFICER BE DIRECTED: (I) TO GIVE CONSEQUENTIAL EFFECT IN RESPECT OF PEND ING APPEALS OF EARLIER YEARS IN RESPECT OF DEPRECIATION ALLOWANCE OF RS. 2,13 ,41,938/- WHILE COMPUTING THE TAXABLE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. (II) TO DELETE THE DISALLOWANCE OF RS. 15,12,134/- UNDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABLE INCO ME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 11 5JB OF THE ACT; (III) WITHOUT PREJUDICE TO WHAT IS STATED IN (II) ABOVE, TO RESTRICT THE DISALLOWANCE TO RS.7,127/- UNDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABL E INCOME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 115JB OF THE ACT; (IV) WITHOUT PREJUDICE TO WHAT IS STATED IN (II) AN D (III) ABOVE, TO RESTRICT THE DISALLOWANCE TO RS.3,02,426/ - UNDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISION OF THE ACT AN D UNDER SECTION 1 15JB OF THE ACT: (V) TO DELETE THE DISALLOWANCE OF RS.7,06,795/- UND ER SECTION 80IB AND TO MODIFY THE ASSESSMENT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 7. EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. 8. THE APPELLANT CRAVES LIBERTY TO ADD, TO ALTER AN D /OR AMEND THE GROUNDS OF APPEAL AS AND WHEN GIVEN. 7. GROUND NO.1 IS IDENTICAL TO GROUND NO.1 OF ASSESSEES APPEAL IN A.Y. 2006-07; THEREFORE AO IS DIRECTED TO FOLLOW OUR ORDER FOR A.Y. 2006-07 ON THIS GROUND. THIS GRO UND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NOS. 2, 3 & 4 ARE IDENTICAL TO GROUND NOS. 2,3 & 4 OF A.Y. 2006-07. THE AO IS DIRECTED TO SUSTAIN TH E SUPREME INDUSTRIES LTD. 18 DISALLOWANCE @ OF 1% OF DIVIDEND INCOME; BALANCE DISALLOWANCE IS DIRECTED TO BE DELETED. THESE GROUN DS ARE PARTLY ALLOWED. 9. GROUND NO.5: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN REDUCING THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT, TO A SUM OF RS.2,68, 44,966/- AS AGAINST THE CLAIM OF RS.2,75,51,761/- MADE AS PE R ITS RETURN OF INCOME IN RESPECT OF ITS UNIT AT SILVASSA . 9.1. THE BRIEF FACTS NOTED FORM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT SILVASSA UNIT OF THE ASSESSEE HAD RECEIVED A SUM OF RS.23.16 LAKHS, BEING CLAIM RECEI VED FROM WINDMULLER & HOLSCHER, GERMANY. IT WAS EXPLAINED BY THE ASSESSEE THAT THE SAID AMOUNT WAS RECEIVED FROM WINDMULLER & HOLSCHER K G, GERMANY IN PURSUANCE OF A CLAIM MADE ON ACCOUNT OF INFERIOR QUALITY OF PRODUC TION INITIALLY GENERATED OUT OF THE MACHINERY IMPORTED F ROM THE SAID PARTY. IF THE MACHINE WOULD HAVE DELIVERED STA NDARD QUALITY MATERIAL FROM THE BEGINNING, THE UNDERTAKIN G AT SILVASA WOULD HAVE EARNED HIGHER PROFITS AND WOULD HAVE BEEN ENTITLED FOR HIGHER DEDUCTION U/S 80IB. IT WAS FURTHER SUBMITTED THAT THE CLAIM AMOUNT RECEIVED REPRESENTE D COMPENSATION FOR LOSS OF PROFITS. BUT, AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE AND IT WAS HEL D BY HIM THAT THE AMOUNT OF CLAIM RECEIVED FROM WINDMULLER A ND HOLSCHER CANNOT BE SAID TO BE IN THE NATURE OF INCO ME FROM UNDERTAKING INVOLVED IN THE MANUFACTURING OF ELIGIB LE PRODUCTS. THUS, THE AO DENIED THE BENEFIT OF DEDUCT ION U/S 80IB ON THE AFORESAID AMOUNT. SUPREME INDUSTRIES LTD. 19 9.2 . DURING THE COURSE OF HEARING BEFORE LD. CIT(A), T HE ASSESSEE SUBMITTED THAT THE AFORESAID INCOME WAS INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE AND WAS GENERATED FROM THE INDUSTRIAL UNDERTAKING. IT WAS A LSO CONTENDED THAT THERE NEED NOT NECESSARILY WE DIRECT NEXUS BETWEEN THE ACTIVITY OF AN INDUSTRIAL UNDERTAKING A ND PROFITS AND GAINS. BUT, LD. CIT(A) DID NOT AGREE WITH THE SUBMISSION OF THE ASSESSEE AND HE REJECTED THE CLAI M OF THE ASSESSEE WITH FOLLOWING OBSERVATIONS: 14. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE ASSESSEE. I AGREE WITH THE ASSESSING OFFICER THAT DEDUCTION U/S.801B IS NOT ALLOWABLE TO THE ASSESSEE IN RESPECT OF THE ABOVE ITEMS OF INCOME FOR THE REASON THAT BOTH THESE ITEMS OF INCOME CANNOT BE SAID TO HAVE BEEN DERIVED FROM THE INDUSTRIAL UNDERTAKING. THE UNIT IS NOT ENGAGED IN THE MANUFACTURE OR PRODUCTION OF PACKING MATERIALS. THIS INCOME IS ONLY ATTRIBUTABLE TO THE INDUSTRIAL UNDERTAKING. SIMILARLY, THE CLAIM OF RS.23,16,000/- IS ALSO ONLY ATTRIBUTABLE TO THE INDUSTRIAL UNDERTAKING. THERE I S NO FIRST DEGREE NEXUS BETWEEN THE INDUSTRIAL UNDERTAKING AND THESE TWO ITEMS OF INCOME. HENCE, IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. REPORTED IN 317 ITR 218, DEDUCTION U/S 80IB CANNOT BE ALLOWED IN RESPECT OF THE INCOME ON ACCOUNT OF CLAIM AND ON ACCOUNT OF PACKING MATERIALS. THE ACTI ON OF THE ASSESSING OFFICER IS, THEREFORE UPHELD. THE ASSESSEE HAS MADE NO SUBMISSIONS IN RESPECT OF ITS WITHOUT PREJUDICE CONTENTION THAT IN THE EVENT THE AFORESAID AMOUNTS ARE NOT CONSIDERED FOR THE PURPOS E OF COMPUTING THE DEDUCTION U/S 801B, THE EXPENDITURE INCURRED FOR THE EARNING OF THE AFORESAID INCOME SH OULD ALSO NOT BE CONSIDERED AND THE ELIGIBLE PROFITS BE DETERMINED ACCORDINGLY FOR WORKING OUT THE DEDUCTIO N U/S 80IB. IT HAS ALSO NOT SHOWN AS TO THE AMOUNT OF DIRECT EXPENDITURE, IF ANY IN RELATION TO THESE ITE MS OF SUPREME INDUSTRIES LTD. 20 INCOME. THIS WITHOUT PREJUDICE CONTENTION IS, THERE FORE DISMISSED. THIS GROUND OF APPEAL IS DISMISSED. 9.3. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L VEHEMENTLY CONTESTED THE DISALLOWANCE MADE BY THE L OWER AUTHORITIES. IT WAS SUBMITTED THAT THE AMOUNT OF COMPENSATION WAS RECEIVED PURSUANT TO THE BAD PRODU CTION DUE TO DEFECT IN THE MACHINERY, IN ABSENCE OF WHICH THE ASSESSEE WOULD HAVE BEEN ABLE TO PRODUCE GOOD QUALI TY OF PRODUCT AND ENTITLED FOR A HIGHER CLAIM OF DEDUCTIO N UNDER SECTION 80IB AND HENCE THE SAID RECEIPT IS DERIVED FROM THE ELIGIBLE BUSINESS RELIANCE IS PLACED IN THE CASE OF PFIZER CORPORATION 330 ITR 62 9.4. THE LD. COUNSEL ALSO DREW OUR ATTENTION UPON THE C REDIT NOTE ISSUED BY THE SAID PARTY IN WHICH IT WAS STATE D THAT THE COMPENSATION WAS GIVEN AS PER DISCUSSIONS MADE WITH THE CONCERNED EXECUTIVES OF THE SAID PARTY AND ASSESSEE ON ACCOUNT OF BAD PRODUCTION. 9.5. PER CONTRA, LD. DR SUBMITTED THAT DISALLOWANCE HAS BEEN RIGHTLY UPHELD BY THE LD. CIT(A) SINCE ASSESSE E WAS NOT ABLE TO ESTABLISH FIRST DEGREE NEXUS BETWEEN THE AF ORESAID INCOME AND INDUSTRIAL UNDERTAKING OF THE ASSESSEE; IT WAS ALSO SUBMITTED THAT THE JUDGMENT OF HONBLE BOMBAY HIGH COURT WAS WITH RESPECT TO INSURANCE CLAIM AND THERE FORE IT WAS NOT APPLICABLE ON THE FACTS OF THE ASSESSEE, WH EREAS JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA LTD.(SUPRA) WAS CLEARLY APPLICABLE AND THEREF ORE THESE DEDUCTIONS WERE NOT AVAILABLE TO THE ASSESSEE, IN V IEW OF CLEAR JUDGMENT OF HONBLE SUPREME COURT AND SHE SUPREME INDUSTRIES LTD. 21 REQUESTED FOR UPHOLDING THE ORDER OF LD. CIT(A) ON THIS ISSUE. 9.6. WE HAVE GONE THROUGH THE FACTS OF THE CASE AS RECO RDED BY THE LOWER AUTHORITIES AS WELL AS THE JUDGMENTS P LACED BEFORE US FOR OUR CONSIDERATION BY BOTH THE SIDES. IT IS NOTED THAT HONBLE SUPREME COURT HAS CLEARLY LAID DOWN TH AT FOR GETTING BENEFIT OF DEDUCTION U/S 80IB, THERE MUST B E FIRST DEGREE NEXUS BETWEEN THE ACTIVITY CARRIED OUT BY IN DUSTRIAL UNDERTAKING AND EARNING OF THE INCOME. IT IS NOTED THAT AFORESAID COMPENSATION WAS RECEIVED BY THE ASSESSEE SINCE ASSESSEE WAS NOT ABLE TO CARRY OUT THE PRODUCTION. ON THE OTHER HAND, SECTION 80IB ENVISAGES THAT INCOME SHOU LD BE DERIVED FROM CARRYING OUT OF THE INDUSTRIAL ACTIVIT Y. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE AFO RESAID INCOME IS DERIVED FROM CARRYING OUT INDUSTRIAL ACTI VITY AND THUS, THE FIRST DEGREE NEXUS AS HAS BEEN STIPULATED BY THE HONBLE SUPREME COURT IS FOUND MISSING IN THIS CASE . THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RELIED UPON T HE LD. COUNSEL CANNOT BE APPLIED UPON THE FACTS BEFORE US, AS IT WAS ON ACCOUNT OF INSURANCE CLAIM RECEIVED ON ACCOU NT OF DAMAGES. UNDER THESE CIRCUMSTANCES, WE ARE UNABLE T O PROVIDE RELIEF TO THE ASSESSEE WITH RESPECT TO CLAI M OF DEDUCTION U/S 80IB ON THE AFORESAID INCOME, IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE LIBER TY INDIA LTD. (SUPRA). 9.7. THE SECOND PART OF THIS GROUND IS WITH REGARD TO ALLOWING CLAIM OF DEDUCTION U/S 80IB OF THE ACT, ON THE AMOUNT OF RECEIPT OF SALE PROCEEDS OF SALE OF PACKI NG SUPREME INDUSTRIES LTD. 22 MATERIAL AMOUNTING TO RS.3,85,621/-. THE AO HAD DISALLOWED THE BENEFIT ON THE AFORESAID AMOUNT FOR THE SIMILAR REASONS AS HAVE BEEN DISCUSSED ABOVE. 9.8. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L SUBMITTED THAT IN THE CASE OF CIT V. MEGHALAYA STEA L LTD. 383 ITR 217 (SC), IT HAS BEEN HELD BY HONBLE SUPRE ME COURT THAT IF AN ITEM OF RECEIPT GOES INTO THE REIM BURSEMENT OF THE COST OF PURCHASE/PRODUCTION OF GOODS, THEN T HE NET COST OF PURCHASE/PRODUCTION SHOULD BE CONSIDERED FO R COMPUTING PROFITS AND GAINS OF BUSINESS OF PROFESSI ON OF THE UNDERTAKING, AND THUS, THE BENEFIT OF DEDUCTION U/S 80IB ON THE SAID RECEIPT SHOULD NOT BE DENIED. IN ADDITION TO THAT, HE PLACED RELIANCE ON VARIOUS DECISIONS BY WAY OF NOTE SUBMITTED DURING THE COURSE OF HEARING WHEREIN IT W AS HELD THAT OTHER RECEIPTS ARE TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IB OF THE ACT. GIST OF TH ESE JUDGMENTS IS REPRODUCED HEREIN BELOW: 1. COMMISSIONER OF INCOME-TAX V. MODI XEROX LTD 365 ITR 200 (ALL.) THE COURT WHILE ALLOWING DEDUCTION UNDER SECTION 80 HHC OF THE ACT HELD THAT THE WORD 'DERIVED FROM' UNDER SECTION 80-HH HAS TO BE UNDERSTOOD AS SOMETHING WHICH HAS IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING. IN THE INSTANT CASE, THE SCRAP GENERATED FROM THE CONCERNE D UNITS HAS DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING SINCE THE SAID SCRAP HAS BEEN GENERATED FROM THE MANUFACTURING PROCESS ITSELF AND ANY INCOME FRO M SALE OF SUCH SCRAP HAS TO BE INCLUDED FOR PURPOSE OF BEN EFIT OF SECTION 80HH OF THE ACT. 2. COMMISSIONER OF INCOME-TAX V. SADHU FORGING LTD. 336 ITR 444 (DELHI) SUPREME INDUSTRIES LTD. 23 THE COURT WHILE ALLOWING DEDUCTION UNDER SECTION 80 -LB OF THE ACT HELD THAT MANUFACTURING ACTIVITY OF THE TYPE OF MATERIAL BEING UNDERTAKEN BY THE ASSESSEE WOULD ALSO GENERAT E SCRAP IN THE PROCESS OF MANUFACTURING. THE RECEIPTS OF SALE OF SCRAP BEING PART AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-IB OF THE ACT. 3. COMMISSIONER OF INCOME-TAX V. SPORTKING INDIA LTD.324 ITR 283 (DELHI) THE COURT WHILE ALLOWING DEDUCTION UNDER SECTION 80-IA OF THE ACT HELD THAT THERE IS DEFINITELY A NEXUS TO THE BUSINESS IS IN CASE THE G OODS OF A BUSINESS ARE DESTROYED AND FOR WHICH AN INSURANCE AMOUNT IS CLAIMED AND HENCE AMOUNT RECEIVED FROM TH E INSURANCE COMPANY SHOULD BE TAKEN INTO ACCOUNT IN DETERMINING THE PROFITS AND GAINS OF AN INDUSTRIAL UNDERTAKING UNDER SECTION 80-IA OF THE ACT. 4. DCIT V. HARJIVANDAS JUTHABHAI ZAVERI 258 ITR 785 (GUJ) THE AMOUNT RECEIVED BY THE ASSESSEE FOR JOB WORK, S ALE OF EMPTY SODA ASH, BARDATUI, EMPTY BARRELS, PLASTIC WA STES ETC. ARE ELIGIBLE TO BE CONSIDERED FOR DEDUCTION AV AILABLE UNDER SECTION 80-IA OF THE ACT. 5. ARVIND FASHIONS LTD. V. ACIT ITA NO. 1037/AHD/2005 DECIDED ON DEC 18, 2009 (AHD) SALE OF SCRAP INTEGRALLY FORMS PART OF THE MANUFACT URING ACTIVITY OF AN INDUSTRIAL UNIT AND THUS NEEDS TO BE CONSIDERED FOR CALCULATION OF DEDUCTION UNDER SECTI ON 80-LB OF THE ACT. 6. G. S. C. TOUGHENED GLASS (P.) LTD. V. ACIT (2007) 13 SOT 668 (DEL) INTEREST RECEIVED FROM SUPPLIERS AND INTEREST RECEI VED FROM CUSTOMERS ON DELAYED PAYMENT OF SALE CONSIDERATION ARE ELIGIBLE FOR DEDUCTION UND R SECTION 80-LB OF THE A CT, WHILE INTEREST RECEIVED FROM BANK IS NOT SO ELIGIBLE. SUPREME INDUSTRIES LTD. 24 9.9. LD. DR RELIED UPON THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 9.10. WE HAVE GONE THROUGH THE ORDER OF THE LOWER AUTHOR ITIES AS WELL AS JUDGMENT PLACED BEFORE US. IT IS NOTED T HAT AFORESAID AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE ON ACCOUNT OF SALE OF PACKING MATERIAL WHICH HAS BEEN CREDITED IN THE COST OF PURCHASE OF PACKING MATERIAL. THUS, EFFECTIVELY IT IS NET COST OF PURCHASE OF PACKING MATERIAL WHICH HAS BEEN CLAIMED AS ITEM OF EXPENSES IN COMPUTING PROFIT DERIVED FROM THE IN DUSTRIAL UNDERTAKING. ON THIS ISSUE, OUR ATTENTION HAS BROUG HT UPON THE RECENT JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT V. MEGHALAYA STEEL LTD. (SUPRA) WHEREIN IT WAS INTER ALIA OBSERVED AS UNDER: 28. IT ONLY REMAINS TO CONSIDER ONE FURTHER ARGUMEN T BY SHRI RADHAKRISHNAN. HE HAS ARGUED THAT AS THE SUBSI DIES THAT ARE RECEIVED BY THE RESPONDENT, WOULD BE INCOM E FROM OTHER SOURCES REFERABLE TO SECTION 56 OF THE INCOME TAX ACT, ANY DEDUCTION THAT IS TO BE MADE, CAN ONLY BE MADE FROM INCOME FROM OTHER SOURCES AND NOT FROM PROFITS AND GAINS OF BUSINESS, WHICH IS A SEPARATE AND DISTINCT HEAD AS RECOGNISED BY SECTION 14 OF THE INCOME TAX ACT. SHR I RADHAKRISHNAN IS NOT CORRECT IN HIS SUBMISSION THAT ASSISTANCE BY WAY OF SUBSIDIES WHICH ARE REIMBURSED ON THE INCURRING OF COSTS RELATABLE TO A BUSINESS, ARE UNDER THE HEAD INCOME FROM OTHER SOURCES, WHICH IS A RESIDU ARY HEAD OF INCOME THAT CAN BE AVAILED ONLY IF INCOME D OES NOT FALL UNDER ANY OF THE OTHER FOUR HEADS OF INCOME. S ECTION 28(III)(B) SPECIFICALLY STATES THAT INCOME FROM CAS H ASSISTANCE, BY WHATEVER NAME CALLED, RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA, WILL BE INCOME CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS OR PROFESSION. IF CASH ASSISTANC E RECEIVED OR RECEIVABLE AGAINST EXPORTS SCHEMES ARE SUPREME INDUSTRIES LTD. 25 INCLUDED AS BEING INCOME UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS OR PROFESSION, IT IS OBVIOUS THA T SUBSIDIES WHICH GO TO REIMBURSEMENT OF COST IN THE PRODUCTION OF GOODS OF A PARTICULAR BUSINESS WOULD ALSO HAVE TO BE INCLUDED UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS OR PROFESSION, AND NOT UNDER THE HEAD IN COME FROM OTHER SOURCES. 29. FOR THE REASONS GIVEN BY US, WE ARE OF THE VIEW THAT THE GAUHATI, CALCUTTA AND DELHI HIGH COURTS HAVE CO RRECTLY CONSTRUED SECTIONS 80-IB AND 80-IC. THE HIMACHAL PRADESH HIGH COURT, HAVING WRONGLY INTERPRETED THE JUDGMENTS IN STERLING FOODS AND LIBERTY INDIA TO ARRIVE AT THE OPPOSITE CONCLUSION, IS HELD TO BE WRONGLY D ECIDED FOR THE REASONS GIVEN BY US HEREINABOVE. 9.11. FROM THE PERUSAL OF THE ABOVE, IT MAY BE NOTED THA T HONBLE SUPREME COURT HAS CLARIFIED THIS ISSUE AFTE R CONSIDERING ITS EARLIER JUDGMENTS IN THE CASE OF ST ERLING FOODS AS WELL AS LIBERTY INDIA. THUS, FROM THE JUDGMENT O F HONBLE SUPREME COURT IT BECOMES CLEAR THAT ITEMS OF RECEIP TS WHICH GO TO REDUCE THE COST SHOULD NOT BE DEALT WITH SEPA RATELY. BUT, IT SHOULD BE CREDITED TO THE RESPECTIVE HEAD OF COS T, AND PROFITS OF THE INDUSTRIAL UNDERTAKING SHOULD BE COMPUTED AC CORDINGLY. UNDER THESE CIRCUMSTANCES, IT WOULD NOT BE LEGALLY PERMISSIBLE TO DENY THE BENEFIT OF DEDUCTION U/S 80IB ON SUCH R ECEIPTS. THUS, RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF HONBLE SUPREME COURT, WE DIRECT THE AO TO GRANT THE BENEFI T OF DEDUCTION U/S 80IB ON THE SALE PROCEEDS OF PACKING MATERIAL AMOUNTING TO RS.3,85,621/-. THUS, GROUND NO.5 IS PA RTLY ALLOWED. 10. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. SUPREME INDUSTRIES LTD. 26 NOW WE SHALL TAKE UP APPEAL FILED BY THE REVENUE IN ITA NO.3807/MUM/2012 FOR ASSESSMENT YEAR, 2007-08 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF DISALLOWA NCE MADE BY THE A.O U/S 14A OF THE LT ACT, 1961. 11. THE ONLY GROUND RAISED BY THE REVENUE IS WITH REGA RD TO DISALLOWANCE ON ACCOUNT OF INTEREST MADE BY THE AO U/S 14A WHICH WAS DELETED BY LD. CIT(A). IT IS NOTED THAT T HIS GROUND IS IDENTICAL TO THE GROUND RAISED BY THE REVENUE FOR A .Y. 2006- 07. THUS, RELYING UPON OUR ORDER FOR A.Y. 2006-07, THESE GROUND RAISED BY THE REVENUE IS HEREBY DISMISSED. NOW WE SHALL TAKE UP APPEAL FILED BY THE ASSESSEE I N ITA NO.3140/MUM/2012 FOR ASSESSMENT YEAR, 2008-09 AGAINST THE ORDER PASSED BY THE LD. CIT(A) DATED 14.03.2012 PASSED AGAINST THE ASSESSMENT ORDER OF THE AO U/S 143(3) DATED 23.12.2010 ON THE FOLLOWING GROUNDS: 1.THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW IN REJECTING THE CLAIM OF THE APPELLAN T OF GRANTING CONSEQUENTIAL EFFECT OF DEPRECIATION TO TH E TUNE OF RS.1,77 , 68,229/- WHILE COMPUTING TAXABLE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT AFTER CONSIDERING THE OUTCOME OF APPEAL FOR THE EARLIER ASSESSMENT YEARS. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, MUMBAI (HEREINAFTE R REFERRED AS 'THE ASSESSING OFFICER') IN DISALLOWING A SUM OF RS.17,04,380/- UNDER RULE 8D(2)(III) OF THE INCO ME TAX RULES, 1962 (THE RULES) READ WITH SECTION UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT) WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISI ON SUPREME INDUSTRIES LTD. 27 OF THE ACT AND UNDER SECTION 11 5JB OF THE ACT. 3.WITHOUT PREJUDICE TO WHAT IS STATED IN GROUND NO. 2 ABOVE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW IN REJECTING THE SCIENTIFIC WORKING OF DISALLOWANCE UNDER SECTION 14A OF THE ACT SUBMIT TED BY THE APPELLANT. 4. WITHOUT PREJUDICE TO WHAT IS STATED IN 2 AND 3 A BOVE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN NOT RESTRICTING THE DISALLOWANCE TO RS.3,59,860/ UNDER SECTION 14A OF THE ACT BEING 1% OF DIVIDEND INCOME WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISI ON OF THE ACT AND UNDER SECTION 115JB OF THE ACT. 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW IN UPHOLDING THE ACTION OF THE ADDITIONAL COMMISSIONER OF INCOME TAX, LTU, MUMBAI (HEREINAFTER REFERRED TO AS 'THE ASSESSING OFFICER' ) OF REDUCING THE CLAIM OF DEDUCTION UNDER SECTION 801B OF THE ACT TO A SUM OF RS.6,03,13,947/- AS AGAINST THE CLAIM OF RS.6,04,73,590/- AS PER ITS RETURN OF INCO ME IN RESPECT OF ITS UNIT AT SILVASSA. 6.THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN LAW UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF RS.41,523/- BASED O N THE AIR INFORMATION ON THE GROUND THAT THE SAID RECEIPT S COULD NOT BE RECONCILED AND WERE NOT OFFERED FOR INCOME. 7. THE APPELLANT SUBMITS THAT THE LEARNED ASSESSING OFFICER BE DIRECTED (I) TO GRANT CONSEQUENTIAL EFFECT IN RESPECT OF PENDING APPEALS OF EARLIER YEARS IN RESPECT OF DEPRECIATION ALLOWANCE OF RS. 1,77,68,229/- WHILE COMPUTING THE TAXABLE TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. (II) TO DELETE THE DISALLOWANCE OF RS. 17,04,380/- UNDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABLE INCO ME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 11 5JB OF THE ACT; (III) WITHOUT PREJUDICE TO WHAT IS STATED IN (II) ABOVE, TO RESTRICT THE DISALLOWANCE TO RS.2,27,817/ - UNDER SECTION 14A OF THE ACT WHILE COMPUTING TAXABL E INCOME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 1 15JB OF THE ACT; (IV) WITHOUT PREJUDICE TO WHAT IS STATED IN (II) AND (II I) SUPREME INDUSTRIES LTD. 28 ABOVE, TO RESTRICT THE DISALLOWANCE TO RS.3,59,861/ - UNDER SECTION 14A OF THE ACT BEING 1% OF DIVIDEND INCOME WHILE COMPUTING TAXABLE INCOME UNDER NORMAL PROVISION OF THE ACT AND UNDER SECTION 11 5JB OF TH E ACT; (V) TO DELETE THE DISALLOWANCE OF RS. 1,59,643/- UNDER SECTION 80-IB; (VI) TO DELETE THE DISALLOWANCE OF RS.41,523/- BEING INCOME NOT OFFERED FOR TAX; 6. EACH OF THE ABOVE GROUNDS OF APPEAL ARE INDEPEND ENT AND WITHOUT PREJUDICE TO EACH OTHER. 7. THE APPELLANT CRAVES LIBERTY TO ADD, TO ALTER AN D /OR AMEND THE GROUNDS OF APPEAL AS AND WHEN GIVEN. 12. GROUND NO.1 IS IDENTICAL TO GROUND NO.1 OF ASSESSEES APPEAL IN A.Y.2006-07. THE AO IS DIRECTED TO FOLLOW OUR ORDER FOR A.Y.2006-07. THIS GROUND MAY BE TREATED AS ALLO WED FOR STATISTICAL PURPOSES. 13. GROUND NOS.2, 3 & 4: THESE GROUNDS DEAL WITH THE DISALLOWANCE MADE U/S 14A OF THE ACT. 13.1. THE BRIEF BACKGROUND OF THE CASE IF THAT IN THIS Y EAR RULE 8D BECAME APPLICABLE AND ACCORDINGLY THE AO MADE DISALLOWANCE OF RS.1,36,19,568/- AS PER THE METHOD PRESCRIBED IN RULE 8D(2)(II) ON ACCOUNT OF INTEREST EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME OF THE ASSESSEE AND OF RS.17,04,380/- AS PER METHOD PRESCRIBED IN RULE 8D(2)(III) ON ACCOUNT OF ADMINIS TRATIVE AND OTHER EXPENSES INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. IN T HE APPEAL BEFORE LD. CIT(A), IT WAS NOTED BY HIM THAT DISALLO WANCE OF INTEREST WAS MADE IN IDENTICAL MANNER AS WAS MADE I N A.Y. 2006-07 AND THEREFORE RELYING UPON HIS ORDER OF A.Y .2006-07, HE DISALLOWANCE OF INTEREST WAS DELETED AGAINST WHI CH REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL. WITH REGARD TO SUPREME INDUSTRIES LTD. 29 DISALLOWANCE OF ADMINISTRATIVE AND OTHER EXPENSES, LD. CIT(A) UPHELD THE DISALLOWANCE AGAINST WHICH ASSESSEE IS I N APPEAL BEFORE US. 13.2. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L SUBMITTED IN APPEAL THAT PROVISIONS OF RULE 8D(2)(I II) HAVE NOT BEEN APPLIED CORRECTLY ON THE FACTS OF THIS CASE. I T WAS SUBMITTED THAT COMPUTATION OF INCOME FILED FOR A.Y. 2008-09 ALONG WITH RETURN OF INCOME REVEALS THAT ASSESSEE H AD MADE SUO MOTTO DISALLOWANCE OF RS.2,27,817/-, AND THE BASIS OF DISALLOWANCE WAS ALSO FURNISHED WHICH IS EVIDENT FR OM THE PAGE NO.28 OF THE PAPER BOOK. BUT, IN THE ASSESSMEN T ORDER THE AO DID NOT RECORD ANY SATISFACTION OR ANY FINDI NG TO THE EFFECT THAT THE DISALLOWANCE MADE BY THE ASSESSEE W AS NOT APPROPRIATE HAVING REGARD TO THE ACCOUNT OF THE ASS ESSEE AND FACTS OF THE CASE. THUS, UNDER THESE CIRCUMSTANCES, HE DID NOT ASSUME JURISDICTION TO MAKE FURTHER DISALLOWANCE UN DER THE LAW AS CONTAINED IN SECTION 14A READ WITH RULE 8D. IT WAS FURTHER SUBMITTED BY HIM THAT DETAILS OF INVESTMENT S AVAILABLE AT PAGE 97 OF THE PAPER BOOK SHOWS THAT MOST OF THE INVESTMENTS REMAINED SAME DURING THE YEAR AS COMPAR ED TO EARLIER YEAR. THUS, NO FURTHER EXPENDITURE WAS INCU RRED IN ABSENCE OF ANY FRESH INVESTMENTS. IT WAS ALSO SUBMI TTED THAT ASSESSEE HAD MADE SUBSTANTIAL INVESTMENT IN M/S. SU PREME PETROCHEM LTD. AS WELL AS SUPREME INDUSTRIES OVERSE AS (FZE) A WHOLLY OWNED SUBSIDIARY INCORPORATED IN UAE. IT W AS SUBMITTED THAT BOTH COMPANIES WERE GROUP COMPANIES OF THE ASSESSEE AND THE INVESTMENT WAS MADE FOR STRATEGIC REASONS. THUS, WHILE APPLYING RULE 8D(2)(III), THESE INVESTM ENTS SHOULD SUPREME INDUSTRIES LTD. 30 BE EXCLUDED FOR COMPUTING THE AVERAGE AMOUNT OF INV ESTMENTS. IT WAS ALSO ARGUED THAT INCOME IN THE FORM OF DIVID END EARNED FROM THE OVERSEAS SUBSIDIARY WOULD BE TAXABLE IN IN DIA IN THE HANDS OF ASSESSEE COMPANY. THUS, THESE INVESTMENTS NEED TO BE EXCLUDED FOR THE SAID REASONS ALSO. IT WAS SUBMI TTED THAT IN CASE THESE INVESTMENT ARE EXCLUDED, THEN THE DISALL OWANCE THAT CAN BE MADE ON THE BASIS OF 0.5% OF THE AVERAG E VALUE OF REMAINING INVESTMENT WOULD WORKS OUT TO RS.26,912/- . COPY OF WORK SHEET WAS SUBMITTED TO DEMONSTRATE THE SAID WORKING. IN SUPPORT OF HIS ARGUMENTS, THE LD. COUNSEL RELIED UPON THE FOLLOWING JUDGMENTS: 1. CIT V. ORIENTAL STRUCTURAL ENGINEERS P. LTD. (IT A NO.605 OF 2012(DELHI HC) 2. BHUPINDER INVESTMENT CO. P. LTD. V. DCIT (ITA NO.6326/MUM2011)(ITAT MUMBAI) 3. JIGAR P. SHAH V. ACIT (ITA NO.4366/MUM/2014) DAT ED 24.02.2016 13.3. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF THE LOW ER AUTHORITIES AND ALSO SUBMITTED THAT THERE WAS NO RE ASON TO EXCLUDE THE INVESTMENTS CLAIMED TO BE MADE FOR STRA TEGIC REASONS. 13.4. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES, ORDERS OF LOWER AUTHORITIES AS WELL AS J UDGMENTS PLACED BEFORE US. IT IS NOTED THAT INVESTMENT MADE IN OVERSEAS SUBSIDIARY I.E. SUPREME INDUSTRIES (INCORPORATED IN UAE) FOR RS.18,87,955/- SHALL EARN TAXABLE INCOME. THUS, IT SHOULD BE STRAIGHT AWAY EXCLUDED FOR COMPUTING AVERAGE VALUE INVESTMENTS. WITH REGARD TO THE EXCLUSION OF INVES TMENTS SUPREME INDUSTRIES LTD. 31 MADE FOR STRATEGIC REASONS, IT IS NOTED THAT OUR AT TENTION HAS BEEN DRAWN ON VARIOUS JUDGMENTS (AS MENTIONED ABOVE ) WHEREIN THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF TH E ASSESSEE. IT IS FURTHER NOTED BY US THAT NOTHING HAS BEEN BRO UGHT BEFORE US BY LOWER AUTHORITIES OR BY THE LD. DR TO OPPOSE THE ARGUMENT OF THE ASSESSEE. ON FACTS, THE ASSESSEE SU BMITTED THAT THE INVESTMENTS IN SUPREME GROUP COMPANIES WER E MADE FOR COMMERCIAL EXPEDIENCY AND FOR STRATEGIC REASONS . THESE FACTS HAVE NOT BEEN DISPUTED. WE FIND THAT IN THE C ASE OF CIT V. ORIENTAL STRUCTURAL ENGINEERS P. LTD., HONBLE DELH I HIGH COURT UPHELD THE ORDER OF DELHI BENCH OF THE TRIBUN AL WHEREIN IT WAS OBSERVED AS UNDER: 6.3 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AN D PERUSED THE RECORDS. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT ONLY INTEREST OF RS. 2,96,731/- WAS PAID ON FUNDS UTILIZED FOR MA KING INVESTMENTS ON WHICH EXEMPTED INCOME WAS RECEIVABLE . FURTHER, LD. COMMISSIONER OF INCOME TAX (APPEALS) H AS OBSERVED THAT IN RESPECT OF INVESTMENT OF RS 6,07,775,000/- MADE IN SUBSIDIARY COMPANIES AS PER DOCUMENTS PRODUCED BEFORE HIM, THEY ARE ATTRIBUTABL E TO COMMERCIAL EXPEDIENCY, BECAUSE AS PER SUBMISSION MA DE BY THE ASSESSEE, IT HAD TO FORM SPECIAL PURPOSE VEH ICLES (SPV) IN ORDER TO OBTAIN CONTRACTS FROM THE NHAI AN D THE SPVS SO FORMED ENGAGED THE ASSESSEE COMPANY AS CONTRACT TO EXECUTE THE WORKS AWARDED TO THEM (I.E. SPVS) BY THE NHAI. IN ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR, THE ASSESSEE HAS SHOWN THE TURNOVER FROM EXECUTION OF T HESE CONTRACTS AND THEREFORE NO EXPENSE AND INTEREST ATTRIBUTABLE TO THE INVESTMENTS MADE BY THE APPELLA NT IN THE PSVS CAN BE DISALLOWED U/S 14A R.W. RULE 8D BEC AUSE IT CANNOT BE TERMED AS EXPENSE INTEREST INCURRED FO R EARNING EXEMPTED INCOME. UNDER THE CIRCUMSTANCES, L D. COMMISSIONER OF INCOME TAX (APPEALS) IS CORRECT IN HOLDING THAT DISALLOWANCE OF A FURTHER SUM RS 40,556/- CALC ULATED @ 2% OF THE DIVIDEND EARNED IS SUFFICIENT. UNDER TH E SUPREME INDUSTRIES LTD. 32 CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS),HENCE WE UPHOLD THE SAME. 13.5. FURTHER, IN THE CASE OF BHUPINDER INVESTMENT CO. P . LTD.(SUPRA), IT WAS OBSERVED THAT STRATEGIC INVESTM ENT IN THE ASSOCIATED CONCERNS IS NOT INTENDED FOR THE PURPOSE OF EARNING TAX FREE INCOME BUT TO ACQUIRE THE CONTROL OVER THE SE CONCERNS AND THEREFORE THESE SHOULD BE EXCLUDED FOR THE PURP OSE OF COMPUTING AVERAGE VALUE INVESTMENTS. IN ANOTHER JUD GMENT RELIED BY THE LD. COUNSEL IN THE CASE OF JIGAR P. S HAH (SUPRA), IT WAS OBSERVED ON THIS ISSUE BY THE BENCH AS UNDER : 4. THE LD. A.R. OF THE ASSESSEE HAS FURTHER BROUGHT OUR ATTENTION TO THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF CIT, PANAJI, GOA VS. PHIL CORPN. LT D. (2011) 202 TAXMAN 368 WHEREIN THE HONBLE BOMBAY HIGH COUR T HAS HELD THAT WHERE THE INVESTMENT IN SHARES OF SISTER/SUBSIDIARY COMPANY IS MADE TO HAVE CONTROL O VER THAT COMPANY AND FURTHER THAT SUCH AN INVESTMENT WA S ACCORDINGLY PART OF THE BUSINESS OF THE ASSESSEE, I N THAT EVENT THE ASSESSEE IS ENTITLED TO DEDUCTION OF INTE REST PAID ON THE BORROWED AMOUNT UNDER SECTION 6(1)(III) OF T HE ACT. WE, FURTHER FIND THAT RECENTLY THE HONBLE DELHI HI GH COURT IN THE CASE OF EICHER GOODEARTH LTD. VS. CIT (201 5) 60 TAXMAN.COM 268 (DEL.) HAS HELD THAT IF THE EXPENDIT URE IS INCURRED FOR THE PURPOSE OF PROMOTION OF BUSINESS-M ORE SPECIFICALLY TO RETAIN CONTROL OR AS PART OF HIS ST RATEGIC INVESTMENT OF THE ASSESSEE COMPANY, SUCH EXPENSES B Y WAY OF INTEREST OUT GO WOULD HAVE TO BE TREATED AS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. 5. IN VIEW OF THE ABOVE DECISIONS AND RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO VERIFY THE CLAIM OF T HE ASSESSEE REGARDING THE STRATEGIC INVESTMENTS AND EX CLUDE THE STRATEGIC INVESTMENTS WHILE CALCULATING THE DISALLOWANCE UNDER RULE 8D FOR THE PURPOSE OF SECTI ON 14A OF THE INCOME TAX ACT. SUPREME INDUSTRIES LTD. 33 13.6. IT IS FURTHER NOTED BY US NO CONTRARY VIEW WAS MAD E AVAILABLE BEFORE US BY THE LD. DR, NOR FACTS STATED BY LD. COUNSEL WERE DISPUTED. UNDER THESE CIRCUMSTANCES, W E DIRECT THE AO TO EXCLUDE THE AFORESAID INVESTMENT FOR COMP UTING AVERAGE VALUE OF INVESTMENTS OF WHICH 0.5% NEEDS TO BE DISALLOWED UNDER RULE 8D(2)(III). IN CASE, THE DISA LLOWANCE SO WORKED OUT COMES BELOW THE AMOUNT OF DISALLOWANCE M ADE BY THE ASSESSEE AS RS.2,27,817/-, THEN THE DISALLOWANC E WOULD BE SUSTAINED AT RS.2,27,817. THUS, THIS GROUND MAY BE TREATED AS PARTLY ALLOWED. 14. GROUND NO.5: IN THIS GROUND THE ASSESSEE HAS CONTESTED THE ACTION OF LOWER AUTHORITIES IN DENYING THE BENE FIT OF DEDUCTION U/S 80IB ON ACCOUNT OF RECEIPT OF SALE PR OCEEDS OF PACKING MATERIAL ONLY. THIS ISSUE HAS BEEN DECIDED BY US IN FAVOUR OF THE ASSESSEE IN ASSESSEES APPEAL FOR A.Y .2007-08. THUS, RESPECTFULLY FOLLOWING OUR ORDER WE DECIDE TH IS GROUND IN FAVOUR OF THE ASSESSEE. 15. GROUND NO.6 WAS NOT PRESSED, THEREFORE, DISMISSED. 16 . AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. NOW WE SHALL TAKE REVENUES APPEAL IN ITA NO.3809/MUM/2012 FOR A.Y. 2008-09 ON THE FOLLOWING GROUNDS: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF DISALLOWA NCE MADE BY THE AO U/S 14A OF THE IT ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE ADDITION TO RS.17,04,380/- AS AGAINST THE DISALLOWANCE OF SUPREME INDUSTRIES LTD. 34 RS.1,53,33,948/- MADE BY THE AO FOR THE PURPOSE OF COMPUTING BOOK PROFIT AS PER THE PROVISIONS OF SECTION 115JB OF THE I.T. ACT. 17. THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A ) IN DELETING THE DISALLOWANCE OF INTEREST MADE U/S 14A READ WITH RULE 8D(2)(II). IT IS NOTED THAT THE LD. CIT(A) HAS RELIED UPON HIS OWN ORDER FOR A.Y. 2006-07 WHILE GIVING RELIEF TO T HE ASSESSEE. WE HAVE ALREADY DECIDED THIS ISSUE AGAINST THE REVE NUE AND IN FAVOUR OF THE ASSESSEE BY DISMISSING THE APPEAL FOR REVENUE FOR A.Y. 2006-07. BOTH THE PARTIES JOINTLY STATED T HAT THE FACTS AS WELL AS LEGAL POSITION REMAIN SAME IN THIS YEAR ALSO. THUS, FOLLOWING OUR ORDER FOR A.Y. 2006-07, THESE GROUNDS RAISED BY THE REVENUE IN THIS APPEAL ARE ALSO DISMISSED. 18. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISMIS SED. 19. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED AND APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2016. SD/- (MAHAVIR SINGH ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 21/12/2016 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. SUPREME INDUSTRIES LTD. 35 / BY ORDER, # //TRUE COPY// / (DY./ASSTT.) REGISTRAR) , / ITAT, MUMBAI