SAJJAN INDIA LTD., MUMBAI V. ACIT 7(2), MUMBAI

ITA 449/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6620 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A; 80IB; 10B; 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL M EMBER . / ITA NO. 449 /MUM./201 1 ( / ASSESSMENT YEAR : 200 7 08 ) . / ITA NO. 7532/MUM./2011 ( / ASSESSMENT YEAR : 2008 09 ) . / ITA NO. 5856 /MUM./2012 ( / ASSESSMENT YEAR : 20 09 10 ) M/S. SAJJAN INDIA LIMITED C/O SHANKARLAL JAIN & ASSOCIATES 12, ENGINEER BUILDING, 265 PRINCESS STREET MUMBAI 400 002 .. / APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 7(2), MUMBAI .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AAACS6498M / ASSESSEE BY : MR. S.L. JAIN / REVENUE BY : MR. ASHOK SURI / DATE OF HEARING 06 .0 3 .201 4 / DATE OF ORDE R 23.04.2014 M/S. SAJJAN INDIA LIMITED 2 / ORDER / PER BENCH THE AFORESAID APPEAL S HAVE BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 28 TH JANUARY 2010, FOR THE ASSESSMENT YEAR 2007 08, ORDER 2 5 TH JULY 20 11 , FOR THE ASSESSMENT YEAR 2008 09 AND ORDER DATED 30 TH JULY 2012, FOR THE ASSESSMENT YEAR 2009 10 RESPECTIVELY, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XIII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT ' ). 2 . SINCE ALL THESE APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVING COMMON ISSUES , ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CO NSOLIDATED ORDER. HOWEVER, IN ORDER TO UNDERSTAND THE IMPLICATION, IT WOULD BE NECESSARY TO TAKE NOTE OF THE FACTS OF ONE APPEAL. WE ARE, ACCORDINGLY, NARRATING THE FACTS, AS THEY APPEAR IN THE APPEAL IN ITA NO. 449 /MUM./201 1 , FOR ASSESSMENT YEAR 20 07 08, WHEREIN, FOLLOWING GROUNDS HAVE BEEN RAISED: LD. CIT(A) ERRED IN REDUCING PROFIT OF BUSINESS OF 10 - B UNIT WHILE CAL C ULATING PROFIT ELIGIBLE FOR DEDUCTION U/S LOB BY FOREIGN EXCHANGE GAIN OF R S . 1 , L 0,45 , 542 / - , MISCELLANEOUS INCOME OF RS.3,10,38,129/ - AND SUNDRY CREDITORS BALANCE WRITTEN OFF OF RS.2,61,959/ - , WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO. 2. LD. CIT(A) FAILED TO APPRECIATE THAT FOREIGN EXCHANGE GAIN IS BUSINESS INCOME OF 100% EOU EXEMPT U/S 10 B AND ENTIT LED FOR DEDUCTION U/S 10 B . 3 . LD. CIT(A) FAILED TO APPRECIATE THAT MISCELLANEOUS INCOME CONSIST OF SALE OF USED BARDANA AND SCRAP GENERATED IN MANUFACTURING AND HENCE SAME BEING BUSINESS INCOME IS ENTITLED FOR DEDUCTION U/S 10 B . M/S. SAJJAN INDIA LIMITED 3 4. LD. CIT(A) ERRED IN N OT CONSIDERING THE FACT THAT CREDIT BALANCE WRITTEN BACK BEING INCOME TAXABLE AS BUSINESS INCOME U/S 41(1) OF RS . 2,61,959/ - IS ENTITLED FOR NECESSARY DEDUCTION U/S 10 B OF THE INCOME TAX ACT . 5. LD. CIT(A) ERRED IN HOLDING THAT INCOME FROM INTEREST IS ASS ESSABLE UNDER THE HEAD ' OTHER SOURCES', WITHOUT APPRECIATING THAT SUCH INTEREST RELATES TO ADVANCES MADE TO STAFF AND INTEREST RECEIVED FROM BANK ON TEMPORARY FIXED DEPOSIT MADE OUT OF BUSINES S RECEIPTS . LD. CIT(A) FAILED TO APPRECIATE THAT INCOME BEING C LOSELY CONNECTED WITH CARRYING ON BUSINESS OF 10 B UNIT IS ENTITLED FOR DEDUCTION U/S 10 B OF LNCOME TAX ACT . 6. LD. CIT(A) ERRED IN HOLDING THAT ABOVE - REFERRED INCOME OF THE NATURE DESCRIBED IN GROUND NO. 1 TO 5 ARE NOT INCOME DERIVED FROM BUSINESS OF 10 0% EOU, WITHOUT CONSIDERING THE SPECIFIC PROVISIONS OF THE ACT AS PROVIDED U/S 10 B OF THE INCOME TAX ACT . 7. LD. CIT(A) ERRED IN CONFIRMING ADDITION TO THE INCOME OF THE APPELLANT O F RS . 4,31,804/ - ON ACCOUNT OF THE EXPORT INCENTIVE BEING TREATED ON CASH B ASIS INSTEAD OF ACCRUAL BASIS IN SPITE OF DECISION OF HON'BLE ITAT IN A . YS 03 - 04 AND 04 - 05, DIRECTING THE ASSESSMENT OF EXPORT INCENTIVE TO BE RECKONED ON ACCRUALS BASIS AS AGAINST CASH BASIS. 8. LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OUT OF INTERE S T OF RS.34,3L , 293 / - UNDER THE PROVISIONS OF SECTION 14A WITH CERTAIN DIRECTIONS, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO . 9 . LD. CIT (A) FAILED TO APPRECIATE THAT APPELLANT HAS ITS OWN CAPITAL AND FREE RESERV E, SUFFI CIENT TO FINANCE THE INVESTMENTS MADE AND APPELLANT HAS NOT UTILIZED ANY BORROWED FUNDS FOR MAKING THE INVESTMENT . 10 . LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE U/S 14A READ WITH RULE 8D (III) OF RS . 50,22,304/ - WITHOUT APPRECIATING THE FACT THAT NO EXPE NSE IS BEING INCURRED BY THE APPELLANT FOR EARNING OF DIVIDEND AND HENCE NO DISALLOWANCE IS CALLED FOR . 11 . THE LD. CIT(A) FAILED TO APPRECIATE THE APPELLANT'S SUBMISSIONS THAT COMMON ADMINISTRATIVE EXPENSES HAS BEEN ALLOCATED ON THE BASIS OF TURNOVER BET WEEN H E AD OFFICE AND TWO MANUFACTURING UNI TS ENTITLED FOR DEDUCTION U/S 10 B ON TURNOVER BASIS . HENCE , THE DISALLOWANCE, IF ANY, U/S 14A WILL BE REQUIRED TO BE MADE ACCORDINGLY AND ONLY OUT OF THE EXPENSES CLAIMED FOR MUMBAI UNIT. 12. THE LD. CIT(A) ERRED IN HOLDING THAT INCOME DERIVED FROM CAPTIVE POWER PLANT IS NOT ENTITLED FOR DEDUCTION U/S 80IB M/S. SAJJAN INDIA LIMITED 4 FOLLOWING ITS OWN ORDER IN EARLIER YEARS, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO. 3 . FACTS IN BRIEF : THE ASSESSEE IS EN GAGED IN THE BUSINESS OF DYES AND DYE INTERMEDIATES AND OTHER CHEMICALS. IT IS ALSO ENGAGED IN EXPORT AND IMPORT. THE ASSESSEE IS HAVING THREE UNITS; ONE OLD UNIT HAVING COMMENCED ITS PRODUCTION IN THE ASSESSMENT YEAR 1998 99 AND APPROVED AS UNIT ENTITLED FOR DEDUCTION UNDER SECTION 10B FROM THE ASSESSMENT YEAR 2002 03 ONWARDS; SECOND UNIT IS ENGAGED IN TRADING AND EXPORTS FROM HEAD OFFICE ; AND THIRD UNIT HAS BEEN SET UP AS A NEW 100% EXPORT ORIENTED UNIT KNOWN AS UNIT III , WHICH HAS AND COMMENCED ITS PRODU CTION DURING THE RELEVANT ASSESSMENT YEAR 2007 08. 4 . IN GROUND NO.1 TO 4, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF DEDUCTION UNDER SECTION 10B ON ACCOUNT OF (I) FOREIGN EXCHANGE GAIN; (II) MISC. INCOME BEING SALE OF USED BARDANA AND SCRAP FOR MANUFAC TURING UNIT; AND ( III ) CREDITORS BALANCE RETURN BACK TAXABLE UNDER SECTION 41(1). THE ASSESSING OFFICER, WHILE CALCULATING THE DEDUCTION UNDER SECTION 10B, HAS REDUCED THE INCOME BY FOREIGN EXCHANGE GAIN OF ` 1,10,45,542, MISC. INCOME OF ` 3,10,38,129 AND SUNDRY CREDIT BALANCE RETURNED BACK OF ` 2,61,959. 5 . THE LEARNED COMMISSIONER (APPEALS), AFTER FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN LIBERTY INDIA V/S CIT, [2009] 317 ITR 218 ( SC ) , AND THE DECISION OF HON'BLE SUPREME COURT IN PANDIAN CHEMIC ALS LTD. V/S CIT, [2003] , 262 ITR 278 ( SC ), DISMISSED THE CONTENTION OF THE ASSESSEE THAT THESE ARE NOT DERIVED FROM THE BUSINESS OF THE UNDERTAKINGS. 6 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT INSOFAR AS THE ISSUE OF FOREIGN EXCHANGE GAIN IS CONCERNED, THE SAME IS M/S. SAJJAN INDIA LIMITED 5 DIRECTLY COVERED BY THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT V/S RACHANA UDYOG, [2010] 230 CTR (BOM.) 72. AS REGARDS, MISC. INCOME ON ACCOUNT OF SALE OF USED BARDANA AND SCRAP OF MANUFACTURING UNIT, THE SAME IS COVERE D BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 03; AND LASTLY, THE ISSUE OF CREDITORS BALANCE RETURN BACK CHARGEABLE UNDER SECTION 41(1), THE SAME IS ALSO COVERED BY THE DECISION OF MADRAS HIGH COURT IN ICT V/S ABDUL REHMAN INDUSTRIES LTD., 293 ITR 475 (MAD.). 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) AND THE ASSESSING OFFICER. 8 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE ORD ERS OF THE AUTHORITIES BELOW AND THE MATERIAL AVAILABLE ON RECORD. INSOFAR AS THE ISSUE WHETHER FOREIGN EXCHANGE GAIN SHOULD BE INCLUDED IN THE PROFIT OF BUSINESS WHILE CALCULATING THE ELIGIBLE PROFIT OF UNIT LIABLE FOR DEDUCTION UNDER SECTION 10B, HAS BEE N DEALT BY THE BOMBAY HIGH COURT IN CIT V/S RACHANA UDYOG (SUPRA) IN DETAIL, WHEREIN THE HIGH COURT HAS HELD THAT THE EXCHANGE RATE FLUCTUATION ARISES OUT OF AND IS DIRECTLY RELATED TO THE SALE TRANSACTION INVOLVING EXPORT OF GOODS OF THE INDUSTRIAL UNDERT AKING. HENCE, THE SAME SHOULD NOT BE REDUCED WHILE CALCULATING THE ELIGIBILITY FOR DEDUCTION. THE RELEVANT OBSERVATION AND THE CONCLUSION OF THE HIGH COURT ARE AS UNDER: 4. HOWEVER, I NSOFAR AS THE QUESTION OF DIFFERENCE IN THE RATE OF EXCHANGE IS CONCER NED, THE SUBMISSION OF THE ASSESSEE BEFORE THE AO WAS THAT EXCHANGE RATE FLUCTUATION FORMS PART OF THE SALE PROCEEDS ELIGIBLE FOR DEDUCTION UNDER S. SO - LB . ACCORDING TO THE ASSESSEE , THE RECEIPT WAS DIRECTLY RELATED TO THE PROCESS OF CARRYING ON THE BUSIN ESS OF THE INDUSTRIAL UNDERTAKING. THE EXPORT INVOICES WERE MADE IN US DOLLAR TERMS ; WHEN THE SALE PROCEEDS OF GOODS EXPORTED ARE RECEIVED I N INDIA IN CONVERTIBLE FOREIGN EXCHANGE, THE RUPEE EQUIVALENT OF THE SALE PROCEEDS I S M/S. SAJJAN INDIA LIMITED 6 LIABLE TO VARY CONSEQUENT UPO N THE FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE BETWEEN TH E DATE WHEN THE GOODS ARE EXPORTED AND THE DATE ON WHICH THE SALE PROCEEDS ARE RECEIVED IN INDIA . IN OTHER WORDS, IT WAS THE CONTENTION OF THE ASSESSEE THAT THE VALUE OF THE GOODS EXPORTED REMAINS T HE SAME BUT THE RUPEE EQUIVALENT IS LIABLE TO VARY DUE TO FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE. CONSEQUENTLY, A BOOK ENTRY IS MADE IN ORDER TO ENSURE THAT THE RUPEE EQUIVALENT OF THE VALUE OF THE GOODS EXPORTED OUT OF INDIA IS CORRECTLY REFLECTED IN THE BOOKS OF ACCOUNT , SI NC E THE BOOKS ARE MAINTAINED IN RUPEE TERMS. 5. HAVING HEARD THE LEARNED COUNSEL APPEARING ON BEHALF OF THE APPELLANT AND LEARNED COUNSEL APPEARING FOR THE ASSESSEE, WE ARE OF THE VIEW THAT THE DIFFERENCE ON ACCOUNT OF EXCHAN GE RATE FLUCTUATION IS LIABLE TO BE ALLOWED UNDER S. 80 - IB. THE EXCHANGE RATE FLUCTUATION ARISES OUT OF AND IS DIRECTLY RELATED TO THE SALE TRANSACTION INVOLVING THE EXPORT OF GOODS OF THE INDUSTRIAL UNDERTAKING. THE EXCHANGE RATE FLUCTUATION BETWEEN THE R UPEE EQUIVALENT OF THE VALUE OF THE GOODS EXPORTED AND THE ACTUAL RECEIPTS WHICH ARE REALIZED ARISES ON ACCOUNT OF THE SALE TRANSACTION . THE DIFFERENCE ARISES PURELY AS A RESULT OF A FLUCTUATION IN THE RATE OF EXCHANGE BETWEEN THE DATE OF EXPORT AND THE DA TE OF RECEIPT OF PROCEEDS, SINCE THERE IS NO VARIATION IN THE SALE PRICE UNDER THE CONTRACT. THE VIEW WHICH WE HAVE TAKEN IS ALSO CONSISTENT WITH THE VIEW TAKEN BY A DIVISION BENCH 'OF THIS COURT ON 15TH DEC . , 2009 IN THE CASE OF SYNTEL LTD. (IT APPEAL NOS . 1974, 1976 AND 1978 OF 2009). IN THE CIRCUMSTANCES, WE WOULD AFFIRM THE JUDGMENT OF THE TRIBUNAL INSOFAR AS THE QUESTION OF EXCHANGE RATE FLUCTUATION IS CONCERNED . 9 . THUS, RESPECTFULLY FOLLOWING THE AFORESAID RATIO LAID DOWN BY THE BOMBAY HIGH COURT, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION ON ACCOUNT OF FOREIGN EXCHANGE GAIN WHILE CALCULATING THE PROFIT OF THE UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. THUS, THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 10 . INSOFAR AS THE ISSUE WH ETHER MISC. INCOME FROM SALE OF USED BARDANA AND SALE OF SCRAP GENERATED OUT OF MANUFACTURING UNIT ARE CONCERNED, THESE ARE DIRECTLY RELATED TO BUSINESS AND, HENCE, ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. THE SAME IS ALSO COVERED BY THE M/S. SAJJAN INDIA LIMITED 7 DECISION OF THE T RIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002 03, VIDE ORDER DATED 17 TH DECEMBER 2013, WHEREIN THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: WE FIND FORCE IN THE CONTENTION OF THE LD. COUNSEL. THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CORE HEALTHCARE LTD (SUPRA) HAS HELD THAT THE INCOME GENERATED ON SALE OF EMPTY CONTAINERS COULD BE SET OFF AGAINST THE PURCHASE COAST, IN OTHER WORDS BRING DOWN THE PURCHASE PRICE OF RAW MATERIAL, OR IT COULD BE TREATED AS INCOME DIRECTLY RELATABLE TO THE ACTIVITY OF INDUSTRIAL UNDERTAKING. A SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS SADHU FORGING LTD 336 ITR 444 WHEREIN THE DELHI HIGH COURT HAS HELD THAT WHEN THE ASSESSEE IS ENGAGED IN MANUFACTURE ACTIVITY OF THE TY PE BEING UNDERTAKEN BY THE ASSESSEE ,GENERATES SCRAP IN THE PROCESS OF MANUFACTURING, THEREFORE, THE RECEIPTS OF SALE OF SCRAP BEING PART AND PARCEL OF THE SAID ACTIVITY AND BEING PROXIMATE THERETO CONSTITUTE GAINS DERIVED FROM INDUSTRIAL UNDERTAKING FOR T HE PURPOSE OF COMPUTING DEDUCTION U/S. 80 - I B OF THE ACT. CONSIDERING THE NATURE OF BUSINESS OF THE ASSESSEE WHICH IS MANUFACTURING OF DYES AND INTERMEDIATES, NAPHTHOLS, PIGMENTS, AGROCHEMICALS AND OTHER CHEMICALS, GENERATION OF SCRAP. IS THE NATURAL OUTCOM E OF SUCH MANUFACTURING PROCESS AND ANY RECEIPT FROM. THE SALE OF SUCH SCRAP HAS A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. ON THIS NOTE THE FACTS ARE CLEARLY DISTINGUISHABLE FROM THE DECISION OF PANDIAN CHEMICALS (SUPRA). THEREFORE, RESPECTFULLY FO LLOWING THE DECISIONS OF THE HON'BLE GUJARAT AND DELHI HIGH COURT (SUPRA ) , WE DIRECT THE A.O. TO ALLOW THE ASSESSEE EXEMPTION U/S 10B ON THE RECEIPTS FROM THE SALE OF SCRAP. GROUND NO.1 IS ACCORDINGLY ALLOWED. 11 . THUS, CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 10B ON THE RECEIPTS FROM SALE OF USED BARDANA AND SALE OF SCRAP. 12 . NOW, COMING T O THE CLAIM OF DEDUCTION ON ACCOUNT OF CREDIT BALANCE RETURNED BACK BEING INCOME TAXABLE AS BUSINESS INCOME UNDER SECTION 41(1). A FTER HEARING BOTH THE PARTIES, WE ARE OF THE CONSIDERED OPINION THAT THESE ARE CLOSELY LINKED WITH THE CARRYING OF THE M/S. SAJJAN INDIA LIMITED 8 BUSIN ESS , BECAUSE THE PROVISIONS OF SECTION 41(1) CLEARLY ENVISAGES THAT SUCH A TRADING LIABILITY WHICH IS ADDED AS AN INCOME IS DEEMED TO BE THE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND IS ACCORDINGLY, CHARGEABLE TO TAX AS INCOME OF THAT PREVIOUS YEAR. THE MADRAS HIGH COURT IN ABDUL REHMAN INDUSTRIES (SUPRA) HAS HELD THAT UNCLAIMED CREDITORS APPEARING IN THE ASSESSEES BOOKS ON THE BASIS OF PURCHASES FROM VARIOUS SUPPLIERS IS DIRECTLY CONNECTED OR CLOSELY LINKED WITH ASSESSEES BUSINESS ACTIVITIES . THE R ECEIPTS ARISING ON ACCOUNT OF WRITING BACK THE UNCLAIMED BALANCES TO THE PROFIT & LOSS ACCOUNT , IS ASSESSABLE UNDER THE HEAD BUSINESS AND, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION IN RESPECT OF UNCLAIMED BALANCES RETURNED BACK WHILE COMPUTING TH E PROFIT UNDER SECTION 80HHC. THOUGH THIS RATIO WAS LAID DOWN IN THE CONTEXT OF DEDCUCTION UNDER SECTION 80HHC, HOWEVER, THE SAME PRINCIPLE WILL ALSO APPLY IN THE PRESENT CASE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO TAKE THE AMOUNT OF CREDIT BALAN CE RETURNED BACK ELIGIBLE FOR DEDUCTION UNDER SECTION 10B . THUS, THIS ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ISSUES ARISING OUT OF GROUND NO. 1 TO 4 ARE DECIDED IN FAVOUR OF THE ASSESSEE. 13 . GROUND NO.5, RELATES TO INTEREST RECEIVE D ON ADVANCES GIVEN TO STAFF AND FIXED DEPOSIT WITH BANK WHICH HAS BEEN TREATED AS INCOME FROM OTHER SOURCES BY THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 14 . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT HE DID NOT WISH TO PRESS THIS GROUND. LEARNED DEPARTMENTAL REPRESENTATIVE, ALSO DID NOT HAD ANY OBJECTION. CONSEQUENTLY, GROUND NO.5 IS DISMISSED AS NOT PRESSED . 15 . IN GROUND NO.6, THE ASSESSEE HAS CHALLENGED THE DIRECTION OF THE LEARNED COMMISSIONER (APPEALS) BY TREATING VARIOUS RECEIPTS AS NOT AN INCOME DERIVED FROM THE BUSINESS OF 100% EXPORT ORIENTED UNIT (EOU). M/S. SAJJAN INDIA LIMITED 9 AFTER HEARING THE PARTIES, WE FIND THAT T HE ASSESSEES MAIN GRIEVANCE IS THAT THE INCOME WHICH HAS BEEN REFERRED FROM GROUND NO.1 TO 5 HAS NOT BEEN TREATED AS INCOME WH ICH IS DERIVED FROM THE BUSINESS OF 100% EOU. INSOFAR AS THE INCOME ON ACCOUNT OF FOREIGN EXCHANGE GAIN, MISC. INCOME FROM SALE OF USED BARDANA AND SCRAP AND CREDIT BALANCE WRITTEN BACK ARE CONCERNED, THE SAME HAVE ALREADY BEEN TREATED AS BUSINESS INCOME WHICH ARE DERIVED FROM BUSINESS OF 100% EOU . AS REGARDS THE INTEREST INCOME, THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT WISH TO PRESS THIS ISSUE. CONSEQUENTLY, THE SAME IS NOT TREATED AS PART OF BUSINESS INCOME. WE FURHER OBSERVE THAT THE PROFIT OF BUSI NESS OF UNDERTAKING ELIGIBLE FOR DEDUCTION UNDER SECTION 10B INCLUDES THE PROFITS AND GAINS NOT ONLY FROM THE EXPORT OF CHEMICAL BUT ALSO OF OTHER INCIDENTAL INCOMES WHICH ARE DERIVED FROM BUSINESS OF THE UNDERTAKING. WHAT IS EXEMPTED IS NOT MERELY THE PRO FIT AND GAIN FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM BUSINESS OF THE UNDERTAKING. THIS VIEW FIND SUPPORT NOT ONLY FROM THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004 05 BUT ALSO BY THE DECISION OF THE KARNATAK A HIGH COURT IN CIT V/S MOTOROLA INDIA ELECTRONICS LTD., ITA NO.428/2007, AS REFERRED AND RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING. THUS, TH E GROUND NO.6, IS PARTLY ALLOWED. 16 . IN GROUND NO.7, THE ASSESSEE HAS CHALLENGED THE ADDITION OF ` 4,31,804 ON ACCOUNT OF EXPORT INCENTIVE BEING TREATED ON CASH BASIS INSTEAD OF TREATING IT ON ACCRUAL BASIS. 17 . BEFORE US, BOTH THE PARTIES ADMITTED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR T HE ASSESSMENT YEAR 2004 05 AND 2005 06, WHEREIN THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. M/S. SAJJAN INDIA LIMITED 10 18 . THE LEARNED COMMISSIONER (APPEALS) HAS NOTED THAT UP TO THE ASSESSMENT YEAR 1999 2000, THE ASSESSEE WAS ACCOUNTING FOR EXPORT INCENTIVE ON CASH B ASIS. FROM THE ASSESSMENT YEAR 2000 01, IT STARTED ACCOUNTING EXPORT INCENTIVE ON ACCRUAL BASIS AND THE SAID METHOD OF ACCOUNTING HAS BEEN REJECTED BY THE DEPARTMENT. HE ALSO RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S KALP ATARU COLOURS AND CHEMICALS, [2010] 328 ITR 451 (BOM.) AND DISMISSED THE ASSESSEES CONTENTION ON THIS ISSUE. 19 . THE LEARNED COUNSEL SUBMITTED THAT THE TRIBUNAL, IN THE ASSESSMENT YEAR 2004 05, GAVE RELIEF TO THE ASSESSEE AFTER FOLLOWING MUMBAI SPECIAL BENC H DECISION OF THE TRIBUNAL IN TOPMAN EXPORTS V/S INCOME TAX OFFICER, [2010] 124 ITD 1 (SB)(MUM.) AND THIS DECISION WAS REVERSED BY THE BOMBAY HIGH COURT IN KALPATARU COLOURS & CHEMICALS (SUPRA), WHICH HAS BEEN FOLLOWED BY THE LEARNED COMMISSIONER (APPEALS ). THIS DECISION OF THE HIGH COURT WAS AGAIN REVERSED BY THE HON'BLE SUPREME COURT IN TOPMAN EXPORTS V/S CIT, CIVIL APPEAL NO. 1699 OF 2012, JUDGMENT DATED 8 TH FEBRUARY 2012 . THE TRIBUNAL, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 06, HAS NOTED TH IS FACT AND THE DECISION OF THE HON'BLE SUPREME COURT AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 20 . AFTER HEARING BOTH THE PARTIES AND IN VIEW OF THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005 06 RENDERED IN ITA NO.6727 AND 6728/MUM./2010, ORDER DATED 10 TH AUGUST 2012, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. AS REGARDS CHANGING OF METHOD OF ACCOUNT ING FROM CASH TO ACCRUAL BASIS, THIS ISSUE WAS CONTESTED IN THE EARLIER YEARS ALSO BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2000 01 WHEREIN THE TRIBUNAL HAS RECOGNIZED THE CHANGE OF METHOD OF ACCOUNTING AS IT WAS IN CONSONANCE WITH THE PROVISIONS OF SECTION 145 , WHICH MANDATES THE ASSESSEE TO FOLLOW THE MERCANTILE SYSTEM OF M/S. SAJJAN INDIA LIMITED 11 ACCOUNTING. THUS, ON THIS SCORE ALSO, THERE IS NO REASON TO S USTAIN THE ADDITION. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE AND ALLOW THE GROUND NO.7, RAISED BY THE ASSESSEE. 21 . IN GROUND NO.8 TO 11, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE MADE UNDER S ECTION 14A R/W RULE 8D. THE ASSESSING OFFICER HAS DISALLOWED THE INTEREST OF ` 34,31,293 AND ALSO THE SUM OF ` 50,22,304 UNDER RULE 8D(3). 22 . THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE INVESTMENT IN SHARES AND SECURITIES AND HAS EARNED EXEMPT LON G TERM CAPITAL GAIN OF ` 1,27,07,096 AND DIVIDEND INCOME OF ` 5,51,71,121. THESE INVESTMENT ACTIVITIES WERE STATED TO BE CARRIED OUT FROM MUMBAI HEAD OFFICE AS THE BANK ACCOUNTS ARE IN MUMBAI. HOWEVER, THE ASSESSEE HAS INCLUDED THE INCOME FROM INVESTMENT A CTIVITIES IN THE ACCOUNT OF BOTH OLD UNIT AND MUMBAI MAIN OFFICE. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF THE RESERVES AND SURPLUS OF THE COMPANY AND NO INTEREST EXPENDITURE SHOULD BE ALLOWED. THE ASSESSING OFFICER, AFTER DETAIL ANALYSIS, APPLIED THE PROVISIONS OF RULE 8D AND DISALLOWED THE SUM OF ` 84,53,597 IN THE FOLLOWING MANNER: AVERAGE INVESTMENTS = ` 1 , 00 , 44 , 60 , 749 AVERAGE OF BALANCE SHEET ASSETS = ` 2 , 24 , 63 , 98 , 119 INTEREST PAID = ` 76 , 73 , 820 DISALLOWANCE U/RULE 8D(II ) = ` 34,31,293 DISALLOWANCE U/RULE 8D(III) O.5% OF AV. INV. = ` 50,22,304 ` 84,53,304 ======= M/S. SAJJAN INDIA LIMITED 12 23 . THE LEARNED COMMISSIONER (APPEALS) ALSO CONFIRMED THE SAID DISALLOWANCE ON THE GROUND THAT THE ASSESSEE COULD NOT PROVE THE NEXUS THAT THE INVESTMENTS WERE MADE OUT OF FREE FUNDS THROUGH BANK STATEMENT AND AFTER APPLYING THE DECISION OF THE P&H HIGH COURT IN CIT V/S ABHISHEK INDUSTRIES LTD. [2006] 286 ITR 1 (P&H) , H E DISALLOWED THE INTEREST EXPENDITURE. FURTHER, AFTER FOLLOWING OTHER DECISIONS INCLUDING THAT OF THE MUMBAI SPECIAL BENCH DECISION OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. [2008] 119 TTJ (MUM.) 289 (SB) , HE DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DI SALLOWANCE AFTER TAKING THE AVERAGE WEIGHTED INVESTMENT PER MONTH IN TAX FREE SECURITIES AND ALSO DIRECTED TO WORK OUT THE DISALLOWANCE ONLY IN MUMBAI HEAD OFFICE. 24 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE FURNISHED A CHART SHOWING POSSESSION OF CAP ITAL AND RESERVES AVAILABLE WITH THE ASSESSEE, AS SHOWN IN THE BALANCE SHEET, AND ALSO GAVE THE WORKING TO DEMONSTRATE THAT THERE ARE INVESTMENTS WHICH WERE IN THE FORM OF MUTUAL FUNDS ON WHICH NO DIVIDEND IS RECEIVABLE AND ARE TAXABLE UNDER THE HEAD CAPI TAL GAIN UNDER SECTION 45 . SUCH INVESTMENTS SHOULD BE REMOVED. HE ALSO GAVE THE DETAILS OF LOANS WHICH WERE TAKEN PURELY FO R PRE SHIPMENT CREDITS FOR EXPORT SUBSIDY AFTER HYPOTHECATION OF STOCKS AND BOOK DEBTS , TO SHOW THAT THE ASSESSEE HAS TAKEN THE LOAN PURELY FOR THE BUSINESS PURPOSE AND NOT FOR MAKING ANY INVESTMENT. HE ALSO FILED A CHART OF SURPLUS / OWN FUNDS, GIVING ASSESSMENT YEAR WISE SHARE CAPITAL AND FREE RESERVE AVAILABLE WITH THE ASSESSEE . THE SAID CHART ALSO PROVIDES SUMMARY OF BORROWED FUNDS , CASH PROFIT AND THE INVESTMENTS WERE MADE. FROM THIS CHART, HE SUBMITTED THAT ALL THE INVESTMENTS HAVE BEEN MADE OUT OF CASH PROFIT AND RESERVE SURPLUS. THUS , HE SUBMITTED THAT FIRSTLY, NO DISALLOWANCE OF INTEREST SHOULD BE MADE ; AND SECONDLY, WHILE WORK ING OUT THE AVERAGE INVESTMENTS, THOSE INVESTMENTS SHOULD BE REMOVED WHICH ARE NOT CAP ABLE OF YIELDING M/S. SAJJAN INDIA LIMITED 13 EXEMPT INCOME. IN SUPPORT OF HIS CONTENTION THAT IF THE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED, THEN NO INT EREST SHOULD BE DISALLOWED, HE RELIED UPON CATENA OF CASE LAWS WHICH HAVE BEEN PLACED IN THE PAPER BOOK. THE IMPORTANT DECISIONS BEING (I) CIT V/S RELIANCE UTILITIES AND POWER LTD., [2009] , 313 ITR 340; AND (II) CIT V/S SUZLON ENERGY LTD., [ 2013 ] 354 ITR 6 30 (GUJ.) . THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER POINTED OUT THAT IN THE ASSESSMENT YEAR 2007 08, PROVISIONS OF RULE 8D, W ILL NOT APPLY, ALBEIT FROM THE ASSESSMENT YEAR 2008 09 ONWARDS ONLY . THUS, IN THIS YEAR, ONLY SOME REASONABLE BASIS CAN BE ADOP TED WITHOUT DISALLOWING ANY INTEREST EXPENDITURE ON THE FACTS OF THE ASSESSEES CASE. 25 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS THE LEARNED COMMISSIONER (APPEALS). 26 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BELOW AND ALSO THE CHARTS FURNISHED BY THE ASSESSEE BEFORE US. FROM THE RECORDS, IT IS SEEN THAT THE ASSESSEE HAD FUNDS AVAILABLE ON ACCOUNT OF SHARE CAPITAL AND FREE RESERVES AND HUGE CASH PROFIT S FROM YEAR TO YEAR. THE BORROWED FUNDS ARE ALSO PRIMA FACIE APPEARS TO BE USED MAINLY ON ACCOUNT OF PRE SHIPMENT CREDIT , WHICH IS PURELY FOR THE BUSINESS PURPOSE OF THE ASSESSEE. ONCE THE ASSESSEE HAS HUGE SURPLUS FU NDS, THEN THERE IS NO REQUIREMENT OF DISALLOWING ANY INTEREST EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A. HOWEVER, THE WORKING AS GIVEN IN THE CHART BEFORE US NEEDS VERIFICATION AT THE END OF THE ASSESSING OFFICER. AS REGARDS THE OTHER D ISALLOWANCE BY TAKING AVERAGE INVESTMENTS AS PER RULE 8D(2), WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT THOSE INVESTMENTS SHOULD BE REMOVED WHICH ARE NOT CAPABLE OF EARNING EXEMPT INCOME. IN ANY CASE, FOR THE ASSESSMENT YEAR 2007 08, M/S. SAJJAN INDIA LIMITED 14 PROVISIO NS OF RULE 8D CANNOT BE APPLIED AND ONLY ACTUAL ADMINISTRATIVE EXPENSES WHICH HA VE BEEN CLAIMED IN THE PROFIT & LOSS ACCOUNT SHOULD BE EXAMINED FOR DISALLOWANCE ON SOME REASONABLE BASIS. THUS, TH E ENTIRE DISALLOWANCE UNDER SECTION 14A IS RESTORED BACK TO T HE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE ASSESSEES CONTENTION AFRESH AFTER VERIFYING THE WORKING GIVEN BY THE ASSESSEE BEFORE US AND ALSO AFTER PROVIDING DUE AND EFFECTIVE OPPORTUNITY TO PRESENT ITS CASE. AFTER EXAMINING ALL THE ASPECTS AS HAVE BEEN HIGHLIGHTED ABOVE, THE ASSESSING OFFICER SHALL ADOPT SOME REASONABLE BASIS FOR MAKING ANY DISALLOWANCE IN THE ASSESSMENT YEAR 2007 08. CONSEQUENTLY, GROUND NO.8, 9 AND 10, ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 27 . IN GROUND NO.11, THE A SSESSEE HAS CHALLENGED ALLOCATION OF COMMON ADMINISTRATIVE EXPENSES FOR THE PURPOSE OF ALLOCATION OF DISALLOWANCE UNDER SECTION 14A TO 10B UNITS AND OTHERS. 28 . THE ASSESSEE HAD SUBMITTED THAT THE INVESTMENTS WERE HELD IN MUMBAI HEAD OFFICE AS WELL AS IN THE OLD 10B UNITS AND WITHOUT PREJUDICE, COMMON ADMINISTRATIVE EXPENSES HAVE BEEN ALLOCATED ON THE BASIS OF TURNOVER BETWEEN THE HEAD OFFICE AND OTHER TWO MANUFACTURING UNITS , WHICH ARE ENTITLED FOR DEDUCTION UNDER SECTION 10B AND HENCE, IF ANY DISALLOWANCE IS TO BE CALLED FOR UNDER SECTION 14A, THE SAME HAS TO BE MADE ACCORDINGLY. 29 . AFTER HEARING BOTH THE PARTIES, WE ARE OF THE CONSIDERED OPINION THAT SINCE WE HAVE ALREADY HELD THAT THE INTEREST EXPENDITURE CANNOT BE ALLOCATED FOR THE PURPOSE OF DISALLOWANCE UN DER SECTION 14A, ONLY THE ADMINISTRATIVE EXPENSES HAVE TO BE EXAMINED FOR THE PURPOSE OF DISALLOWANCE. IF THE DECISION FOR INVESTMENTS IS CARRIED OUT BY THE MANAGEMENT AT HEAD OFFICE, THEN ADMINISTRATIVE EXPENSES CAN ONLY BE EXAMINED AT THE HEAD OFFICE LEV EL. HOWEVER, THIS MATTER IS ALSO M/S. SAJJAN INDIA LIMITED 15 RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO ANALYSE THE ADMINISTRATIVE EXPENDITURE BETWEEN THE HEAD OFFICE AND THE MANUFACTURING UNITS , AFTER TAKING INTO CONSIDERATION THE NATURE OF EXPENSES INCURRED IN THE HEAD O FFICE AS WELL AS OTHER UNITS. THUS, THE GROUND NO.11, IS ALLOWED FOR STATISTICAL PURPOSES. 30 . IN GROUND NO.11, THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED COMMISSIONER (APPEALS) IN HOLDING THAT THE INCOME DERIVED FROM CAPTIVE POWER PLANT IS NOT ENT ITLED FOR DEDUCTION U /S 80IB. 31 . THE LEARNED COMMISSIONER (APPEALS) HAS FOLLOWED THE APPELLATE ORDER FOR THE ASSESSMENT YEAR 2005 06 IN DENYING THE DEDUCTION UNDER SECTION 80IB IN RESPECT OF CAPTIVE POWER PLANT. 32 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005 06 , WHEREIN THIS ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. IT HAS BEEN INFORME D THAT IN PURSUANCE OF THE SAID ORDER, THE ASSESSING OFFICER HAS PASSED THE ORDER GIVING EFFECT TO THE DIRECTIONS OF THE TRIBUNAL , WHEREIN THE ASSESSING OFFICER, AFTER EXAMINING THE ENTIRE MATTER AFRESH , HAS HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION UNDER SECTION 80IA(4) FOR ITS CAPTIVE POWER PLANT UNIT. THE SAID ORDER DATED 3 RD MARCH 2014, PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R/W SECTION 254 HAS BEEN FILED BEFORE US. 33 . AFTER HEARING BOTH THE PARTIES AND IN VIEW OF THE AFORESAID FACT T HAT THE REVENUE HAS ACCEPTED THE ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 80IA(4) ON ITS CAPTIVE POWER PLANT UNIT IN PURSUANCE OF THE DIRECTIONS OF THE TRIBUNAL, THEREFORE, IN THIS YEAR ALSO, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR CLAIMING OF DEDUCT ION UNDER SECTION 80IA(4) ON SUCH UNIT. ACCORDINGLY, GROUND NO.12 IS ALLOWED. M/S. SAJJAN INDIA LIMITED 16 34 . 200708 3 4 . IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2007 08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO. 7532/MUM./2011 , FOR THE ASSESSMENT 2008 09, VIDE WHICH, FOLLOWING EFFECTIVE GROUNDS HAVE BEEN RAISED: 1. THE LD . CIT{A) ERRED IN HOLDING THAT EXPORT INCENTIVES ARE NOT TAXABLE ON ACCRUAL BASIS AND NOT FOLLOWING HON'BLE ITAT JUDGMENTS IN APPELLA NT'S OWN CASE FOR A.YS 03 - 04 AND 04 - 05, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO. 2 . LD. CIT ( A) ERRED IN CONFIRMING DISALLOWANCE AS MADE U/S 14A R . W.R 8D ( II) OF RS . 7 , 63,696/ - AND U/R 8D ( III) OF RS.9,07,222/ - WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO. LD. CIT( A) FAILED TO APPRECIATE THAT: (I) TOTAL INVESTMENT MADE BY THE APPELLANT ARE OF RS.151 . 69 CRORES WHILE APPELLANT'S OWN CAP ITAL AND FREE RESERVES ARE OF RS .284 . 49 CRORES AND N O BORROWED FUNDS HAVE BEEN UTILIZED, HENCE NO PART OF INTEREST WAS DISALLOWABLE. (II) BORROWINGS OF THE APPELLANT ARE ONLY FOR EXPORTS, I . E . PRE/POST - SHIPMENT CREDIT A ND NO PART OF IT ARE BEING UTILIZED FOR INVESTMENTS. (III) INVESTMENTS OF THE APPELLA NT INCLUDE INVESTMENT IN MUTUAL FUNDS OF RS.21 . 10 CORES ON WHICH NO DIVIDEND IS RECEIVABLE AND CAPITAL GAIN ARISING THEREON IS LIABLE TO BE TAXED, HENCE, DOES NOT FALL UNDER THE PROVISIONS OF SEC . 14A. (IV) DISALLOWANCE U.R. 8D( III) OF RS.9,07,222/ - SHOU LD HAVE BEEN RESTRICTED TO PART OF ADMINISTRATIVE EXPENSES INCURRED REASONABLY ATTRIBUTABLE TO EARNING OF DIVIDEND OUT OF EXPENSES INCURRED AT MUMBAI OFFICE, IF ANY. M/S. SAJJAN INDIA LIMITED 17 (V) APPELLANT'S CONTENTION THAT NO EXPENSE BEING INCURRED IS NOT PROPERLY APPRECIATED. 3. THE LD. CIT{A) ERRED IN NOT ALLOWING THE BENEFIT OF SECTION 80 - 1 A TO CAPTIVE POWER PLANT FOLLOWING ITS OWN ORDER GIVEN IN EARLIER YEAR, WITHOUT PROPERLY APPRECIATING THE FACTS OF THE C ASE AND LAW APPLICABLE THERETO. 35 . GROUND NO.1, AS AFORESAID, IS SI MILAR TO THE GROUND NO.7, RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2007 08 CITED ABOVE. IN VIEW OF THE FINDINGS GIVEN THEREIN, GROUND NO.1 RAISED BY THE ASSESSEE IS TREATED AS ALLOWED, AS THE RELIEF HAS BEEN GIVEN TO THE ASSESSEE ON THE BASIS OF EARLIER ORDER OF THE TRIBUNAL AND ALSO THE DECISION OF THE HON'BLE SUPREME COURT. 36 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D. 37 . AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE IS ALSO SIMILA R TO THE ISSUE ARISING OUT OF GROUND NO.8 TO 11 RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT 2007 08 CITED ABOVE. IN THIS YEAR ALSO, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ASSESSEES CONTENTION ABOUT THE DISAL LOWANCE OF INTEREST AS THE ASSESSEES CASE HAS BEEN THAT INVESTMENTS HAVE BEEN MADE OUT OF SURPLUS FUNDS AND NO BORROWED FUNDS HAVE BEEN UTILIZED. IF THE ASSESSEES CONTENTION AS PER THE WORKING GIVEN IS FOUND ACCEPTABLE, THEN NO DISALLOWANCE OF INTEREST E XPENSES SHOULD BE MADE. AS REGARDS THE ADMINISTRATIVE EXPENSES, THE SAME HAS TO BE SEEN WITH REGARD TO THE PROVISIONS OF RULE 8D( III ) AND WHILE TAKING AVERAGE INVESTMENTS, THOSE INVESTMENTS SHOULD BE REMOVED WHICH ARE NOT CAPABLE OF YIELDING EXEMPT INCOME. THE ASSESSING OFFICER WILL DECIDE THIS ISSUE IN THE LIGHT OF THE SE OBSERVATIONS AND AFTER GIVING DUE AND EFFECTIVE OPPORTUNITY OF M/S. SAJJAN INDIA LIMITED 18 HEARING TO PRESENT ITS CASE. THUS, GROUND NO.2, IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 38 . 2008 09 39 . IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2008 09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO. 5856/MUM./2012 , FOR THE ASS ESSMENT 2009 10, VIDE WHICH, FOLLOWING EFFECTIVE GROUNDS HAVE BEEN RAISED: 1. THE LD. CIT{A) ERRED IN CONFORMING DISALLOWANCE OF RS.57,27,607/ - AS MADE BY LD. ASSESSING OFFICER U/R 8D ( 2 )( II ) R.W. SECTION 14A OF INCOME TAX ACT, WITHOUT PROPERLY APPRECIA TING THE FACT THAT NO BORROWED FUNDS HAVE BEEN USED FOR INVESTMENTS. LD. ASSESSING OFFICER FAILED TO APPRECIATE THAT WHILE INVESTMENTS ARE OF RS.126.66 CRORE, CAPITAL & FREE RESERVES OF THE APPELLANT WERE OF RS.298.92 CRORE. 2. L D. CIT (A) ERRED IN NOT CO NSIDERING THE FACT THAT INCOME OF SUCH INVESTMENTS ARE LIABLE TO BE TAXED EITHER AS SHORT TERM CAPITAL GAIN/LONG TERM CAPITAL GAIN OR ANY OTHER INCOME WHICH ARE TAXABLE. IN VIEW OF THIS, PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. 3. THE LD. ASSESSING OFFICER AS WELL AS CIT (A) SHOULD HAVE APPRECIATED THA T EXPENSE IS DISALLOWABLE U/R 8D2 (III) R.W. SECTION 14A OF INCOME TAX ACT WITHOUT CONSIDERING THE FACT THAT INCOME ARISING ON INVESTMENTS IS LIABLE TO BE TAXED AND HENCE) PROVISIONS OF SECTION 14A ARE I NAPPLICABLE. 4. L D. CIT( A ) ERRED IN CONFIRMING NON - ALLOWANCE OF DEDUCTION U / S 80 - IA WITHOUT PROPERLY CONSIDERING THE FACTS OF THE CASE THAT SUCH DEDUCTION IS CLAIMED BY THE APPELLANT ON 'CAPTIVE POWER PLANT' WHICH IS ENTITLED FOR DEDUCTION U/S 80 - IA WITH OUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LAW APPLICABLE THERETO AND MERELY FOLLOWING E ARLIER YEARS' APPELLATE ORDERS . 40 . AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE IS SIMILAR TO GROUND NO.2, RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2007 08 M/S. SAJJAN INDIA LIMITED 19 AND GROUND NO.8 TO 11 RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2008 09 AND IN VIEW OF THE FINDINGS GIVEN THEREIN, THIS MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AS PER THE OBSERVATIONS GIVEN I N THE SAID APPEALS AFTER GIVING DUE AND EFFECTIVE OPPORTUNITY OF HEARING TO PRESENT ITS CASE. THUS, GROUND NO.1, 2 AND 3 ARE ALLOWED FOR STATISTICAL PURPOSES. 41 . INSOFAR AS GROUND NO.4, IS CONCERNED, AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS GROUND IS SIMILAR TO THE GROUND NO.12, RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2007 08 AND GROUND NO.3 RAISED BY THE ASSESSEE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2008 09 AND, HENCE, IN VIEW OF THE FINDINGS GIVEN THEREIN, THIS GROUND IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 42 . 2009 10 4 2 . IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2009 10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 43 . 4 3 . TO SUM UP, ASSESSEES APPEAL S FOR ALL THE ASSESSMENT YEARS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 23 RD APRIL 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 23 RD APRIL 2014 SD/ - SANJAY ARORA ACCOUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 23 RD APRIL 2014 M/S. SAJJAN INDIA LIMITED 20 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE AS SESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI