Vardhman Yarns and Threads Limited, Ludhiana V. DCIT, C-1, Ludhiana

ITA 537/CHANDI/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5992 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 22-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Business income; Depreciation; Transfer pricing; Tax effect; Earning of tax free income; Notional interest; Tax effect; Capital receipt; Capital expenditure; Rule 8D
• Section: 14A; 115JB; 80IB; 10B; 80IC; 64; 80IC; 43; 48; 13; 22; 20

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, “B”, CHANDIGARH BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER आयकर अपील सं./ ITA No. 1199/CHD/2017 नधा रण वष / Assessment Year : 2012-13 The DCIT, Circle-1, Ludhiana बनाम Vardhman Yarns and Threads Limited, Chandigarh Road, Ludhiana थायी लेखा सं./PAN NO: AACCV2554K अपीलाथ /Appellant यथ /Respondent नधा रती क ओर से/Assessee by : Sh. Subhash Aggarwal, Advocate a and Sh. Pankaj Gupta, Advocate राज व क ओर से/ Revenue by : Dr. Ranjeet Kaur, Sr. DR आयकर अपील सं./ ITA No. 849/CHD/2019 नधा रण वष / Assessment Year : 2014-15 The DCIT, Circle-1, Ludhiana बनाम Vardhman Yarns and Threads Limited, Chandigarh Road, Ludhiana थायी लेखा सं./PAN NO: AACCV2554K अपीलाथ /Appellant यथ /Respondent नधा रती क ओर से/Assessee by : Sh. Subhash Aggarwal, Advocate Sh. Pankaj Gupta, Advocate राज व क ओर से/ Revenue by : Sh. Sarabjeet Singh, CIT DR आयकर अपील सं./ ITA No. 1165/CHD/2017 नधा रण वष / Assessment Year : 2012-13 ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 2 Vardhman Yarns and Threads Limited, Chandigarh Road, Ludhiana बनाम The DCIT, Circle-1, Ludhiana थायी लेखा सं./PAN NO: AACCV2554K अपीलाथ /Appellant यथ /Respondent आयकर अपील सं./ ITA No. 850/CHD/2019 नधा रण वष / Assessment Year : 2015-16 The DCIT, Circle-1, Ludhiana बनाम Vardhman Yarns and Threads Limited, Chandigarh Road, Ludhiana थायी लेखा सं./PAN NO: AACCV2554K अपीलाथ /Appellant यथ /Respondent आयकर अपील सं./ ITA Nos. 535 to 537/CHD/2019 नधा रण वष / Assessment Years : 2013-14, 2014-15 & 2015-16 Vardhman Yarns and Threads Limited, Chandigarh Road, Ludhiana बनाम The DCIT, Circle-1, Ludhiana थायी लेखा सं./PAN NO: AACCV2554K अपीलाथ /Appellant यथ /Respondent Hearing though video Conferencing नधा रती क ओर से/Assessee by : Sh. Subhash Aggarwal, Advocate Sh. Pankaj Gupta, Advocate राज व क ओर से/ Revenue by : Dr. Ranjeet Kaur, Sr. DR स ु नवाई क तार$ख/Date of Hearing : 23.05.2022 उदघोषणा क तार$ख/Date of Pronouncement : 18.08.2022 ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 3 आदेश/Order Per Bench: The above captioned appeals have been preferred against the order passed by the Ld. Commissioner of Income Tax (Appeals) [CIT(A] as per the following details:- S. No. ITA No. A.Y. Appeal by CIT(A) order dated 1 1199/Chd-2017 2012-13 Revenue 17.05.2017 2 1165/Chd/2017 2012-13 Assessee 17.05.2017 3 535/chd/2019 2013-14 Assessee 20.02.2019 4 536/Chd/2019 2014-15 Assessee 20.03.2019 5 849/Chd/2019 2014-15 Revenue 20.03.2019 6 537/Chd/2019 2015-16 Assessee 20.02.2019 7 850/Chd/2019 2015-16 Revenue 20.03.2019 1. 1 All these appeals belong to the same assessee and since the issues involved were also identical, they were heard together and are being disposed off through this common order for the sake of convenience. 2.0 The brief facts of the case are that the assessee ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 4 company is a Public Limited Company with its Registered office at Ludhiana and manufacturing unit at Baddi, District Nalagarh, Himachal Pradesh. The business of the company is manufacturing of sewing Threads. The turnover of the company consists of proceeds received on account of export of own manufactured thread, trading export of thread and domestic sales. Since Baddi is located in an area eligible for deduction under section 80IC of the Income Tax Act, 1961 [in short 'the Act'], the assessee had claimed deduction in respect of its manufacturing activity. The snapshot of the assessment proceedings during the captioned assessment years can be depicted in the form of the following chart: Sr. No. A.Y. Returned income (in Rs.) Additions/ disallowances (In Rs.) Assessed Income (in Rs.) 1 2012-13 54,53,87,237/- a) U/s 14A Rs. 1,01,41,991/- b) U/s 36 (1)(iii)- Rs. 44,24,000/- c) Transfer pricing adjustment Rs. – 6,97,782/- 5,59,50,583/- 2 2013-14 63,40,30,221/- a) u/s 14A – 55,67,230/- b) disallowance u/s 36(1)(iii) – Rs. 5,61,83,870/- c) Transfer pricing addition – Rs. 7,58,000/- 69,54,23,036/- 3 2014-15 91,37,73,583/- a) U/s 14A – Rs. 17,82,957/- b) U/s 36(1)(iii) – Rs. 4,03,95,000/- 95,43,16,740/- ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 5 4 2015-16 1,00,54,41,520/-a) u/s 14A – Rs. 1,42,37,552/- b) 36(1)(iii) – Rs. 3,47,67,634/- 1,05,44,46,706/- 2.1 In addition to the above, the AO did not accept the assessee’s claim of deduction u/s 80IC in any of the captioned assessment years. Further, in some of the assessment years, the AO also made a corresponding adjustment in book profits u/s 115JB of the Act which was similar to the quantum disallowance made by the AO u/s 14A of the Act. 2.2 Aggrieved, the assessee preferred appeals before the Ld. Ld. First Appellate Authority in all the captioned assessment year which came to be partly allowed by him as under:- Sr. No. A.Y. Action by Ld. CIT(A) 1 2012-13 a) On the issue of Transfer Pricing adjustment of Rs. 6,97,782/-, the Ld. CIT(A) directed that the quantum of disallowance be worked out by applying rate of 3 percent plus LIBOR b) With respect to the assessee’s claim for deduction u/s 80IC of the Act, the Ld. CIT(A) held that Foreign Exchange Fluctuation Gains of Rs. 5,50,104/- and Misc. Receipts of Rs. 66,297/- were not eligible for claim of deduction. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 6 c) The Ld. CIT(A) further held that the AO had rightly held that interest reimbursement of Rs. 47,42,279/-under Technology Upgradation Funds Scheme, (TUFS) was not eligible for deduction u/s 80IB / 80IC. d) The Ld. CIT(A) also held that the interest reimbursement of Rs. 3,81,96,693/ received under TUFS was Revenue receipt. e) On the issue of apportionment of Rs. 42,16,040/- (head office expenses) against the claim of deduction u/s 80IC of the Act by disallowing the expenses on proportionate basis, the Ld. CIT(A) again upheld the order of the AO. f) On the issue of disallowance of Rs.1,01,41,991/- u/s 14A read with Rule 8D, the Ld. CIT(A) directed to allow relief to the extent of Rs. 72,13,241/- on account of interest expenditure included in the said disallowance but on the issue of applying the provisions of Rule 8D vis-à-vis apportionment of common expenses, the disallowance was enhanced by Rs. 29,28,750/-. g) On the issue of disallowance of Rs. 44,24,000/- u/s 36(1)(iii) of the Act, the issue was settled in the favour of the assessee. 2 2013-14 a) On the issue of Transfer Pricing Adjustment of Rs. 7,58,000/- on account of disallowance of interest relatable to payments received from Associated Enterprises after the due dates, the Ld. CIT(A) noted that since the issue was pending before the ITAT for adjudication in assessment year 2012-13, the AO should apply and adopt the order of the Tribunal in this assessment year also. b) On the issue of denial of deduction u/s 80IC of the Act on Misc. Receipts of Rs. 47,838/- and Foreign Exchange Function Loss of Rs. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 7 3,64,991/-, the Ld. CIT(A) held the Misc. income was an allowable business income entitled for deduction and with respect to the loss on Foreign Exchange Fluctuation, it was held that the AO had wrongly reduced the net loss amount c) On the issue of the assessee’s claim of deduction u/s 80IC of the Act on the manufacturing process, the Ld. CIT(A) held that the said deduction was allowable in view of the order of the Chandigarh Bench of the ITAT in assessee’s own case for assessment year 2008- 09. d) Similarly, on the issue of the AO in allocating head office expenditure in proportion to the eligible unit, the issue was decided against the assessee. e) On the issue of treating the amount of interest reimbursement under TUFS aggregating to Rs. 3,43,30,957/-, as Revenue receipt by the AO, the issue was decided in favour of the assessee by directing the same should be treated as Capital expenditure. f) With respect to disallowance of Rs. 55,67,130/- u/s 14A of the Act, the Ld. CIT(A) directed that the amended provisions of Rule 8D effective from 02.06.2016 should be applied by the AO. It was further directed that the provisions of section14A could not be imported into the scheme of calculation of book profit as per the provisions of section 115JB of the Act. g) With respect to disallowance u/s 36(1)(iii) of the Act, the same was directed to be deleted. 3 2014-15 a) On the issue of disallowance of assessee’s claim of deduction u/s 80IC of the Act vis-à-vis excess provisions written back amounting to Rs. 13,532/-, and sundry balance written off ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 8 amounting to Rs. 45,538/-, the Ld. CIT(A) directed that the AO should examine whether the assessee had received any real income on this account or not. With respect to the insurance claim receipt amounting to Rs. 3,57,209/-, the same was allowed. With respect to net Exchange Fluctuation of Rs. 17,98,521/, the same was also held in assessee’s favour. Also, the issue of Misc. Receipts of Rs. 1,27,840/- was also held in favour of the assessee. On the issue of assessee’s claim of deduction u/s 80IC vis-a-vis the manufacturing activity, the same was again held in favour of the assessee by following the order of the Tribunal in assessee’s own case for assessment year 2008-09. b) On the issue of interest reimbursement under TUFS being held as capital receipt by the AO, the same also was allowed in favour of the assessee. c) As far as the issue of disallowance u/s 14A of the Act was concerned, the Ld. CIT(A) directed that the disallowance was to be recomputed by the AO by applying the amended provisions of Rule 8D which came into effect from 02.02.2016. The Ld. CIT(A) also held that the provisions of section14A could not be imported into section115JB of the Act for the purposes of computing books profits d) On the issue of disallowance made u/s 36(1)(iii) of the Act, the same was also directed to be deleted. 4 2015-16 a) The interest reimbursement on TUFS, held as Revenue Receipt by the AO was directed by the Ld. CIT(A) to be treated as Capital receipt. b) With respect to disallowance Rs. 1,44,37,552/- u/s 14A of the Act, the Ld. CIT(A) directed that ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 9 the provisions of amended Rule 8D should be applied by the AO for computation of the disallowance. c) The issue of disallowance u/s 36(1)(iii) was also decided in favour of the assessee. 2.3 Aggrieved with the above mentioned findings reached by the Ld. CIT(A), both the assessee as well as the Department have filed the above captioned appeals and have raised the grounds in their respective appeals as under:- 2.4.0 ITA No. 1199/Chd/2017 (A.Y. 2012-13) – Department’s appeal : 1. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in allowing notional interest rate a 3% + LIBOR rate instead of SBI base rate + 3% charged by the AO? 2. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was lawfully justified in deleting the receipts on account of Interest reimbursed under TUFS (Technology Upgradation Funds Scheme) disallowed by A.O. and holding the same as eligible for calculating deduction u/s 80IC of the Income-tax Act, 1961? ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 10 3. Whether upon the facts and circumstance of the case, the Ld. CIT(A) was justified in allowing the process undertaken by the assessee is manufacturing activity and holding the same as eligible for calculating deduction u/s 80IC of the Income Tax Act, 1961? 4. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made u/s 14A of the Income Tax Act, 1961? 5. Whether upon the facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition made u/s 36(1)(iii) of the Income Tax Act, 1961? 6. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored. 7. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 2.4.1 ITA No. 1165/Chd/2017 (A.Y.2012-13) – Assessee’s appeal: 1. That the Order passed by the Ld.CIT(A) is contrary to law and facts of the case. 2. That the Ld. CIT (A) has erred in law and on facts in uphokldingthe disallowance of notional interest calculated for Rs.1,98,259/- ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 11 against delayed payments received from Associated Enterprises of the assessee. 3. That the Ld. CIT (A) has erred in law and on facts in reducing exchange fluctuation (net) of Rs.5,50,104/- & misc receipts of Rs.66,297/- from the profits of the unit eligible for deduction u/s 801C of the Income Tax Act, 1961. 4. That the Ld.CIT(A) erred in law and on facts in upholding the allocation of Rs. 36,32,772/- out of the following expenses to unit claiming deduction u/s 80IC of The Act; Particulars Amount (Rs.) Managerial remuneration 57,33,805 ERP expenses 1,45,59,600 Auditor's remuneration 19,57,557 Common corporate expenses 1,42,28,700 Director's travelling 9,93,663 Total 3,74,73,325 5. That the Ld. CIT(A) erred in law and on facts in upholding the disallowance of Rs.29,28,750/- made by assessing officer under Rule 8D (2) (iii). 6. That the Ld. CIT(A) erred in law and on facts in enhancing the disallowance made by assessing officer under Rule 8D (2) (iii) by ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 12 Rs.29,28,750/- by applying amended Rule 8D(2)(iii). Thus by making total disallowance under Rule 8D (2)(iii) to Rs.58,57,500/- (Rs.29,28,750+Rs.29,28,750). 7. That the Ld. CIT(A) has erred in law and on facts in not allowing assessee's ground of appeal claiming interest reimbursement of Rs.3,81,96,693/- under Technology Upgradation Fund Scheme (TUFS) as capital receipt 8. That the appellant craves leave to add/alter/amend any ground of appeal on or before the due date of hearing of appeal. 2.4.2. ITA No. 535/Chd/2019 (A.Y.2013-14)– Assessee’s appeal: 1. That the Order passed by the Ld. CIT(A) is contrary to law and facts of the case. 2. That the Ld. CIT (A) has erred in law and on facts in upholding the disallowance of notional interest calculated for Rs.2,12,617/- against delayed payments received from Associated Enterprises of the assessee. 3. That the Ld.CIT(A) erred in law and on facts in upholding the allocation of Rs. 38,33,872/- out of the following expenses to unit claiming deduction u/s 80IC of The Act; Particulars Amount (Rs.) Managerial remuneration 58,74,911 ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 13 ERP expenses 1,50,28,858 Auditor's remuneration 18,82,300 Common corporate expenses 1,88,20,300 Director's travelling 8,14,712 Total 4,24,20,811 4. That the Ld. CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions / submissions of the assessee. 5. That the Ld. CIT(A) erred in law and on facts in applying amended provisions of Rule 8D which were effective from 02.06.2016. 6. That the appellant craves leave to add/alter/amend any ground of appeal on or before the due date of hearing of appeal. 2.4.3 ITA No. 536/Chd/2019 (A.Y.2014-15) – Assessee’s appeal: 1. That the Order passed by the Ld. CIT(A) is contrary to law and facts of the case. 2. That the Ld. CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions /submissions of the assessee. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 14 3. That the Ld. CIT(A) erred in law and on facts in applying amended provisions of Rule 8D which were effective from 02.06.2016. 4. That the Ld. CIT(A) has erred in law and on facts in confirming the action of the AO in reducing Miscellaneous receipts of Rs.1,27,840/- and Rebate and Discount of Rs. 2,04,900/- from the profits of the units eligible for deduction u/s 80IC of the Income Tax Act, 1961. 5. That the appellant craves leave to add/alter/amend any ground of appeal on or before the due date of hearing of appeal. 2.4.4 ITA No. 849/Chd/2019 (A.Y.2014-15) – Department’s appeal: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing the process undertaken by the assessee is manufacturing activity and holding the same as eligible for calculating deduction u/s 80IC of the Income-tax Act, 1961?" 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 15 giving any opportunity to Assessing Officer to examine the claim of assessee? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in giving directions for re- computation of the addition made on account of disallowance u/s 14A of the Act by applying amended provisions of Rule 8D which was effective w.e.f 02.06.2016, hence, applicable from A.Y. 2017-18?" 4. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored. 5. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 2.4.5 ITA No. 537/Chd/2019 (A.Y.2015-16)– assessee’s appeal: 1. That the Order passed by the Ld.CIT(A) is contrary to law and facts of the case. 2. That the Ld.CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disallowance thereunder ignoring the contentions / submissions of the assessee. 3. That the Ld. CIT(A) erred in law and on facts in applying amended provisions of Rule 8D which were effective from 02.06.2016. 4. That the appellant craves leave to ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 16 add/alter/amend any ground of appeal on or before the due date of hearing of appeal. 2.4.6 ITA No. 850/Chd/2019 (A.Y.2015-16) – Department’s appeal: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without giving any opportunity to Assessing Officer to examine the claim of assessee? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in giving directions for re- computation of the addition made on account of disallowance u/s 14A of the Act by applying amended provisions of Rule 8D which was effective w.e.f 02.06.2016, hence, applicable from A.Y. 2017-18?" 3. That the order of the Ld. CIT (A) be set aside and that of the Assessing Officer be restored. 4. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off. 3.0.0 The Ld. AR submitted that in assessee’s appeal for assessment year 2012-13, ground No. 2 challenges the action of the Ld. CIT(A) in upholding the adjustment ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 17 of notional interest calculated at Rs. 1,98,259/- against delayed payments received from Associated Enterprises of the assessee. It was submitted that the AO had made a disallowance of Rs. 6,97,782/- on this account by calculating the notional interest at the rate of 12.60%, whereas the Ld. CIT(A) has reduced the same to Rs. 1,98,259/- by adopting LIBOR rate plus 3.61%. It was further submitted that in assessee’s appeal for assessment year 2013-14, the AO had made an identical adjustment of Rs. 7,58,000/- and the Ld. CIT(A) had reduced it to Rs. 2,12,617/-. It was submitted that the assessee was in appeal against the same in assessment years 2012-13 as well as 2013-14 whereas the Department was also challenging the action of the Ld. CIT(A) in both the years. It was submitted by the Ld. AR that the assessee has been consistently following the method of not charging interest from A.Es as well as non A.Es and, therefore, no disallowance could be made on this account. Reliance was placed on the numerous judicial precedents in support of this contention. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 18 3.0.1 It was further argued that there have been judicial precedents to the effect that early or late realization of sale proceeds was only incidental to the transaction of sale and not a separate transaction in itself and, therefore, no separate benchmarking was required for making adjustment on account of notional interest. It was also argued that, even otherwise, in assessee case, the realization was higher than comparables even after considering the notional interest / delays. 3.0.2 Without prejudice to the above, it was further argued that if any notional disallowance had to be made at all, a payment received prior to the due date should not be considered for the purpose of computing the notional interest. 3.1.0 With respect to ground No.3 of the assessee’s appeal for assessment year 2012-13, it was submitted that the Ld. CIT(A) had wrongly upheld that the Net Exchange Fluctuation of Rs. 55,0,104/- and Misc. receipts of Rs. 66,297/- should be reduced from the profits of the unit eligible for deduction u/s 80IC of the ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 19 Act. It was further submitted that an identical ground was before the Tribunal in assessee’s appeal for assessment year 2014-15, wherein the Ld. CIT(A) has confirmed the action of the AO in reducing Misc. receipts of Rs. 12,840/- and rebate and discount of Rs. 2,04,900/- from the profits of the unit eligible for deduction u/s 80IC of the Act. It was submitted that the logic behind the action of the AO was that these receipts were not derived from the business undertaking. It was further submitted that on the issue of Foreign Exchange Fluctuation Gain, the issue has been held in favour of the assessee in the case of sister concern of the assessee namely M/s Vardhman Textiles Ltd and further even with respect to Misc. receipts, the issue was covered in favour of the assessee in the case of the sister concern of the assessee. With regard to the Misc. receipts comprising of refund of sales tax, it was submitted that the same issue had been decided in favour of the assessee in assessee’s own case for assessment years 2010-11 and 2011-12 by the Tribunal. With respect to the rebate and discount, it was submitted that the same pertained to the turnover ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 20 discount received from the supplier and, thus, the same related to business transaction on account of material purchased. 3.2.0 With respect to ground No.4 in assessee’s appeal for assessment year 2012-13, it was submitted that this ground challenged the action of the Ld. CIT(A) in upholding the allocation of H.O. expenses to the Unit claiming deduction u/s 80IC of the Act wherein the AO had made the allocation on the basis of gross expenses and the Ld. CIT(A) had confirmed the action of the AO. It was submitted that the Tribunal, in assessee’s own case for assessment years 2010-11 and 2011-12, had held that the allocation of expenses had to be done on the basis of net expenses and not gross expenses. Our attention was drawn to the relevant paragraphs of the order of the Tribunal in this regard. It was further submitted that an identical addition had been made by the AO and upheld by the Ld. CIT(A) in assessment year 2013-14 and in this year also the assessee’s case was covered by the order of the Tribunal as aforementioned. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 21 3.3.0 With respect to ground Nos. 5 and 6 in assessee’s appeal for assessment year 2012-13, the Ld. AR submitted that the grounds relat to confirmation of disallowance made u/s 14A of the Act read with Rule 8D (2) of the Income Tax Rules. It was submitted that in assessment year 2012-13, the assessee had earned total dividend of Rs. 1,46,84,483/- and the AO had made a disallowance of Rs. 29,28,750/- which had been upheld by the Ld. CIT(A). It was submitted that the Ld. CIT(A) had enhanced the disallowance by directing the AO to apply the Amended Rule 8D. It was further submitted that the assessee had made a suo motu disallowance of Rs. 1,00,000/- but the same was rejected and further disallowance had been made by the AO which was not legally sustainable for the reason that no disallowance under Rule 8D(2)(ii) could be made because of availability of own funds. It was further submitted that during this year, there was only one investment of Rs. 50,02,23,000/- which was outstanding and on which the assessee had earned dividend of Rs. 2,23,319/- and ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 22 therefore, the suo motu disallowance of Rs. 1,00,000/- by the assessee was fully justified. 3.3.1 It was further submitted that even in the case of group company namely M/s Vardhman Textiles Ltd in assessment year 2012-13, the assessee had earned an exempt income of Rs. 12.59 crores and had made a suo motu disallowance of Rs. 2,00,000/- and the Tribunal had held that the disallowance of Rs. 5,00,000/-u/s 14A of the Act would be appropriate. Similarly, in assessment year 2012-13, the exempt income was Rs. 14.87 crores and the suo motu disallowance made by the assessee was Rs. 1,53,000/- which was enhanced by the Tribunal to Rs. 6,00,000/-only. 3.3.2 It was further submitted that similarly, in the case of another group company i.e. Vardhman Acrylics Ltd in assessment year 2013-13, the assessee had earned exempt income of Rs. 67,63,808/- and had made a suo motu disallowance of Rs. 1,00,000/- and the Tribunal also held that the suo motu disallowance of Rs. 1,00,000/-was sufficient. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 23 3.3.3 The Ld. AR submitted that therefore, on identical facts, the assessee’s suo motu disallowance of Rs. 1,00,000/- needed to be upheld. 3.3.4 It was further submitted that in assessment year 2013-14, in assessee’s appeal, ground Nos. 4 and 5 also pertained to the disallowance made u/s 14A read with Rule 8D and in this year there were only two investments of Rs. 1166.37 lacs and Rs. 300 lacs which were outstanding as on the year-end and which had been made on 26.03.2013 and 28.03.2013 respectively against which the assessee had earned dividend income of Rs. 59,92,526/- whereas the total dividend received during the year was Rs. 1,02,18,934/-. It was submitted that the assessee’s arguments would be identical in assessment year 2013-14 also as were taken in assessee’s appeal for 2012-13. It was submitted that the suo motu disallowance of Rs. 1,00,000/- made by the assessee was correct and the same should be upheld. 3.3.5 The Ld. AR also challenged the action of the Ld. CIT(A) in directing that the AO should apply the provisions of amended Rule 8D which was incorrect in as ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 24 much as the said Amendment was to take effect only from 02.06.2016 3.3.6 It was further submitted that ground Nos. 2 and 3 for assessee’s appeal in assessment year 2014-15 were also related to the disallowance made u/s 14A of the Act read with Rule 8D and it was submitted that the total dividend income received during this year was to tune of Rs. 1,11,00,677/- and the assessee had made a suo motu disallowance of Rs. 2,00,000/- on this account. It was further submitted that the only investment outstanding at the end of the year was to the tune of Rs. 783.18 lacs and on which dividend of Rs. 28,09,981/- was earned. It was submitted that the lower authorities had incorrectly held that the suo motu disallowance was not correct. The Ld. AR further submitted that the directions of the Ld. CIT(A) that the amended provisions of Rule 8D should be applied was also not correct in as much as this amended provisions were to take effect only from 02.06.2016 and, therefore, the same could not have been applied in this assessment year. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 25 3.3.7 The Ld. AR further submitted that in assessee’s appeal for assessment year 2015-16, ground Nos. 2 and 3 again are with reference to the disallowance made u/s 14A of the Act and it was submitted that during this year the total dividend received by the assessee company was to the tune of Rs. 3,30,79,350/ and the assessee had made a suo motu disallowance for Rs. 2,00,000/- which was fully justified for the simple reason that the assessee had sufficient funds of its own available and, therefore, no further disallowance was called for. It was further submitted that that the directions of the Ld. CIT(A) that the amended provisions of Rule 8D should be applied was also not correct in as much as this amended provisions were to take effect only from 02.06.2016 and, therefore, the same could not have been applied in this assessment year. 3.4.0 Referring to assessee’s ground No.7 in assessment year 2012-13, it was submitted that this ground challenges the action of the lower authorities in treating the interest reimbursement of Rs. 31,96,693/- received under TUFS as Revenue receipt although the ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 26 assessee had claimed the same as Capital receipt. It was submitted that this issue is covered in favour of the assessee by the order of the Tribunal in assessee’s own case for assessment years 2010-11 and 2011-12. 3.4.1 It was further submitted that in subsequent assessment years, the Ld. CIT(A) had accepted the claim of the assessee and had directed that the same should be taken as Capital receipt against which the Department is now in appeal in assessment year 2014-15 in ground No.2 and in assessment year 2015-16 in ground No.1. It was submitted that by virtue of the order of the Tribunal in assessee’s own case in assessment years 2010-11 and 2011-12, these grounds by the Department need to be dismissed. 3.5.0 In addition to the above mentioned arguments, the Ld. AR also placed reliance on numerous judicial precedents on the various issues which have been raised by the assessee in its appeals. These judicial precedents were taken on record and will be considered in due course of time. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 27 4.0.0 Per contra, the Ld. CIT DR strongly supported the orders of the Ld. CIT(A) vis-a-vis the issues raised and argued by the Ld. AR in assessee’s appeals. 4.1.0The Ld. CIT DR argued that the lower authorities have given due consideration to the issues before them and had passed orders after giving a thoughtful analysis on each and every issue and, therefore, no further relief was allowable to the assessee as the Ld. CIT(A) had already given relief which was legally due to the assessee. The Ld. CIT DR submitted that all the appeals of the assessee deserved to be dismissed. 5.0.0 Taking up the appeals of the Department, the Ld. CIT DR referred to the grounds raised in the appeal of the Department and submitted that ground No.1 in Department’s appeal for the assessment year 2012-13 challenged the action of the Ld. CIT(A) in directing that the notional interest at the rate of 3% plus the LIBOR rate should be charged instead of bank rate of the State Bank of India which had been charged by the AO. It was submitted that it was established practice that for Indian Enterprises the bank rate of the State Bank of India was ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 28 the standard measure. It was submitted that this ground is connected to ground No.2 of the assessee’s appeal also. 5.0.1 It was further submitted that the Department had raised this ground in assessment year 2013-14 also but the same had been dismissed on account of low tax effect. It was further submitted that this ground had also been raised by the assessee in its appeal for assessment year 2013-14. 5.0.2 The Ld. CIT DR further submitted that ground No.2 in Department’s appeal for assessment year 2012- 13 challenges the action of the Ld. CIT(A) in holding that the receipts on account of interest reimbursement under TUFS was eligible for calculating deduction u/s 80IC of the Act. It was submitted that the AO had given detailed observations on the issue as were appearing in pages 11 to 21 of the assessment order and that while deciding the issue in favour of the assessee the Ld. CIT(A) had completely ignored the observations of the AO. 5.2.0 The Ld. CIT DR further argued that ground No.3 in Department’s appeal for assessment year 2012-13 ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 29 challenges the action of the Ld. CIT(A) in holding that the process undertaken by the assessee was manufacturing activity and was, therefore, eligible for the purpose of calculating deduction u/s 80IC of the Act. Assailing the order of the CIT(A), the Ld. CIT DR submitted that the AO had discussed the issue at length on pages 21 to 31 of the assessment order but the same was not given any credence by the Ld. CIT(A) while deciding the issue in favour of the assessee and therefore, the order of the Ld. CIT(A) was patently wrong and deserved to be reversed. 5.2.1 It was further submitted that this ground had been taken by the Department in assessment year 2013- 14 also but the appeal of the Department had been dismissed on account of low tax effect. It was further submitted that, however, this ground was also in Department’s appeal for assessment year 2014-15 as ground No.1. 5.3.0 The Ld. CIT DR further submitted that ground No.4 in Department’s appeal for assessment year 2012- 13, ground No.3 in Department’s appeal for assessment ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 30 year 2014-15 and ground No.2 in Department’s appeal for 2015-16 were challenging the action of the Ld. CIT(A) in deleting part of disallowance made by the AO u/s 14A of the Act and since these grounds were connected with ground Nos. 5 and 6 in assesse’s appeal for assessment year 2012-13, ground Nos. 2 and 3 of the assessee’s appeal for assessment year 2014-15, and ground Nos. 2 and 3 for assessee’s appeal for assessment year 2015-16, all these grounds would have to be taken up simultaneously for the purpose of adjudication. 5.3.1 It was further submitted that the Department’s appeal on deletion of similar disallowance in assessment year 2013-14 had been dismissed by the Tribunal on account of low tax effect. 5.4.0 Referring to ground No.5 of Department’s appeal in assessment year 2012-13, it was submitted that the Ld. CIT(A) had deleted the addition made u/s 36(1)(iii) of the Act without considering the detailed observations and findings of the AO as appearing in pages 52 to 65 of the assessment order. It was submitted that the Ld. CIT(A) had erred in deleting the disallowance ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 31 by reaching the conclusion that the assessee had availability of its own funds. It was further submitted that this ground was also raised by the Department in assessment year 2013-14 but the appeal of the Department was dismissed by the Tribunal on account of low tax effect. 5.5.0 It was further submitted that ground No.2 in Department’s appeal for assessment year 2014-15 and ground No. 2 in assessment year 2014-15 and ground No.1 in assessment year 2015-16 all challenged the action of the Ld. CIT(A) in treating the interest reimbursement under TUFS as capital receipt without giving any opportunity to the AO to refute the same. It was argued that the issue needs to be restored to the file of the AO for verifying the above said claim. 6.0 In response to the arguments of the Ld. DR, the Ld. AR supported the order of the CIT(A) vis-à-vis the appeals of the Department and reiterated that most of the issues raised by the Department in its appeals stood covered in favour of the assessee by the orders of the ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 32 ITAT in either assessee’s own cases or in cases of assessee’s sister concern. 7.0 We have heard the rival submissions and have perused the material on record. We have also gone through the various judicial precedents relied upon by the Ld. AR in support of his contentions and have also carefully considered the orders of the lower authorities. We now proceed to adjudicate on the various grounds raised by the respective parties one by one. 7.1.0 It is seen that ground No.2 in assessee’s appeal for assessment year 2012-13 and ground No.2 in assessee’s appeal for assessment year 2013-14 challenge the action of the Ld. CIT(A) in upholding the adjustment on account of notional interest from Associated Enterprises of the assessee. In assessment year 2012-13, the AO had made adjustment of Rs. 6,97,782/- by applying the interest rate of 12.60% whereas the Ld. CIT(A) had reduced the amount to Rs. 1,98,259/- by adopting the LIBOR rate plus 3.61%. Similarly, in assessment year 2013-14 , the adjustment was to the tune of Rs. 7,58,000/- and the Ld. CIT(A) had reduced it ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 33 to Rs. 2,12,617/-. It is also seen that the Department, in assessment year 2012-13 has, in its appeal, challenged the relief granted to the assessee and has argued that the AO had rightly applied the SBI rate. In assessment year 2013-14, similar ground raised by the Department was dismissed by the ITAT on account of low tax effect. 7.7.1 It is the submission of the Ld. AR that where the assessee has been consistently following a particular method of accounting of not charging any interest either from the Associated Enterprises or from the third parties, no disallowance could have been made. The Ld. AR has also placed reliance on certain judicial precedents in support of his contention. The Ld. AR, apart from other judicial precedents, has also placed reliance on the judgement of the Hon'ble Bombay High Court in the case of CIT Vs. Indo American Jewellery Ltd. reported in [2014] 44 taxman.com 310 (Bom.) wherein the Hon'ble Bombay High Court has held that where there was complete uniformity in the act of the assessee in not charging interest from both Associated Enterprises as well as Non-Associated Enterprises ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 34 debtors for delay in realization of export proceeds, the AO was not justified in making addition of notional interest to assessee’s Arms Length Price. 7.1.2 Similar view was taken by the ITAT Mumbai Bench in the case of VIP Industries Ltd Vs. ACIT reported in [2015] 54 taxman.com 519 (Mum.). The Mumbai Bench of the ITAT in this case of VIP Industries Pvt Ltd Vs. ACIT (supra) upheld the directions of the Ld. DRP by observing as under:- “11. Thus the uniform policy of not charging interest both from AE and non AE debtors was recognized and accepted by the Hon'ble High Court and no adjustment on account of notional interest on the outstanding amount on export proceeds can be made. The collection from AE ranges from 378 days to 655 days against the collection from export debtors is ranging from 376 days to 1151 days. We further note that 80% of the total sales of the assessee is from non AE customers, therefore, when the assessee is not charging any interest from non AE then there is no case made out by the Revenue that the assessee is doing any favour or giving any benefit to the AE by extending the credit period of realization of sales which is less than the interest CUP being the assessee allowing the credit period to ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 35 the on-AE. Accordingly, it is manifest from the facts as recorded by the DRP that the average collection period from AE is less than the average collection period from non AE. Hence, we do not find any error or illegality in the order of DRP in deleting the adjustment made by TPO/ Assessing officer on account of credit period extended to the AE.” 7.1.3 Similar views have also been taken by other Benches of the ITAT and the Ld. DR, although, has vehemently argued that the action of the AO in applying the SBI rate was correct, we are inclined to agree with the contention of the Ld. AR that where the assessee has been following a consistent method of accounting of not charging any interest either from the AE or from the non-AE on payments received after the due dates, no adjustment of notional interest can be made. All the same, it does require to be verified whether this contention of the assessee of not charging any interest from non-AEs is correct. Therefore, while holding that the AO had wrongly applied the SBI rate and the Ld. CIT(A) had further wrongly directed that LIBOR rate plus 3.611% should be applied for the purpose of charging ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 36 notional interest, we further hold that no notional interest should have been charged on this account. However, while allowing the grounds raised by the assessee for statistical purposes, we restore the issue to the file of the AO for the limited purpose of verifying whether the assessee’s contention of not charging any interest on delayed payments from non AEs / third parties is correct. If such claim is found to be correct by the AO, the addition / adjustment on this account would stand deleted. Accordingly, ground No.2 in assessee’s appeal for assessment year 2012-13 and ground No.2 in the assessee’s appeal for assessment year 2013-14 stand allowed for statistical purposes while ground No.1 in Department’s appeal for assessment year 2012-13 wherein the Department has challenged the action of the Ld. CIT(A) in directing that LIBOR plus rate of 3.61% should be applied, stands dismissed. 7.2.0 Ground No. 3 in assessee’s appeal for assessment year 2012-13 challenges the action of the Ld. CIT(A) in upholding the order of the AO that the net Foreign Exchange Fluctuation Gain of Rs. 55,104/- and ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 37 Misc. receipts of Rs. 66,297/- were not eligible for claim of deduction u/s 80IC of the Act. It is seen that an identical issue is in assessee’s appeal for assessment year 2014-15 also wherein in ground No.4, the assessee has challenged the action of the Ld. CIT(A) in holding that misc. receipts and rebate and discount were not eligible for claim of deduction u/s 80IC of the Act. It has further been brought to our notice that as far as the issue of net Foreign Exchange Fluctuation Gain was concerned, the same had been held in favour of the assessee in case of sister concern of the assessee namely M/s Vardhman Textiles Ltd. 7.2.1 We have gone through the order of the coordinate Bench of the ITAT Chandigarh in the case of M/s Vardhman Textiles Ltd for assessment years 2011- 12 and 2012-13 and we find that the discussion on this issue is at pages 13 and 14 of the said order and the same is being reproduced herein under for a ready reference:- “So far as the issue relating to the gains on the foreign exchange rate fluctuation is concerned, the Ld. Counsel for the ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 38 assessee has submitted that gain on foreign exchange rate fluctuation has been received on account of proceeds of exports receivable and that the same was a part of the sale consideration. The Ld. Counsel has further submitted that this issue is squarely covered in favour of the assessee in the own case of the assessee for assessment years 2006-07 and 2007-08 vide common order of the Tribunal dated 18.12.2018 (supra) . 24. We have gone through the order of the Tribunal dated 18.12.2019. The relevant part of the order of the Tribunal is reproduced as under:- “28. The third part of ground No.2 is against the action of the CIT(A) in directing the AO not to reduce foreign exchange fluctuation gain from eligible profits of units eligible for deduction u/s 80IB and 80IC and exemption u/s 10B of the Act. 29. The Ld. Counsel for the assessee has submitted that the foreign exchange fluctuation gain is in respect of export receipts / receivable of the assessee and any gain in respect of receivable on account of foreign exchange fluctuation in fact contributes to the profits of the assessee from the sale / export of the products. We find force in the aforesaid contention. We do not find any ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 39 infirmity in the order of the CIT(A) in this respect also.” 25. In view of the above findings of the Tribunal, this issue is squarely covered in favour of the assessee. The assessee is hold to be eligible to claim deduction u/s 80IB of the Act in this respect.” 7.2.2 The above findings of the Tribunal in the case of M/s Vardhman Textiles Ltd were not disputed by the Ld. DR and although he has supported the orders of the authorities below, it is our considered opinion that the observation of the Coordinate Bench that Foreign Exchange Fluctuation Gain is in respect of export receipts / receivables of the assessee and any gain in respect of receivables on account of Foreign Exchange Fluctuation in fact contributes to the profits of the assessee from the sale / export of the products is a correct view and that we also should endorse the same. Therefore, respectfully following the order of the Coordinate Bench as reproduced in the preceding paragraph, in the case of this assessee also, we hold that the gain from Foreign Exchange Fluctuation is eligible for deduction u/s 80IC of the Act. Accordingly, the ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 40 assessee’s ground in assessment year 2012-13 relating to Foreign Exchange Fluctuation Gain stands allowed. 7.2.3 Apart from the Foreign Exchange Fluctuation Gain, the issue under challenge in ground No.3 in assessee’s appeal for assessment year 2012-13 pertains to misc. receipts which were held as not being eligible for claim of deduction u/s 80IC of the Act. Similarly, ground No.4 in assessee’s appeal for assessment year 2014-15 also challenges the action of the lower authorities in holding that misc. receipts were not eligible for claim of deduction u/s 80IC of the Act. Although, the Ld. AR has submitted that the issue is covered in favour of the assessee, we note that the exact nature of misc. receipts, both in assessment years 2012- 13 and 2014-15 are not ascertainable clearly from the records before us and, therefore, in the interest of substantial justice, we deem it appropriate to restore this issue to the file of the AO with a direction to examine the nature of misc. receipts afresh after giving due opportunity to the assessee and if it is so found by the AO that these misc. receipts can be directly linked ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 41 with the business of the assessee, the AO should allow the assessee’s claim of deduction u/s 80IC of the Act in accordance with law. However, if no direct link with these misc receipts vis-a-vis assessee’s business is found, the AO may disallow the assessee’s claim. Accordingly, this part of the assessee’s grounds stands allowed for statistical purposes. 7.2.4 Similarly, in assessment year 2014-15, the lower authorities did not allow the assessee’s claim of deduction u/s 80IC of the Act vis-a-vis rebate and discount. It has been submitted before us that since the same pertains to turnover discount received from the supplier, the same would relate to the business activity of the assessee and, therefore, the same also would be eligible for deduction u/s 80IC of the Act. However, it is seen that the exact nature and details of the rebate and discount are also not brought out from the records before us and, therefore, we again deem it fit to direct that the issue may be re-examined by the AO after giving due opportunity to the assessee in this regard and, thereafter, allow the claim of assessee vis-a-vis ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 42 deduction u/s 80IC if it is found that such rebate and discount was in the nature of trade discount which can be directly associated with the business of the assessee company. Thus, this part of the ground also stands allowed for statistical purposes. 7.3.0 Ground No.4 in assessee’s appeal for assessment year 2012-13 challenges the action of the Ld. CIT(A) in upholding the allocation of Head Office expenses to the unit claiming deduction u/s 80IC of the Act. The AO had made the allocation on the basis of gross expenses and the Ld. CIT(A) has confirmed the same. It has been brought to our notice that in assessee’s own case for assessment years 2010-11 and 2011-12, the Tribunal had held that the allocation of expenses had to be done on the basis of net expenses and not gross expenses. We note that this contention of the Ld. AR is correct in so far as the ITAT, in assessee’s own case for assessment years 2010-11 and 2011-12, vide common order 7.11.2019, has accepted the assessee’s plea that it is only the common expenses after netting of common income which are to be allocated ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 43 to the eligible unit. The relevant observations of the Tribunal are contained in paragraph 18 of the said order and the same is being reproduced herein under for a ready reference: “18. We have heard the rival submissions perused the orders of the authorities below. The issue before us relates to the allocation of common expenses incurred by the assessee to the unit eligible to deduction u/s 80IC of the Act. That the expenses were common has not been disputed or challenged by the assessee. The only plea is that the common expenses be netted with the common income, if any, earned by the assessee and only the net to be allocated to the eligible unit. In this regard our attention has been drawn to the order of the ITAT in the case of M/s Vardhman Textiles Ltd (supra) for assessment years 2002-03 to 2005-06 holding so. We have gone through the said order and we agree with the Ld. Counsel for the assessee that the ITAT has held that it is only the common expenses after netting common income, which are to be allocated to the eligible unit. Since no distinguishing facts have been pointed out by the Ld. DR, the issue stands squarely covered by the order of the ITAT in the case of M/s Vardhman Textiles Ltd. (supra). The AO is directed to re-compute the allocable expenses in accordance with directions given the ITAT in the case of ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 44 M/s Vardhman Textiles Ltd. (supra). This ground of appeal, therefore, stands allowed in above terms. 7.3.1 Accordingly, in view of the aforesaid order of the Tribunal in assessee’s own case and respectfully following the same, we set aside the order of the Ld. CIT(A) on the issue in assessment year 2012-13 and direct the AO to re-compute the allocable expenses in accordance with the directions as mentioned in the earlier order. Accordingly, this ground stands allowed for statistical purposes. 7.3.2 We further note that the assessee has raised this ground in appeal for assessment year 2013-14 also and by the same logic and respectfully following the earlier orders of the ITAT in assessee’s own case, as mentioned in the preceding paragraphs, we direct that the allocation be made by the AO in terms of the directions given in the earlier order. Accordingly, in assessment year 2013-14, ground No.3 stands allowed for statistical purposes. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 45 7.4.0 Ground Nos. 5 and 6 in assessment year 2012- 13, ground Nos. 4 and 5 and assessment years 2013-14, ground Nos. 2 and 3 in assessment years 2014-15 and ground Nos. 2 and 3 in assessment years 2015-16, all have been taken by the assessee in its appeal and challenge the action of the Ld. CIT(A) in upholding the disallowance made u/s 14A of the Act partly and also challenge the action of the Ld. CIT(A) in directing that the amended provisions of Rule 8D be applied in the case of the assessee. The Department has challenged the relief granted by the Ld. CIT(A) in ground No.4 in assessment year 2012-13, ground No.3 in assessment year 2014-15 and ground No.2 in assessment year 2015- 16. 7.4.1 It is seen that in all the years under consideration the assessee has made a suo motu disallowance. However, this suo motu disallowance was not held to be correct by the AO and he proceeded to apply provisions of Rule 8D and made a disallowance which was partly confirmed by the Ld. CIT(A). ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 46 7.4.2 It is the submission of the Ld. AR that the assessee’s case is squarely covered by the order of the Tribunal in the case of sister concern of the assessee namely M/s Vardhman Textiles wherein the suo motu disallowance made by the assessee was marginally enhanced by the Tribunal but it was held that since the assessee had its own sufficient funds and further since the suo motu disallowance was in proportion to the exempt income earned, Rule 8D (2) could not be invoked. 7.4.3 The assessee has also challenged the action of the Ld. CIT (A) in directing that the amended provisions of Rule 8D should be applied. It has been stated by the Ld. AR that Rule 8D came into effect from 02.06.2016 and, therefore, the direction of the Ld. CIT(A) to apply the provisions of Rule 8D retrospectively was not correct. 7.4.4 The assessee has also relied on order of the Tribunal in the case of another sister concern of the assessee namely M/s Vardhman Acrylics Ltd. in assessment year 2013-14 and has argued that the suo motu disallowance was sufficient to meet and fulfill the provisions of section 14A of the Act. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 47 7.4.5 It is seen that the contentions of the Ld. AR are partly correct and as far as the issue of application of amended provisions of Rule 8D is concerned, the question of this amendment being prospective and not retrospective in nature was examined by the Coordinate Bench of ITAT Chandigarh in the case of sister concern of the assessee i.e. Vardhman Acrylics Ltd Vs. ACIT in ITA No. 88/Chd/2018 vide order dated 03.07.2019 wherein it was observed that as far as the application of the substituted provisions of Rule 8D w.e.f 02.07.2016 was concerned, the issue is settled by the judgement of the Hon'ble Apex Court in the case of CIT Vs. Essar Teleholding Ltd reported in (2018) 90 Taxman.com 2 (SC) wherein it was held by the Hon'ble Apex Court that the amended Rule 8D of the Income Tax Rules was applicable prospectively. Therefore, in view of the judgement of the Hon'ble Apex Court in the case of CIT Vs. Essar Teleholding Ltd (supra) we hold that the Ld. CIT(A) was not justified in directing the AO to apply the provisions of amended Rule 8D. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 48 7.4.6 This brings us to the second limb of the argument of Ld. AR that since the assessee had made a suo motu disallowance in all the years under appeal, keeping in view the past trend, the suo motu disallowance was sufficient. It is also the argument of the assessee that the assessee had availability of its own funds for the purpose of making investments and, therefore, it cannot be said that interest bearing funds were utilized for the purpose of making investments. We have gone through the Balance Sheets of the assessee company for the captioned assessment year and this contention of the Ld. AR also appears correct since the assessee had its own sufficient funds and by following the settled law, it cannot be inferred that the assessee had utilized any interest bearing funds for the purpose of making investment so as to earn exempt dividend income. Therefore, we are in full agreement with the contention of the Ld.AR that the investments made by the assessee should be presumed to be made out of assessee’s own funds and proportionate disallowance u/s 14A read with Rule 8D(2)(ii) is not required to be made. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 49 In this regard, we are supported by the judgement of the Hon'ble Apex court in the case of South Indian Bank Ltd Vs. CIT reported in [2021] 130 taxman.com 178 (SC) wherein the Hon'ble Apex Court held as under:- “27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest if not warranted, under section 14A of the Income Tax Act for investments made in tax-free bonds / securities which yield tax-free dividend and interest. Assessee banks in those situations where, interest free own funds available with the assessee exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the Learned ITAT favoring the assessees.” 7.4.7 At this juncture, we would also like to make a reference to the order of the Tribunal in the case of sister concern of the assessee M/s Vardhman Textiles Ltd. for assessment years 2011-2012 and 2012-13 in ITA Nos. 787, 894/Chd/2015 and 483, 518/Chd/2016 respectively wherein vide common order dt. 14.03.2019, the issue of disallowance u/s 14A was discussed at length. For a ready reference we are reproducing the same as under:- ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 50 “8. We have considered the rival submissions. The issue relating to the presumption theory in the light of the decision of the Hon'ble Supreme Court in ‘Maxopp Investment Ltd Vs. CIT.’, 402 ITR 640 (SC) (supra) has been discussed by the Tribunal in the latest decision of the Tribunal in the case of ‘ACIT Vs. Janak Global Resources Pvt Ltd’ (supra), wherein, the Tribunal after considering the ratio laid down by the Hon'ble Supreme Court in the case of ‘Hero Cycles Pvt. Ltd. Vs. CIT’, 379 ITR 347(SC), and other decisions as well as in the case of ‘Avon Cycles Ltd. Vs. CIT’ of the Hon'ble High Court (supra) has decided the issue in favour of the assessee. At this stage, Ld. Counsel for the assessee has submitted that now the issue is squarely covered by the latest decision of the Hon'ble Supreme Court in the case of in the case of ‘CIT (LTU) Vs. Reliance Industries Ltd.’ [2010] 410 ITR 466 (SC), wherein, the Hon'ble Supreme Court has reiterated the proposition that if there are interest funds available with the assessee, which are sufficient to meet the investment, it can be presumed that the investments are made from the interest free funds available with the assessee. In view of this, this question is now settled by the decision of the Hon'ble Supreme Court and the issue accordingly is decided in favour of the assessee so far as the issue of disallowance of interest expenditure is concerned.” ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 51 7.4.8 Therefore, we are of the considered opinion that in view of sufficiency and availability of own funds, no disallowance under Rule 8D (ii) could be made. In the captioned years, the assessee has demonstrated with evidence that there was sufficiency of funds and no interest bearing funds, could, therefore, be said to have been utilized for the purpose of making investments. Therefore, in view of the above cited judicial precedents, we decide this issue in favour of the assessee and hold that no disallowance on account of interest expenditure is called for on the facts and circumstances of the case. 7.4.9 However, as far as, the question of disallowance vis-a-vis administrative expenses is concerned, it is seen that the assessee has made a suo motu disallowance of Rs. 1,00,000/- in assessment year 2012-13, Rs. 1,00,000/- in assessment year 2013-14, Rs. 2,00,000/- in assessment year 2014-15 and Rs. 2,00,000/- in assessment year 2015-16. In assessment year 2012-13, the total dividend earned was Rs. 1,46,84,483/-, in assessment year 2013-14 the dividend income was Rs. 1,02,18,934/-, in assessment year 2014-15 the dividend ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 52 income was Rs. 1,11,00,677/- and in assessment year 2015-16 the dividend income was Rs. 3,30,79,350/-. 7.4.10 The assessee has relied on the order of the Tribunal in the case of the sister concern of the assessee M/s Vardhman Textiles Ltd. (supra) wherein, on identical facts and circumstances the Tribunal has held that a suitable enhancement on account of disallowance on account of administrative expenses would meet the ends of justice. We have gone through the order of the Chandigarh Bench in the case of Vardhman Textiles Ltd. (supra) also and we note that in assessment years 2011- 12 and 2012-13 as well as in earlier assessment years 2006-07 and 2007-08, the Tribunal had suitably enhanced the disallowance on account of administrative expenses. On similar reasoning and on identical facts and respectfully following the ratio laid down by the coordinate Bench in the case of the sister concern of the assessee M/s Vardhman Textiles Ltd (supra), we direct that the disallowance under section 14A of the Act on account of administrative expenses for the captioned assessment years be enhanced as under:- ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 53 S.No. A.Y. Amount (in Rs.) 1. 2012-13 3,00,000/- 2. 2013-14 2,75,000/- 3. 2014-15 3,25,000/- 4. 2015-16 5,00,000/- 7.4.11 It is so ordered accordingly. The assessee will of course get the benefit of suo motu disallowance already made. 7.4.12 Thus, ground Nos. 5 and 6 in assessee’s appeal for assessment year 2012-13, ground Nos. 4 and 5 in assessee’s appeal for assessment year 2013-14, ground Nos. 2 and 3 in assessee’s appeal for assessment year 2014-15 and ground Nos. 2 and 3 in assessee’s appeal for assessment year 2015-16 stand partly allowed. 7.4.13 Similarly, connected grounds in Department’s appeal viz ground No. 4 in assessment year 2012-13, ground No. 3 in assessment year 2014-15 and ground No. 2 in assessment year 2015-16 also stand partly allowed. ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 54 7.5.0 Ground No.7 in assessee’s appeal for 2012-13, ground Nos.2 in Department’s appeal for assessment year 2014-15, ground No. 1 in Department’s appeal for 2015-2016 are again identical grounds. In assessment year 2012-13, the Ld. CIT(A) had held that the interest reimbursement of Rs. 38,19,693/- received under TUFS was not a capital receipt. However, the Ld. CIT(A) deleted the addition made by the AO and held that the receipts on account of interest free reimbursement was eligible for the purpose of claiming deduction u/s 80IC of the Act . Thus, in assessment year 2012-13, both the Department as well as the assessee are aggrieved. In assessment year 2013-14, Department’s appeal was dismissed by the Tribunal on account of low tax effect and in assessment years 2014-15 and 2015-16, only the Department is in appeal and has challenged the action of the Ld. CIT(A) in holding that the interest reimbursement under TUFS was a capital receipt. 7.5.1 On this issue, it is the submission of the Ld. AR that the issue has been settled in favour of the assessee ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 55 by the order of the Tribunal in assessee’s own case for assessment years 2010-11 and 2011-12. 7.5.2 We have gone through the order of the ITAT in assessee’s own case for assessment years 2010-11 and 2011-12, as relied upon by the Ld. AR and we note that the Chandigarh Bench of the ITAT in ITA Nos. 1046/Chd/2016, 1063/Chd/2016, 253/Chd/2017 and 414/Chd/2017 vide common order dated 27.11.2019 has discussed the issue at length and has made the following observations:- “11. We have heard both the parties and carefully gone through the orders of the authorities below. The issue raised in the present ground is regarding the nature of the interest subsidy received by the assessee under TUF Scheme. The assessee has claimed the same to be in the nature of capital receipt and thus not exigible to tax at all. The assessee is aggrieved by the order of the CIT(A) for not having adjudicated the ground to this effect raised by the assessee before him. The Ld. CIT(A), we find, had after allowing the assessee’s claim of deduction u/s 80IC of the Act on the interest subsidy received under TUF Scheme had stated that alternate plea of the assessee of treating the said subsidy as capital in nature was mere academic since the assessee had already been allowed ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 56 relief and accordingly had not dealt with the issue. Before us the Ld. Counsel for the assessee has demonstrated that the ITAT had adjudicated identical issue in the case of M/s Vardhman Textiles Ltd (supra) for assessment years 2002-03 to 2005-60 in ITA No. 1429/Chd/2018 & others vide their order dated 29.5.2019 and had decided the issue in favour of the assessee. We have gone through the order of the ITAT and we find that the ITAT on nothing that the subsidy had been granted for the purpose of Upgradation of plant and machinery being capital purpose, held the nature of subsidy to be capital. The ITAT relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Sham Lal Bansal (supra) and the decision of the Hon'ble High Court of Calcutta in the case of CIT Vs. Gloster Jute Mills Ltd (2018) 96 Taxman.com 303. The ITAT noted that the said decision had been rendered taking note of the proposition laid down by the Hon'ble Apex Court for determining the nature of the subsidy in the case of Sahni Steel & Press Works Ltd. Vs. CIT (1997) 94 Taxman 368 and CIT Vs. Pooni Sugar & Chemical Ltd. (2008) 174 Taxman 87 that it was the purpose for which the subsidy was given which was determinative of the nature of the subsidy. 12. Since admittedly an identical issue already stands adjudicated by the ITAT in the case of M/s Vardhman Textiles Ltd (supra) and the Ld. DR has not brought to our notice any distinguishing facts, the ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 57 issue stands covered by the said decision of the ITAT. Following the same, we hold that the interest subsidy received under TUF Scheme is capital in nature and not exigible to tax at all. Ground of appeal No.2 raised by the assessee is accordingly, allowed.” 7.5.3 During the course of hearing before us, the Ld. DR also could not point out to any judgement or order from a superior authority wherein it has held otherwise on the issue. Accordingly, respectfully following the precedent laid down by the coordinate Bench in assessee’s own case for assessment years 2010-11 and 2011-12, as mentioned in the preceding paragraphs, ground No.7 in assessee’s appeal for assessment year 2012-13 stands allowed, whereas, ground No. 2 in assessment year 2012-13, ground No. 2 in assessment year 2014-15 and ground No.1 in assessment year 2015- 16 (all Department’s appeal) stand dismissed. 7.6.0 Now, we take up ground No.3 in Department's Appeal for assessment year 2012-13 and Ground No.1 in assessment year 2014-15. In both the years, the Department has challenged the action of the Ld. CIT(A) ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 58 in holding that the process undertaken by the assessee i.e. twisting of yarn was a manufacturing activity which was eligible for deduction u/s 80IC of the Act. In this regard the Ld.AR has submitted that this issue is also covered in favour of the assessee by the order of the Tribunal in assessee’s own case for assessment years 2010-11 and 2011-12. 7.6.1 We have gone through the order of the Tribunal in assessee’s own case for assessment years 2010-11 and 2011-12 wherein in ITA Nos. 1046/Chd/2016, 1063/Chd/2016, 523/Chd/2017 and 414/Chd/2017, It is seen that the Coordinate Bench of the Tribunal, vide common order 27.11.2019, has dealt and decided the issue in favour of the assessee as under:- “30. Ground No.3 raised by the Revenue reads as under:- “3. Whether in the facts and circumstances of the case in law, as the Ld. CIT(A) justified in allowing the process undertaken by the assessee is not manufacturing activity and holding the same as eligible for ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 59 calculating deduction u/s 80IC of the Income Tax Act, 1961?. 31. The Revenue in the above ground is aggrieved by the order of the CIT(A) treating the twisting and texturing of yarn undertaken by the assessee as manufacturing for the purpose of claiming deduction of profits earned thereon u/s 80IC of the Act. 32. At the outset itself, it was pointed out that this issue already stands adjudicated in the case of the assessee in preceding years i.e. assessment years 2008-09 and 2009-10 by the ITAT vide its order in ITA No. 530/Chd/2012 & Others dated 13.7.2017 wherein the ITAT had decided the issue in favour of the assessee. Our attention was drawn to paras 13 to 15 of the ITAT order as under:- “13. Vide ground No.2, the Revenue has agitated the action of the CIT(A) in treating the activity of twisting and texturing of yarn as manufacturing activity for the purpose of deduction u/s 80IC of the Act. 14. We have heard the rival contentions and have also gone through the records. This issue has been dealt with by the Ld. CIT(A) in para 12 onwards of his order. The Ld. CIT(A) after considering the various judgments of the higher Courts on this issue and also considering the activity of the assessee has observed that the assessee has been doing the activity ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 60 of conversion of yarn into thread which lead to creation of entirely a distinct product meant for specific usage and further that the change effected is irreversible. He has also observed that the average price of the raw material i.e. yarn being Rs. 230/- per kg can not be equated with that of the finished product i.e. thread priced at an average price of Rs. 575 per kg. He further relied upon the decision of the Hon'ble Bombay High Court in the case of ‘CIT Vs. Emptee Poly Yarn (P) Ltd’ reported in 170- Taxman-332-BOM, wherein the Hon'ble Bombay High Court has observed as under: “From the material considered it would be clear that POY has different physical and chemical properties and when POY chips undergoes the process of texturising and / or twisting, the yarn i.e. twisted and/ or texturised or both results in a product having different physical and chemical properties. In other words, the process applied to POY either for the purpose of texturing of twisting constituted manufacture as the article produced is recognized in the trade as distinct commodity pursuant to the process it undergoes and which amounts to manufacture. Under the Central ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 61 Excise Act, the Union of India itself treated the POY as distinct from POY, drawn twisted or textured or both. From all the material we have no hesitation in arriving at a conclusion that the process which POY undergoes in the process of texturising and twisting results into a new and distinct product and regarded in the Trade as distinct from commodity involved in the manufacture. The process amount to manufacture as the original commodity looses its identity. In view of our findings the view take by the Tribunal will have to be upheld.” 15. The above judgement of the Hon'ble Bombay High Court is squarely applicable to the identical facts of the present case, hence, we have no hesitation to hold that there is no infirmity in the order of the CIT(A) in holding that the conversion of yarn into thread by the assessee company amounts to manufacturing activity and, therefore, the income earned from such activity is eligible for deduction u/s 80IC of the Act. There is no merit in this ground of appeal of the Revenue and the same is accordingly dismissed.” The Ld. DR fairly admitted that the issue stood adjudicated in favour of ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 62 the assessee by the ITAT in earlier years. 33. In view of the above, since identical issue already stands decided by the ITAT in favour of the assessee, treating the twisting and texturing as manufacturing activity, we do not find any reason to interfere in the order of the Ld. CIT(A) holding so. Ground of appeal No.3 raised by the Revenue is therefore dismissed.” 7.6.2 Accordingly, in view of the order of the Tribunal in assessee’s own case for assessment years 2008-09, 2009-10, 2010-11 and 2011-12, in the captioned years under appeal also, we hold that the twisting of yarn is manufacturing activity entitled to deduction u/s 80IC of the Act. Therefore, ground No.3 in Department’s appeal for 2012-13 and ground No. 1 in Department’s appeal for assessment year 2014-15 stands dismissed. 7.7.0 Ground No.5 in Department's Appeal for assessment year 2012-13 challenges the action of Ld. CIT(A) in deleting the disallowance of interest on investment in terms of provisions of seciton 36(1)(iii) of ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 63 the Act. Although the AO had made a disallowance of interest to the tune of Rs. 44.24 lacs, the Ld. CIT(A) has deleted the addition on the ground of availability of own funds. It is seen that the assessee had its own funds to the tune of Rs. 47452 lacs as on 31.03.2012 whereas the investments was to the tune of Rs. 10129.83 lacs only. It has been submitted by the Ld. AR that this issue is also covered in favour of the assessee by the order of the Tribunal in the case of sister concern of the assessee namely Vardhman Acrylics Ltd. in ITA Nos. 88/Chd/2018 and 81Chd/2018 for assessment year 2013-14. We have considered this submission of the Ld. AR and we find that vide order dated 03.07.2019, the ITAT has dealt this issue as under:- “9. We have considered the rival submissions. The undisputed facts on the file are that the assessee had demonstrated before the lower authorities that the assessee was possessed of sufficient own / interest free fund to meet the investment in question. The Ld. Counsel for the assessee has also placed reliance in this respect on a chart produced before us to show that the total investment as on 31.03.2013 were at Rs. 13487.26 ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 64 lacs, whereas, the total investment as on 31.3.2012 were at Rs. 8874.21 lacs and there was a net increase in the investments of the amount to Rs. 4613.05 lacs. The assessee had share capital, reserve and surpluses of Rs. 41328 lacs as on 31.3.2013 as against of Rs. 39353 lacs as on 31.3.2012. Apart from that, the total interest paid during the year was Rs. 26.88 lacs, whereas, the assessee during the year received interest of Rs. 708.72 lacs and, therefore, the net interest received during the year was of Rs. 681.84 lacs. Apart from that, the income of the assessee for the year as per profit & loss account was at Rs. 3794.95 lacs. The assessee also got claim of additional depreciation at Rs. 1128.93 lacs, thus, the total income of the year including depreciation was at Rs. 4923.88 lacs. The above figures show that the assessee was possessed of sufficient own funds to meet the investment in question. The issue is, thus, covered by the various decisions of the Hon'ble Courts including that of the Hon'ble Jurisdictional High Court in ‘Bright enterprises Ltd Vs. CIT (ITA No. 224 of 2013) dated 24.7.2015 and also with the decision of the Hon'ble Supreme Court in the case of ‘Hero Cycles (P) Ltd. Vs. CIT (63 Taxman 308) / [2015] 379 ITR 347 (SC) wherein, it has been held that if the assessee has own funds / interest free funds available with it to make investment, ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 65 the presumption will be that investment made by the assessee is out of own funds.” 7.7.1 In the present year also, the assessee has demonstrated that it had sufficient funds of its own and it is for this reason only that the Ld. CIT(A) also has deleted the addition. Accordingly, respectfully following the order of the Tribunal in the case of the sister concern of the assessee M/s Vardhman Acrylics Ltd for assessment year 2013-14 (supra), we hold that the Ld. CIT(A) has rightly deleted the disallowance of interest u/s 36(1)(iii) of the Act. Therefore, ground No.5 of Department’s appeal for assessment year 2012-13 stands dismissed. 8.0 In the final result, the appeals of the assessee as well as the appeals of the Department stand partly allowed. Order pronounced on 18.08.2022. Sd/- Sd/- ( N. K. SAINI) (SUDHANSHU SRIVASTAVA) Vice President Judicial Member Dated : 18.08.2022 “आर.के .” ITA Nos. 1199-c-17, 849-c-19, 1165-c-17, 850-c-19, 535 to 537-c-19(A.Y.2012-13 to 2015-16)- Vardhman Yarns and Threads Limited, Ludhiana 66 आदेशक त+ल,पअ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent 3. आयकरआय ु .त/ CIT 4. आयकरआय ु .त (अपील)/ The CIT(A) 5. ,वभागीय त न1ध, आयकरअपील$यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड फाईल/ Guard File आदेशान ु सार/ By order, सहायकपंजीकार / Assistant Registrar