DCIT, New Delhi V. M/s. NIIT GIS Ltd., New Delhi

ITA 6500/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4881 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Keywords: Depreciation; Rule of consistency; Earning of tax free income
• Section: 143(3); 14A; 80IB; 12; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E , NEW DELHI BEFORE SH. BHAVNESH SAINI, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 6500 /DE L/ 2014 ASSESSMENT YEAR : 2009 - 10 DCIT, CIRCLE - 18(2), NEW DELHI VS. NIIT GIS LTD., 8, BALAJI ESTATE, 1 ST FLOOR, GURU RAVI DAS MARG, KALKAJI, NEW DELHI PAN : AAACN2216L (APPELLANT) (RESPONDENT) AND ITA NO. 6561/DEL/2014 ASSESSMENT YEAR : 2009 - 10 NIIT GIS LTD., 8, BALAJI ESTATE, 1 ST FLOOR, GURU RAVI DAS MARG, KALKAJI, NEW DELHI VS. DCIT, CIRCLE - 13(1), NEW DELHI PAN : AAACN2216L (APPELLANT) (RESPONDENT) DEPARTMENT BY MS. SHEFALI SWAROOP, CIT(DR) ASSESSEE BY SH. DEEPESH JAIN, CA DATE OF HEARING 23.08.2017 DATE OF PRONOUNCEMENT 30.08.2017 ORDER PER O.P. KANT , A. M. : THESE CROSS APPEALS OF THE R EVENUE AND THE ASSESSEE ARE DIRECTED AGAINST ORDER DATED 13/08/2014 OF THE COMMISSIONER OF INCOME - TAX ( APPEALS) - XVI, DELHI FOR ASSESSMENT YEAR 2009 - 10. 2. THE GROUNDS RAISED BY THE R EVENUE IN ITA NO. 6500/DEL/2014 ARE AS UNDER: 2 ITA NO S . 6500 & 6561 /DEL/2014 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80IC OF THE ACT OF RS. 10,46,93,829/ - BY IGNORING THE FACT THAT DEDUCTION U/S 80IC OF THE IT ACT WAS NOT ALLOWED IN THE AY 2006 - 07 TO THE ASSESSEE WHICH WAS THE FIRST YEAR OF CLAIMING THE DEDUCTION U/S 80IC AND THAT THE DISALLOWANCE IN RESPECT OF DEDUCTION U/S 801C IN AY 2006 - 07 WAS MADE ON ACCOUNT OF NON FULFILLMENT OF CONDITIONS REGARDING SUBSTANTIAL EXPANSION MADE BY THE ASSESSEE IN THE PARWANOO UNIT? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U S 80IC OF THE ACT OF RS. 10.46,93,829/ - BY MERELY FOLLOWING THE DECISION OF THE THEN ID. CLT(A) FOR A.Y 2006 - 07 IN THE CASE OF THE ASSESSEE AND IGNORING THE FACT THAT THE ASSESSEE HAS NOT FULFIL LED THE CONDITIONS PRESCRIBED U/S 80IC (2)(B) READ WITH SECTION 80IC(7)(IX) OF THE ACT AND THE FACT THAT THE MATTER IS SUB - JUDICE WITH THE JURISDICTIONAL ITAT FOR AY. 2006 - 07? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION U/S 80IC OF THE ACT OF RS. 10,46,93,829/ - BY IGNORING THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER THAT THE SUBSTANTIAL EXPANSION WAS NOT EFFECTED BY THE ASSESSEE COMPANY WITHIN THE PRESCRIBED LIMIT GIVEN IN THE ACT AND THAT THE ASSESSEE WAS NOT ENGAGED IN THE MANUFACTURING ACTIVITY FOR THE PURPOSE OF WHICH DEDUCTION U/S 80IC IN ALLOWABLE? 4. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITH OUT PREJUDICE TO EACH OTHER. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD. ALTER, AMEND OR FOREGO ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 3. T HE GROUNDS RA ISED BY THE ASSESSEE IN ITA NO. 6561 /DEL/2014 ARE AS UNDER: 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OFEXPENSES TO THE EXTENT OF RS. 14,97,616/ - MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 ( THE ACT ) INVOKING RULE 8D OF THE INCOME TAX RULES, 1962 ( THE RUL ES ), HOLDING THE SAME TO BE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME 3 ITA NO S . 6500 & 6561 /DEL/2014 1.1. THAT THE CIT(A) ERRED ON FACTS IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN MECHANICALLY INVOKING RULE 8D OF THE RULES WITHOUT APPRECIATING THAT PRECONDITIONS FOR AP PLYING RULE 8D AS PRESCRIBED IN SUB - SECTIONS (2)/ (3) OF SECTION 14A OF THE ACT WERE NOT SATISFIED. 1.2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN DISALLOWING THE EXPENSES UNDER SECTION14A ON THE GROUND THAT APPELLANT FAILED TO MAINTAIN SEPARATE ACCOU NT OF EXPENDITURE RELATED TO EXEMPT INCOME. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, AMEND OR VARY THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 4. THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE, A PUBLIC LIMITED COMPANY WAS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND DISTRIBUTING GEOGRAPHICAL INFORMATION S YSTEM (GIS) SOFTWARE PRODUCTS, PROVIDING TECHNICAL SUPPORT, CONSULT ANCY AND EDUCATION SERVICES. THE ASSESSEE COMPANY CARRIED ON BUSINESS THROUGH SEPARATE BUSINESS UNITS, CON SISTING OF MANUFACTURING UNITS AT PARWANOO , ( HIMACHAL PRADESH ) AND OTHER UNITS AT DIFFERENT PLACES, WHICH REPRESENTED BUSINESS GENERATED FROM ANNUAL MAINTENANCE C ONTRACT (AMCS), UPGRADE AND CONSULT ANCY SERVICES. THE PARWANOO UNIT COMPRISES OF MANUFACTURING OF GEOGRAPHIC INFORMATION SYSTEMS S OFTWARE (GIS) . FOR THE RELEVANT PREVIOUS YEAR, THE ASSESSEE FILED RETURN OF INCOME AT RS.6,40,76 , 406/ - ON 24/09/2009, WHICH WAS SUBSEQUENTLY REVISED TO RS.6,47,76,684/ - AFTER CLAIMING DEDUCTION UNDER SECTION 80 IC OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT ) IN RESPECT OF THE PROFIT OF MANUFACTURING UNIT AT PARWANOO . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND COMPLIED WITH. THE ASSESSMENT U NDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 28/03/2013 ASSESSING THE TOT AL INCOME AT RS. 17,05,02,160/ - AFTE R MAKING VARIOUS DISALLOWANCES/ ADDITIONS. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LEARNED CIT - (A) , WHO PARTLY ALLOWED THE APPEAL OF THE A SSESSEE. AGGRIEVED , BOTH THE R EVENUE 4 ITA NO S . 6500 & 6561 /DEL/2014 AND THE ASSESSEE ARE IN APPEAL RAISING THE RESPECTIVE GROUNDS, AS REPRODUCED ABOVE. ITA NO. 6500/DEL/2014 5. FIRS T , WE TAKE UP THE APPEAL OF THE R EVENUE IN ITA NO. 6500/DEL/2014. THE GROUND S NO. 4 TO 6 OF THE APPEAL ARE GENERAL IN NATURE, THEREFORE , WE ARE NOT REQUIRED TO ADJUDICATE UPON THOSE GROUNDS AND SAME ARE DISMISSED AS INFRUCTUOUS. 3. THE GROUND NO. 1 TO 3 OF THE APPEAL ARE IN RELATION TO DELETION OF DISALLOWANC E OF DEDUCTION AMOUNTING TO RS.10,46,93, 829 / - UN DER SECTION 80 IC THE ACT. THE LD. CIT - (A) HAS DELETED THE DISALLOWANCE FOLLOWING THE DECISION OF HIS PREDECESSOR IN ASSESSMENT YEA R 2006 - 07. IN THE GROUNDS, THE R EVENUE HAS RAISED THE ISSUE THAT SUBSTANTIAL EXPANSION OF THE UNIT WAS NOT E FFECTED WITHIN THE PRESCRIBED LIMIT GIVEN IN THE ACT AND THE ASSESSEE WAS NOT ENGAGED IN THE MANUFACTURING ACTIVITY FOR THE PURPOS E OF DEDUCTION UNDER SECTION 80 IC OF THE ACT. 4. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE BROUGHT TO OUR ATTENTION THAT THE ISSUES IN DI SPUTE HAVE ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER S OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2006 - 07, 2007 - 08 AND 2008 - 09 . 5. ON THE CONTRARY, THE LD. CIT( DR ) RELIED ON THE ORDER OF THE ASSESS ING OFFICER AND SUBMITTED THAT R EVENUE HAS FILED APPEAL AGAINST THE SAID ORDERS OF THE TRIBUNAL. FURTHER , THE LD. CIT ( DR ) SUBMITTED THAT THE UNIT WAS ESTABLISHED IN THE YEAR 2000 AND THE ASSESSEE HAS ALREADY CLA IMED DEDUCTION UNDER SECTION 80 IB OF THE ACT FROM ASSESSMENT YEAR 2001 - 02 TO 2005 - 06 AND , THUS , IT SHOULD NOT BE ALLOWED DEDUCTION UNDER SECTION 80IC OF THE ACT FOR SUBSTANTIAL EXPANSION OF THE EXISTING UNIT. 5 ITA NO S . 6500 & 6561 /DEL/2014 6. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED CIT - (A) HAS ALLOWED RELIEF TO THE ASSES SEE WITH FOLLOWING OBSERVATIONS : 4.2 GROUND NO. 3 OF APPEAL IS DIRECTED AGAINST DISALLOWANCE OF DEDUCTION CLAIMED U/S 80IC. THE A.O. DISALLOWED THE DEDUCTION U/S 80IC OF RS. 10,46,93,829/ - CLAIMED BY THE APPELLANT ON THE GROUND THAT SINCE IN THE A.Y. 2006 - 07 THE FIRST YEAR OF CLAIM IT WAS HELD THAT THE APPELLANT IS NOT ELIGIBLE FOR THE CLAIM OF DEDUCTION U/S 80IC, THEREFORE, THE DEDUCTION IS NOT ALLOWABLE IN THE YEAR UNDER CONSIDERATION A.Y. 2009 - 10. THE APPELLANT BEING AGGRIEVED WITH THE DECISION OF THE A.O. IN THE A.Y. 2006 - 07 WENT IN APPEAL BEFORE THE CIT (A). THE LD. CIT (A) - XXXII - DELHI IN A VERY DETAILED ORDER DATED 11/04/2012 IN ITA NO. 316/09 - 10/211 - (A) 32 HAVE HELD THAT THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 80IC IN A .Y. 2006 - 07 AS UNDER: 4.3.3 THE FIRST ISSUE TO BE DECIDED IS AS TO WHETHER THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 80IC ON ACCOUNT OF MANUFACTURING OR PRODUCING ARTICLE OR THING NOT INCLUDED IN THE THIREENTH SCHEDULE OF THE INCOME TAX ACT, 1961. THE A.O. HAS OBSERVED THAT THE ACTIVITY OF PRODUCTION OF ESRI SOFTWARE CARRIED ON AT THE PARWANOO UNIT OF THE APPELLANT DID NOT TANTAMOUNT TO 'MANUFACTURE', IN VIEW OF THE ASSESSMENT ORDERS PASSED FOR THE EARLIER ASSESSMENT YEARS IN WHICH DEDUCTION U/S 80IB WA S DISALLOWED TO THE APPELLANT ON THE GROUND THAT THE AFORESAID ACTIVITY OF THE APPELLANT WAS NOT AMOUNTING TO MANUFACTURE . SINCE THE DEDUCTION U/S 80IC IS ALSO ALLOWABLE TO AN UNDERTAKING ENGAGED IN MANUFACTURING OR PRODUCING ANY ARTICLE OR THING NOT INC LUDED IN THE NEGATIVE LIST OF THE THIRTEENTH SCHEDULE, THE A.O. WAS OF THE OPINION THAT THE APPELLANT WAS NOT ELIGIBLE FOR DEDUCTION U/S 80IC. THE APPELLANT, HOWEVER, HAS BROUGHT ON RECORD VARIOUS APPELLATE ORDERS OF THE LD. CIT (A) HON BLE ITAT, HON BLE J URISDICTIONAL HIGH COURT AS WELL AS THE HON BLE APEX COURT IN THE APPELLANT S OWN CASE IN WHICH THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE APPELLANT WITH REFERENCE TO ITS CLAIM OF DEDUCTION U/S 80IB FOR THE A.YS 2001 - 02 TO 2005 - 06. AS SEEN FROM THE COPI ES OF THE RELEVANT ORDERS FILED BY THE APPELLANT IN THE PAPER BOOK, FURTHER APPEAL FILED BY THE REVENUE AGAINST THE AFORESAID DECISION OF TRIBUNAL WAS ALSO DISMISSED BY THE HON BLE JURISDICTIONAL HIGH COURT IN ITA NO. 486/2009 AND THE SPECIAL LEAVE PETITIO N FILED BY THE DEPARTMENT BEFORE THE HON BLE SUPREME COURT WAS ALSO DISMISSED, VIDE ORDER DATED 6 ITA NO S . 6500 & 6561 /DEL/2014 13.05.2010 (SLP NO. 764 OF 2010). IT IS ALSO PERTINENT TO NOTE THAT THE HON BLE TRIBUNAL HAD BASED ITS DECISION ON THE JUDGMENT OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. ORACLE SOFTWARE INDIA LTD. 293 ITR 353, WHICH HAS BEEN SUBSEQUENTLY AFFIRMED BY THE HON BLE SUPREME COURT IN CIVIL APPEAL NO. 235 OF 2010 REPORTED AT 228 CTR 433. IN VIEW OF THE ABOVE POSITION, THIS ISSUE IS DECIDED IN FAVOUR OF THE A PPELLANT. 4.3.4 THE NEXT ISSUE TO BE DECIDED IS WHETHER THE APPELLANT ACTUALLY CARRIED OUT SUBSTANTIAL EXPANSION DURING THE RELEVANT PREVIOUS YEAR SO AS TO BECOME ELIGIBLE FOR DEDUCTION U/S 80IC IN THE INSTANT A.Y. 4.3.7 IN VIEW OF THE FOREGOING DISCUSSION ON ALL THE RELEVANT ISSUES AND THE FINDINGS THEREON, IT IS HELD THAT THE APPELLANT HAS JUSTIFIED SUBSTANTIAL EXPANSION OF ITS PARWANOO UNIT WHICH MAKES IT ELIGIBLE FOR DEDUCTION U/S 80IC AS IT IS ENGAGED IN MANUF ACTURE OF AN ARTICLE OR THING BEING ESRI SOFTWARE CDS WHICH IN NOT ON THE NEGATIVE LIST OF THE THIRTEENTH SCHEDULE. GROUND NO. 2 IS THUS DECIDED IN FAVOUR OF THE APPELLANT.' AS THE DISALLOWANCE WAS MADE BY THE A.O. SOLELY ON THE BASIS OF FINDING GIVEN IN A.Y. 2006 - 07, WHICH WAS HELD TO BE ERRONEOUS FINDING BY LD. CIT (A), AND THE FACTS OF THE CASE BEING IDENTICAL IN A.Y 2009 - 10 AS IN A.Y. 2006 - 07, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF LD. CIT (A) - XXXII IT IS HELD THAT APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 80IC. AS SUCH THIS ISSUE IS DECIDED IN FAVOUR OF THE APPELLANT. 7. WE FIND THAT IN ASSESSMENT YEAR 2006 - 07 AND 2007 - 08, ALSO THE DEDUCTION UNDER SECTION 80IC OF THE ACT WAS DENIED ON THE GROUND OF NO SUBSTANTIAL EXPANSION OF PARWANOO UNI T . THE TRIBUNAL WHILE DECIDING THE APPEAL OF THE R EVENUE IN ITA NO. 3077/DEL/2012 FOR ASSESSMENT YEAR 2006 - 07 AND ITA NO. 697/DEL/2 013 FOR ASSESSMENT YEAR 2007 - 08 , IN PARA - 7 TO 11 OF THE ORDER DATED 24/02/2015, OBSERVED AS UNDER: 7. FROM THE ASSESSMENT ORDER, WE NOTE THAT THE ISSUE OF SUBSTANTIAL EXPANSION AT PARWANOO UNIT WAS DECIDED BY THE AO AGAINST THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE 7 ITA NO S . 6500 & 6561 /DEL/2014 THAT THE PLANT AND MACHINERY AT PARWANOO UNIT AS ON 1.4.2005 WAS ONLY OF RS.34,63,22 0 OUT OF TOTAL PLANT AND MACHINERY. THE AO ALSO NOTED THIS FACT THAT THE REVENUE OF PARWANOO UNIT ACCOUNTS FOR 69% OF THE TOTAL REVENUE. THE AO FURTHER NOTED THAT AS PER PROVISIONS OF SECTION 80IC OF THE ACT, SUBSTANTIAL EXPANSION MEANS INCREASE IN INVES TMENT IN PLANT AND MACHINERY BY AT LEAST 50% OF THE BOOK VALUE OF PLANT AND MACHINERY BEFORE TAKING INTO CONSIDERATION THE DEPRECIATION IN ANY YEAR AS ON FIRST DAY OF THE PREVIOUS YEAR IN WHICH THE SUBSTANTIAL EXPANSION IS UNDERTAKEN. THE AO FINALLY H ELD THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT ANY SUBSTANTIAL EXPANSION UNDERTAKEN DURING THE YEAR AND THE ASSESSEE IS NOT ENGAGED IN THE MANUFACTURING ACTIVITY AND WITH THIS CONCLUSION, DEDUCTION US/ 801 OF THE ACT WAS DISALLOWED BY THE AO. 8. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) CONSIDERED THE EXPLANATION AND SUBMISSION OF THE ASSESSEE AND HELD THAT EVEN IF VARIOUS AMOUNTS OF INTERNET BRANDWITH TESTING CHARGES TOTALLING TO RS.97,445 ARE CONSIDERED TO BE REVENUE EXPENSES AND ARE NO T CONSIDERED PART OF PLANT AND MACHINERY FOR THE PURPOSE OF SUBSTANTIAL EXPANSION AND ANOTHER AMOUNT OF RS. 16,020 SPENT FOR SITE SURVEY AND COMMISSIONING OF INTERNET BANDWIDTH RENAMING TO EARLIER YEAR CANNOT BE TREATED AS PART OF SUBSTANTIAL EXPANSION RAR ING THE RELEVANT PREVIOUS YEAR EVEN AFTER DISALLOWING OTHER CAPITALIZED CHARGES , THE ASSESSEE HAS BEEN ABLE TO JUSTIFY THE IN CREASE OF PLANT AND MACHINERY TO THE TUNE OF RS.18,35,423 (RS.19,48,888 - RS. 1,13,465) AT PARWANOO UNIT. WE ARE ALSO IN AGREEMENT WITH THE CONCLUSION OF THE CIT(A) THAT THIS AMOUNT OF INCREASE OF PLANT AND MACHINERY DURING THE YEAR UNDER CONSIDERATION VIZ. RS. 18,35,423 IS MORE THAN 50% OF THE OPENING VALUE OF THE PLANT AND MACHINERY FOR PARWANOO I.E. RS.34,63,220 (AS ON 1.4.2005) TH EN THE CLAIM OF EXPANSION OF PARWANOO UNIT WAS RIGHTLY HELD IN FAVOUR OF THE ASSESSEE. WE ALSO NOTE THAT THE DIRECTOR OF INDUSTRIES, H.P. ALSO ACKNOWLEDGED THE SUBSTANTIAL EXPANSION OF PARWANOO UNIT AS ON 24.11.2005 BY THE CERTIFICATE DATED 8.2.2006 WHICH HAS NOT B EEN CON TROVERT ED BY THE AO WHICH CLARIFIES THAT AFTER SUBSTANTIAL EXPANSION AS ON 24.11.2005, THE INVESTMENT IN PLANT AND MACHINERY WAS INCREASED FROM RS.33.32 LAKH TO RS.52.36 LAKH DURING THE YEAR UNDER CONSIDERATION. 9. ON THE BASIS OF FOREGOI NG DISCUSSION AND FACTS AND CIRCUMSTANCES EMERGED AND NOTED BY US, WE ARE INCLINED TO HOLD THAT THE CIT(A) DEALT THE ISSUE OF SUBSTANTIAL EXPANSION AS PER LETTER AND SPIRIT OF THE PROVISIONS OF THE ACT AND THE PERCENTAGE OF REVENUE 8 ITA NO S . 6500 & 6561 /DEL/2014 OF TOTAL TURNOVER CANNOT BE THE SOLE BASIS FOR DECIDING THE CLAIM OF SUBSTANTIAL EXPANSION OF THE ASSESSEE WITHOUT APPRECIATING THE OTHER TIDING CIRCUMSTANCES AND TOTALITY OF THE FACTS. 10. THE CIT(A) ALSO GRANTED RELIEF TO THE ASSESSEE FO R AY 2007 - 08 BY FOLLOWING ITS ORDER FOR AY 2006 - 07 WHICH CANNOT BE SAID TO BE AN UNJUST OR IMPROPER APPROACH RATHER THE CIT(A) RIGHTLY FOLLOWED RULE OF CONSISTENCY IN THE PROCEEDINGS BY FOLLOWING ITS ORDER FOR IMMEDIATELY PRECEDING YEAR. 11 IN VIEW OF ABOVE, WE ARE UNABLE TO SEE ANY AMBIGUITY, PERVERSITY OR ANY OTHER VALID REASON TO INTERFERE WITH THE IMPUGNED ORDER AND WE UPHOLD THE SAME. ACCORDINGLY , GROUND NO. 1, 2 AND 3 FOR AY 2006 - 07 AND GROUND NO. 1 AND 2 FOR AY 2007 - 08 OF THE REVENUE BEING DEVOID OF MERITS ARE DISMISSED. 8. FURTHER, THE TRIBUNAL WHILE DECIDING THE CROSS APPEALS OF THE ASSESSEE (ITA NO. 2087/DEL/2013) AND THE REVENUE (ITA NO. 2208/DEL/2013 ) FOR ASSESSMENT YEAR 2008 - 09 ALSO HELD THAT THE ASSESSEE WAS ENGAGED IN MANUFACTURING. THE RELEVANT FINDING OF THE TRIBUNAL IS REPR ODUCED AS UNDER: 16. HAVING GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT IN THE ASSESSMENT YEAR 2006 - 07, THE ASSESSING OFFICER HAD OBSERVED THAT THE ACTIVITY OF PRODUCTION OF ESRJ SOFTWARE CARRIED ON AT THE PARWANOO UNIT OF THE ASSESSEE DID NOT TANTAMOUNT TO MANUFACTURE IN VIEW OF THE ASSESSMENT ORDERS PASSED FOR THE EARLIER ASSESSMENT YEAR IN WHICH DEDUCTION UNDER SEC. 80IB OF THE ACT WAS DISALLOWED TO THE ASSESSEE ON THE GROUND THAT THE AFORESAID ACTIVITY OF THE ASSESSEE WAS NOT AMOU NTING TO MANUFACTURE. THE ASSESSING OFFICER OBSERVED THAT SINCE THE DEDUCTION UNDER SEC. 80IC OF THE ACT IS ALSO ALLOWABLE TO AN UNDERTAKING ENGAGED IN MANUFACTURING OR PRODUCING ANY ARTICLE OR THINGS NOT INCLUDED IN THE NEGATIVE LIST, OF THE 13TH SCHEDULE , THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SEC. 80IC OF THE ACT. THE LEARNED CIT(APPEALS) FOLLOWING SEVERAL DECISIONS, CITED BEFORE IT, HAD ALLOWED THE CLAIMED DEDUCTION WHICH HAS BEEN NOW UPHELD BY THE HON'BLE SUPREME COURT THIS THING FINDING THA T THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION UNDER SEC. 80IB FOR THE ASSESSMENT YEARS 2001 - 02 TO 2005 - 06. SINCE THE ISSUE IS COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF 9 ITA NO S . 6500 & 6561 /DEL/2014 ASSESSEE ITSELF UNDER SIMILAR SET OF FACTS FOLLOWED BY THE LEARNE D CIT(APPEALS), WE DO NOT FIND REASON TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE SAME IS UPHELD. THE GROUNDS INVOLVING THE ISSUE ARE ACCORDINGLY REJECTED. 9. AS REGARD CONTENTION OF THE LEARNED CIT (DR) THAT THE ASSESSEE HAS ALREADY BEEN ALL OWED DEDUCTION UNDER SECTION 80 IB OF THE ACT FOR FIVE YEARS AND THEREFORE , IT SHOULD NOT BE ALL OWED DEDUCTION UNDER SECTION 80 IC OF THE ACT, WE MAY LIKE TO MENTION THE SUBSECTION 6 OF SECTION 80 IC WHICH RESTR ICTS DEDUCTION UNDER SECTION 80IB, SECT ION 80IC OR SECTION 10 C FOR A TOTAL PERIOD OF 10 YEARS AND BEYON D THAT NO DEDUCTION IS ALLOWED. THE RELEVANT SUBSECTION READ AS UNDER: 80 - IC. (1) .. (2) .. (3) .. (4) . (5) . (6) NOTWITHSTANDING ANYTHING CONTAINED IN THIS ACT, NO DEDUCTION SHALL BE ALLOWED TO ANY UNDERTAKING OR ENTERPRISE UNDER THIS SECTION, WHERE THE TOTAL PERIOD OF DEDUCTION INCLUSIVE OF THE PERIOD OF DEDUCTION UNDER THIS SECTION, OR UNDER THE SECOND PROVISO TO SUB - SECTION (4) O F SECTION 80 - IB OR UNDER SECTION 10C , AS THE CASE MAY BE, EXCEEDS TEN ASSES SMENT YEARS. 10. IN VIEW OF ABOVE S ECTION, THE ARGUMENTS OF LD. CIT(DR) CANNOT HOLD GROUND, AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IC (6) OF THE ACT FOR AT LEAST 5 YEARS . 11. SINCE BOTH THE ISSUES OF SUBSTANTIAL EXPANSION AT PARWANOO UNIT AND THE ACTIVITY OF THE ASSESSEE AS MANUFACTURING, HAVE ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL AND NO CONTRARY DECISION OF ANY HIGHER COURT HAS BEEN BROUG HT TO OUR NOTICE BY THE LEARNED CIT( DR ) , RESP ECTF ULLY FOLLOWING THE DECISION OF THE TRIBUNAL 10 ITA NO S . 6500 & 6561 /DEL/2014 (SUPRA), WE FIND NO INFIRMITY IN THE FINDING OF THE LEARNED CIT( A) ON THE ISSUE IN DISPUTE AND UPHOLD THE SAME. T HE G ROUNDS NO. 1 TO 3 OF THE APPEAL ARE DISMISSED ACCORDINGLY. ITA NO. 6561/DEL/2014 12. NOW , WE TAKE UP THE APPEA L OF THE ASSESSEE IN ITA NO. 6561/DEL/20 14. THE GROUNDS NO. 1 TO 1.2 OF THE APPEAL ARE RELATED TO DISALLOWANCE OF EXPENSES OF RS. 14,97,616/ - UNDER SE CTION 14A OF THE ACT READ WITH R ULE 8D OF INCOME TAX R ULES, 1962 (IN SHORT THE R ULES ). 13. DURING THE RELEVANT YEAR, THE ASSESSEE RECEIVED DIVIDEND ON SHAR ES/MUTUAL FUND AMOUNTING TO RS. 2,36,385/ - WHICH WAS CLAIMED EXEMPT UNDER SECTION 10(33)//10(34) OF THE ACT. IN THE RETURN OF I NCOME FILED, THE ASSESSEE MADE SUO M OTU DISALLOWANCE UNDE R SECTION 14A OF THE ACT AMOUNTING TO RS.2,65, 537 / - AFTER CONSIDERING 10% OF SALARY OF FINANCIAL CONTROLLER AND 10% OF PER HEAD ADMINISTRATIVE EXPENSES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO JUSTIFY ITS WORKING OF DISALLOWANCE OF EXPENSES. THE ASSESSEE SUBMITTED THAT NO BORROWED FUNDS WERE UTILI Z ED I N MAKING INVESTMENT IN MUTUAL FUNDS AND , THEREFORE , NO PORTION OF THE INTEREST EXPENDITURE WAS INCURRED OR CONSIDERED FOR DISALLOWANCE. ACCORDING TO THE ASSESSING OFFICER , THE INVESTMENT IN SHARES/MUTUAL FUND REQUIRES USE OF OFFICIAL MACHINERY AND HELP OF ITS MANAGEMENT AND EMPLOYEES. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE WO RKING OF THE ASSESSEE, THUS INVOKING R ULE 8D OF INCOME TAX R ULES, 1962 , HE COMPUTED DISALLOWANCE OF RS.17,63, 153 / - UNDER R ULE 8D(2)(III) AS 0.5% OF AVERAGE ASSETS OF RS.35.26 CRORES AND ADDED THE SAME TO THE INCOME ASSESSED UNDER NORMAL PROVISIONS OF THE ACT. THE LEARNED CIT - (A) CONCURRED WITH THE FINDING OF THE ASSESSING OFFICER, HOWEVER , HE ALLOWED BENEFIT OF THE 11 ITA NO S . 6500 & 6561 /DEL/2014 DISALLOWANCE ALREADY MADE BY THE ASSESSEE AN D SUSTAINED THE BALANCE ADDITION OF RS.14,97,616/ - . 14. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT COMPLIED WITH THE PREREQUISITE OF DIS SATISFACTION WITH THE CLAIM OF THE ASSESSEE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE LEARNED COUNSEL ALSO SUBMITTED THAT ASSESSEE HAS ALREADY MADE DISALLOWANCE OF RS.2,65,537 / - EXCEEDING THE EXEMPTED DIVIDEND INCOME OF RS.2,36,385/ - AND , THEREFORE , NO DISALLOWANCE IS REQUIRED TO BE MADE IN VIEW OF THE DECISION OF THE HON BLE D ELHI HIGH COURT IN THE CASE OF JOINT I NVESTMENT PVT . LTD . VS. CIT 372 ITR 694. 15. ON THE CONTRARY, LD. CIT (DR) SUBMITTED THAT THE ASSESSING OFFICER HAS DULY RECORDED HIS DISSATISFACTION WITH THE WORKING OF TH E DISALLOWANCE UNDER SECTION 14 A BY THE ASSESSEE, AND REQUESTED THAT DISALLOWANCE UNDER R ULE 8D OF THE ACT MIGHT BE UPHELD. 16. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATE RIAL ON RECORD. IN THE CASE OF JOINT I NVESTMENT LTD VS. CIT ON HON BLE DELHI HIGH COURT IS OF THE V IEW THA T DISALLOWANCE UNDER SECTION 14 A OF THE ACT SHOULD NOT EXCEED THE EXEMPTED INCOME CLAIMED BY THE ASSESSEE. THE RELEVANT FINDING OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPEL LANT/ASSESSEE S CLAIM FOR ATTRIBUTING RS.2,97,440/ - AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF TH E ASSESSEE S CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY W HICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS.48,90,000 / - , THE DISALLOWANCE ULTIMATELY DIRECTED 12 ITA NO S . 6500 & 6561 /DEL/2014 WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/ - . BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRE TED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME . THIS PRO PORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 17. THUS , RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT, WE ARE OF THE OPINION THAT THE ASSESSEE HAS ALREADY MADE DISALLOWANCE SUO MOTU EXCEEDING THE EXEMPTED INCOME, THEREFORE , NO FURTHER DISALLOWANCE IS REQUIRED IN THE CASE OF THE ASSESSEE AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER A ND UPHELD BY THE LD. CIT - (A) , IS HEREBY DELETED. SINCE WE HAVE ALREADY DELETED THE DISALLOWANCE IN QUESTION, THE ARGUMENT OF THE LD. COUNSEL THAT NO DISSATISFACTION WAS RECORDED BY THE ASSESSING OFFICER FOR REJECTING THE CLAIM OF THE ASSESSEE, IS MERELY RE NDERED ACADEMIC AND THUS , WE ARE NOT ADJUDICATING UPON. THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 18. IN THE RESULT, APPEAL OF THE R EVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 3 0 T H AUGUS T , 201 7 . S D / - S D / - ( BHAVNESH SAINI ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 3 0 T H AUGUST , 201 7 . RK / - (D.T.D) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI