DCIT, CC-XIX, KOLKATA, Kolkata V. M/s International Conveyors Pvt. Ltd., Kolkata

ITSSA 91/KOL/2014

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2823 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 17-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 30-05-2014
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Assessee Lawyers: A K TIBREWAL
• Keywords: Business income; Depreciation; Search and seizure; Earning of tax free income; Assessment record; Unabsorbed depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE DR. A.L.SAINI, AM & SHRI K. NARASIMHA CHARY, JM IT(SS)A NO.131/KOL/2014 ( / ASSESSMENT YEAR :2008-2009) DCIT, CC-XIX, KOLKATA VS. M/S .INTERNATIONAL CONVEYORS PVT.LTD.,10,MIDDLETION ROW, KOLKATA-700071 ./ ./PAN/GIR NO. : AACI 6161 K ( /APPELLANT ) .. ( / RESPONDENT ) ITA NO.1366/KOL/2014 ( / ASSESSMENT YEAR :2008-2009) DCIT, CC-XIX, KOLKATA VS. M/S INTERNATIONAL CONVEYORS PVT.LTD.,10,MIDDLETION ROW, KOLKATA-700071 ./ ./PAN/GIR NO. : AACI 6161 K ( /APPELLANT ) .. ( / RESPONDENT ) IT(SS)A NO.90/KOL/2014 ( / ASSESSMENT YEAR :2009-2010) DCIT, CC-XIX, KOLKATA VS. M/S INTERNATIONAL CONVEYORS PVT.LTD.,10,MIDDLETION ROW, KOLKATA-700071 ./ ./PAN/GIR NO. : AACI 6161 K ( /APPELLANT ) .. ( / RESPONDENT ) IT(SS)A NO.91/KOL/2014 ( / ASSESSMENT YEAR :2010-2011) DCIT, CC-XIX, KOLKATA VS. M/S INTERNATIONAL CONVEYORS PVT.LTD.,10,MIDDLETION ROW, KOLKATA-700071 ./ ./PAN/GIR NO. : AACI 6161 K ( /APPELLANT ) .. ( / RESPONDENT ) IT(SS)A NO.92/KOL/2014 ( / ASSESSMENT YEAR :2011-2012) DCIT, CC-XIX, KOLKATA VS. M/S INTERNATIONAL CONVEYORS PVT.LTD.,10,MIDDLETION ROW, KOLKATA-700071 ./ ./PAN/GIR NO. : AACI 6161 K ( /APPELLANT ) .. ( / RESPONDENT ) IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 2 IT(SS)A NO.93/KOL/2014 ( / ASSESSMENT YEAR :2012-2013) DCIT, CC-XIX, KOLKATA VS. M/S INTERNATIONAL CONVEYORS PVT.LTD.,10,MIDDLETION ROW, KOLKATA-700071 ./ ./PAN/GIR NO. : AACI 6161 K ( /APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NIRAJ KUMAR, CIT DR /ASSESSEE BY : SHRI A.K.TIBREWAL, FCA / DATE OF HEARING : 17/11/2016 /DATE OF PRONOUNCEMENT 05/12/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED SIX APPEALS FILED BY THE REVENUE PERT AINING TO THE ASSESSMENT YEARS 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13, ARE DIRECTED AGAINST THE ORDERS PASSED BY LD. COMMISSIO NER OF INCOME TAX (APPEALS), CENTRAL-II, KOLKATA, IN APPEAL NOS.112/C C-XIX/CIT(A)C-II/13- 14, 113/CC-XIX/CIT(A)C-II/13-14, 114/CC-XIX/CIT(A)C -II/13-14, 115/CC- XIX/CIT(A)C-II/13-14, 116/CC-XIX/CIT(A)C-II/13-14 & 338/CIT(A)-I/C- 2/2010-11, DATED 02.05.2014, 24.03.2014 AND 24.12.2 013, RESPECTIVELY, WHICH IN TURN ARISE OUT ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER U/S.153A/143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), DATED 27.01.2014, 31.12.2010 & 27.01.2014, RESPECTI VELY. 2. THE ABOVE MENTIONED SIX APPEALS PERTAIN TO THE S AME ASSESSEE, DIFFERENT ASSESSMENT YEARS, COMMON ISSUES INVOLVED, THEREFORE, THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLID ATED ORDER IS BEING IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 3 PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. THE REVENUES APPEAL IN IT(SS)A NO.90/KOL/2014 (AY : 2009-2010) TAKEN AS A LEAD CASE. 3. BRIEF FACTS OF CASE QUA THE ASSESSEE ARE THAT TH E MAIN BUSINESS ACTIVITIES OF THE GROUP ASSESSEE IS MANUFACTURING A ND PROCESSING OF CONVEYORS BELT AND ELECTRICAL EQUIPMENT, REAL ESTA TE DEVELOPMENT AND INVESTMENT INCLUDING OTHER NBFC ACTIVITIES. THE ASS ESSEES GROUP IS ALSO ENGAGED IN GENERATION, SUPPLY AND SALE OF WIND POWE R. IN THE COURSE OF SEARCH AND SEIZURE OPERATION, PANCHANAMAS WERE DRAW N IN THE NAMES OF M/S INTERNATIONAL CONVEYORS LIMITED AND OTHERS ON 2 8.07.2011 AT THE OFFICE PREMISES AT 16, INDIA EXCHANGE PLACE, KOLKAT A-700001. THE ASSESSEE FILED ITS RETURN OF INCOME IN RESPONSE TO NOTICE U/S.153A ON 14.09.2012 DISCLOSING A TOTAL INCOME OF RS.3,36,15, 157/-. THE AO HAS COMPLETED THE ASSESSMENT U/S.153/143(3) OF THE I.T. ACT BY MAKING ADDITIONS U/S.14A OF THE ACT, R.W.RULE 8D AND U/S.4 3B OF THE ACT. THE AO ALSO DISALLOWED DEDUCTION U/S.80-IA OF THE ACT. THE AO NOTED THAT ASSESSEE HAS MADE TOTAL INVESTMENT OF RS.2,52,59,13 7/- IN UNQUOTED SHARES, QUOTED SHARES AND MUTUAL FUND ETC. AND TOTA L INTEREST PAYMENT DURING THE YEAR IS RS.3,36,89,816/-. THE ASSESSEE R ECEIVED EXEMPTED DIVIDEND INCOME FROM THE INVESTMENT AT RS.28171/- B UT THE ASSESSEE HAD NOT OFFERED ANY DISALLOWANCE TOWARDS EXPENDITURE RE LATED TO DIVIDEND INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. SI NCE THE ASSESSEE HAS NOT CONSIDERED IN ITS ACCOUNT ANY EXPENDITURE RELAT ABLE TO THE EARNING OF THE EXEMPT INCOME. THEREFORE, EXPENDITURE RELATABLE TO THE EARNING OF EXEMPT INCOME IS DISALLOWED U/S.14A OF THE ACT IN A CCORDANCE WITH THE IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 4 CALCULATION LAID DOWN IN RULE 8D OF THE I.T.RULES. THE AO ALSO FOUND FROM THE PROFIT AND LOSS ACCOUNT OF THE WIND MILL AT CHI TRADURGA, KARNATAKA THAT THE ASSESSEE COMPANY HAS A PROFIT OF RS.38,30,422/- AND THE SAME HAS BEEN CLAIMED AS DEDUCTION U/S.80-IA OF THE ACT. IT IS SEEN FROM THE ASSESSMENT RECORD OF AY 2008-09 THAT THERE IS ACCUM ULATED UNABSORBED DEPRECIATION TO THE EXTENT OF RS.94,91,664/- (RS.12 040800 RS.2549136) WHICH IS TO BE SET OFF FROM THE PROFIT OF THE ELIGI BLE BUSINESS BEFORE ALLOWING THE CLAIM FOR DEDUCTION U/S.80-IA OF THE A CT. HENCE, THE CLAIM FOR DEDUCTION U/S.80-IA IS RECALCULATED AS BELOW :- PROFIT FROM THE CHITRADURGA WIND MILL RS.3830422 UNABSORBED DEPRECIATION B/F FOR AY2008-09 RS.38304 22 DEDUCTION ALLOWABLE NIL THIS WAY, THE AO DENIED DEDUCTION U/S.80-IA OF THE ACT. 4. AGGRIEVED, FROM THE ORDER OF THE ASSESSING OFFIC ER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD CIT(A), WHO HAS DELET ED THE ADDITION MADE BY THE AO, BY OBSERVING THE FOLLOWINGS: 8. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLAN T AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE JUDICIAL DECISIONS RELIED UPON BY THE AO AS WELL AS THE APPE LLANT COMPANY. I HAVE ALSO CONSIDERED THE APPELLATE ORDER IN THE CAS E OF APPELLANT FOR THE A.Y. 2008-09 PASSED BY THE CIT(A)-L, KOLKAT A DATED 24.12.2013. IT IS OBSERVED THAT THE SIMILAR DISALLO WANCE U/S 14A READ WITH RULE 8D WAS MADE BY THE AO AT RS.14,21,22 9/- IN THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2008-09. IN TH E COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT FILED SAME SUB MISSION AS IN THE INSTANT APPEAL CONTENDING THAT ENTIRE BORROWED FUND WAS UTILIZED EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND NO PART OF THE BORROWED FUND WAS EVER UTILISED FOR MAKING INVESTME NT IN SHARES. THAT, THE APPELLANT COMPANY WAS HAVING ITS OWN FUND IN THE FORM OF CAPITAL AND RESERVES MUCH MORE THAN THE AMOUNT OF I NVESTMENTS AND HENCE NO DISALLOWANCE CAN BE MADE UNDER RULE 8D (2)(II) ON ACCOUNT OF INTEREST. AFTER CONSIDERING THE SUBMISSI ON OF THE IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 5 APPELLANT COMPANY AND THE POSITION OF ITS OWN FUND IN THE FORM OF PAID UP CAPITAL AND RESERVES, IN A.Y. 2008-09, IT I S HELD BY THE CIT(A) THAT THE AO WAS NOT JUSTIFIED IN MAKING DISA LLOWANCE FROM THE INTEREST PAYMENT UNDER RULE 8D(2)(II). IN THE Y EAR UNDER APPEAL I.E. A.Y. 2009-10, THE FACTS ARE EXACTLY SIMILAR. T HEREFORE, FOLLOWING THE DECISION IN THE CASE OF APPELLANT COMPANY IN A. Y. 2008-09, IT IS HELD THAT NO PART OF INTEREST IS DISALLOWABLE U/S 1 4A READ WITH RULE 8D(2)(II) AND THE AO IS DIRECTED TO DELETE THE SAME . AS FAR AS THE DISALLOWANCE UNDER RULE 50(2)(III) IS CONCERNED, THE AO IS DIRECTED TO RE-CALCULATE THE DISALLOWANCE AS PER THE DECISION OF THE HON'BLE !TAT, KOLKATA IN THE CASE OF REI AGR O LTD. VS. DCIT, 144 ITD 141 BY CONSIDERING THE AVERAGE VALUE OF ONL Y THOSE INVESTMENT ON WHICH EXEMPT INCOME HAS BEEN EARNED. IN VIEW OF ABOVE, THE GROUND NO. 2 IS PARTLY ALLOWED. 11. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE ASSESSMENT ORDER FOR THE A.Y. 2008-09 AND THE APPEAL ORDER OF THE CIT(A) DATED 24.12.2013. IT IS OBSERVED THAT FOR THE FIRST TIME THE AO HAD MADE ADJUSTMENT OF THE ACCUMULATED UNABSORBED DEPRECIATI ON AND BUSINESS LOSS OF THE ELIGIBLE UNIT IN A.Y. 2008-09 WHEREIN FOR THE FIRST TIME THE APPELLANT COMPANY EXERCISED ITS OPTION TO CLAIM THE DEDUCTION AS PER SECTION 80IA(2) OF THE ACT. ON PER USAL OF EARLIER YEARS ORDERS AND COMPUTATION OF INCOME PRIOR TO A.Y . 2008-09 IT IS OBSERVED THAT THE BUSINESS LOSS OR DEPRECIATION WAS ALREADY SET OFF AGAINST THE PROFITS OF OTHER UNIT AND THERE WAS NO ACTUAL BUSINESS LOSS OR UNABSORBED DEPRECIATION OF THE ELIGIBLE UNI T WHICH WAS CARRIED FORWARD FOR SET OFF IN SUBSEQUENT YEARS. IN NONE OF THE EARLIER ASSESSMENT YEARS THE RETURNED/ASSESSED INCOME WAS L OSS. SINCE, FOR THE FIRST TIME THE DEDUCTION U/S 80-LA WAS CLAI MED IN A.Y 2008- 09, THE AO SET OFF THE NOTIONAL BUSINESS LOSS AND U NABSORBED DEPRECIATION OF ELIGIBLE UNIT FROM THE PROFIT OF TH E ELIGIBLE UNIT IN A.Y. 2008-09 AS PER SECTION 80-IA(5) AND BALANCE AMOUNT WAS ALLOWED TO CARRIED FORWARD. AGAINST THIS ACTION OF THE AO I N A.Y. 2008-09, THE APPELLANT COMPANY FILED AN APPEAL BEFORE THE CIT(A) WHICH WAS DECIDED VIDE APPEAL NO.338/CIT(A)-I/C-2/2010-11 DAT ED 24.12.2013. AFTER CONSIDERING THE FACTS OF THE CASE AND THE LEGAL POSITION THE CIT(A) HELD AS UNDER :- THE SUBMISSIONS HAVE BEEN CONSIDERED AS WELL AS THE CASE LAWS RELIED UPON BY IT. IT IS SEEN THAT THE AO HAS COMPU TED DEDUCTIONS U/S.80-LA AS PER PROVISION OF SEC. 80-IA (5), I.E, AFTER SETTING OFF OF BUSINESS LOSS AND UNABSORBED DEPRECIATION FROM THE PROFIT AND SINCE AFTER SETTING OFF THERE WAS NIL INCOME, THE A O DID NOT ALLOW THE DEDUCTION. IT IS SEEN THAT THE ISSUE HAS BEEN C ONSIDERED IN THE DECISION OF MADRAS HIGH COURT IN THE CASE OF VELAYU DHASWAMY SPINNING MILLS LTD VS. ACIT, 231 CTR 368 AND IT HAS BEEN HELD THAT THERE IS NO QUESTION OF SETTING OFF NOTIONALLY CARR IED FORWARD UNABSORBED DEPRECIATION OR LOSS AGAINST THE PROFITS OF THE UNIT, IN THIS CASE THE HIGH COURT UPHELD THE FINDING THE ITA T AS UNDER- IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 6 'AT THE COST OF REPETITION, WE MAKE IT CLEAR THAT T HE CASE LAW RELIED ON BY THE DEPARTMENT REPRESENTATIVE ARE DELI VERED BEFORE THE AMENDMENT TO SECTION 80-IA BY THE FINANC E ACT 1999. BEFORE THE AMENDMENT, THE INITIAL ASSESSMENT YEAR WAS DEFINED IN THE ACT BUT AFTER THE AMENDMENT THER E IS NO DEFINITION FOR INITIAL ASSESSMENT YEAR IN THE ACT A ND THERE IS OPTION TO THE ASSESSEE IN SELECTING THE YEAR OF CLA IMING RELIEF UNDER SECTION 80-LA. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THERE IS NO QUESTION OF SETTING OFF NOTIONALLY CARR IED FORWARD UNABSORBED DEPRECIATION OR LOSS AGAINST THE PROFITS OF THE UNITS AND THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTI ON U/S 80- IA IN THE CURRENT ASSESSMENT YEAR ON THE CURRENT YE AR PROFIT. ACCORDINGLY, WE ALLOW THE CLAIM OF THE ASSESSEE'. THE HON'BLE COURT ALSO RELIED ON ANOTHER DECISION O F RAJASTHAN HIGH COURT AS UNDER- ' IN THE CASE OF CIT V. MEWAR OIL AND GENERAL MILLS LTD. (NO.1) [2004] 271 ITR 311 (RAJ) ; [2004] 186 CTR (R AJ) 141, THE RAJASTHAN HIGH COURT ALSO CONSIDERED THE SCOPE OF SECTION 80-I AND HELD AS FOLLOWS (PAGE 314 OF 271 I TR): 'HAVING CONSIDERED THE RIVAL CONTENTIONS WHICH FOLL OW ON THE LINE NOTICED ABOVE, WE ARE OF THE OPINION THAT ON FINDIN G THE FACT THERE WAS NO CARRY FORWARD LOSSES OF 1983-84, WHICH COULD BE SET OFF AGAINST THE INCOME OF THE CURRENT ASSESSMENT YEAR 1 984-85, THE RE- COMPUTATION OF INCOME FROM THE NEW INDUSTRIAL UNDER TAKING BY SETTING OFF THE CARRY FORWARD OF UNABSORBED DEPRECI ATION OR DEPRECIATION ALLOWANCE FROM PREVIOUS YEAR DID NOT S IMPLY ARISE AND ON THE FINDING OF FACT NOTICED BY THE COMMISSIONER OF INCOME-TAX (APPEALS), WHICH HAS NOT BEEN DISTURBED BY THE TRIB UNAL AND CHALLENGED BEFORE US, THERE WAS NOT ERROR MUCH LESS ANY ERROR APPARENT ON THE FACE OF THE RECORD WHICH COULD BE R ECTIFIED. THE QUESTION WOULD HAVE BEEN GERMANE ONLY IF THERE WOUL D HAVE BEEN CARRY FORWARD OF UNABSORBED DEPRECIATION AND UNABSO RBED DEVELOPMENT REBATE OR ANY OTHER UNABSORBED LOSSES O F THE PREVIOUS YEAR ARISING OUT OF THE PRIORITY INDUSTRY AND WHETH ER IT WAS REQUIRED TO BE SET OFF AGAINST THE INCOME OF THE CURRENT YEA R. IT IS NOT AT ALL REQUIRED THAT LOSSES OR OTHER DEDUCTIONS WHICH HAVE ALREADY BEEN SET OFF AGAINST THE INCOME OF THE PREVIOUS YEAR SHO ULD BE REOPENED AGAIN FOR COMPUTATION OF CURRENT INCOME UNDER SECTI ON 80-I FOR THE PURPOSE OF COMPUTING ADMISSIBLE DEDUCTIONS THEREUND ER. ' THEREFORE, THE APPELLANT WAS ENTITLED TO CLAIM DEDU CTION U/S 80-LA ON THE CURRENT YEAR'S PROFIT. ACCORDINGLY, THE CONT ENTION OF THE APPELLANT IS FOUND TO BE CORRECT AND IT IS HELD 'TH AT THE AO WAS NOT JUSTIFIED IN ADJUSTING THE NOTIONAL DEPRECATION AND BUSINESS LOSS FROM THE ELIGIBLE BUSINESS OF THE EARLIER YEAR FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80-IA. ACCORDINGLY, THIS GR OUND OF APPEAL IS ALLOWED. IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 7 11.1 IN THE YEAR UNDER APPEAL, THE AO HAS SET OFF T HE NOTIONAL UNABSORBED DEPRECIATION WHICH WAS CARRIED FORWARD B Y HIM AS PER THE ASSESSMENT ORDER FOR THE A.Y. 2008-09. HOWEVER, AS MENTIONED ABOVE, IN THE A.Y. 2008-09, THE CIT(A) HAS HELD THA T THE AO WAS NOT JUSTIFIED IN ADJUSTING THE NOTIONAL DEPRECIATIO N AND BUSINESS LOSS FROM THE ELIGIBLE BUSINESS OF THE EARLIER YEAR FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80-LA AND THAT THE ASSESSEE COMPANY IS ENTITLED TO CLAIM DEDUCTION U/S 80-LA ON THE CURREN T YEAR'S PROFIT WITHOUT ADJUSTMENT. SINCE, IN THE YEAR UNDER APPEAL THE FACTS ARE EXACTLY SIMILAR, HENCE FOLLOWING THE DECISION IN TH E CASE OF APPELLANT IN A.Y. 2008-09, IT IS HELD THAT THE AO WAS NOT JUS TIFIED IN ADJUSTING NOTIONAL AMOUNT OF UNABSORBED DEPRECIATION OF RS.38 ,30,422/- FROM THE CURRENT YEAR'S PROFIT OF THE ELIGIBLE UNIT TO D ENY THE DEDUCTION U/S 80-LA OF THE ACT. THE AO IS DIRECTED TO ALLOW THE C LAIM U/S 80-LA. THE GROUND NO. 3 IS ALLOWED. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE REVENUE IS IN FURTHER APPEAL BEFORE US AND HAS TAKEN THE FOLLOWIN G GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD CIT (A) HAS ERRED IN LAW IN DELETING THE DISALLO WANCE U/S 14A READ WITH RULE 8D OF IT RULES BY HOLDING THAT THE I NVESTMENT OF SHARES WAS MADE OUT OF OWN FUNDS OF THE ASSESSES WITHOUT CONSIDERING THAT THE LINKAGE BETWEEN THE FUNDS BORROWED AND THE INVESTMENTS, THE INCOME OF WHICH I S EXEMPT, WAS NOT ESTABLISHED BY THE ASSESSEE. 2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) ERRED IN ALLOWING THE SET-OFF OF UNABSO RBED DEPRECIATION WITH THE BUSINESS INCOME IN DETERMINING THE QUANTU M OF DEDUCTION AVAILABLE U/S 80-1A. 3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) ERRED IN INTERPRETING THE PROVISION OF SECTION 80-IA(5), SPECIALLY WITH REGARDS TO THE INITIAL ASSESSMENT YE AR, SINCE THE ASSESSEE'S OPTION TO SELECT THE INITIAL ASSESSMEN T YEAR HAS BEEN REVOKED IN THE AMENDED PROVISION OF SECTION 80- LA. 4. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, MODIF Y OR ALTER ANY OF THE GROUNDS OF APPEAL AND/OR ADDUCE ADDITIONAL EVID ENCE AT THE TIME OF HEARING OF THE CASE. 5. THE FIRST GROUND RELATES TO EXPENDITURE ATTRIBU TABLE TO DIVIDEND (EXEMPTED INCOME) TO BE DISALLOWED AS AN EXPENDITUR E U/S.14A OF THE INCOME TAX ACT. IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 8 5.1. LD. DR FOR THE REVENUE HAS SUBMITTED THAT THE CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO U/S.14A R. W.R.8D OF THE I.T. RULES. LD. CIT(A) WRONGLY HELD THAT THE INVESTMENT IN SHARES WAS MADE OUT OF OWN FUNDS OF THE ASSESSEE. THE CIT(A) DID NO T CONSIDER THE LINKAGE BETWEEN THE FUNDS BORROWED AND THE INVESTMENTS DONE BY THE ASSESSEE, THE INCOME OF WHICH IS EXEMPT. THE ASSESSEE ALSO FA ILED TO ESTABLISH THE LINKAGE BETWEEN THE FUNDS BORROWED AND THE INVESTME NTS. IN ADDITION TO THIS, LD. AO PRIMARILY RELIED ON THE STAND TAKEN BY THE LD. AO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT B EING REPEATED FOR THE SAKE OF BREVITY. AS PER THE AUDITED BALANCE SHEET A ND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY, THE TOTAL INVESTME NT MADE BY THE ASSESSEE COMPANY IN QUOTED AND UNQUOTED SHARES IN M UTUAL FUNDS WAS AT RS.2,52,59,137/-. THE ASSESSEE HAS EARNED DIVIDE ND INCOME ON SUCH INVESTMENT AT RS.28,171/-, WHICH WAS CLAIMED BY THE ASSESSEE AS EXEMPT INCOME. 5.2. ON THE OTHER HAND, LD. AR SUBMITTED THAT IN TH E PRESENT CASE, THERE ARE NO DIRECT EXPENSES ATTRIBUTABLE TO THE INCOME B Y WAY OF DIVIDEND EARNED BY THE ASSESSEE. THE ASSESSEES BORROWINGS W ERE ALL FOR BUSINESS PURPOSES. NO PART OF INTEREST ON BORROWINGS WERE EV ER DISALLOWED AND/OR CONSIDERED FOR THE PURPOSES OTHER THAN BUSINESS. TH E INVESTMENT IN SHARES AND SECURITIES WERE MUCH LOWER THAN THE AMOU NT OF ITS SUBSCRIBED SHARE CAPITAL AND FREE RESERVES. THE INVESTMENT IN SHARES WERE MADE FROM THE BANK ACCOUNT WHEREIN OWN FUNDS ARE ALSO PA RKED. IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 9 IN THIS REGARD, THE WRITTEN SUBMISSIONS FILED BY TH E ASSESSEE BEFORE THE LD CIT(A) IS RELEVANT WHICH IS REPRODUCED BELOW: THE PROFITS EARNED EVERY YEAR WERE MORE THAN SUFFIC IENT FOR FRESH INVESTMENTS IN THE RELEVANT YEARS. ASST.YEAR PAID UP SHARE CAPITAL FREE RESERVES (RS.) TOTAL (RS.) INVESTMENT IN SHARES & SECURITIES (RS.) 2003-04 2,40,00,250 4,30,53,579 6,70,53,829 1,86,42 ,316 2004-05 2,40,00,250 5,61,36,261 8,01,36,511 1,91,02 ,436 2005-06 2,40,00,250 6,91,43,634 9,31,43,634 3,29,00 ,130 2006-07 2,40,00,250 9,38,36,149 11,78,36,399 2,19,4 3,384 2007-08 2,40,00,250 15,32,77,229 17,72,77,479 1,74, 43,384 2008-09 2,40,00,250 17,52,55,599 19,92,55,849 2,07, 59,137 2009-10 3,37,50,250 41,94,99,082 45,32,49,332 2,52, 59,137 THERE IS INCREASE OF INVESTMENT IN SHARES & SECURIT IES BY RS.45,00,100 ONLY. THE COMPANY EARNED A NET PROFIT OF RS.3,38,46,465/- AS PER PROFIT & LOSS ACCOUNT AND T HIS SUM IS MUCH MORE THAN THE INCREASE IN INVESTMENT IN SHARES & SE CURITIES. THUS NO AMOUNT OF BORROWED FUNDS COULD BE SAID TO HAVE B EEN USED FOR INVESTMENT IN SHARES & SECURITIES. THE ASSESSEE COM PANY REFERS TO THE FOLLOWING DECISIONS WITH REGARD TO ITS CLAIM TH AT WHERE THE AMOUNT OF CAPITAL AND FREE RESERVES WERE MORE THAN THE AMOUNT OF INVESTMENT IN SHARES THEN IT COULD BE PRESUMED THAT THE INVESTMENTS WERE MADE FROM OWN FUNDS AND NOT FROM B ORROWED FUNDS: MUNJAL SALES CORPN. V. CIT [2008] 298 ITR 298 (SC). CIT V. RELIANCE UTILITIES & POWER LTD. (2009) 178 T AXMAN 135 (BOM) CIT V. BRITANNIA INDUSTRIES LTD. (2006) 280 ITR 525 (CAL) CIT V. GUJRAT NARMADA VALLEY FERTILIZERS CO. LTD. [ 2014] 42 TAXMANN.COM 270 (GUJRAT) EVEN OTHERWISE THE ISSUE IS WELL COVERED BY THE DEC ISION OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. V. CIT [2007] 288 ITR 158 TAXMAN 74 (SC) AND HON'BLE GUJRAT HIGH COUR T IN THE CASE OF CIT VS. GUJRAT POWER CORPORATION LTD. REPORTED I N [2013] 352 ITR 583 (GUJ). THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BRITANNIA INDUSTRIES LTD. (SUPRA), WHILE DEALING WITH THE ISS UE RELATING TO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT ON THE GROUND THAT BORROWED FUNDS WERE DIVERTED TO ADVANCE INTEREST FR EE MONEY TO ITS SISTER CONCERN, HELD AS UNDER- IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 10 'HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF TH E INSTANT CASE AND THE CONCURRENT FINDINGS OF THE COMMISSIONE R (APPEALS) AND THE TRIBUNAL, IT APPEARED THAT THERE WERE SUFFICIENT FUNDS AVAILABLE WITH THE ASSESSEE ON DAT E WHEN ADVANCE WAS MADE AND THAT THE ADVANCE WAS MADE FROM MIXED ACCOUNT AND AS SUCH IN THE INSTANT CASE, THE TRIBUNAL AND THE COMMISSIONER (APPEALS) BOTH WERE RIGHT IN PRESUMING THAT THE ADVANCE WAS MADE OUT OF THE ASSE SSEE'S OWN FUND. ' IT IS MOST RESPECTFULLY SUBMITTED THAT IN PAST THER E IS NO FINDING OF THE ASSESSING OFFICER THAT ANY AMOUNT OF BORROWED FUNDS WERE EVER USED FOR ACQUISITION OF SHARES AND/OR SECURITIES ON WHICH THE ASSESSEE COMPANY HAS RECEIVED EXEMPT INCOME BY WAY OF DIVIDEND. IN ALL THE PRECEDING YEARS INTEREST PAID ON BORROWED FUNDS HAD BEEN ALLOWED IN FULL UNDER SECTION 36(1)(III) O F THE INCOME TAX ACT, 1961 AND NO DISALLOWANCE WAS EVER MADE FOR NON -BUSINESS PURPOSES. IN SUCH CIRCUMSTANCES, THE ASSESSEE COMPA NY SUBMITS THAT NO PART OF INTEREST COULD BE DISALLOWED IN ANY YEAR WHATSOEVER SINCE THE AMOUNT OF INTEREST PAID BY THE ASSESSEE C OMPANY WAS ADMITTEDLY USED SOLELY FOR ITS BUSINESS PURPOSES. O NCE IT IS HELD THAT THE BORROWED FUNDS, ON WHICH INTEREST WAS PAID BY T HE ASSESSEE WAS NOT DIVERTED FOR INVESTMENT IN SHARES & SECURIT IES, THE SAME IS WHOLLY ALLOWABLE U/S 36(1)(III) OF THE ACT BEING BO RROWED FUNDS USED FOR THE PURPOSES OF BUSINESS. IN SUCH CIRCUMSTANCES , NO PART OF INTEREST COULD BE SAID TO BE DIRECTLY ATTRIBUTABLE TO BORROWINGS USED FOR INVESTMENT IN SHARES & SECURITIES ON WHICH THE ASSESSEE EARNED TAX FREE DIVIDEND. THE LD. AO HAS NOT BROUGHT ANY MATERIALS ON RECORD THAT AFTER EXAMINATION OF BOOKS OF THE APPELLANT HE WAS DISSAT ISFIED WITH THE APPELLANT'S CLAIM THAT THE BORROWED FUNDS WERE NEVE R USED BY THE APPELLANT FOR INVESTMENT IN SHARE & SECURITIES AND/ OR THAT THE BORROWED FUNDS WERE USED FOR ANY PURPOSES OTHER THA N FOR THE PURPOSES OF THE BUSINESS OF THE APPELLANT COMPANY A ND/OR ANY PARTICULAR EXPENDITURE DEBITED IN THE ACCOUNTS WERE RELATABLE TO EARNING OF DIVIDEND INCOME. ON THE OTHER HAND THE A PPELLANT SUBMITS THAT MOST OF THE INVESTMENTS ARE BROUGHT FO RWARD FROM EARLIER YEARS AND IT RECEIVED DIVIDENDS FROM THREE COMPANIES ONLY WHERE THE AVERAGE INVESTMENTS WAS RS.1,93,847/- (SE E DETAILS BELOW) AND THE SAID DIVIDEND WAS DIRECTLY CREDITED TO APPELLANT'S BANK ACCOUNT AND NO MANAGERIAL EXPENSES WERE INCURR ED FOR EARNING THE SAID DIVIDEND INCOME. THE DETAIL OF DAT E-WISE INVESTMENTS IN SHARES & SECURITIES AND THE DETAILS OF DIVIDEND RECEIVED DURING THE YEAR ARE FURNISHED FOR READY RE FERENCE. IT IS SUBMITTED THAT NO SATISFACTION WAS RECORDED BY AO I N TERMS OF SEC. 14A OF THE ACT FOR DISALLOWING THE MANAGERIAL EXPEN SES AS WELL. THE IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 11 APPELLANT COMPANY SUBMITS THAT WITHOUT RECORDING SA TISFACTION THE AO IS UNJUSTIFIED IN LAW IN MAKING ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. RELIANCE IS PLACED ON THE FOLLOWING TWO DECISIONS O F HON'BLE KOLKATA ITATAND A DECISION OF HON 'BLE MUMBAI TRIBUNAL: REI AGRO LTD. V. OY. CIT (2013) 144 ITO 141/35 TAXM ANN.COM 404 (KOL.)(TR(B.) ACIT V. CHAMPION COMMERCIAL CO LTD (KOL.)(TRIB.) RAJ SHIPPING AGENCIES LTD. VS. ADDL CIT [2013] 38 T AXMANN.COM 345 (MUMBAI) TRIB). THE HONBLE KOLKATA TRIBUNAL IN THE CASE OF CHAMPIO N COMMERCIAL (SUPRA) HELD THAT ..... ACCORDINGLY, THE CORRECT APPLICATION OF THE FORMULA SET OUT IN RULE 8D(2)(II) IS AS NOTED IN GODREJ AND BOYCE (SUP RA), THAT INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME HA VE TO BE EXCLUDED FROM THE COMPUTATION OF COMMON INTEREST EX PENSES TO BE ALLOCATED UNDER RULE 8D(2)(II). THE HONBLE KOLKATA TRIBUNAL IN THE CASE OF REI AGR O LTD.(SUPRA) HELD AT PARA 8 OF THE ORDER THAT 8... IT IS AN ADMITTED POSITION IN LAW THAT EXPEN DITURE CAN BE DISALLOWED U/S.14A OF THE ACT IF AND ONLY IF IT IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. FR OM THE FACTS OF THE PRESENT CASE, IT IS CLEAR THAT THERE IS NO LINK WITH EXPENDITURE FOR EARNING OF DIVIDEND INCOME INCURRED BY THE ASSESSEE AND ONCE THE FACTS ARE CLEAR, NO DISALLOWANCE CAN BE MADE BY INV OKING RULE 8D OF THE RULES. NEITHER THE AO NOR CIT(A) HAS RECORDED A NY FINDING THAT HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE, THEY ARE NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MA DE BY ASSESSEE OR THE CLAIM MADE BY ASSESSEE THAT NO EXPENDITURE H AS BEEN INCURRED IN RELATION TO INCOME WHICH DO NOT FORM PA RT OF THE TOTAL INCOME UNDER THE ACT FOR THE RELEVANT ASSESSMENT YE AR. IN THE ABSENCE OF ANY SUCH FINDING, FACTS OF THE PRESENT C ASE SHOWS THAT THE INVESTMENT IN SHARES WAS MADE OUT OF OWN CAPITA L EMPLOYED AND NOT FROM BORROWED FUNDS, NO DISALLOWANCE ON ACC OUNT OF INTEREST EXPENDITURE CAN BE MADE BY INVOKING RULE 8 D OF THE RULES. ACCORDINGLY, IN THE GIVEN FACTS AND CIRCUMSTANCES, WE DELETE THE ADDITION AND ALLOW THIS ISSUE OF ASSESSEES APPEAL ? IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 12 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND RELY ING ON VARIOUS COURT DECISIONS AS REFERRED TO HEREIN ABOVE, THE AP PELLANT COMPANY MOST RESPECTFULLY SUBMITS THAT THE AO WAS NOT JUSTI FIED IN LAW IN MAKING ANY DISALLOWANCE THE SUM OF RS.13,46,527 ON ACCOUNT OF INTEREST BY APPLYING RULE 8D(II). SUCH DISALLOWANCE IS AGAINST THE PRINCIPLES OF LAW DECIDED BY HON'BLE JURISDICTIONAL ITAT IN THE FOLLOWING CASES - REI AGRO LTD. V. OY. CIT (2013) 144 ITO 141/35 TAXM ANN.COM 404 (KOL.)(TRIB.) ACIT V. CHAMPION COMMERCIAL CO LTD (KOL.)(TRIB.) REFERENCE IS ALSO MADE TO THE DECISION OF HON'BLE K OLKATA ITAT IN THE CASE OF DCIT VS. ASHISH .JHUNJHUNWALA IN ITA NO . 1809/KOL/2012 WHEREIN PARA 6 OF THE ORDER THE HON ' BLE TRIBUNAL, ON SIMILAR FACTS, HELD THAT NO DISALLOWANCE U/S 14A RE AD WITH RULE 8D IS CALLED FOR. WITH REGARD TO DISALLOWANCE OF RS.1,15,046 MADE BY THE AO ON ACCOUNT OF ADMINISTRATIVE EXPENSES UNDER RULE 6D(II I) OF THE RULES, IT IS MOST HUMBLY SUBMITTED THAT SUCH DISALLOWANCE COULD NOT HAVE BEEN MADE BY THE AO WITHOUT EXAMINING THE BOOKS OF THE ASSESSEE AND WITHOUT RECORDING HIS DISSATISFACTION ON THE CL AIM OF THE APPELLANT COMPANY THAT NO EXPENDITURE WAS INCURRED IN RELATION TO EXEMPT DIVIDEND INCOME. THE APPELLANT COMPANY REFER S TO AND RELIES ON THE AFORESAID THREE JUDGMENTS OF HON'BLE KOLKATA ITAT. WITHOUT PREJUDICE AND ASSUMING BUT NOT ADMITTING TH AT SOME AMOUNT IS DISALLOWABLE IN ACCORDANCE WITH RULE 8D(I II) OF THE RULES, IN THAT CASE 0.5% OF THE AVERAGE VALUE OF THOSE INV ESTMENTS COULD BE DISALLOWED ON WHICH DIVIDEND HAS BEEN RECEIVED B Y THE APPELLANT COMPANY AND NOT ON ALL THOSE INVESTMENTS ON WHICH THE APPELLANT COMPANY DID NOT RECEIVE ANY DIVIDEND. REF ERENCE IS MADE TO THE DECISION OF JURISDICTIONAL TRIBUNAL IN THE CASE OF REI AGRO LTD. VS. DY.CIT (2013) 144 ITR 141/35 TEXMANN. COM 404 (KOL.) (TRIB.}, IN THIS CASE THE HON'BLE TRIBUNAL H ELD AS UNDER: 7.1 IN ANY CASE, THE WORKING OF THE DISALLOWANCE UN DER SUB-PART (II) OF SUB-CLAUSE (2) OF RULE 8D AS MADE BY THE AO ALSO SUFFERS FROM A SUBSTANTIAL ERROR IN SO FAR AS IN THE SAID RULE IN REGARD TO THE NUMERATOR B, THE WORDS USED ARE THE AVERAGE VALUE O F THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHAL L NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE-SHE ET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR. HERE THE AO HAS TAKEN INTO CONSIDERATION THE INVESTMENT OF RS.103 CRORES MADE THIS YEAR, WHICH HAS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONLY THE IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 13 AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH T HE INCOME HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THIS IS WHY THE QUESTION OF SATISFACTION IS PROVIDED IN SECTION 14A AND RULE 8D(1), THAT RELATE S TO THE ACCOUNTS OF THE ASSESSEE. THUS, IT IS NOT THE TOTAL INVESTME NT AT THE BEGINNING OF THE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME WHICH IS TO BE CONSIDERED. A QUESTION MAY ARISE AS TO WHY THE T ERM 'AVERAGE OF THE VALUE OF INVESTMENT' IS THEN USED. THE TERM AVE RAGE OF THE VALUE OF INVESTMENT WOULD BE TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING. IN ANY CASE, AS WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR, WHICH IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME, THE FINDINGS OF THE ID. CIT( A) ON THE ISSUE STAND CONFIRMED AND CONSEQUENTLY THE APPEAL FILED B Y THE REVENUE STANDS DISMISSED. 8. IN RESPECT OF PROVISIONS OF RULE 80(2)(III}, WHI CH IS THE SUBJECT- MATTER OF THE APPEAL IN THE ASSESSEE'S HAND, A PERU SAL OF THE SAID PROVISION SHOWS THAT WHAT IS DISALLOWABLE UNDER RUL E 8D(2)(III} IS THE AMOUNT EQUAL TO 0.5% PERCENTAGE OF THE AVERAGE VALU E OF INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THUS, UNDER SUB-CLAUSE (III), WHA T IS DISALLOWED IS 1/2 PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)(II) . AGAIN THIS IS TO BE CALCULATED IN THE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN RULE 8D(2)(II} OF THE ACT. 8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-MA TTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SEC TION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 1 4A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKIN G INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE T O THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. UNDER THE CIRCUMSTANCES, THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(II), WHICH IS ISSUE IN THE ASSESSEE'S APPEAL, IS RESTORED TO THE FILE OF THE AO FOR RECOM PUTATION IN LINE WITH THE DIRECTION GIVEN ABOVE. NO DISALLOWANCE UNDER SE CTION 14A READ WITH RULE 8D(2)(I) AND (II) CAN BE MADE IN THIS CAS E. THE APPELLANT FURNISHES HEREIN BELOW THE DETAILS OF DIVIDENDS RECEIVED DURING THE PREVIOUS YEAR ENDING 31.03.2009 WHICH WAS CLAIMED TO BE EXEMPT AND THE AMOUNT OF INVESTMENT I N THOSE SHARES. SINCE THE VALUE OF INVESTMENT IN THOSE SHAR ES WAS SAME AS AT THE BEGINNING OF THE YEAR AND ALSO AT THE CLOSE OF THE YEAR, 0.5% OF THE VALUE OF THOSE INVESTMENTS ONLY COULD BE DIS ALLOWED. IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 14 NAME OF THE COMPANY DIVIDEND RECEIVED VALUE OF INVESTMENT RCA LTD. RS.27,096 RS.1,62,982 GARWARE WALL ROPES LTD. RS.875 RS.28,465 UCO BANK RS.200 RS.2,400 RS.28,171 RS.1,93,847 ACCORDINGLY, AT BEST, A SUM OF RS.969 COULD ONLY BE DISALLOWED U/S 14A READ WITH RULE 8D(III) CALCULATED AT 0.5% OF RS.1,9 3,847/-. 5.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED BY THE LD. AR FOR THE ASSESSEE ARE SUPPORTED BY THE JUDGMENTS CITED ABOVE AND THE FACTS NARRATED BY HIM. AS THE LD. AR SUBMITTED THAT THE ASSESSEE USED THE ENTIRE BORROWED FUNDS EXCLUSIVELY FOR PURPOSE OF ITS BUSINESS AND N O PART OF THE BORROWED FUNDS WAS UTILISED FOR MAKING INVESTMENTS IN SHARES , IE. BORROWED FUNDS NEVER UTILISED FOR MAKING INVESTMENT IN SHARES. THE ASSESSEE COMPANY WAS HAVING ITS OWN FUNDS IN THE FORM OF CAPITAL AND RESERVES WHICH ARE MUCH MORE THAN THE AMOUNT OF INVESTMENT AND, HENCE, NO DISALLOWANCE CAN BE MADE UNDER RULE 8D(2)(II) ON ACCOUNT OF INTE REST. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND POSITION OF ITS OWN FUNDS IN THE FORM OF CAPITAL AND RESERVES IN THE ASSESSMENT YEAR 2008 -09, IT WAS HELD BY THE LD. CIT(A) THAT THE AO WAS NOT JUSTIFIED IN MAK ING DISALLOWANCE FROM THE INVESTMENT MADE UNDER RULE 8D(2)(II). THEREFORE , CONSIDERING THE FACTUAL POSITION THAT NO PART OF INTEREST IS DISALL OWABLE U/S.14A R.W.RULE 8D (2)(II) AND, THEREFORE, WE DO NOT HESITATE TO CONFI RM THE ORDER PASSED BY THE LD. CIT(A). WE ALSO CONFIRM THE ORDER OF THE LD . CIT(A) AS FAR AS IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 15 DISALLOWANCE UNDER RULE 8D(2)(II) IS CONCERNED, WHE RE THE CIT(A) HAD DIRECTED THE AO TO RECALCULATE THE DISALLOWANCE AS PER THE DECISION OF THE ITAT KOLKATA BENCH IN THE CASE OF REI AGRO LTD. 144 ITD 141 BY CONSIDERING THE AVERAGE VALUE OF ONLY THOSE INVESTM ENT FOR WHICH EXEMPT INCOME HAS BEEN EARNED. HENCE, WE CONFIRM THE ORDER OF LD. CIT(A). 5.4 IN THE RESULT, APPEAL FILED BY THE REVENUE ON T HIS GROUND IS DISMISSED. 6. THE SECOND AND THIRD GROUNDS TAKEN BY THE REVENUE R ELATE TO SET UP OF UNABSORBED DEPRECIATION WITH THE BUSINESS INCOME IN DETERMINING THE QUANTUM OF DEDUCTION AVAILABLE U/S. 80-IA, & INTERPRETING THE PROVISIONS OF SECTION 80-IA(5), SP ECIALLY WITH REGARDS TO THE INITIAL ASSESSMENT YEAR. 6.1. LD. DR FOR THE REVENUE HAS PRIMARILY REITERATE D THE STAND TAKEN BY THE ASSESSING OFFICER, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 6.2. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE HAS VEHEMENTLY SUBMITTED THAT U/S.80-IA OPTION IS AVAILABLE TO THE ASSESSEE NOT TO SET OFF THE LOSSES. LD. AR FURTHER SUBMITTED THAT THE ASSES SEE COMPANY CLAIMED DEDUCTION OF RS.38,30,422/- U/S.80-IA OF THE ACT IN RESPECT OF ELIGIBLE BUSINESS. LD. AO HAS DISALLOWED ENTIRE CLAIM OF DED UCTION U/S.80-IA OF THE ACT ON THE GROUND THAT PROFIT OF RS.38,30,422/- VER IFIED FROM THE ELIGIBLE BUSINESS HAS TO BE REDUCED BY THE UNABSORBED DEPREC IATION FOR THE ASSESSMENT YEAR 2008-09. THEREFORE, LD. AO WAS NOT JUSTIFIED TO DISALLOW ASSESSEES CLAIM OF EXEMPTION OF RS.38,30,422/- MAD E U/S.80-IA OF THE ACT HOLDING THAT THE SAME IS TO BE SET OFF AGAINST THE UNABSORBED IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 16 DEPRECIATION. THE ASSESSEE SUBMITTED THAT SIMILAR A DJUSTMENT WAS MADE IN THE ORIGINAL ASSESSMENT MADE BY THE LD. AO U/S.1 43(3) ON 30.12.2010 FOR THE A.Y.2008-09, FOR THE PURPOSE OF CONSIDERING THE ASSESSEES CLAIM OF DEDUCTION U/S.80-IA OF THE ACT. LD. CIT(A) HELD THAT THE AO WAS NOT JUSTIFIED IN ADJUSTING THE UNABSORBED DEPRECIATION OR BUSINESS LOSS FROM THE PROFITS OF THE ASSESSEE FROM ELIGIBLE BUSINESS OR FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S.80-IA OF THE ACT. 6.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY THE LD. A R FOR THE ASSESSEE ARE SUPPORTED BY THE FACTS NARRATED BY HIM. IT IS O BSERVED THAT FOR THE FIRST TIME THE AO MADE ADJUSTMENT OF THE ACCUMULATED UNAB SORBED DEPRECIATION AND BUSINESS LOSS OF THE UNIT IN A.Y.2 008-09, WHEREIN FOR THE FIRST TIME THE ASSESSEE COMPANY EXERCISED ITS OPTIO N TO CLAIM THE DEDUCTION AS PER SECTION 80-IA OF THE ACT. ON PERUS AL OF THE EARLIER YEARS ORDERS AND COMPUTATION OF INCOME PRIOR TO ASSESSMEN T YEAR 2008-09, IT IS OBSERVED THAT THE BUSINESS LOSS OR DEPRECIATION WAS ALREADY PUT AGAINST THE TRANSFER OF OTHER UNITS AND THERE WAS NO ACTUAL BUSINESS OR UNABSORBED DEPRECIATION OF THE ELIGIBLE UNIT WHICH WERE CARRIED FORWARD FOR SET OFF IN SUBSEQUENT YEARS. IN NONE OF THE EARLIER ASSESSMENT YEARS, THE RETURN/ASSESSED INCOME WAS LOSS. SINCE FOR THE FIRS T TIME THE DEDUCTION U/S.80-IA WAS CLAIMED FOR A.Y.2008-09, THE AO SET O FF NOTIONAL BUSINESS LOSS AND UNABSORBED DEPRECIATION OF ELIGIBLE UNIT F ROM THE PROFIT OF THE ELIGIBLE UNIT IN A.Y.2008-09 AS PER SECTION 80-IA(5 ) AND BALANCE AMOUNT IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 17 WAS ALLOWED TO CARRY FORWARD. AGAINST THIS ACTION O F THE AO IN ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A), WHICH WAS DECIDED VIDE APPEAL NO.338/CIT(A)-I/C-2/2010-11 DAT ED 24.12.2013. AFTER CONSIDERING THE FACTS OF THE CASE AND THE LEG AL POSITION THE CIT(A) BY CITING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS LTD. VS. ACIT, 231 CT R 368, WHEREIN IT WAS HELD THAT THE CASE LAW RELIED ON BY THE LD. DEP ARTMENTAL REPRESENTATIVE ARE DELIVERED BEFORE THE AMENDMENT TO SECTION 80-IA BY THE FINANCE ACT 1999. BEFORE THE AMENDMENT, THE INI TIAL ASSESSMENT YEAR WAS DEFINED IN THE ACT BUT AFTER THE AMENDMENT THER E IS NO DEFINITION FOR INITIAL ASSESSMENT YEAR IN THE ACT AND THERE IS OPT ION TO THE ASSESSEE IN SELECTING THE YEAR OF CLAIMING RELIEF UNDER SECTION 80-LA. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THERE IS NO QUESTION OF SET TING OFF NOTIONALLY CARRIED FORWARD UNABSORBED DEPRECIATION OR LOSS AGAINST THE PROFITS OF THE UNITS AND THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 80-IA IN THE CURRENT ASSESSMENT YEAR ON THE CURRENT YEAR PROFIT. THE AO HAS SET OFF THE NOTIONAL UNABSORBED DEPRECIATION WHICH WAS CARRIED FORWARD BY HIM AS PER THE ASSESSMENT ORDER FOR THE A.Y.2008-09, HOWEV ER, AS MENTIONED ABOVE, FOR THE A.Y.2008-09, THE CIT(A) HAS HELD THA T THE AO WAS NOT JUSTIFIED IN ADJUSTING THE NOTIONAL DEPRECIATION AN D BUSINESS LOSS FROM THE ELIGIBLE BUSINESS OF THE EARLIER YEAR FOR THE PURPO SE OF COMPUTING DEDUCTION U/S.80-IA AND THAT THE ASSESSEE COMPANY I S ENTITLED TO CLAIM DEDUCTION U/S.80-IA ON THE CURRENT YEARS PROFIT WI THOUT ADJUSTMENT. THEREFORE, CONSIDERING THE FACTUAL POSITION, WE ARE OF THE VIEW THAT THE AO IT(SS)A NO.90-93, 131 & ITA NO.1366/KOL/2014 M/S INTERNATIONAL CONVEYORS PVT. LTD. 18 WAS NOT JUSTIFIED IN ADJUSTING THE NOTIONAL AMOUNT OF UNABSORBED DEPRECIATION OF RS.38,30,422/- FROM THE CURRENT YEA RS PROFIT OF THE ELIGIBLE UNIT TO DENY THE DEDUCTION U/S.80-IA OF THE ACT. TH EREFORE, WE CONFIRM THE ORDER PASSED BY THE LD. CIT(A) IN RESPECT OF GROUND S NO.2 & 3 RAISED BY RTHE REVENUE. HENCE, THE GROUNDS NO.2 & 3 RAISED BY THE REVENUE ARE DISMISSED. 6.4. IN THE RESULT, APPEALS FILED BY THE REVENUE IN IT(SS)A NO.131/KOL/2014 & ITA NO.1366/KOL/2014 ALONG WITH I T(SS)A NO.90/KOL/2014, IT(SS)A NO.91/KOL/2014, IT(SS)A NO. 92/KOL/2014, IT(SS)A NO.93/KOL/2014, ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05/1 2/2016. S D/ - (NARASIMHA CHARY) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 05/12/2016 & ()*/PRAKASH MISHRA , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) & ' , / ITAT, 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 4 ( ) / THE CIT(A), KOLKATA. 4. 4 / CIT 5. 567 8 , 8 , / DR, ITAT, KOLKATA 6. 79 / GUARD FILE. 5 //TRUE COPY//