Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Acts
  • section 10 or section 11 or section 12 of the Income tax Act, 1961 apply. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 6 ITA No.7483/Kol./2017 AY: 2011-12
  • ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 28 accordance with Companies Act, 1956
  • provisions of the ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 31 Act
  • u/s 80IC of ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 14 the Act
  • section 14A of the Income tax Act, 1961 read with Rule 8D of the Income tax Rules 1962
  • provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (l of 1956).
  • u/s 14A of the Income tax Act, 1961, read with Rule 8D of the Income tax Rule 1962,
  • provisions of Section 14A(2) and (3) read with Rule 8D of the Rules
  • section 80IC of the Income-tax Act, 1961 (for short the Act)
  • 1 (f) of section 115JB of the Income tax Act, 1961
  • INCOME TAX ACT 1961
  • Schedule VI of Companies Act 1956,
  • Rule 8D(2)(iii) of the Rules. 29.
  • INCOME TAX ACT
  • u/s 80-IC of the LT. Act, 1961.
  • Rule 8D(2)(iii) of the Rules
  • u/s 14A r/w Rule 8D,
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Acts
  • section 10 or section 11 or section 12 of the Income tax Act, 1961 apply. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 6 ITA No.7483/Kol./2017 AY: 2011-12
  • ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 28 accordance with Companies Act, 1956
  • provisions of the ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 31 Act
  • u/s 80IC of ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 14 the Act
  • section 14A of the Income tax Act, 1961 read with Rule 8D of the Income tax Rules 1962
  • provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (l of 1956).
  • u/s 14A of the Income tax Act, 1961, read with Rule 8D of the Income tax Rule 1962,
  • provisions of Section 14A(2) and (3) read with Rule 8D of the Rules
  • section 80IC of the Income-tax Act, 1961 (for short the Act)
  • 1 (f) of section 115JB of the Income tax Act, 1961
  • INCOME TAX ACT 1961
  • Schedule VI of Companies Act 1956,
  • Rule 8D(2)(iii) of the Rules. 29.
  • INCOME TAX ACT
  • u/s 80-IC of the LT. Act, 1961.
  • Rule 8D(2)(iii) of the Rules
  • u/s 14A r/w Rule 8D,
See more information ...
Smart Summary

Summary of Tribunal Opinion — Sicpa India Pvt. Ltd. (Cross Appeals)

Factual and Procedural Background

This composite opinion concerns cross‑appeals filed by the assessee, M/s. Sicpa India Private Ltd., and by the Revenue against orders of the Learned Commissioners of Income‑Tax (Appeals) for assessment years 2009‑10, 2010‑11 and 2011‑12. The assessee challenged CIT(A) orders dated 25.03.2015, 16.06.2016 and 08.08.2017 (appeals ITA Nos. 704/Kol/2015, 1586/Kol/2016 & 7048/Del/2017) contending, inter alia, that: (a) allocation of foreign exchange fluctuation loss to the Sikkim manufacturing undertaking and the resulting computation of deduction under section 80IC was incorrect; (b) certain leave encashment provisions were wrongly disallowed; (c) disallowances made under section 14A read with Rule 8D were incorrect; and (d) education cess and other items were wrongly disallowed.

The Revenue (DCIT Range 8, Kolkata & DCIT Range 23(2), New Delhi) filed cross‑appeals (ITA Nos. 838/Kol/2015 & 7483/Del/2017) challenging CIT(A) rulings that had given partial relief to the assessee. Key contested items included the allowability of transport and excise‑duty subsidies for deduction under section 80IC, apportionment of foreign exchange loss to the Sikkim unit, inclusion/exclusion of investments for computation under Rule 8D and treatment of various other additions and disallowances (including computation of book profit under section 115JB).

The Assessing Officer (AO) had made assessments with several additions and disallowances, including: allocation of Rs.1 crore as foreign exchange loss to the Sikkim unit (reduced by CIT(A)); disallowances under section 14A/Rule 8D (amounts in lakhs for the three years); disallowance of education cess amounts; disallowance or partial disallowance of business promotion expenses; treating certain subsidies as non‑eligible for section 80IC; additions for head office expense apportionment; and treating forward‑contract gain as speculative. CIT(A) granted partial relief on multiple issues, and both parties approached the Tribunal on the remaining controversies.

Legal Issues Presented

  1. Whether the subsidies received (excise duty exemption subsidy and transport subsidy) are revenue receipts directly related to manufacturing and therefore eligible to be included in profits of the Sikkim industrial undertaking for claiming deduction under section 80IC.
  2. Whether the allocation by the AO of foreign exchange loss to the Sikkim unit (fixed at Rs.1 crore by the AO) was justified, or whether the allocation should be reduced based on the assessee's working (reduction to Rs.68.33 lakhs by CIT(A)).
  3. Whether disallowances under section 14A read with Rule 8D (and the AO’s satisfaction required to invoke Rule 8D) were validly made, especially where the assessee earned capital gains from investment and contended no expenditure was incurred to earn exempt income.
  4. Whether the education cess on Income‑tax, Dividend Distribution Tax and Fringe Benefit Tax is disallowable as a tax (and thus not deductible) or is allowable as an expenditure/cess (relying on CBDT circular and case law).
  5. Whether ad hoc disallowances (50% by AO, 15% by CIT(A)) of business promotion expenses were appropriate in absence of specific findings that parts of the expenses were non‑business.
  6. Whether certain amounts (e.g., excise subsidy) creditable to profit & loss account but characterized as non‑income/capital receipts should be included in book profit computation under section 115JB.
  7. Whether forward‑contract gains entered into as hedge of foreign‑currency exposures are business income eligible for deduction under section 80IC or are speculative in nature.
  8. Whether investments in a subsidiary (strategic/controlling investment) should be excluded for the purpose of computing disallowance under Rule 8D.

Arguments of the Parties

Assessee's Arguments

  • The excise duty exemption subsidy and transport subsidy reduce manufacturing cost and have a direct nexus with the industrial undertaking in Sikkim, hence are eligible for deduction under section 80IC.
  • The foreign exchange fluctuation loss is an indirect/non‑operating expense; the assessee produced detailed workings showing the portion attributable to imports for the Sikkim unit and sought allocation accordingly (leading CIT(A) to reduce AO's allocation to Rs.68.33 lakhs).
  • Investments in debt‑oriented mutual funds produced capital gains (taxable) so that the income is not purely exempt income attracting section 14A; no additional expenditure was incurred to earn exempt dividend income.
  • The AO did not record adequate or specific satisfaction before invoking Rule 8D as required; general observations are insufficient.
  • Education cess is not a tax for purposes of disallowance and is expressly excluded from section 40(a)(ii) (cited CBDT circular and supporting High Court decision), hence deductibility should be allowed.
  • Business promotion expenses were bona fide; ad hoc percentage disallowances (50% or 15%) without specific findings are unjustified.
  • Forward contracts executed to hedge foreign‑exchange exposures relate to ordinary business operations and the resultant gains should be treated as business income (eligible for section 80IC), not as speculative income.
  • Strategic/controlling investment in subsidiary should be excluded from average investment for Rule 8D computations.

Revenue's Arguments

  • The transport and excise duty subsidies are capital receipts or external aid, not directly related to manufacturing, and therefore not eligible for deduction under section 80IC.
  • The AO's allocation of Rs.1 crore foreign exchange loss to the Sikkim unit was reasonable and the assessee failed to correctly apportion the loss.
  • Disallowances under section 14A read with Rule 8D are justified and the AO had recorded his satisfaction before applying Rule 8D.
  • Investment made in subsidiary should be included for computation under Rule 8D because the income from such investment would be exempt and attract section 14A disallowance.
  • Education cess and related levies are part of 'tax' and hence not allowable as deduction under relevant provisions.
  • Certain other incomes (freight income, misc. income, provisions written back) lack the necessary business nexus for being treated as profits of the eligible undertaking and thus should be disallowed for section 80IC purposes.
  • Forward contract gains may lack one‑to‑one nexus with imports and could be speculative if not properly linked transaction‑wise.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT vs. Meghalaya Steels Ltd., 383 ITR 217 (SC) Transport subsidy can be a revenue receipt reimbursing manufacture/sale costs and has a direct nexus with profits of industrial undertaking. The Tribunal applied this holding to conclude transport subsidy and excise duty exemption subsidy were revenue receipts directly related to manufacturing and therefore eligible for deduction under section 80IC.
CIT vs. Dharampal Premchand Ltd., 317 ITR 353 (Delhi HC) (referred) Referenced in the context of treatment of excise duty refund/subsidy. The Supreme Court reference (via Meghalaya Steels) relied on decisions including Dharampal Premchand to support inclusion of such subsidies in business profits; the Tribunal accepted CIT(A)'s allowance in light of those authorities.
Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, 394 ITR 449 (SC) Requirement that the AO must record satisfaction that assessee's accounts do not permit determination before invoking Rule 8D (Section 14A(2)/(3) + Rule 8D). The Tribunal relied on this authority to conclude that the AO's broad/general observations did not constitute the required satisfaction and thus Rule 8D could not be validly invoked in the cases at hand.
HT Media Ltd. vs. Pr. CIT, 399 ITR 576 (Del.) Broad and general observations by AO are insufficient to invoke Rule 8D; satisfaction must be specific. The Tribunal relied on this decision to reinforce that AO's recorded satisfaction was inadequate and Rule 8D(2)(iii) could not be applied.
Eicher Motors Ltd. vs. CIT, 398 ITR 51 (Del.) Referenced regarding invocation of Rule 8D and requirement of AO's satisfaction. Cited by the assessee and considered by the Tribunal in assessing adequacy of AO's satisfaction; the Tribunal found AO's notes insufficient in light of such authorities.
Avshesh Mercantile (P) Ltd. vs. ITO, 148 TTJ 607 (ITAT Mumbai) Where investment had potential to generate taxable income, section 14A disallowance not invocable; general principle that uncertain/exempt/non‑exclusive relation to exempt income precludes section 14A. Tribunal relied on this coordination bench authority to hold that capital gains from debt mutual funds meant section 14A/Rule 8D could not be invoked for those investments.
Delite Enterprises Pvt. Ltd. (ITA No.110 of 2009) Coordinate authority used to show similar factual situations where section 14A disallowance was not sustained. Referenced in support of the Tribunal's view that Rule 8D was not invokable where investments also yielded taxable income or where AO's satisfaction was not properly recorded.
National Industrial Corporation Ltd. vs. CIT, (2002) 258 ITR 575 (Del.) Where no finding that part of sales/business promotion expenditure was for non‑business purposes, it should not be disallowed under section 37. The Tribunal invoked this authority to hold that ad hoc disallowances of business promotion expenses (50% or 15%) without specific findings were not sustainable, and deleted the ad hoc addition.
Smith Kline & French (India) Ltd. & Ors. vs. CIT, (1996) 219 ITR 581 (SC) Held that 'cess' is not a tax in the relevant context. The Tribunal used this authority (along with CBDT circular and High Court decision) to sustain the assessee's position that education cess is not a disallowable tax and should be deductible.
M/s. Chambal Fertilizers & Chemicals Ltd. vs. Pr. CIT (Rajasthan High Court) Interpreting CBDT circular to treat 'cess' as excluded and not disallowable; Tribunal relied on this decision. The Tribunal relied on this High Court decision to hold in favour of the assessee on deductibility of education cess in the relevant years.
Liberty India vs. CIT, (2009) 28 DTR (SC) Treatment of miscellaneous receipts and nexus with business for deduction purposes. The Tribunal applied this authority when concluding that certain miscellaneous receipts and written‑back provisions had sufficient nexus with the eligible undertaking and were allowable for section 80IC purposes.
CIT vs. Sterling Foods, (1999) 237 ITR 579 (SC) Requires a direct and proximate connection for incomes to be considered profits of an eligible undertaking for special deductions. The AO had relied on this authority for exclusions; the Tribunal considered it but ultimately found in favour of the assessee on specific items using other precedents and factual analysis.
Inter Globe Enterprises Ltd.; J.M. Financial Ltd.; UP Electronics Corpn. Ltd. (coordinate Tribunal authorities) Authorities on whether strategic/substantial investments in subsidiaries should be excluded from average investment for Rule 8D calculations. The Tribunal followed these coordinate Bench decisions in excluding the assessee’s investment in its subsidiary from the Rule 8D computation.
Binani Industries Ltd. (ITA No.144/Ko1l2013) and related Tribunal decisions (Rain Commodities Ltd.; L.H.Sugar Factory Ltd.; Shivalik Venture Pvt. Ltd.) Principles on whether receipts not in the nature of income can be included in book profit under section 115JB; receipts not in character of income should be excluded from book profit. The Tribunal applied these authorities to hold that excise duty subsidy (treated as capital/non‑income receipt) could be excluded from book profit under section 115JB.
Indo Rama Synthetics (I) Ltd. vs. CIT, 330 ITR 336 (SC); Apollo Tyres Ltd. vs. CIT, 255 ITR 273 (SC) High court/supreme court jurisprudence referenced in support of principles on book profit computation and inclusion/exclusion of particular receipts. Used in the Tribunal’s analysis of book profit and MAT (section 115JB) treatment to support exclusion of non‑income receipts from book profit.
M/s. Essar Teleholdings Ltd. vs. DCIT (ITA No.3850/Mum/2010) Held that no addition to book profit shall be made on account of expenditure per Rule 8D r/w section 14A while computing income under section 115JB. The Tribunal relied on this authority to support deletion of disallowance under section 14A/Rule 8D while computing book profit under section 115JB.
ITO vs. LGW Ltd. (coordinate Bench) Forward contracts entered to hedge foreign‑currency exposure are not speculative transactions and the resulting gains/losses are business income. The Tribunal followed this decision in treating forward contract gain as business income eligible for deduction under section 80IC (not speculative) in the facts of the case.

Court's Reasoning and Analysis

The Tribunal proceeded issue‑wise, reviewing facts, the statutory provisions invoked (notably sections 14A, 80IC and 115JB and Rule 8D), the AO and CIT(A) findings, and the authorities cited by parties.

On subsidies (excise duty exemption and transport subsidy) and section 80IC:

The Tribunal accepted that the assessee, carrying out manufacturing in Sikkim, received excise duty exemption subsidy and transport subsidy. Relying on the Supreme Court decision in CIT vs. Meghalaya Steels Ltd. (and the underlying Delhi High Court authority in CIT vs. Dharampal Premchand Ltd.), the Tribunal held that such subsidies were revenue receipts reimbursing cost elements of manufacture and therefore had a direct nexus with the profits of the industrial undertaking. The Tribunal also noted that identical relief had been given in other assessment years (2010‑11 and 2011‑12) which had not been successfully challenged, and found no material on record to justify a departure from that consistent treatment. Consequently, CIT(A)'s allowance of these subsidies for section 80IC purposes was upheld.

On allocation of foreign exchange loss to the Sikkim unit:

The AO had allocated Rs.1 crore to the Sikkim unit; the assessee produced a specific working (paper book page 193) showing the quantum of foreign exchange loss attributable to imports used by the Sikkim manufacturing unit. CIT(A) restricted the allocation to Rs.68.33 lakhs. The Tribunal found that foreign exchange loss, being an indirect/non‑operating expense, should generally not be allocated to the eligible industrial undertaking; however, where the assessee produced specific detailed workings showing the relevant portion, CIT(A)'s factual re‑assessment (reduction of allocation to Rs.68.33 lakhs) was appropriate and not perverse. The Tribunal thus allowed the assessee’s ground on this point.

On disallowance under section 14A read with Rule 8D:

The AO and CIT(A) had made/disposed of disallowances under section 14A r.w. Rule 8D for the three years in question. The Tribunal examined the satisfaction recorded by the AO (as required by section 14A(2) and Rule 8D) and concluded that the AO's notes were general and based on assumption ("a company cannot earn dividend without its existence and management"), and did not constitute the specific, mandatory satisfaction contemplated by the higher authorities. Relying principally on Godrej & Boyce (SC) and HT Media (Del HC), the Tribunal held that in absence of a validly recorded satisfaction by the AO, Rule 8D could not be applied. Further, the Tribunal noted that certain investments had generated capital gains (taxable income), and therefore the income could not be placed wholly in the category of exempt income under section 14A. The Tribunal also observed that the AO himself excluded investments generating non‑exempt income in the 2011‑12 computation under Rule 8D. Taking these considerations together, the Tribunal found disallowances under section 14A/Rule 8D unsustainable and deleted them.

On investments in subsidiary for Rule 8D computations:

The AO had included the assessee’s investment in its subsidiary (Newby India Pvt. Ltd.) for computing average investment under Rule 8D. CIT(A) excluded that investment by following coordinate Bench authorities (Inter Globe Enterprises Ltd., J.M. Financial Ltd., UP Electronics Corpn. Ltd.). The Tribunal accepted CIT(A)'s approach, noting that where the investment is strategic (to obtain control) it should be excluded for Rule 8D purposes, and that no exempt income arose from that investment to justify disallowance.

On education cess and deductibility:

The AO had disallowed deductions claimed for education cess on Income‑tax, Dividend Distribution Tax and Fringe Benefit Tax on the ground that the term 'tax' includes cess/surcharge. The assessee relied on the CBDT circular dated 19.05.1967 and a Rajasthan High Court decision (Chambal Fertilizers) and the Supreme Court decision in Smith Kline & French (India) Ltd. to contend that cess is not a tax for these purposes and is specifically excluded from section 40(a)(ii). The Tribunal examined the CBDT circular, the High Court decision and the Supreme Court authority and concluded that cess is not in the nature of tax and has been excluded; therefore the AO/CIT(A) erred in disallowing education cess and the disallowances were deleted.

On ad hoc disallowance of business promotion expenses:

The AO had disallowed 50% of business promotion expenses; CIT(A) reduced that ad hoc disallowance to 15%. The Tribunal noted that both AO and CIT(A) had made ad hoc disallowances without pointing to any specific part of the expenditure that was not for business. Relying on National Industrial Corporation Ltd. (Del HC), the Tribunal held that in absence of findings that any part of the expenditure was non‑business, such ad hoc disallowance is not sustainable and deleted the 15% addition.

On book profit computation under section 115JB:

The AO had excluded certain subsidies for section 80IC computation and had also attempted to include/exclude items in book profit under section 115JB. The assessee relied on earlier Tribunal decisions in its own case and other authorities (Binani, Rain Commodities, L.H. Sugar Factory, Shivalik Venture) to contend that receipts not in the nature of income should be excluded from book profit. The Tribunal followed coordinate Bench decisions and held that excise duty exemption subsidy (characterized as not in the nature of income) should be excluded from book profit under section 115JB; it also held that disallowance under section 14A/Rule 8D should not be added back to book profit in those circumstances.

On forward contract gain:

The AO treated gain on forward contracts as speculative (section 43(5)), while CIT(A) treated it as business income eligible for deduction under section 80IC, reasoning that the forward contracts hedged import exposure. The Tribunal followed a coordinate Bench decision (ITO vs. LGW Ltd.) holding that forward contracts entered to hedge foreign‑exchange risk are not speculative and the gains/losses are business income; accordingly, it upheld CIT(A)'s treatment of the forward contract gain as business income eligible for section 80IC.

Holding and Implications

The Tribunal disposed of the cross appeals by allowing several grounds raised by the assessee and dismissing several grounds raised by the Revenue. The core rulings included:

  • On subsidies: The CIT(A)'s allowance of excise duty exemption subsidy and transport subsidy as revenue receipts with direct nexus to manufacturing (eligible for deduction under section 80IC) was upheld.
  • On foreign exchange loss allocation: The Tribunal upheld CIT(A)'s factual reduction of allocation to the Sikkim unit to Rs.68.33 lakhs (instead of Rs.1 crore estimated by the AO) and allowed the assessee’s ground on this point.
  • On section 14A/Rule 8D disallowances: The disallowances made by the AO and sustained by CIT(A) under section 14A read with Rule 8D were deleted because the AO had not recorded the specific satisfaction required to invoke Rule 8D and because some investments produced taxable capital gains (thus not wholly exempt income).
  • On investment in subsidiary for Rule 8D computation: The Tribunal upheld exclusion of strategic investment in the subsidiary from average investment under Rule 8D, as directed by CIT(A).
  • On education cess: The Tribunal deleted the disallowances of education cess amounts for the years in question, holding that cess is not a disallowable tax in this context.
  • On business promotion expenses: The Tribunal deleted the ad hoc disallowance (15% disallowance sustained by CIT(A) was deleted), noting ad hoc reductions without specific findings are unsustainable.
  • On book profit under section 115JB: The Tribunal followed coordinate Bench precedent and allowed exclusion of excise duty subsidy from book profit where that receipt was not in character of income.
  • On forward contract gains: The Tribunal upheld CIT(A)'s treatment of forward contract gain as business income (not speculative) eligible for section 80IC deduction in the facts before it.

Direct effect on the parties: multiple additions and disallowances made by the AO were either reduced or deleted as detailed above; some of the Revenue’s grounds were dismissed while the assessee obtained relief on several counts. The opinion relies extensively on precedent and prior coordinate Bench decisions for factual and legal conclusions; it does not purport to lay down a novel principle but applies existing authorities to the facts of the appeals before the Tribunal.

Overall disposition (as recorded in the opinion): Several grounds of the assessee’s appeals were allowed (including deletion of section 14A/Rule 8D disallowances and allowance of subsidies under section 80IC), and several grounds of the Revenue’s appeals were dismissed. Specific directions (for example, directing AO to restrict allocation of foreign exchange loss to Rs.68.33 lakhs) were given where appropriate.

Show full summary ...
To access the original judgment, please Sign In or Subscribe.

    SICPA INDIA PVT. LTD., NEW DELHI v. DCIT, CIRCLE- 23(2), NEW DELHI

    PER KULDIP SINGH, JUDICIAL MEMBER Present cross appeals filed by the assessee as well as by the Revenue are being disposed off by way of composite order to avoid repetition of discussion.

    2. Appellant, M/s. Sicpa India Private Ltd (hereinafter referred to as the assessee) by filing the present appeals sought to set aside the impugned orders dated 25.03.2015, 16.06.2016 & 08.08.2017 passed by the CIT (A)-3, Kolkata, CIT (A)-3, Kolkata & CIT (A)- 12, Kolkata in ITA No.704/Kol/2015, 1586/Kol/2016 & 7048/Del/2017 qua the assessment years 2009-10, 2010-11 & 2011-12 respectively on the grounds inter alia that :- ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 ITA No.704/Kol./2015 FOR AY: 2009-10 (Assessees Appeal)

    1. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in confirming the action of the AO in making allocation for foreign exchange fluctuation loss to the profits and gains of business of the undertaking eligible for deduction u/ s 801e.

    2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs.7,19,216/-.

    3. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred by sustaining the disallowance u/s 14A r.w. Rule 8D without appreciating the fact that the no expenditure has been incurred to earn exempt income.

    4. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction for Education Cess on Income Tax, Dividend Distribution Tax and Fringe Benefit Tax aggregating to Rs.46,34,854/- in computing total income under the normal provisions of the Act. ITA No.1586/Kol./2016 FOR AY : 2010-11 (Assessees Appeal) l(a). That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred by sustaining the disallowance u/s 14A r.w. Rule 8D without appreciating the fact that no expenditure has been incurred to earn exempt income. l(b). That on the facts and in the circumstances of the case and without prejudice to Ground No. l(a) taken here in above, the Ld. CIT (Appeals) was not justified and grossly erred in holding that the A.O. has recorded his dissatisfaction before making disallowance u/s 14A by applying Rule 8D.

    2. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in not allowing deduction of leave encashment claimed on provision basis amounting to Rs.3,04,000/-.

    3. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) was not justified and grossly erred in not allowing deduction for Education Cess on Income Tax and Dividend Distribution Tax aggregating to Rs.84,71,689/- in computing total income under the normal provisions of the Act.

    4. That on the facts and in the circumstances of the case, the Ld. CIT (Appeals) was not justified and grossly erred in disallowing on ad- ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 hoc basis a sum of Rs.1,16,473, being 15 % of business promotion expenses. ITA No.7048/Kol./2017 FOR AY : 2011-12 (Assessees Appeal)

    1. The Learned Commissioner Of Income-Tax (Appeals) ("Ld. CIT(A)") has grossly erred both on facts and in law on confirming the action of the Learned Assessing Officer ('Ld. AO') in making disallowance under Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 ('the Rules') without appreciating the fact that no expenditure has been incurred to earn exempt income.

    2. Without prejudice to Ground No.1, the Ld. CIT (A) has grossly erred both on facts and in law in holding that the Ld. A.O. has recorded his satisfaction for invoking Section 14A of the Act and applying Rule 8D of the Rules .

    3. The Ld. CIT(A) was not justified rather grossly erred both on facts and in law in confirming the action of the Ld. AO in not allowing deduction of leave encashment claimed on provision basis amounting to INR 597,487/- .

    4. The Ld. CIT(A) has grossly erred both on facts and in law in confirming the action of the Ld. AO in not allowing deduction for Education Cess on Income Tax and Dividend Distribution Tax aggregating to INR 4,742,7851- in computing total income under the normal provisions of the Act.

    3. Appellants, DCIT, Range 8, Kolkata & DCIT, Range 23 (2), New Delhi (hereinafter referred to as the Revenue) by filing the present appeals sought to set aside the impugned orders dated 25.03.2015 & 08.08.2017 passed by the CIT (A)-3, Kolkata & CIT (A)-12, Kolkata in ITA No.838/Kol/2015 & 7483/Del/2017 qua the assessment years 2009-10 & 2011-12 respectively on the grounds inter alia that :- ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 ITA No.838/Kol./2015 FOR AY : 2009-10 (Revenues appeal)

    1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction under section 80IC of the Income tax Act, 1961 on the transport subsidy of Rs.3,04,561/- as this subsidy is in nature of capital receipt and external aid, and is not directly related to manufacturing activities of the assessee.

    2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing deduction under section 80lC of the Income tax Act, 1961 on the excise duty subsidy to the tune of Rs.2,39,40,228/-, as this subsidy is in nature of capital receipt and external aid, and is not directly related to manufacturing activities of the assessee.

    3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in reducing the foreign exchange loss pertaining to Sikkim Unit to Rs.68,33,228/ - instead of Rs. 1crore made by the AO in the assessment order dated 30.03.2013, as the assessee has failed to correctly apportion the loss claimed on account of foreign exchange transaction.

    4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in excluding the amount of investment made by the appellant in its subsidiary company namely Newby Indus (P) Ltd. for the purpose of computing disallowance u/s 14A of the Income tax Act, 1961, read with Rule 8D of the Income tax Rule 1962, despite the fact that the income earned by the assessee from its investment would consist of exempt income, thereby attracting the provision of section 14A read with Rule 8D, when the assessee is unable to show the correct quantum of expenses incurred for earning such exempt income.

    5. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing exclusion of excise duty exemption in computing book profit under section 115JB of the Income tax Act, 1961 despite the fact that the explanation 1 to section 115JB(2) of the Act stipulates that the only item mentioned in clauses (i) to (viii) should be reduced from the net profit to compute the book profit of the assessee.

    6. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance under section 14A of the Income tax Act, 1961 read with Rule 8D of the Income tax Rules 1962 while computing book profit under section 115JB of the Income tax Act, 1961 despite the fact that explanation 1 (f) of section 115JB of the Income tax Act, 1961 stipulates that for the purpose of section 115JB, book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2) as increased by the amount of expenditure relatable to any income to which section 10 or section 11 or section 12 of the Income tax Act, 1961 apply. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 ITA No.7483/Kol./2017 AY: 2011-12 (Revenues appeal)

    1. Whether the Ld. CIT(A) was justified in deleting the addition to the extent of Rs.15,28,408/- (transport receipt of Rs.12,43,233/-, Misc. Income of Rs.1,31,647/- and written back amount of Rs.1,53,528/-) out of total addition of Rs.39,97,952/- made by the AO on account of exclusion of other income not eligible for deduction u/s 80-IC of the LT. Act, 1961.

    2. Whether the Ld. CIT(A) was justified in deleting the addition of Rs.1,97,06,900/- made by the AO on account of apportioned indirect head office expenses e.g. advertisement and publicity expenses, Rent, Depreciation on vehicles & donation and contribution paid for scientific research, not eligible for 80-IC unit.

    3. Whether the Ld. CIT(A) was justified in treating the forward contract gain of Rs.19,32,946/- as business income eligible for deduction u/s 80-IC without verifying transaction wise import of raw material/goods vis-a-vis the forward contracts executed by the assessee. In case there is no one to one nexus between the imports and the forward contracts, the profit/loss arising due to forward contracts were liable to be held as speculation transactions.

    4. Briefly stated the facts necessary for adjudication of the controversy at hand are : The assessee is engaged in the business of manufacturing and trading of printing inks having its manufacturing facility at Mamring, Sikkim for which deduction in terms of section 80IC of the Income-tax Act, 1961 (for short the Act) is being claimed for Assessment Years 2006-07 to 2015-16. Assessee has debited a sum of Rs.5,97,44,548/- on account of foreign exchange loss but without allocating any such loss to its Sikkim Unit. Assessing Officer (AO) however proceeded on the premise that since entire manufacturing was carried out at Sikkim ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 unit, hence any exchange loss relating to import of raw material would be attributable to said unit and thereby calculated the eligible deduction u/s 80IC at Rs.25,48,25,717/- for AY 2009-10.

    5. AO by invoking the provisions contained u/s 14A of the Act read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 (for short the Rules) made disallowance of Rs.41,49,725/-, Rs.46,32,475/- & Rs.10,90,925/- for AYs 2009-10, 2010-11 & 2011-12 respectively on the ground that the assessee company has not maintained any separate details/accounts relating to management of its investment portfolio as it cannot earn dividend without its existence and management.

    6. AO made disallowance of deduction claimed by the assessee on account of education cess to the tune of Rs.46,34,854/-, Rs.84,71,689/- and Rs.47,42,785/- for AYs 2009-10, 2010-11 & 2011-12 respectively on the ground that the term tax is wide enough to include surcharge, education cess, higher education cess, etc..

    7. In AY 2010-11, AO made addition of Rs.3,88,244/- on account of disallowance of business promotion expenses @ 50% ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 out of the total expenditure of Rs.7,76,489/- claimed by the assessee.

    8. AO made disallowance of Rs.2,39,40,228/- and Rs.3,04,561/- on account of excise duty exemption subsidy and transport subsidy respectively qua the claim made by the assessee for deduction u/s 80IC on the ground that excise duty exemption subsidy and transport subsidy cannot be treated as profits & gains derived from the industrial undertaking of Sikkim unit. AO, after making disallowance of Rs.41,49,725/- u/s 14A of the Act added the same back in computing the income in normal provisions of the Act as well as not computing the book profit u/s 115JB of the Act. AO also excluded the amount of Rs.2,39,40,228/- and Rs.3,04,561/- disallowed as claim of deduction u/s 80IC on account of excise duty exemption subsidy and transport subsidy respectively towards profit of the unit in computing the income under normal provisions of the Act as well as in computing the book profit u/s 115JB of the Act.

    9. In AY 2011-12, AO made addition of Rs.39,97,952/- (Rs.12,43,233/- + Rs.1,31,647/- + Rs.153,528/- on account of freight income, misc. income and provision of expenses returned ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 back respectively) on the ground that the assessee has not furnished the details if expenses of freight is the liability of the assessee and assessee is earning the freight income as facilitator or transport agent which cannot be directly linked to the business of the undertaking and for misc. income, on the ground that these income are not having any business nexus with the assessees business undertaking and for provision for expenses written back, on the ground that the assessee has not provided any proof and having no direct connection with the business of the assessee undertaking. AO also made addition of Rs.19,74,690/- on account of proportioned indirect head office expenses eg. Advertisement and publicity expenses, rent expenses, depreciation on vehicles and donations & contribution paid for scientific research being not eligible for deduction u/s 80IC of the Act. AO also made addition of Rs.1,93,946/- by not treating the forward contract gain as business income eligible for deduction u/s 80IC on the ground that the assessee has not provided copy of forward contract nor has been able to produce any invoice pertaining to the transaction.

    10. AO thereby made assessment at the total income of Rs.40,65,33,730/-, Rs.80,04,21,590/- & Rs.41,69,35,099/- under ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 normal provisions of the Act for AYs 2009-10, 2010-11 & 2011-12 respectively and at book profit of Rs.64,44,33,730/- & Rs.99,86,22,263/- u/s 115JB for AYs 2009-10 & 2010-11 respectively.

    11. Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has given partial relief in AYs 2009-10 & 2011-12 to the assessee. Feeling aggrieved by the orders passed by the ld. CIT (A), the assessee as well as the Revenue have come up before the Tribunal by way of filing the present cross appeals for AYs 2009-10 & 2011-12. In AY 2010-11, ld. CIT (A) confirmed the addition made by the AO against which the assessee has come up in appeal before the Tribunal.

    12. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND NO.1 OF AY 2009-10 (ASSESSEES APPEAL) GROUNDS NO.1, 2 &3 OF AY 2009-10 (REVENUES APPEAL)

    13. AO noticed that the assessee company had debited an amount of Rs.5,97,44,548/- on account of foreign exchange loss ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 but no such loss was allocated to the Sikkim Unit. AO, however, after considering the turnover of trading business of manufacturing unit of Sikkim unit of the assessee, considered Rs.1 crore as allocable expenditure relating to the Sikkim unit and considered the same for calculating the profit and eligible deduction u/s 80IC of the Act.

    14. Assessee company claimed benefit of excise duty exemption subsidy of Rs.2,39,40,228/- and transport subsidy of Rs.3,04,561/- by including the profit of Sikkim unit as a claim eligible for deduction u/s 80IC. Assessee company however excluded excise duty exemption subsidy from the book profit for the computation of income u/s 115JB of the Act. AO however excluded excise duty exemption subsidy and transport subsidy of Rs.2,39,40,228/- and Rs.3,04,561/- respectively for the purpose of computation of deduction eligible to the assessee under section 80IC of the Act. AO thereby computed the eligible deduction u/s 80IC at Rs.25,48,25,717/-.

    15. Ld. CIT (A) however give the relief by treating excise duty exemption subsidy and transport subsidy to be eligible for deduction u/s 80IC by including the same in profit of Sikkim unit. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 Ld. CIT (A) also reduced the foreign exchange loss of Sikkim unit to Rs.68,33228/- instead of Rs.1 crore made by the AO. Both assessee company as well as Revenue are in appeal before the Tribunal.

    16. Undisputedly, assessee company being in manufacturing activities in the Estate of Sikkim received excise duty exemption subsidy & transport subsidy of Rs.2,39,40,228/- & Rs.3,04,561/- respectively. Ld. AR for the assessee contended that the subsidy extended by the Government helped the assessee in reducing the cost of manufacturing and had direct nexus with the industrial undertaking and has also contended that identical relief on account of excise duty grant and transport subsidy has already been granted by the ld. CIT (A) for AYs 2010-11 and 2011-12 which has not been challenged before the Tribunal. This factual position has not been controverted by the ld. DR for the Revenue.

    17. Honble Supreme Court in case of CIT vs. Meghalaya Steels Ltd. 383 ITR 217 (SC) by referring the decision of Honble Delhi High Court in CIT vs. Dharampal Premchand Ltd. 317 ITR 353 in which SLP preferred by the Revenue in the Honble Supreme Court was dismissed and upheld the view that refund of excise duty ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 should not be excluded in arriving at the profit derived from business for the purpose of claiming deduction u/s 80IB of the Act. 17.1 In case of CIT vs. Meghalaya Steels Ltd. (S.C.) (supra), Honble Supreme Court held that, transport subsidy is a revenue receipt which was reimbursed to the assessee for elements of cost relating to manufacture or sale of their products and there could certainly be said to be a direct nexus between profits and gains of the industrial undertaking and reimbursement of such subsidies So, when the transport subsidy is in the nature of revenue receipt having been directly related to manufacturing activities of the assessee company which went to reimbursement of cost in the production of goods in a particular business would also be included under the head profits & gains of the business & profession. Even an iota of material has not been brought on record by the Revenue as to why rule of consistency had not been followed. When identical relief has been given by the ld. CIT (A) to the assessee on account of excise duty grant and transport subsidy for AYs 2010-11 & 2011-12 which has since been attained finality. 17.2 So, ld. CIT(A) had rightly allowed deduction on account of excise duty exemption subsidy and transport subsidy u/s 80IC of ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 the Act having been directly related to manufacturing activities of the assessee company.

    18. So far as question of reducing the foreign exchange loss pertaining to Sikkim unit to the tune of Rs.68,33,228/- for the purpose of computing deduction u/s 80IC is concerned, the ld. AR for the assessee contended that since the foreign exchange fluctuation loss is in the nature of indirect/non-operating expenses, it must be allocated to the eligible industrial undertaking. Ld. DR for the Revenue, however, relied upon assessment orders passed by

    19. Assessee company has brought on record detail of foreign exchange loss incurred on account of import of raw material used at the industrial undertaking, available at page 193 of the paper book. Ld. CIT (A) after taking into account working given by the assessee company at page 193 of the paper book restricted the allocation to the tune of Rs.68.33 lakhs. No doubt, foreign exchange loss being in the nature of indirect/non-operating expenses must not be allocated to the eligible industrial undertaking. However, when the assessee company has come up with specific working/details of suffering foreign exchange loss on ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 account of import of raw material used at the industrial undertaking, the ld. CIT (A) has rightly thrashed the issue on facts and directed the AO to reduce such allocation to Rs.68.33 lakhs as against Rs.1 crore estimated by the AO. So, again we find no illegality or perversity in the findings returned by the ld. CIT(A). Consequently, Ground No.1 of assessees appeal for AY 2009-10 is allowed and Grounds No.1, 2 & 3 of Revenues appeal for AY 2009-10 are dismissed. GROUND NO.2 OF AY 2009-10 (ASSESSEES APPEAL) GROUND NO.2 OF AY 2010-11 (ASSESSEES APPEAL) GROUND NO.3 OF AY 2011-12 (ASSESSEES APPEAL)

    20. Ground No.2 of AY 2009-10, Ground No.2 of AY 2010-11 & Ground No.3 of AY 2011-12 in assessees appeals are not pressed during the course of hearing. GROUND NO.3 OF AY 2009-10 (ASSESSEES APPEAL) GROUND NO.1 OF AY 2010-11 (ASSESSEES APPEAL) GROUNDSNO.1 & 2 OF AY 2011-12 (ASSESSEES APPEAL)

    21. AO/CIT(A) made disallowance of Rs.40.79 lakhs, Rs.45.60 lakhs & Rs.4.71 lakhs for AYs 2009-10, 2010-11 & 2011-12 respectively by invoking the provisions contained u/s 14A of the Act r/w Rule 8D(2)(iii) of the Rules. Undisputedly, assessee has ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 earned exempt income to the tune of Rs.5.22 crores, Rs.5.24 crores & Rs.3.24 crores for AYs 2009-10, 2010-11 & 2011-12 respectively by investing in debt oriented mutual funds. The assessee has come up with pointed argument that since primary business of assessee company is manufacturing and selling of printing inks and its entire manpower is engaged in carrying out main activities and only idle funds have been invested in pre- decided investment avenues to earn the reasonable income, thus has not incurred any additional expenses to earn the dividend income. It is also the case of the assessee company that it has earned taxable income by way of capital gains during the year under assessments and brought on record details thereof. It is also argued by the ld. AR for the assessee that no proper satisfaction has been recorded by the AO before invoking the provisions contained under Rule 8D and relied upon the decisions of Eicher Motors Ltd. vs. CIT 398 ITR 51 (Del.) and HT Media Ltd. vs. PCIT 399 ITR

    576 (Del.). However, on the other hand, ld. DR for the Revenue relied upon the orders passed by the AO as well as ld. CIT (A).

    22. First of all, when we examine the satisfaction recorded by the AO for all the three assessment years i.e. 2009-10, 2010-11 & ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 2011-12 in order to invoke the provisions contained under Rule 8D, no satisfaction has been recorded by the AO that the working provided by the assessee company that no expenditure has been incurred to earn the dividend income except with general observations that, a company cannot earn dividend without its existence and management. Investment decisions are very complex in nature which are generally taken by management personnel or other professional experts employed for the purpose for which administrative, managerial and administrative expenses are incurred. 22.1 To our mind, this is no satisfaction rather AO proceeded on the basis of assumptions and guesswork. In AY 2011-12, AO while invoking the provisions contained under Rule 8D recorded that, since the assessee has not maintained any separate books of account for accounting of expenses incurred in relation to income not includible in its total income the amount of expenses actually incurred cannot be ascertained from the assessees books of account satisfactorily and proceeded to invoke the provisions contained u/s 14A of the Act r/w Rule 8D of the Rules. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017

    23. Honble Apex Court in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT 394 ITR 449 (SC) thrashed the issue in controversy as to invoking of the provisions contained under Rule 8D of the Rules by observing as under :-

    37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.

    24. Honble Delhi High Court in case of HT Media Ltd. vs. Pr. CIT (supra) also held that broad and general nature of observation made by the AO are not enough to invoke the provisions contained under Rule 8D. So, we are of the considered view that when AO has failed to comply with the mandatory provisions of section 14A (2) of the Act r/w Rule 8D(1)(a) of the Rules to record a valid satisfaction, provisions contained under Rule 8D(2)(iii) cannot be invoked. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017

    25. Moreover, it is categoric case of the assessee company that it has invested in debt oriented mutual fund as is evident from page

    41 of the paper book for AY 2009-1-. So, this investment has earned taxable income in the capital gain in which case provisions contained under section 14A are otherwise not attracted.

    26. Identical issue has been decided by the coordinate Bench of the Tribunal in favour of the assessee in case of Avshesh Mercantile (P) Ltd. vs. ITO 148 TTJ 607 (ITAT Mumbai) by following the judgment of Honble Bombay High Court in Delite Enterprises Pvt. Ltd. (ITA No.110 of 2009) by returning following findings :-

    22. We have heard the rival submissions and also perused the relevant material on record. It is observed that the proceeds of premium notes (OCPN) on which the impugned redemption premium was paid by the assessee had been invested in the shares/debentures of RUPL and although the dividend income and income from long term capital gain from the said investment was exempt from tax u/s 10(23G), perusal of the copy of relevant Notification issued u/s 10(23G) placed at page No. 24 of the paper book, shows that such exemption was initially granted only for the specific period i.e. assessment year 1999-2000 to 2001- 2002. No doubt, the said exemption was further extended upto assessment year 2004-05 as submitted by the learned DR, a perusal of the copy of relevant notification placed at page No. 29 of the paper book clearly shows that such extension was granted subject to satisfaction of certain conditions. Keeping in view all these uncertainties and contingencies, we are inclined to agree with the contention of the learned counsel for the assessee that the premium paid by the assessee on redemption of premium notes (OCPN) utilized for making investment in the shares/debentures of RUPL cannot be regarded as expenditure incurred exclusively in relation to earning of exempt income so ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 as to invoke the provisions of section 14A. Moreover, the said investment had the potential of generating taxable income also as explained by the learned counsel for the assessee in the form of short term capital gains etc. In this regard, the learned DR has submitted that no such taxable income however was actually earned by the assesses during the years under consideration. The learned counsel for the assessee on the other hand has pointed out that no exempt income from the said investment was also actually earned by the assessee in the years under consideration. He has also relied on the decision of coordinate bench of this Tribunal in the case of Delite Enterprises Pvt. Ltd. (supra) as affirmed by the Honble Bombay High Court stating that in the similar facts and circumstance, disallowance made under section 14A was held to be not sustainable.

    27. So, an amount of Rs.89.68 lakhs, Rs.32.44 lakhs and Rs.17.76 lakhs in AY 2009-10, 2010-11 & 2011-12 respectively earned by the assessee as capital gain from debt oriented mutual funds cannot be placed in the category of exempt income u/s 14A of the Act and in these circumstances, Rule 8D(2) cannot be invoked.

    28. Moreover, AO himself has excluded the investment from which non-exempt income has been earned by the assessee company in AY 2011-12 for purpose of computing average investment under Rule 8D(2)(iii) of the Rules.

    29. So, we are of the considered view that disallowance made by the AO and sustained by the ld. CIT (A) u/s 14A of the Act r/w Rule 8D(2)(iii) of the Rules is not sustainable, hence ordered to be ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 deleted. Consequently, Ground No.3 of AY 2009-10, Ground No.1 of AY 2010-11 & Grounds No.1 & 2 of AY 2010-11 in assessees appeals are allowed. GROUND NO.4 OF AY 2009-10 (ASSESSEES APPEAL) GROUND NO.3 OF AY 2010-11 (ASSESSEES APPEAL) GROUND NO.4 OF AY 2011-12 (ASSESSEES APPEAL)

    30. AO/CIT(A) have disallowed deduction claimed by the assessee company on account of education cess on income-tax, dividend distribution tax and fringe benefit tax amounting to Rs.46.35 lakhs, Rs.84.71 lakhs & Rs.47.42 lakhs for AYs 2009-10, 2010-11 & 2011-12 respectively on the ground that it is in the nature of surcharge and the term tax includes surcharge, education cess and higher education cess.

    31. Ld. AR for the assessee contended that education cess is an allowable cess and relied upon the decision rendered by the Honble Rajasthan High Court in case of M/s. Chambal Fertilizers and Chemicals Ltd. vs. Pr.CIT (D.B. ITA No.52/2018 judgment dated 31.07.2018) and CBDT Circular No.91/58 dated 19.05.1967. Ld. AR for the assessee further contended that cess has already been specifically excluded from section 40(a)(ii) of the Act and ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 relied upon the CBDT circular dated 19.05.1967 (supra). He further contended that cess is not in the nature of tax. However, ld. DR for the Revenue relied upon the orders passed by the AO as well as ld. CIT (A).

    32. Perusal of CBDT Circular dated 19.05.1967 (supra) is categoric enough that view of ITO disallowing the cess paid by the assessee is not correct and the Select Committee has decided to omit the word cess from the clause and its effect is that only taxes paid are to be disallowed in the assessment for the year 1962-63 and onwards.

    33. This issue has been decided by Honble High Court of Rajasthan in case of Chambal Fertilizers and Chemicals Ltd. (supra) in the light of the interpretation of Circular dated 19.05.1967 (supra) in favour of the assessee by returning following findings :-

    13. On the third issue in appeal no.52/2018, in view of the circular of CBDT where word Cess is deleted, in our considered opinion, the Tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no.3 is required to be reversed and the said issue is answered in favour of the assessee. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017

    34. So, in these circumstances, education cess is not a disallowable expenditure u/s 40(a)(ii) of the Act having been expressly excluded from section 40(a)(ii) of the Act. Moreover, cess is not in the nature of tax as has been held by Honble Supreme Court in case of Smith Kline Amp; French (India) Ltd. and Ors. vs. CIT (1996) 219 ITR 581 (SC). So, we are of the considered view that AO/CIT(A) have erred in disallowing the deduction for education cess on income-tax, dividend distribution tax and fringe benefit tax for AYs 2009-10, 2010-11 & 2011-12 in computing the total income under normal provisions of the Act, consequently ordered to be deleted. Hence, Ground No.4 of AY 2009-10, Ground No.3 of AY 2010-11 & Ground No.4 of AY 2010-11 in assessees appeals are allowed. GROUND NO.4 OF AY 2010-11 (ASSESSEES APPEAL)

    35. AO disallowed assessees claim of business promotion expenses of Rs.7,76,489/- to the tune of 50% and consequently disallowed an amount of Rs.3,88,244/-. However, ld. CIT (A) has restricted the disallowance to 15%. AO as well as ld. CIT (A) have agreed in principle that for every business house, business ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 promotion expenses are required to promote its business by holding meeting with its prospective clients and by extending gifts on a festive occasions but proceeded to make ad hoc disallowance of 50% by AO and then 15% by the ld. CIT (A). We are of the considered view that when the details submitted by the assessee have not been disputed, such ad hoc disallowance cannot be made on the basis of surmises.

    36. Honble Delhi High Court in case of National Industrial Corporation Ltd. vs. CIT (2002) 258 ITR 575 (Del.) held that when there are no findings that part of the expenditure on sales/ business promotion was for non-business purposes, part of the expenditure not to be disallowed u/s 37 of the Act. So, we are of the considered view that AO/CIT(A) have purely disallowed 50% & 15% respectively of the sales promotion expenses on ad hoc basis without pointing out if any part of the business promotion expenses claimed by the assessee company have not been incurred. So, we delete the addition of Rs.1,16,473/- being 15% of the business promotion expenses disallowed by the ld. CIT (A)., hence Ground No.4 of assessees appeal in AY 2010-11 is determined in favour of the assessee. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 GROUND NO.4 OF AY 2009-10 (REVENUES APPEAL)

    37. AO for the purpose of calculation of disallowance in terms of Rule 8D(2)(iii) of the Rules considered the investment of Rs.1.41 crores made by the assessee company in its subsidiary, namely, M/s. Newby India Pvt. Ltd.. However, ld. CIT (A) directed to exclude the said investment made by the assessee in M/s. Newby India Pvt. Ltd. for the purpose of computing disallowance under Rule 8D by relying upon the decisions rendered by the coordinate Bench of the Tribunal in case of Inter Globe Enterprises Ltd. vs. DCIT, J.M. Financial Ltd. vs. Addl. CIT ITA No.4521/Mum/2012 and UP Electronics Corpn. Ltd. vs. DCIT. 37.1 We are of the considered view that when undisputedly strategic investment has been made by the assessee company in its subsidiary company to have control over it, the same has to be excluded for the purpose of computing disallowance under Rule 8D. When undisputedly there is no exempt income no disallowance u/s 14A can be made. Revenue itself has allowed the identical relief to the assessee company in AY 2011-12 which has not been contested before the Tribunal. So, we are of the ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 considered view that ld. CIT (A) has rightly directed to exclude the amount of investment made by the assessee company in its subsidiary for the purpose of computation of disallowance made u/s 14A r/w Rule 8D, hence ground no.4 of Revenues appeal for AY 2009-10 is dismissed. GROUND NO.5 OF AY 2009-10 (REVENUES APPEAL)

    38. Assessee company by treating the excise duty grant capital in nature excluded the same for the purpose of calculation of book profit u/s 115JB of the Act, which the AO has declined. However, ld. CIT (A) by following the earlier order for assessment year 2007-08 allowed the claim of the assessee.

    39. Ld. AR for the assessee contended that in the year under assessment, assessee company is liable to pay the tax as per normal provisions of the Act and not in terms of section 115JB and relied upon the decision of the coordinate Bench of the Tribunal in case of Sicpa India Pvt. Ltd. vs. DCIT (ITA No.885/Kol/2012 order dated 22.03.2017) for AY 2007-08 in assessees own case.

    40. Perusal of the aforesaid order in assessees own case passed by the coordinate Bench of the Tribunal shows that identical issue ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 has been dealt with and decided in favour of the assessee, operative part thereof is extracted for ready perusal as under :-

    21. The main issue that arises for consideration on the basis of the grievance projected by the Revenue in the aforesaid ground No.2 is as to whether the excise duty refund which were held by the CIT(A) to be capital receipts not chargeable to tax can still be considered as part of the book profits u/s.115JB of the Act, even though these sums have been credited in the profit and loss account and treated as income and even though the exclusion of these sums for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec.115JB (2) of the Act. In rejecting the claim of the Assessee in this regard, the AO held that these sums have been credited in the profit and loss account and treated as income and exclusion of these incomes (sums) for the purpose of computing book profit u/s.115JB has not been specifically provided under explanation below Sec. 115JB (2) of the Act.

    22. We have heard the submission of the learned counsel for the Assessee. As far as the excluding the subsidies in question from computation of book profit u/s 115JB of the Act is concerned, the provisions of Sec. 115JB of the Act have to be looked at. Section 115JB of the Act provides that notwithstanding anything contained in any other provision of the Act, where in the case of an Assessee. being a company, the income- tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on Of after the 1st day of April, 200l, is less than seven and one half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of seven and one half ten per cent. The Assessee being a company the provisions of Sec. 115JB of the Act were applicable. Every assessee, being a company, shall, for the purposes of section 115jB of the Act, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (l of 1956). In so preparing its book of accounts including profit and loss account, the company shall adopt the same accounting policies, accounting stand and method and rates for calculating depreciation as is adopted while preparing its accounts that are laid before the company at its annual general meeting in accordance with provisions of Sec.210 of the Companies Act. Explanation below Sec. 115JB of the Act provides that for the purposes of section 115JB of the Act, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- certain items debited in the profit and loss account in arriving at the net profit and as reduced by- certain items that are credited in the profit and loss account. In other words, all that one has to do, while computing book profits is to take the profit as per profit and loss account prepared in ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 accordance with Companies Act, 1956 and make additions or subtraction as is given in the explanation to Sec.115JB(2) of the Act.

    23. We have already seen that the issue whether subsidies in question can be regarded as income at an is no longer res integra and has been concluded by the Hon'ble Jammu & Kashmir High Court in the case of Balaji Alloys (supra). In the aforesaid decision the Hon'ble J & K High Court on identical facts held that excise duty subsidy and interest subsidy were capital receipts not chargeable to tax. In view of the aforesaid decision of the Hon'ble High Court rendered on identical facts as that of the Assessee's case, there can be no doubt that subsidies in question does not have any character of Income.

    24. When a receipt is not in the character of income, can it form part of the book profits for the purpose of Sec.115JB of the Act, is the question that arises for consideration. The ITAT Kolkata Bench in the case of Binani Industries Ltd. ITA NO.144/Ko1l2013 order dated 2.3.2016 reported in (2016) 178 TTJ 0658 (Kol) : (2016) 137 DTR 0185 (Kol)(Trib) had to deal with a case where the question was as to whether receipts on account of forfeiture of share warrants amounting to Rs. 12,65,75,000/-, being a capital receipt, would be liable for taxation u/s 115JB. The tribunal after referring to several decisions on the issue viz., the Hon 'ble Apex Court in case of Indo Rama Synthetics

    (I) Ltd vs CIT 330 ITR 336 (SC), Apollo Tyres Ltd. 255 ITR 273 (SC), Special Bench ITAT in the case of Rain Commodities Ltd. Vs. DCIT (2010) 131 TTJ (Hyd)(SB) 514, ITAT Lucknow Bench in the case of ACIT vs. L.H.Sugar Factory Ltd and vice versa in ITA Nos. 417 ,418 & 339/LKW/2013 dated 9.2.2016 and decision of Mumbai ITAT in the case of Shivalik Venture (P) Ltd. Vs. DCIT (2015) 173 TTJ (Mumbai)

    238 dated 19.8.2015, came to the conclusions

    (i) the object of Minimum Alternate Tax (MAT) provisions incorporated in Sec.l15JB of the Act was to bring out real profit of companies and the thrust was to find out real working results of company.

    (ii) Inclusion of receipt which are not in the nature of income in computation of book profits for MAT would defeat two fundamental principles, it would levy tax on receipt which was not in nature of income at all and secondly it would not result in arriving at real working results of company. Real working result could be arrived at only after excluding this receipt which had been credited to P&L a/c and not otherwise.

    (iii) There was a disclosure of the factum of forfeiture of share warrants amounting to Rs. 12,65,75,000/- by the Assessee in its notes on accounts vide Note No.6 to Schedule II of Financial Statements for year ended 31.3.2009. Profit and loss account prepared in accordance with Part II and III of Schedule VI of Companies Act 1956, included notes on accounts thereon and accordingly in order to determine real profit of Assessee, ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 adjustment need to be made to disclosures made in notes on accounts forming part of profit and loss account of Assessee. Profits arrived after such adjustment, should be considered for purpose of computation of book profits u/s 115JB of the Act and thereafter, AO had to make adjustments for additions/deletions contemplated in Explanation to section 115JB of the Act.

    25. The Tribunal in the aforesaid decision made a reference to the decision of the Special Bench of the ITAT in the case of Rain Commodities (supra) which in turn was based on the ratio laid down in the decision of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd. (supra) as a case in which the income in question was taxable but was exempt under a specific provision of the Act and but for the exemption, the income would be chargeable to tax and such items of income should also be included as part of the book profits. But where a receipt is not in the nature of income at all it cannot be included in book profits though it is credited in the profit and loss account. The Bench followed the decision of the Lucknow Bench in the case of

    L.H.Sugar Factory Ltd.(supra), where receipts on account of carbon credits which were capital receipts not chargeable to tax and hence not in the nature of income were held not included in the book profits. The Bench also referred to the decision of the Mumbai Bench of the ITAT in the case of Shivalik Venture Pvt. Ltd. (supra) which was a case where the question was whether profits arising on transfer of a capital asset by a company to its wholly owned subsidiary company which is not treated as income" u/s 2(24) of the Act and since it does not form part of the total income u/s.10 of the Act and therefore does not enter into computation provision at all under the normal provisions of the Act, the same should be considered for the purpose of computing book profit u/s 115JB of the Act. The Mumbai Bench held as follows: "26. We shall now examine the scheme of the provisions of sec. 115JB of the Act. It is pertinent to note that the provisions of sec. 10 lists out various types of income, which do not form part of Total income. All those items of receipts shall otherwise fall under the definition of the term "income" as defined in sec. 2(24) of the Act, but they are not included in total income in view of the provisions of sec. 10 of the Act. Since they are considered as "incomes not included in total income" for some policy reasons, the legislature, in its wisdom, has decided not to subject them to tax u/s 115JB of the Act also, except otherwise specifically provided for. Clause (ii) of Explanation I to sec. 115JB specifically provides that the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) is to be reduced from the Net profit, if they are credited to the Profit and Loss account. The logic of these provisions, in our view, is that an item of receipt which falls under the definition of "income", are excluded for the purpose of computing "Book Profit", since the said receipts are exempted u/s 10 of the Act while computing total income. ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 Thus, it is seen that the legislature seeks to maintain parity between the computation of "total income" and "book profit", in respect of exempted category of income. If the said logic is extended further, an item of receipt which does not fall under the definition of "income" at all and hence falls outside the purview of the computation provisions of Income tax Act, cannot also be included in "book profit" u/s 115JB of the Act. Hence, we find merit in the submissions made by the assessee on this legal point."

    26. The admitted factual and legal position in the present case is that subsidies in question is not in the nature of income. Therefore they cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s. 115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s.115JB of the Act. We hold accordingly and dismiss Gr.No.2 raised by the Revenue.

    41. So, following the decision rendered by the coordinate Bench of the Tribunal on this issue, we are of the considered view that ld. CIT (A) has rightly allowed the exclusion of excise duty exemption in computing book profit u/s 115JB of the Act. Consequently, ground no.5 of Revenues appeal for AY 2009-10 is determined against the Revenue. GROUND NO.6 OF AY 2009-10 (REVENUES APPEAL)

    42. AO made addition of disallowance made u/s 14A of the Act to the book profit of the assessee company, which the ld. CIT (A) allowed by following its own order for AY 2007-08. It is categoric case of the assessee company that for the year under assessment, the assessee is liable to pay the tax of the normal provisions of the ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 Act and not in terms of section 115JB of the Act. When this identical issue has been allowed by the ld. CIT (A) in AY 2007-08 and there is no change in the facts and circumstances of the case and the said decision has never been contested before the higher appellate authority, the rule of consistency has to be followed by the Revenue. When section 115JB being not a non-obstante clause having no overriding effect upon the other provisions of the Act and profit & loss account for the year under assessment has been made accordingly by the assessee in accordance with the provisions of Part II & III of Schedule VI to the Companies Act, no further adjustment can be made except expressly provided in the Act. So, the AO has no jurisdiction to travel beyond the net profit shown in the P&L account except to the extent that profit in the Explanation to section 115JB of the Act under which disallowance u/s 14A is not covered.

    43. Coordinate Bench of the Tribunal in case of M/s. Essar Teleholdings Ltd. vs. DCIT (ITA No.3850/Mum.2010 for AY 2005-06 order dated 29.07.2011) held that, no addition to the book profit shall be made on account of expenditure as per Rule 8D r/w section 14A of the Act while computing income u/s 115JB ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 of the Act. So, in view of the matter, we are of the considered view that ld. CIT (A) has rightly deleted the disallowance u/s 14A read with Rule 8D while computing the book profit u/s 115JB. So, ground no.6 of Revenues appeal for AY 2009-10 is dismissed. GROUND NO.1 OF AY 2011-12 (REVENUES APPEAL)

    44. AO made addition of Rs.39,97,952/- on account of exclusion of other income viz. income earned by way of scrap sales, misc. income, freight income, transport subsidy and cash discount not eligible for deduction u/s 80IC of the Act by relying upon the decision rendered by Honble Supreme Court in case of CIT vs. Sterling Foods (1999) 237 ITR 579 (SC) on the ground that a direct and proximate connection is absent in respect of the aforesaid incomes earned by the assessee company. 44.1 However, ld. CIT (A) restricted the addition to the tune of Rs.15,28,408/- (transport receipt Rs.12,43,233/-, misc. income Rs.1,31,647/- and provisions for expenses written back Rs.1,53,528/-) against the total addition of Rs.39,97,952/- by following the decision rendered by the ld. CIT (A) in case of assessee in AYs 2007-08, 2009-10 & 2010-11 and by relying upon ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 the decision rendered by Honble Supreme Court in case of Liberty India vs. CIT (2009) 28 DTR (SC).

    45. So far as question of transport receipt/subsidy of Rs.12,43,233/- received by the assessee and excluded by the AO being not eligible for deduction u/s 80IC of the Act is concerned, as discussed in the preceding paras, there is direct nexus between profit and business and transport subsidy given by the Government being reimbursement of cost in production of goods as has been held by Honble Supreme Court in CIT vs. Meghalaya Steels Ltd.

    383 ITR 217. So, we are of the considered view that transport subsidy certainly reduced the cost of production would amount to profits derived to industrial undertaking, hence eligible for deduction u/s 80IC of the Act.

    46. Similarly, misc. income of Rs.1,31,647/- and amount of Rs.1,53,528/- on account of written back amount is also eligible for deduction u/s 80IC being directly inter-linked and derived from the business as has been held by Honble Supreme court in Liberty India vs. CIT (supra). Moreover, identical issue has been decided in favour of the assessee by the Revenue itself in AY 2007-08 which has been accepted by the Revenue and no new facts or law ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 has been brought on record by the ld. DR for the Revenue as to why the Revenue has departed from the earlier binding precedent. So, we are of the considered view that there is no scope to interfere the findings returned by the ld. CIT (A) on ground no.1, hence ground no.1 of Revenues appeal for AY 2011-12 is decided against the Revenue. GROUND NO.2 OF AY 2011-12 (REVENUES APPEAL)

    47. AO made addition of Rs.1,97,06,900/- (advertisement and publicity expenses Rs.35,100/-, Rent expenses Rs.15,90,300/-, Depreciation on vehicles Rs.4,50,281/-, deduction u/s 35 in respect of contributions Rs.1,53,36,000/- & deduction u/s 80G in respect of donations Rs.23,08,500/-) on proportioned indirect Head Office expenses eg. advertisement and publicity, rent, depreciation on vehicles, donation and contribution paid for scientific research being not eligible for deduction u/s 80IC of the Act. However, ld. CIT (A) deleted the proportionment of Head Office expenses made by the AO by following the decisions rendered by the coordinate Bench of the Tribunal for AY 2006-07 in assessees own case.

    48. Perusal of the order passed by the coordinate Bench of the Tribunal in AY 2006-07, available at pages 151 to 153 of the paper ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 book, goes to prove that the identical issue has been decided in favour of the assessee by returning following findings :-

    4. We have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. D.R. has contended that the profit eligible for deduction under section 80IC is to be worked out after deducting al l the direct and indirect expenses, the deduction under section 80IC, as pointed out by the ld. Counsel for the assessee, is in respect of any profit and gains derived by the eligible Undertaking. As submitted by the ld. Counsel for the assessee in this regard, the words derived from has a narrow meaning, inasmuch as it contemplates first degree connection with the eligible Unit as held, inter alia, by the Honble Supreme Court in the case of Pandian Chemicals Limited reported in 262 ITR 278 and this principle laid down by the Honble Supreme Court in the context of income is also applicable for the al location of expenses as held by the Coordinate Bench of this Tribunal in the case of Balarampur Chini Mills Limited vs.- DCIT reported in 140 TTJ

    73. In the said case, it was held by the Tribunal that expenses incurred by the assessee under the general head of Office Expenses, which are not directly incurred for the eligible Unit, cannot be said to have first degree connection with such Unit so as to reduce the same on pro rata basis for computing the profit of such Unit eligible for deduction. In our opinion, the issue involved in the present case thus is squarely covered by the decision of the Coordinate Bench of this Tribunal in the case of Balarampur Chini Mills Limited (supra) and respectfully following the same, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue.

    49. So, following the decision rendered by the coordinate Bench of the tribunal, we are of the considered view that ld. CIT (A) has rightly decided the issue in favour of the assessee in deleting the proportionment of Head Office expenses to the unit eligible for deduction u/s 80IC of the Act. Consequently, ground no.2 raised ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 by the Revenues appeal for AY 2011-12 is determined against the Revenue. GROUND NO.3 OF AY 2011-12 (REVENUES APPEAL)

    50. AO treated the gain of Rs.19.32 lakhs by the assessee company qua transaction of entering into forward contracts for hedging the risk associated with payment of foreign currency trade payables as speculation income u/s 43 (5) of the Act. However, ld. CIT (A) treated the forward contract gain of Rs.19.32 lakhs as business income eligible for deduction u/s 80IC of the Act on the ground that purpose of entry into forward contract was to hedge the foreign currency exposures qua import of raw materials and finished goods for relying upon the decision of coordinate Bench of the Tribunal in case of ITO vs. LGW Ltd. (2015) 45 CCH 0103. 50.1 In case of LGW Ltd. (supra) relying upon by the ld. CIT (A), it is held by the coordinate Bench of the Tribunal that forward contract entered to safeguard against loss arising out of fluctuation in foreign currency are not speculative transaction having been entered into normal course of business. Ld. CIT (A) thrashed the law and facts on this issue and consequently, we are of the ITA No.704/Kol./2015 ITA No.1586/Kol./2016 ITA No.7048/Kol./2017 ITA No.838/Kol./2015 ITA No.7483/Kol./2017 considered view that when forward trading contract was arrived at by the assessee company merely to safeguard against loss arising out of foreign exchange in foreign currency, the same cannot be treated as speculation transaction as business income eligible for deduction u/s 80IC, so we find no ground to interfere the findings returned by the ld. CIT (A), hence ground no.3 of Revenues appeal for AY 2011-12 is determined against the Revenue.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    SICPA INDIA PVT. LTD., NEW DELHI v. DCIT, CIRCLE- 23(2), NEW DELHI
    (Jan 31, 2020)