ACIT Vs Finolex Cables Limited (ITAT Pune)
The solitary issue involved in the appeal of the Revenue for A.Y. 2012-13 relating to the assessee‟s claim for deduction u/s 80IC of the Act in respect of sale of scrap is squarely covered in favour of the assessee by various decisions of Tribunal rendered in assessee‟s own case including the latest decision of the Tribunal rendered for A.Y. 2014-15 vide its order dated 27.01.2020 passed in ITA No.2257/PUN/2017, wherein similar claim of the assessee for deduction u/s 80IC of the Act in respect of sale of scrap was allowed by the Tribunal vide paragraph No.3 of its order which reads as under:-
“3. Heard both parties and perused the material available on record. The AO denied the claim of assessee in claiming deduction u/s. 80IC of the Act in respect of income from sale of manufacturing scrap at Roorkee Plant. The CIT(A) by placing reliance on the order dated 06-03-2012 of this Tribunal in assessee‟s own case for A.Y. 2003-04 and also for A.Ys. 2002-03, 2004-05 and allowed the claim of assessee by holding that the income earned from sale of scrap is an eligible business and the assessee is entitled to claim the said income as deduction u/s. 80IC of the Act vide para 5.2 of impugned order. No contrary order was brought on record by the appellant-revenue. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Thus, only ground raised by the Revenue is dismissed.”
As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to the earlier years including A.Y. 2014-15, we respectfully follow the orders of Tribunal for the said years and uphold the order of ld. CIT(A) directing the Assessing Officer to allow the claim of assessee for deduction u/s 80IC of the Act in respect of sale of scrap.
FULL TEXT OF THE ITAT JUDGEMENT
Out of these three appeals, two appeals being ITA Nos.2256/PUN/2017 (Revenue’s Appeal) and ITA No.1998/PUN/2017 (Assessee’s appeal) are cross appeals for A.Y. 2012-13 while third appeal being ITA No.1999/PUN/2017 is the appeal filed by the assessee for A.Y. 2014-15. Since all these three appeals are directed against a common order of CIT(A), Pune-11, dated 27.07.2017 and involve some common issue, the same have been heard together and are being disposed of by a single consolidated order.
2. First, we take up the appeal of Revenue for A.Y. 2012-13 being ITA No.2256/PUN/2017 which involve a solitary issue relating to deletion by the ld. CIT(A) of the disallowance made by the Assessing Officer on account of assessee’s claim for deduction u/s 80IC of the Income-tax Act, 1961 (hereinafter referred to as „the Act’) in respect of income earned from sale of scrap.
3. The assessee in the present case is a company which is engaged in manufacture and sale of insulated wires, cables, etc. The return of income for the year under consideration i.e. A.Y. 2012-13 was filed by the assessee on 28.09.2012 declaring a total income of Rs.15,51,58,240/- after claiming a deduction of Rs.77,78,90,760/- u/s 80IC of the Act for the entire profit of its LDC Division at Roorkee. During the course of assessment proceedings, the claim of assessee for deduction u/s 80IC of the Act was examined by the Assessing Officer. On such examination, he found that deduction u/s 80IC of the Act was claimed by the assessee even in respect of sale of scrap amounting to Rs.2,97,84,396/-. In this regard, it was submitted on behalf of the assessee company that the sale of scrap was eligible for deduction u/s 80IC of the Act as the same was derived from the eligible undertaking which was engaged in the business of manufacturing and sale of various types of cables, etc., from which the scrap was generated. This submission of assessee company was not found acceptable by the Assessing Officer. According to him, scrap generated during the course of manufacturing process was not the by-product of the assessee company and the sale of scrap so generated therefore did not constitute the income derived by the industrial undertaking of the assessee company, which was eligible for deduction u/s 80IC of the Act. He therefore, disallowed the claim of assessee for deduction u/s 80IC of the Act to the extent of Rs.2,97,84,396/- being the sale of scrap.
4. The disallowance made by the Assessing Officer on account of its claim for deduction u/s 80IC of the Act in respect of sale of scrap amounting to Rs.2,97,84,396/-was challenged by the assessee in the appeal filed before the ld. CIT(A) and the ld. CIT(A) vide his appellate order dated 27.07.2017 deleted the said disallowance by following the orders of Tribunal passed in assessee’s own case for A.Ys. 2002-03, 200304 and 2004-05, wherein a similar claim of the assessee for deduction u/s 80IB of the Act in respect of sale of scrap was allowed by the Tribunal. Keeping in view that the provisions of section 80IC of the Act are analogous to the provisions of section 80IB of the Act, the ld. CIT(A) followed the decision of Tribunal rendered in assessee’s own case for A.Ys. 2002-03, 2003-04 and 2004-05 and directed the Assessing Officer to allow the claim of assessee for deduction u/s 80IC of the Act in respect of sale of scrap for A.Y. 2012-13. Aggrieved by this relief allowed by the ld. CIT(A) to the assessee, the Revenue has preferred this appeal before the Tribunal.
5. We have heard the arguments of both sides and perused the material available on record. As agreed by the ld. Authorized Representatives of both sides, the solitary issue involved in the appeal of the Revenue for A.Y. 2012-13 relating to the assessee‟s claim for deduction u/s 80IC of the Act in respect of sale of scrap is squarely covered in favour of the assessee by various decisions of Tribunal rendered in assessee‟s own case including the latest decision of the Tribunal rendered for A.Y. 2014-15 vide its order dated 27.01.2020 passed in ITA No.2257/PUN/2017, wherein similar claim of the assessee for deduction u/s 80IC of the Act in respect of sale of scrap was allowed by the Tribunal vide paragraph No.3 of its order which reads as under:-
“3. Heard both parties and perused the material available on record. The AO denied the claim of assessee in claiming deduction u/s. 80IC of the Act in respect of income from sale of manufacturing scrap at Roorkee Plant. The CIT(A) by placing reliance on the order dated 06-03-2012 of this Tribunal in assessee‟s own case for A.Y. 2003-04 and also for A.Ys. 2002-03, 2004-05 and allowed the claim of assessee by holding that the income earned from sale of scrap is an eligible business and the assessee is entitled to claim the said income as deduction u/s. 80IC of the Act vide para 5.2 of impugned order. No contrary order was brought on record by the appellant-revenue. Therefore, we find no infirmity in the order of CIT(A) and it is justified. Thus, only ground raised by the Revenue is dismissed.”
6. As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to the earlier years including A.Y. 2014-15, we respectfully follow the orders of Tribunal for the said years and uphold the order of ld. CIT(A) directing the Assessing Officer to allow the claim of assessee for deduction u/s 80IC of the Act in respect of sale of scrap. The appeal of the Revenue for A.Y. 2012-13 is accordingly dismissed.
7. Now, we take up the appeal of assessee for A.Y. 2012-13 being ITA No.1998/PUN/2017 which involves a solitary issue relating to the disallowance of Rs.1,13,44,967/- made by the Assessing Officer and confirmed by the ld. CIT(A) u/s 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962 (hereinafter referred to as „the Rules‟).
8. In the return of income filed for the year under consideration, dividend income of Rs.12.52 crores received during the year under consideration was claimed to be exempt by the assessee company and the disallowance of Rs.3,47,208/- was also offered by the assessee on account of expenses incurred in relation to the earning of said exempt income as required by the provisions of section 14A of the Act. As noted by the Assessing Officer during the course of assessment proceedings, substantial expenditure on account of interest aggregating to Rs.26.07 crores was claimed by the assessee company. In this regard, it was explained on behalf of the assessee company that the entire investment in shares was made out of its own funds available in the form of share capital and free reserves and there being no utilization of interest bearing borrowed funds for making the said investment, no disallowance on account of interest expenditure u/s 14A of the Act was called for. It was also explained on behalf of the assessee company that out of total investment of Rs.12.52 crores made in the shares, investment to the extent of Rs.12.60 crores was made in the shares of one sister concern company viz. Finolex Industries Limited and since the said investment in shares was held in Dmat format and dividend income was directly credited to the bank account by the concerned company, hardly any efforts were required to be made or expenses were required to be incurred for maintaining the portfolio of investment in shares and earning the dividend income. This explanation offered on behalf of the assessee company was not found acceptable by the Assessing Officer and applying rule 8D of the Rules, he worked out the expenses incurred by the assessee in relation to earning of exempt income at Rs.1,16,92,175/-. Since the assessee company had already offered disallowance of Rs. 3,47,208/-, a further disallowance of Rs. 1,13,44,967/- was made by the Assessing Officer u/s 14A of the Act read with rule 8D of the Rules in the assessment completed u/s 143(3) of the Act vide an order dated 04.02.2015.
9. The disallowance made by the Assessing Officer u/s 14A of the Act read with rule 8D of the Rules was challenged by the assessee in the appeal filed before the ld. CIT(A). During the course of appellate proceedings before the ld. CIT(A), it was inter-alia, contended on behalf of the assessee that the Assessing Officer was not justified in invoking rule 8D of the Rules to make disallowance u/s 14A of the Act without first demonstrating as to how the disallowance made by the assessee company suo motu was incorrect. The ld. CIT(A) did not find merit in this contention as well as other contentions raised on behalf of the assessee company and rejecting the same, he proceeded to confirm the disallowance made by the Assessing Officer u/s 14A of the Act read with rule 8D of the Rules. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal.
10. We have heard the arguments of both sides and perused the material available on record. It is observed that a similar issue as involved in the year under consideration i.e. A.Y. 2012-13 relating to the disallowance made u/s. 14A of the Act read with rule 8D of the Rules had come up for consideration before the Tribunal in assessee‟s own case for earlier years i.e. A.Ys. 2008-09 to 2011-12 and vide its common order dated 28.11.2017 passed in ITA Nos.327 to 330/PUN/2016, the Tribunal decided the said issue in favour of assessee deleting the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) u/s 14A of the Act read with rule 8D of the Rules vide paragraph Nos.5 to 14 of its order, which read as under:-
“5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The solitary issue raised in all the appeals by the assessee is against confirming of disallowance u/s. 14A r.w. Rule 8D. It is an admitted fact that the assessee had made strategic investment in group concern. By virtue of such investment the assessee has earned dividend income. The assessee has made suo-moto disallowance u/s. 14A in all the assessment years under appeal, however, the Assessing Officer in assessment proceedings enhanced the disallowance by invoking the provisions of Rule 8D. The details of exempt income received, suo-moto disallowance made by assessee and disallowance u/s. 14A r.w. Rule 8D made by Assessing Officer are as under :
