1.  CIT Vs. Torrent Power Ltd., I.T.A. No. 603/2013, Date of Order: 04.02.2014, Gujarat High Court

Can AO make disallowance u/s 14A of Income Tax Act, 1961, where assessee have sufficient own funds for making investment?

Held No    

The assessee filed the return of income for A.Y. 2006-2007, shown the exempt income being tax free interest on bonds. AO sent show cause notice as to why the disallowance under section 14A would not be made. In reply to show cause notice assessee said that it had huge funds on which no interest has been paid and no part of expenditure also was incurred towards the investment activity. However AO did not consider the reply of assessee and disallow 1% of interest expense u/s 14A.

Hon’ble High Court held that there is nothing on record to indicate that there has been any actual expenditure incurred by the assessee for earning tax free income. There is no finding given by the A.O regarding any direct nexus between interest bearing borrowed funds and investment. Hence, in our considered opinion, no disallowance u/s. 14A can be made out of interest expenditure in the facts of the present case.
In the result, the appeal of the assessee is dismissed.

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2.  CIT Vs.  M/s. Faith Biotech Pvt. Ltd., I.T.A. No. 509/2014, Date of Order: 12.09.2014, Delhi High Court

For claiming deduction u/s 80-IC of Income Tax Act, 1961, assembling of tools and machinery for final product is equal to manufacturing process.

Assessee a company was engaged in the business of manufactures of health care and surgical items, file its return of income and claim deduction u/s 80-IC of the Act. During assessment proceedings AO disallow such claim on the basis that assessee was not engage in manufacturing activity, the assessee was mere assembler of tools or machinery. In reply assessee submits the procedure of manufacturing process in which assessee purchases the tools and machinery. After that he assembles the tools and make final product.

Hon’ble High Court held that for manufacturing assessee purchase parts like base motors, filters, UV lights etc. but the final product produced is entirely different from its constituents or parts. The product manufactured or produced, is completely a new and an entirely different commodity having distinct name, character and use. In view of the aforesaid factual findings, the appeal of revenue is dismissed.

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