2018 (8) TMI 922 - HC - Income Tax

High Court decisions on ITAT rulings under Income Tax Act: Section 14A upheld, Section 80IA under review, business loss affirmed.

The High Court upheld the decision of the ITAT regarding the disallowance under Section 14A of the Income Tax Act, stating that the assessee had surplus ... Disallowance made u/s. 14A - maintaining mix funds - claim for deduction u/s. 80IA - Held that:- it is required to be noted that in the earlier years also more particularly, even in the Assessment Year : 2004-2005, the assessee was also having mixed funds and still considering the fact that the assessee was already having sufficient surplus interest free funds, the Division Bench of this Court has held that the disallowance under Section 14A of the Act is not permissible - revenue appeal dismissed on this ground. Appeal admitted for making decision on the following ground' Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the assessee’s claim for deduction u/s. 80IA of the Income Tax Act, 1961 for generating power for captive consumption, when the assessee had adopted rate on which the GEB supplied power to its consumers ignoring the rate on which power generating company supplied its power to GEB?” Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Deduction under Section 80IA for generating power for captive consumption.3. Treatment of loss on sale of fertilizer bonds as business loss or capital loss.Issue-wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:- Facts and Background: The assessee earned exempt income in the form of dividends and interest on tax-free bonds. The Assessing Officer (AO) issued a notice to the assessee to show cause why expenditure incurred in relation to income not includible in total income should not be disallowed under Section 14A of the Income Tax Act, 1961, read with Rule 8(d) of the Income Tax Rules. The AO made a disallowance of Rs. 1,86,84,719, which was confirmed by the CIT (Appeals) but deleted by the ITAT.- ITAT's Findings: The ITAT observed that the assessee had surplus interest-free funds, which were more than the amount invested in tax-free securities. The AO did not record any specific instances showing borrowed funds being used for such investments. The ITAT followed the precedent set by the High Court in the assessee's own case for previous assessment years, where similar disallowances were deleted.- High Court's Conclusion: The High Court upheld the ITAT's decision, noting that the assessee had sufficient surplus interest-free funds and that the AO did not justify the disallowance under Section 14A. Therefore, the appeals concerning this issue were dismissed.2. Deduction under Section 80IA for generating power for captive consumption:- Facts and Background: The assessee claimed a deduction under Section 80IA for generating power for captive consumption, adopting the rate at which the Gujarat Electricity Board (GEB) supplied power to its consumers. The Revenue contended that the rate should be the one at which the power generating company supplied power to GEB.- Common Issue: This issue was common across all the appeals and was also pending before the Court in another case (Tax Appeal No.935/2018 in the case of Alembic Limited).- High Court's Conclusion: The High Court admitted the appeals to consider this specific question of law, indicating that a detailed examination was required to resolve this issue.3. Treatment of loss on sale of fertilizer bonds as business loss or capital loss:- Facts and Background: The assessee incurred a loss on the sale of fertilizer bonds, which were received in lieu of subsidy from the Government of India. The AO treated this loss as a capital loss, while the assessee claimed it as a business loss.- ITAT's Findings: The ITAT noted that the subsidy received was accounted for as business income, and the bonds were issued in lieu of this subsidy. When these bonds were sold at a lower price, the resulting loss was considered a business loss. The ITAT relied on the Supreme Court's judgment in the case of Patnaik and Co. Ltd., which held that such losses should be treated as revenue losses.- High Court's Conclusion: The High Court agreed with the ITAT's view, holding that the loss on the sale of fertilizer bonds was indeed a business loss. The appeal concerning this issue was dismissed.Separate Judgments:- The judgments were delivered collectively, and the High Court did not specify individual judgments by different judges. The issues were addressed comprehensively in a single judgment.