2020 (4) TMI 229 - AT - Income Tax

Tribunal upholds decisions on Revenue's appeal, disallowance under Section 14A not justified. Long Term Capital Loss recalculated.

The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s decisions. The disallowance under Section 14A was not justified as Rule ... Disallowance u/s.14A - investment in shares made by the assessee and its source - HELD THAT:- CIT(A) after considering the applicability of section 14A of the Act held that out of interest nothing was to be disallowed since the Assessing Officer had not attached attributability of such interest to any particular income and thus only administrative expenses were found to be disallowed. Thus, in this way, the disallowance of interest and administrative expenses in terms of section 14A have already been considered and decided by Ld.CIT(A) in an appeal against original order passed u/s.143(3) of the Act. Thus, in the present circumstances, the Ld.CIT(A) while passing the impugned order had rightly concluded that Assessing Officer was not justified in enhancing such disallowances by re-working the disallowance from interest and administrative expenses. Even otherwise, it was rightly concluded by the ld.CIT(A) that the provisions of Rule 8D of the Income Tax Rules, 1962 are applicable from AY 2008-09 as held by Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg.Co.Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Since the year under consideration is AY 2006-07, therefore we are also of the view that as per the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg.Co.(supra), the provisions of Rule 8D are not applicable for the year under consideration. Assessee had aggregate interest-free funds by way of share capital and reserves and amounting to ₹ 195.10 crores which are more than the investment in shares and mutual funds amounting to ₹ 129.80 crores. Thus, in this way, the assessee was having enough interest-free funds and, hence, the disallowance out of interest expenditure could not have been made while relying upon the ratio laid down by the Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] Since Ld.CIT(A) had rightly concluded that disallowance of ₹ 2,56,00,942/- out of interest expenditure made by the Assessing Officer as per section 14A of the Act was not justified keeping in view the principles laid down by the Hon’ble Bombay High Court as well as the Coordinate Bench of ITAT Ahmedabad and even no new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the Ld.CIT(A). Therefore, we find no reason to interfere with or deviate from the findings so recorded by the Ld.CIT(A). Long Term Capital Loss - investment sold by the assessee was acquired by him in a scheme of amalgamation - HELD THAT:- As period of holding by the amalgamating companies is to be ‘included’ in the period of holding by the assessee. Accordingly, ld.CIT(A) has rightly held that assessee held capital asset from the date on which the amalgamating companies acquired such assets and the Assessing Officer was, therefore, not justified in considering the date of amalgamation for the purpose of indexation. The ld.CIT(A) while reaching to said conclusion had relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs. Manjulla J. Shah [2009 (10) TMI 646 - ITAT MUMBAI] wherein under the similar circumstances, the Hon’ble Court decided the controversy. No new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the Ld.CIT(A). Therefore, we find no reason to interfere into or to deviate from such findings of the Ld.CIT(A) and we uphold the findings of the Ld.CIT(A) and reject the ground raised by the Revenue. Addition of disallowance u/s.14A while computing the Book Profit/Income u/s.115JB - HELD THAT:- Book profit has to be computed as per the audited books of accounts maintained by the assessee and the audited results which have been approved in the AGM by the shareholders. Only those adjustments can be made to the approved book profit, which are specifically mentioned in the Income Tax Act. Thus, in our view, any “notional adjustment” in the book profit is not permissible. No new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the Ld.CIT(A). Therefore, we find no reason to interfere with or deviate from the findings so recorded by the Ld.CIT(A). See GUJARAT STATE ENERGY GENERATION LTD. [2011 (4) TMI 179 - ITAT, AHMEDABAD] Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Recalculation of Long Term Capital Loss.3. Addition of disallowed amount under Section 14A while computing Book Profit under Section 115JB.4. Validity of proceedings initiated under Section 147.Issue-Wise Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:- Revenue's Argument: The Assessing Officer (AO) disallowed Rs. 2,56,00,942 under Section 14A, invoking Rule 8D, arguing that the disallowance should be computed as per Rule 8D due to the assessee claiming exempt income.- Assessee's Argument: The assessee contended that Rule 8D is not applicable for the year under consideration (AY 2006-07) as it applies prospectively from 1-4-2008. The assessee also argued that it had sufficient interest-free funds to cover the investments.- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, which concluded that Rule 8D was not applicable for AY 2006-07. The CIT(A) also noted that the assessee had sufficient interest-free funds, and thus, the disallowance of Rs. 2,56,00,942 was not justified. The Tribunal found no reason to interfere with the CIT(A)'s findings and dismissed the Revenue's ground.2. Recalculation of Long Term Capital Loss:- Revenue's Argument: The AO recalculated the Long Term Capital Loss (LTCL) at Rs. 47,74,277 instead of the assessee's claim of Rs. 8,20,72,056, arguing that the indexed cost of acquisition should be based on the year the asset was first held by the assessee.- Assessee's Argument: The assessee argued that the indexation should consider the period the asset was held by the previous owner, citing the Special Bench decision in DCIT v. Manjulaben J. Shah and the Bombay High Court's decision in the same case.- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, which accepted the assessee's claim that the period of holding by the previous owner should be included for indexation purposes. The Tribunal found no new facts or circumstances to rebut the CIT(A)'s findings and dismissed the Revenue's ground.3. Addition of Disallowed Amount under Section 14A while Computing Book Profit under Section 115JB:- Revenue's Argument: The AO added the disallowed amount under Section 14A to the book profit while computing income under Section 115JB.- Assessee's Argument: The assessee contended that only direct expenditures specifically related to exempt income should be added back, and not notional disallowances under Section 14A.- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, which relied on the ITAT Delhi's decision in Goetze (India) Ltd. and the ITAT Ahmedabad's decision in Gujarat State Energy Generation Limited. The Tribunal agreed that only specific adjustments mentioned in the Income Tax Act could be made to the book profit and dismissed the Revenue's ground.4. Validity of Proceedings Initiated under Section 147:- Assessee's Cross Objection: The assessee challenged the validity of the proceedings initiated under Section 147.- Tribunal's Decision: Since the Revenue's appeal was dismissed, the cross-objection filed by the assessee was deemed infructuous and dismissed.Conclusion:The Tribunal dismissed the appeal filed by the Revenue on all grounds and also dismissed the cross-objection filed by the assessee as infructuous. The Tribunal upheld the CIT(A)'s decisions, finding no reason to interfere with the findings. The order was pronounced in the Court on 05-03-2020 at Ahmedabad.