TaxTMI 
TaxTMI 
2013 (9) TMI 1071
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....ning exempted income, and, even in case of mixed funds, the disallowance of interest could be made." 1(b). As an alternate plea, the ld. CIT(A) erred in not upholding the addition u/s. 14A on account of interest attributable to investment in shares to the extent in view of provisions of section 14A read with Rule 8D." 3. Learned DR has pleaded that an addition of Rs. 187.97 crores which was made u/s 14A was deleted by learned CIT(A), however, it was not adjudicated as per the grounds of appeal. Learned DR has also argued that the assessee was required to adduce evidence that all the borrowings were used for the purpose of the business and the assessee's own surplus funds were invested in the shares. Learned DR has also informed that in A.Y. 2007-08, the addition of similar nature was upheld by learned CIT(A). He has thus pleaded that the issue being legal in nature which has emerged from the facts already on record, therefore, the additional ground deserves to be admitted for adjudication. 4. After hearing both the sides, the additional ground of the Revenue Department is hereby admitted for adjudication. At the outset, it is worth to mention that the impugned addition of Rs. 1....
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....tained. During the year under consideration, the market rate of interest was 12%. Therefore, interest at the rate of 12% works out to Rs. 65725.17 lacs on investments of Rs. 547709.74 lacs. However, the assessee has claimed interest expenditure of Rs. 19360.59 lacs and has shown interest income of Rs. 55.59 lacs and dividend income of Rs. 508.18 lacs. Hence, against the interest expenditure of Rs. 19360.59 lacs assessee has grown interest and dividend income of Rs. 563.77 lacs. Thus, net disallowance is made of Rs. 18796.82 lacs." 5. Being aggrieved the matter was carried before the First Appellate Authority who has decided the issue in assessee's favour in the following manner: "Thus, the only test to be applied is that of "commercial expediency". In the instant case, it is seen that no investment was made by the assessee company by using borrowed funds. The entire investment, except minor investment of Rs. 11.25 lacs was inherited in the demerger exercise. The investment in shares was due to the restructuring carried out at the behest of GOG. The investments were in the form of shares of subsidiary companies as part of the financial restructuring plan approved by the Governmen....
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....ereafter the issue could have been streamlined. As per the definition of "demerger" prescribed u/s.2(19AA) means; the transfer pursuant to a scheme of arrangement by a demerged company of its one or more undertakings to any resulting company in such a manner that all the property of the undertaking/unit being transferred by the demerged company immediately before the demerger, which becomes the property of the resulting company by virtue of the demerger. Therefore, it was necessary for the AO to examine the balance sheet of the demerged company and the position of the accounts of the undertaking which is demerged with the resulting company. The AO has to examine the liabilities related to the said undertaking whether being transferred under the scheme of arrangement which were in existence immediately before the demerger. The AO has to examine the value of the property in the books of accounts immediately before the demerger which was transferred. The AO has also to examine the financial position of the "resulting company", as defined u/s.2(41A) of IT Act. In general, an undertaking of the demerged company is transferred in a demerger scheme and as a result a resulting company come....
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....s under consideration the A.O. has not followed the past method of calculation of the disallowance. As per AO it was seen that the working of disallowance was wrong because while calculating the proportionate interest attributable to dividend income the ratio of dividend income and total sales have been taken though there was no direct relation between the two. The Assessing Officer had thus made the calculation after taking into account the proportion of the interest on the ratio between the investment in shares and total assets including investment in shares. Apart from this, there is nothing in the assessment order which can establish the nexus of utilization of borrowed interest-bearing funds diverted towards investment in debentures. But there are other discussions in this very assessment order wherein the provisions of section 36(1)(iii) of the Act have also been touched upon. The Assessing Officer was expected to correlate the said discussion with the exempted dividend income u/s.10(33) of the Act. As far as the law pronounced in this regard is concerned, first of all, we have to follow a latest decision of Hon'ble Bombay High Court pronounced in the case of Godrej & Boy....
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....orrowed funds and that there is no nexus between the investments and the borrowings. However, in none of those decisions was the disallowability of expenses incurred in relation to exempt income earned out of investments made out of own funds considered. Moreover, under Section 14A, expenditure incurred in relation to exempt income can be disallowed only if the assessing officer is not satisfied with the correctness of the expenditure claimed by the assessee. In the present case, no such exercise has been carried out and, therefore, the Tribunal was justified in remanding the matter. b) Section 14A was introduced by the Finance Act 2001 with retrospective effect from 1 April 1962. However, in view of the proviso to that Section, the disallowance thereunder could be effectively made from assessment year 2001-2002 onwards. The fact that the Tribunal failed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001-2002 would not bar the Tribunal from considering disallowance under Section 14A in assessment year 2002-2003. c) The decisions reported in Sridev Enterprises (supra), Munjal Sales Corporation (supra) and Radhasoami Satsang (supra) hol....
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....ions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For tht purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment Year 2002-03 shall stand remanded back to the Assessing Officer. The ....
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....sessment order was not a complete chart. Thereafter, learned CIT(A) has reproduced the total chart through which the month-wise details of employee's contribution, employer's contribution, advances paid, due date of payment and actual date of payment have been mentioned. Under the column "Actual Date of Payment" the assessee had informed that the payment was made "before due date" in respect of the contribution for the month of June, 2005. The actual date of payment was 15th June, 2005. Learned CIT(A) has also noted a gross mistake of the AO that figure noted was the cheque number and not the amount in question. On due analysis of the dates of payments; Learned CIT(A) has given a categorical finding that the payments have been made before the due date of every month, hence, there was no belated payment of employee's contribution to PF. 9. Having heard the submissions of both the sides, we are of the considered opinion that the AO has not properly examined the facts of the case, especially the date of payments as declared by the assessee. On the other hand, the assessee has produced all those very details before learned CIT(A), who has, on examination, held in clear terms tha....
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....he said amount was added back in the total income of the assessee. Before learned CIT(A), it was explained that after the demerger of erstwhile GEB the assessee company has started operation and the year under consideration was the first year of its operation as a "resulting company". The excess of income over expenditure amount to Rs. 15.15 crores comprised of various expenses as well as receipts. After "netting off", the net income was the said amount. The details of the income and the expenditure in respect of each head has also been reproduced by learned CIT(A). The verdict of learned CIT(A) was in favour of the Revenue in the following manner: "I have considered the submissions of ld. AR and the facts of the case. There are two aspects to the matter. The first relates to whether the expenses as well as the income relating to the erstwhile GEB could be considered as income and expenses of the successor, i.e., appellant company. The appellant fairly admits that on this there is no dispute and that the items of income aggregating to Rs. 69,80,04,000/- and the items of expenditure aggregating to Rs. 54,64,51,000/- (net Rs. 15,15,54,000/-) would be includible in the taxable incom....
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..... Learned DR has argued that although the addition was confirmed by learned CIT(A) but the - claim of bad debt was rightly considered by learned CIT(A) while confirming the addition. 13. Having heard the submissions of both the sides, at the outset, we are of the considered opinion that by raising conflicting arguments the Revenue Department has raised certain doubts about the controversy. 13.1 As far as the procedure of taxation of the resulting company is concerned, the same is unambiguous; that the income arising after the demerger is the responsibility of the "resulting company" to be taxed as per law. Relevant sections in this regard have already been mentioned (supra). The resulting income, if any, has to be taxed in the hands of the assessee company being a resulting company. The only question is that there should not be double taxation in respect of the same income in the hands of the assessee. This fact can easily be ascertained by Revenue Department by checking the old records of the assessee. On the other hand, we also hereby direct this assessee to place the relevant evidence before the AO through which it can be demonstrated that the very amount had already been offe....
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....s seen that M/s Crisil Ltd and Feedback Ventures Ltd were paid certain amounts for preparation, finalization and filing of annual revenue requirement (ARR), petitions before GERC, for preparation of short term power purchase agreements and for formulating strategies for demand side management. M/s. Gujarat Info Petro was paid fees for supporting LAN network, providing IT professionals for facility management services, coordination with BSNL for internet connectivity and for providing and upgrading internet bandwidth. Similarly, GERC was paid fees for approval of power purchase agreements and license fees for intra-state trading. The said license fees are payable annually. Advocate M.G. Ramachandran was paid professional and consultancy fees for advice on statutory and regulatory issues and for representing the assessee before various courts. Similarly Advocates Shri S.N. Shelat and Shri S.B. Vakil were paid professional fees for representing GUVNL before the Gujarat High Court in matters relating to letters patent, appeals and special civil suits. M/s Allianz Securities Ltd were paid professionals fee for restructuring high cost debts. M/s Siemens Ltd were paid annual maintenance c....