AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 501
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....d out that order of ITAT passed in ITA No.1452/Ahd/2012 in assessment year 2008-09 has been confirmed by the hon'ble Gujarat High Court in Tax Appeal No. 557 of 2017. On the other hand learned Departmental Representative is unable to controvert this contention. 3. The brief facts of the case are that assessee has filed its return of income on 29.09.2011 declaring nil income. The case of the assessee was selected for scrutiny assessment and a notice u/s.143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has received dividend income of Rs. 98,39,301/-, out of the above amount, it has claimed a sum of Rs. 97,18,731/- as exempt u/s.10(34) of the Income Tax Act. The assessee has disallowed a sum of Rs. 1lakh at its own u/s.14A towards administrative expenses. Learned Assessing Officer made an analysis of the accounts and thereafter observed that it is quite difficult to find out exact expenditure incurred by the assessee for earning exempt income therefore with the help of Rule 8D he worked out the disallowance at Rs. 1,19,21,511/- an addition of this amount was made. 4. Dissatisfied with the disallowance....
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.... Increase / (Decrease) 31 -Mar-05 27,80,20,332 9,82,78,400 18,44,83,772 (5,44,16,447) 31 -Mar-06 27,80,20,171 (161) 17,45,82,420 (99,01,352) 31 -Mar-07 32,55,68,485 4,75,48,314 65,22,20,000 47,76,37,580 31 -Mar-08 34,50,41,480 1,94,72,995 64,30,84,000 (91,36,000) 31 -Mar-09 34,49,07,480 (1,34,000) 73,76,07,000 9,45,23,000 31 -Mar-10 34,49,07,480 - 43,83,72,000 (29,92,35,000) 31 -Mar- 11 34,49,07,480 - 45,33,83,000 1,50,11,000 1.4 The following facts correlating the borrowed funds and the investments made for various years clearly establishes that the borrowed funds have not been used for making the investments. These details were already submitted with the Assessing Officer during assessment proceedings but the same have not been considered. We again reiterate the facts cotrelating the borrowed funds and the investments made for various years: * The total investments in shares covered under section 14A amounted to Rs. 3449.07 Lacs as on 31st March 2011. * As against this the total borrowings as on 31.03.2011 was Rs. 4533.83 lacs. * As again....
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....vations in the case of the jurisdictional high court specified above Gujarat Power Corporation Limited (2011) 44 taxmann.com 359 (Guj), where the Hon'ble Gujarat High Court has observed as under: "8. Having thus heard learned counsel for both sides and having perused the orders on record, we find that in the present case assesses had sufficiently explained its investment for borrowed funds pointing out that loan was obtained in the assessment year 1997-1998 and its majority of the investment for tax free security were made before the said period. Only a small portion of investment was made subsequently. Assesses had demonstrated that it had other sources of investment and that therefore, according to assessee no part of the borrowed funds could be stated to have been diverted to earn tax free income. When CIT(Appeals) and the tribunal both on facts in the present case found that the assessee did not invest borrowed funds the for earning interest free income, we are of the view that not applying provision of Section 14A of the Act for taxing such interest was justified. No question of law therefore, is arising for our consideration. With respect to the second question, ....
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....se of India Gelatine and Chemicals Limited (276 and 277 of 2015)._ The High Court has held that: * "...However, it is required to lie noted that both, the CIT(A) as well as the Tribunal have categorically found on the basis of the material on record that as such the assesses was having interest free funds out of which the investment was made. Therefore, Tribunal has deleted the entire disallowance of Rs. 12,06,954/- made by the AO u/s 14A. We are in complete agreement with the view taken by the Tribunal and the reasons given by the Tribunal while deleting the disallowance of interest expenses u/s 14A. Now, so far as the contention on behalf of the appellant with respect to applicability of Rule 8D of the Rules with effect from 31.03.2006 is concerned, there cannot be any dispute about the same. However, it is required to be noted that the AO made the disallowance u/s .14 A solely on the ground that the assessee failed to justify that the investment was made out of the interest free funds. However, both the CIT(A) as well as the Tribunal have found otherwise. Therefore, we confirm the impugned judgment and order passed by the Tribunal insofar as deleting the disallowance of....
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....examined by the ITAT in assessment year 2008-09 and order of the ITAT has been upheld by the hon'ble Gujarat High Court. Respectfully following these two orders, we allow this ground of appeal and delete the disallowance made by the Assessing Officer. 7. In the next ground of appeal, grievance of the assessee is that learned CIT(A) has erred in confirming the inclusion of disallowance u/s.14A while computing book profit. Learned counsel for the assessee at the very outset submitted that this issue is fairly covered in favour of assessee by the order of the ITAT passed in assessment year 2008-09 which has been upheld by the hon'ble High Court. The ground raised by the assessee in present year read as under: "2. Disallowance u/s. 14A in computing book profits u/s.115JB: 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the Assessing Officer making addition of the amount disallowed u/s.14A r.w.rule 8D in computing the book profits u/s.115JB. 2.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the Assessing Officer by disal....
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.... than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee, - (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including profit and loss account, - (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calcu....
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....use (j) is not credited to the profit and loss account, and as reduced by, - (i) or (ii) the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof)] or section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or (iia) ..... ' [other portions of the section are not relevant for the present case]. 30. A reading of the provisions of Sec.115JB(1) shows that when an Assessee is a company and the income-tax, payable on the total income as computed under this Act (under the normal provisions of the Act) in respect of any previous year relevant to the assessment year is less than prescribed percentage (this percentage keeps changing for various AYs) of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. Book profit for the purpose of Sec.115JB of the Act has been defined by Expln.-1 below Sec.115JB(2) as net profit as shown in the profit and loss a....
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....anation 1(f) lay down that the amount of expenditure relatable to income to which section 10 applies, should be added to the profit as per the P&L account. Section 14A of the Act r.w. Rule 8D of the Rules is a reasonable method of calculating the amount of expenditure, in a case where the Assessee has not been able to satisfy the AO regarding the quantum of expenditure incurred in earning income which does not form part of the total income under the Act. If the Assessee satisfies the AO regarding the quantum of expenditure incurred in earning income which does not form part of the total income under the Act than that can be adopted for the purpose of addition under clause (f) of Expln.1 below Sec.115JB(2) of the Act. Rule 8D of the rules come into play only when there is no other basis for arriving at the quantum of expenditure incurred in earning income which does not form part of the total income under the Act. 34. In our opinion, the question formulated by the CIT(A) whether Sec. 14A of the Act read with Rule 8D of the rules can be imported into the provisions of clause (f) to Explanation (1) to section 115JB of the Act, is itself erroneous. The question to be asked is ....
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.... error in coming to a conclusion contrary. We therefore reverse the order the CIT(A) and restore the order of the AO in this regard. 14. We are in considered agreement with the views so expressed by the coordinate bench. Respectfully following the same, we uphold the grievance of the assessee and direct the Assessing Officer not to make any disallowance under section 14A while computing book profit under section 115JB." There is no disparity on facts. Therefore, respectfully following the order of the Tribunal in assessment year 2008-09, we allow this ground of appeal and direct the Assessing Officer not to make any disallowance u/s.14A while computing book profit u/s.115JB. 8. In the next ground of appeal, grievance of the assessee is that learned CIT(A) has erred in upholding the disallowance of foreign travel expenditure to the extent of 75%. With the assistance of learned representatives, we have gone through the record carefully, it emerged out from the record that similar expenditure was made in assessment year 2008-09 and dispute travelled up to the Tribunal. The Tribunal has deleted the disallowance by observing as under: "16. In ground no.3, the ass....
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....aken for some business purpose even though the director of the assessee has used for personal purposes as well. It is not thus even the case of the revenue authorities that the visit is wholly personal and gratuitous, and is disallowable for this reason- as was the case before Hon'ble jurisdictional High Court in the case of Shahibag Entrepreneurs (supra). In this case at best there is an element of personal expense but then, as is the settled legal position in the light of Hon'ble jurisdictional High Court in the case of Sayaji Iron & Engineering Co Ltd Vs CIT [(2002) 253 ITR 749 (Guj)] , no disallowance can be made for the reason that the expenses are personal in nature. Even if an expense incurred in the course of business gives personal benefit to a director, it is incurred in the course of business and is allowable as such and cannot be viewed as a personal expense. In the light of the findings of the CIT(A), which have not been challenged by the Assessing Officer, the foreign visit was at least partly for business purposes and, therefore, just because this visit resulted in, assuming it is correct, personal benefit to the director, the expenses incurred on the visit c....