TaxTMI 
TaxTMI 
2018 (8) TMI 922
X X X X Extracts X X X X
X X X X Extracts X X X X
....roposed the following question of law :- "(a) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in restricting the disallowance made u/s. 14A of the Income Tax Act to Rs. 10 lacs (on ad-hoc basis) from Rs. 187.25 lacs, without appreciating that the assessee was maintaining mix funds and failed to establish that it has its own surplus funds for investment in dividends? (b) 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? (c) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing set off of loss incurred on sale of fertilizer bonds at Rs. 91,45,000/- treating as business loss and ignoring the fact that the fertilizer bonds subscribed by the assessee falls within the bracket of section 2(14) of the Income Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... supplied power to its consumers ignoring the rate on which power generating company supplied its power to GEB?" 7. Now so far as proposed question No.2(a) in Tax Appeals No.900/2018 and 901/2018 are concerned, they are with respect to the disallowance made by the Assessing Officer under Section 14A of the Income Tax Act, 1961 which was disallowed, considering Rule 8(d) of the Rules. 8. For the sake of convenience, the facts in Tax Appeal No.900/2018 are narrated as the facts in Tax Appeal No.901/2018 for the Assessment Year : 2009-2010, as such are common. 9. That during the year under consideration, the assessee an exempt income of Rs. 14,76,74,453/= as dividend and Rs. 29,82,636/= interest on tax free ITI Bonds. During the financial year under consideration, the assessee has shown to have received exempt income in the form of dividend. The assessee made an expenditure of Rs. 40,281/= against this exempt income. The Assessing Officer issued a Notice upon the assessee and called upon the assessee to showcause considering the provisions of Section 14A of the Act and to furnish the details of sources of investment and to explain why expenditure incurred in relation to incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct read with Rule 8(d) of the Rules, the Revenue has preferred the present Appeal with the following proposed question of law :- (a) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in restricting the disallowance made u/s. 14A of the Income Tax Act to Rs. 10 lacs (on ad-hoc basis) from Rs. 187.25 lacs, without appreciating that the assessee was maintaining mix funds and failed to establish that it has its own surplus funds for investment in dividends? 12. Learned Counsel Mr. Varun K. Patel appearing on behalf of the appellant has submitted that in the present case, the assessee was maintaining mix fund and thereafter, failed to show as to whether the investment was made out of borrowed fund and/or interest free fund available with the assessee. It is therefore submitted that as such the Assessing Officer was justified in making calculation considering Section 14A of the Act read with Rule 8(d) of the Rules, while making the disallowance. It is submitted that therefore, the learned Tribunal has materially erred in deleting the entire disallowance made by the assessing officer under Section 14A of the Act. 13. Learn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the figure of dividend income, interest expenditure and investment fetching tax free income invoked the provisions u/s.14A and applied the method provided in rule 8D of Income Tax rules and calculated the respective disallowance for both the years. Even though assessee had surplus interest free funds at its disposal still Ld. A.O. has not recorded any satisfaction of the specific instances showing borrowed funds having been applied to the investment giving tax free income. 9. We further observe that the very same set of facts including dividend-income, interest expenditure, tax free investment and surplus interest free funds in the form Share Capital and Reserve & Surplus were there before the Tribunal in assessee's own case for A.Y. 2004-05, 2005-06, 2006-07 & 2007-08 and it has been consistently held that no interest disallowance is called for u/s.14A of the Act. In holding so Co-ordinate Bench held as follows : For A.Y. 2004-05 31. We have considered the rival submissions, perused the material on record and gone through the orders of authorities below. We find that disallowance was made by Assessing Officer mainly on this basis that assessee could n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of investment in tax free securities and the A.O. could not prove any nexus between interest bearing borrowed funds and such investment in tax free securities and therefore, the same is deleted. In respect of disallowance u/s 14(A) out of other expenses, a disallowance of Rs. 5 lacs was confirmed by the Tribunal in assessee's own case in A.Y. 2004-05 and also in A.Y. 2005-06 and accordingly, in the present year also, we cofirm disallowance of Rs.S lacs u/s. 14(A) in respect of other expenses and delete the balance disallowance made by the A.O. in respect of interest expenditure and other expenses. This ground is partly allowed. 10. Hon'ble Jurisdictional High Court vide tax appeal No. 126 of 2013 dated 25.06.2013 in assessee own case for A.Y. 2004-05 has upheld the finding of the Tribunal by hoding that "where it transpires from the record that the assesee's own funds are higher than the investment made by it and with nothing to indicate that borrowed funds utilized for making investments are earning dividend income, interest disallowance u/s. 14A is not justified." 11. We therefore respectfully following the judgment of jurisdictional High Court and decision of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....6 ITR 553 (Gujarat) adjudicating similar issue of administrative disallowance u/s. 14A of the Act for A.Y. 2009-10 thereby confirming the order of the Tribunal limiting the disallowance suo moto made by the assessee thereby disregarding the administrative disallowance computed by the A.O. applying method provided under rule 8D of the Income tax rules. 15. Similar view was also taken by Co-ordinate Bench Ahmedabad in ITA No.2398/Ahd/2012 dated 19.11.2015 in the Gujarat & Alkalies & Chemicals Ltd. wherein the Tribunal sustained a lumpsum disallowance as against the disallowance made by the A.O. applying rule 8D of Income tax rule r.w.s. 14A of the Act as the assessee provided audited financial statement and no specific disallowance u/s. 14A of the Act was appearing in the Auditors report and nothing erroneous was brought on record by the A.O. 16. We therefore in the given facts and circumstances of the case as well as in light of the judgment and decisions referred above, find that in the instant appeals Ld. A.O. has mechanically applied 0.5% of the average investments to compute administrative expenses disallowance as per the rule 8D of Income tax rules without rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ision has attained finality between the parties. Not only that, but the Department has followed the same in the subsequent assessment years also. Considering the aforesaid facts and circumstances, it cannot be said that the Tribunal has committed any error in deleting the disallowance made by the Assessing Officer under Section 14A of the Act. Therefore, the two Tax Appeals No.900/2018 and 901/2018 stands dismissed so far as the proposed question No.2 (a) is concerned. 17. Now so far as the proposed question No.2(c) in Tax Appeal No.900/2018, arising out of the impugned order passed in ITA No.339/Ahd/2012 for the Assessment Year : 2008-2009 is concerned, which is with respect to the disallowance of loss of sale of fertilizer bond at Rs. 91,45,000/= treating as business loss, while holding so, the learned Tribunal in Paragraph 31, 32 and 33 has observed and held as under :- "31. We have heard the rival contentions and perused the record placed before us. Assessee grievance is against the order of Ld. CIT (A) confirming the disallowance of loss of sale of fertilizer bonds at Rs. 91,45,000/- treating it as capital loss as against business loss claimed by assessee. We find ....