TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 541
X X X X Extracts X X X X
X X X X Extracts X X X X
....er Section 260A of the Income Tax Act, 1961 [for short the Act, 1961] is at the instance of the revenue and is directed against the order passed by the Income Tax Appellate Tribunal in ITA No.805/AHD/ 2017, dated 13/08/2018 for the A.Y 201213. 5. The revenue has proposed the following questions in its memorandum of the tax appeal:- (a) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting the addition made under Section 14A read with Rule8D merely on the basis that the relevant investments are out of assessee's old and own interest free funds, which exceeded tax free investments even though no material was placed on record by the assessee to establish that the said funds were available for investment at the relevant point of time? (b) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in holding that the disallowance made under section14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule? (c) Whether on the facts and in circumstances of the case, the learned ITAT has erred in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ular provision to the tune of Rs. 6,13,41,16,740/. In the assessment year 2013-14, the assessee declared its income at Rs. 5,08,02,43,451/under the normal provision and the book profit under section115JB at Rs. 5,92,25,89,084/. In the assessment year 2013-14 also the assessee had revised its return of income on 31/03/2014 and declared the total income under the normal provision at Rs. 5,02,43,93,321/. 7. The case of the assessee in both the assessment years was selected for scrutiny and notices under section143( 2) were served upon the assessee. The Assessing Officer passed the draft assessment orders in both the years under section 143(3) read with section 144C(1), dated 29/03/2016 and 29/12/2016 respectively. The assessee preferred objections before the DRP. The objections were disposed of by the DRP with necessary directions to the Assessing Officer. The Assessing Officer, thereafter, passed orders dated 23/02/2017 and 30/10/2017 respectively in the assessment years 2012-13 and 201314 respectively. 8. The Assessing Officer recorded the finding that the assessee had made investments, which had resulted in tax free income. The Assessing Officer took notice of the fact that in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e made by the assessee; or (2) the claim made by the assessee that no expenditure had been incurred in relation to the exempted income for the previous year then the taxpayer can determine such value of expenditure following the lines of Subsection( 2) of Rule 8D. Rule8D( 2) reads as follows:- Rule8D(2) "(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributed to any particular income or receipt, an amount computed in accordance with the following formula, namely:- AXB/C where A= amount of expenditure by way of interest other than the amount of interest included in clause (I) incurred during the previous year' B= the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C= the aver....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. 12. A perusal of this section would indicate that subsection1 contemplates that deduction of expenditure incurred by an assessee in relation to income which does not form part of taxable income shall not be allowed. Subsection (2) casts an obligation on the AO to first examine the claim made by the assessee in its books of accounts and if he is not satisfied with the correctness of the claim, then he would work out the expenditure for disallowance. It is also pertinent to note that in order to remove subjectivity involved in calculating the expenditure, Rule 8D has been provided on the statute book providing a uniform formula for such calculations. The ld. DRP has made a lucid analysis of section 14A in its order passed in the assessment year 2013-14. It has observed that subsection (3) of section 14A further provides that even if an assessee claims that no expenditure was incurred in order to exempt income, then also subsection (2) can be applied. As far as interpretation and construction of scope and ambit of section 14A read with rule 8D made by the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Wooldcombers of India Ltd.'s case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interestfree and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interestfree fund generated or available with the company, if the interestfree funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he total income. It is to ensure that the assessee does not get double benefit. 6. He further submitted that this Court, in the case of PCITII v. Shreno Limited, (2018)409 ITR 401 (Gujarat), has referred to the decision of the Supreme Court in the case of S.A.Builders Limited v. CIT, (288)ITR 1 and observed that the exposition of law made by the Supreme Court in the case of S.A.Builders Limited (supra) and the observations made therein have been applied by this Court on various occasions particularly in connection with the disallowance to be made under Section 14A of the Act and it has been held that if the assessee can demonstrate the availability of the surplus interest free funds for making the investment generating tax free income, the disallowance under Section 14A of the Act would not be justified. 7. Mr. Patel submitted that the decision of the Supreme Court in S.A.Builders Limited (supra) is not applicable to the issue involved in the present case as the decision in the case of S.A.Builders Limited (supra) is with respect to Section 36(i)(iii) of the Income Tax Act, whereas in the present case the issue is with regard to the disallowance under Section 14A read with Ru....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rule 8D is done away. He submitted that the decision of the Supreme Court in Maxopp Investment Limited (supra) does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds, i.e. interest free as well as interest bearing funds, and utilized them for making investments into securities earning tax free income and the rest applicability of Section 14A read with Rule 8D would be automatic. 15. In Maxopp Investment Limited (supra), the Supreme Court has clarified that the satisfaction has to be recorded by the Assessing Officer to show that the voluntary disallowance of the expenditure made by the assessee on the expenditure incurred for earning exempt income is not in order. The Assessing Officer, in such circumstances, is obliged to assign reasons for he not being satisfied having regard to the accounts maintained by the assessee and the suo motu disallowance made by the assessee under Section14A of the Act. We may reproduce the relevant observations of the Supreme Court in this regard thus: "Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, before applying the theory of apportionment, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tribunal was challenged before the High Court. The Court held that the funds utilized by the assessee were mixed funds and the interest paid by the assessee is also an interest on the investments made, was the finding of fact and therefore, no substantial question of law arises. This judgment was carried in appeal by the assessee. The Supreme Court dismissed the appeal confirming the decision of the High Court. 17. We do not find that this portion of the judgment of the Supreme Court in case of Maxopp Investment Ltd., can be seen as fundamentally changing the understanding and interpretation of Section 14A and Rule 8D of the Rules adopted by this Court and various Courts, noted above. This judgment does not lay down a proposition that the requirement of subrule (1) of Rule 8D of the satisfaction to be arrived by the Assessing Officer before applying the formula given in subrule (2) of Rule 8D is done away with. In other words, the judgment in case of Maxopp Investment Ltd., does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds i.e. interest free as well as interest bearing funds and utilized them for making investments in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attracted automatically. 18. We are of the view that the ITAT rightly relied on the decision of the Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340/178 Taxman 135 (Bom.). 19. The second question proposed by the revenue is whether the disallowance under Section14A read with Rule8D can exceed the exempt income [administrative expenses]. In context of the aforesaid question proposed by the revenue, the findings recorded by the ITAT are as follows:- 15. Next fold of dispute relates to working out of administrative expenses relatable to earning of exempt income. 16. As pointed out by the ld. counsel for the assessee that Hon'ble Gujarat High Court (in Corrotech) and Hon'ble Delhi High Court in (Chemvest) have concurred with each other that if there is no dividend income or tax free income in a year then no disallowance u/s.14A can be made. This explication was amplified and employed subsequently by ITAT to construe that working of expenditure for disallowance u/s.14A should not exceed more than dividend income itself. In the case of Joint Investment Pvt. Ltd. Vs. CIT (ITA No.117/2015, decided on 25.2.2015) Hon'ble Delhi H....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the additions which have been confirmed by the Tribunal at Rs. 1.55 crores in the assessment year 2012-13 and Rs. 75 lakhs in the assessment year 2013-14, deserves to be added back in the book profit computed for the purpose of section 115JB. 17.1 The ld. counsel for the assessee at the very outset contended that this issue is covered in favour of the assessee by the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Alembic Ltd. in Tax Appeal No.1249 of 2014 as well as decision of Hon'ble Bombay High Court in the case of CIT Vs. Bengal Finance & Investment P. Ltd. in Tax Appeal No.337 of 2013. He placed on record copies both these decisions. Apart from the above, he placed upon reliance Special Bench decision of the ITAT in the case of CIT Vs. Vireet Investment P. Ltd. 165 ITD 27. On the other hand, ld. CITDR relied upon the order of DRP. 18. We have duly considered rival contentions and gone through the record carefully. We find that ld. DRP has relied upon the order of the ITAT, Mumbai in the case of DCIT Vs. Viraj Profiles Ltd., (2016) 46 ITR (Trib) 0626 (Mum) and held that addition required to be made in the book profit could be calculated as per Rule....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The Assessing Officer it is stated had made an addition of Rs. 88,292/to the book profits towards expenditure incurred having nexus with dividend income, which were exempt under Section 10(33). Recording the said statement, the first question is answered in favour of the appellantRevenue and against the respondentassessee." The assessee has relied upon the judgment of ITAT special bench in the case of Vireet Investment Pvt. Ltd. In this regard, it is pertinent to mention that Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. Additional Commissioner of Income Tax & Ors. (2014) 264 CTR 0030 (Bom) : (2013) 96 DTR 0193 (Bom) : (2014) 361 ITR 0531 (Bom) : (2014) 221 Taxman 0166 (Bom); has held that the proceedings before DRP are extension of assessment proceedings. Therefore, they are not bound by the decision of Tribunals unlike CIT(A) as long as the issue is not acceptable on merit and/or the issue is being contested by the department. In this case, the decision of Hon'ble Delhi High Court in the case of Goetze (India) Ltd cited above is also in favour to the department on this issue which also shows that the view of AO confirmed by the Panel i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; ** ** ** ** 7. Question No.6 concerns deletion of addition of Rs. 89,00,000 made by the AO for computation of the income fore the purposes of Minimum Alternate Tax (MAT) under section 115JB of the Act. This pertained to the expenditure incurred for earning exempt income under section 14A read with Rule 8D. The ITAT has rightly held that this being in the nature of disallowance, and with Explanation 115JB not specifically mentioning Section 14A of the Act, the addition of Rs. 89,00,000 was not justified. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ollows: "94. We have considered the rival submissions and we find that similar issue was raised by Revenue as per ground No.3 above in respect of regular assessment of income and while deciding that ground, we have already upheld that disallowance of Rs. 5 lakh in respect of administrative expenses will meet the ends of justice and no disallowance is called for in respect of interest expenditure. Hence, for the purpose of computing book profit u/s.115JB of the Act also, we hold accordingly and confirm the addition of Rs. 5 lakh. This ground of Revenue's appeal is partly allowed." As rightly held by both, the CIT (Appeals) and the Tribunal, this issue has a direct correlation with the first question. It was argued by the Revenue that while computing the book profit under Section 115JB of the Act, the disallowance of interest expenditure on exempt income was wrongly negatived by both the authorities on the ground that it was not the liability for expenses, but a liability relating to assets. We find no fault in the approach adopted by both the authorities. The addition under section 115JB of the Act of a sum of Rs. 1,14,43,040/when was made as an expenditure estimated on....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TAT placed reliance on the following decisions:- (1) CIT Vs. Alembic Ltd. (Tax Appeal No.1249/2014) (2) CITI Vs. Gujarat State Fertilizers & ChemicalsLtd. (2013) 358 ITR 323 24. The issue is squarely covered and in our opinion, no error could be said to have been committed by the ITAT in taking the view that no addition in the book profit can be made on the basis of the calculations worked out under section14A of the Act. 25. The fourth question proposed by the revenue is with respect to the deduction under section80IA( 4) of the Act at the rate on which the GEB supplied power to its customers ignoring the rate at which the power generating company supplied to the GEB. This issue is directly covered by the decision of this Court in the case of CIT Vs. Gujarat Alkalies and Chemicals Ltd.; 395 ITR 247. It is also covered by the decision of the Supreme Court in the case of M/s. Alembic Ltd. (Tax Appeal No.553 & 554 of 2017. It appears that Special Leave Petitions filed by the revenue are pending before the Supreme Court questioning the correctness of the view taken by this Court in the aforesaid two judgments. So far as the Gujarat Alkalies and Chemicals Ltd, (supra) is conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on Rs. 5.32 ps. per unit as was done by the Revenue authority. 6. Under subsection (8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. 26. The fifth question proposed by the revenue whether the income from the Carbon Credits is capital in nature. This issue is squarely covered by the following decisions:- (1) M/s. Alembic Ltd. Tax Appeal No.553 & 554 of 2017 (2) CIT Vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... If on verification the reasons assigned by the assessee are found to be correct, then, the AO is directed to give benefit of section 43B of the Act to the assessee. 29. We take notice of the fact that the ITAT answered this question in favour of the assessee keeping in mind the peculiar facts and circumstances of the case. Though the decision of this Court in the case of GSRTC (supra) is against the assessee. 30. The seventh question proposed by the revenue is with regard to the ITAT not upholding the addition of Rs. 436.8 crore made by the Assessing Officer as income from the short term capital gain due to the Slump Sale of Wind Energy Business to the IRL. 31. This issue is also squarely covered by the decision of this Court in the case of Commissioner of Incometax Vs. Gauranginiben S. Sodhan Indl. Reported in [2014] taxmann.com 356 (Gujarat), wherein in Paragraphs11 and 12, the following has been observed:- 11. Taking the question of ascertaining the fair market value on the date of sale, we notice that section 48, which is also contained in chapter IV of the Act pertains to method of computation of capital gain. A detailed mechanism has been provided for such computati....