TaxTMI 
TaxTMI 
2014 (6) TMI 1041
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.....95 lakhs was earned. He also observed that no expenditure has been attributed to the opening of exempt dividend income. By invoking the provisions of section 14A read with Rule 8D, the Assessing Officer disallowed Rs. 197.80 crores. 4. On appeal before the Commissioner of Income Tax (Appeals), assessee submitted that there was no new addition to the investments during the year. The entire investment was made in the earlier years by erstwhile Gujarat Electricity Board (GEB) which got de-merged in the immediately preceding year. The assessee was one of the seven de-merged companies thereof. It was further argued that earning of dividend income was a passive exercise requiring NIL expenditure on financial or administrative resources. Hence, disallowance u/s. 14A was not justified. 5. The Commissioner of Income Tax (Appeals) after considering the submissions of the assessee observed that it was expenditure at the time of assessment proceedings with investment appearing in the balance sheet as on 31.03.2007 amounting to Rs. 5,47,709.74 lakhs represented the investment resulting on account of divesting of assets and liabilities of erstwhile GEB which were taken over by the State Gov....
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....fficer whereas the Authorized Representative of the assessee submitted that the issue was covered by the order of this Tribunal in assessee's own case by the order of this Tribunal in assessee's own case passed in ITA No. 1820/Ahd/2010 in the immediately preceding year 200607 wherein vide order dated 30.09.2013 the Tribunal restored the issue back to the file of the Assessing Officer for adjudication afresh. He therefore submitted that this issue should be restored back to the file of the Assessing Officer for adjudication afresh with the same directions as given by the tribunal in the Assessment Year 2006-07. 7. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. The undisputed facts of the case are that the Assessing Officer found that the assessee has earned tax free dividend income of Rs. 1283.95 lakhs and that the assessee has claimed interest expenditure of Rs. 18,325.41 lakhs. The assessee has not attributed any expenditure towards earning of exempt dividend income. Therefore, by invoking the section 14A read with Rule 8D he made disallowance of Rs. 197.80 crores. We find that a similar issue had come up before....
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....ation, we have examined the facts and the issue as emerged from the corresponding assessment order passed u/s. 143(3), dated 26.12.2008. It was noted by the AO that the assessee had claimed a huge amount of interest expenditure of Rs. 19360.59 lacs, as per the following bifurcation. (Rs. in lacs) Particulars Amount Interest on Term Loans 8981.35 Working Capital 8184.50 Others 677.63 Bank Charges & Guarantee Fees 591.65 19435.13 Less: Interest Capitalized 74.54 19360.59 4.1 At the same time, it was also found by the AO that the assessee had made the investment of Rs. 5,47,709.74 lacs on which dividend earned was at Rs. 508.18 lacs. The AO's objection was that on one hand the assessee has diverted the huge funds towards such investment having exempted income and on the other hand borrowed huge funds of Rs. 3,46,272.51 lacs on which claimed interest of Rs. 19360.59 lacs. Therefore, the AO was of the view that the assessee had diverted the borrowed funds for earning exempted income. The assessee's contention was that the investment during the year was only Rs. 102.32 lacs and rest of the investment was made in the earlier years....
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....me the holding company of the generating and transmission companies. Looking to the facts and circumstances of the case, I am of the opinion that there was no diversion of borrowed funds for non-business purposes. Accordingly, the addition of Rs. 18796.82 lacs is directed to be deleted." 6. With this factual background, we have heard both the sides. Learned DR has primarily placed reliance on a decision of respected Special Bench of ITAT Mumbai in the case of ITO V/s. Daga Capital Management Pvt. Ltd., 117 ITD 169 (Mum) (SB). Learned DR has also pleaded that in one of the assessment year, i.e., in A.Y. 2007-08 learned CIT(A) had sustained the same nature of addition. From the facts of the case, we have noted that there was re-structuring according to which erstwhile GEB was demerged into seven different companies. Post restructuring; the assessment year under consideration is the first year of operation of the assessee company. On one hand, those were the facts which were relied upon by the learned CIT(A). However, on the other hand, the AO has reproduced some of the replies of the assessee through which it was claimed that the said investment was not made by the assessee compan....
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....first aspect, which was not examined by the AO and the order of the Revenue Authorities are silent on this subject. 6.3 Next question is about the huge amount of interest expenditure claimed by the assessee. The AO is required to examine first the correctness of the claim. Whether the interest on term loans, bank charges and guarantee fees were in respect of the business of the assessee. Thereafter, the AO is also required to give a clear finding about the borrowings made by the assessee on which the said interest was paid. The next step is that the AO has to examine the sources of the funds which were invested for earning the dividend income. If the source of such investment is out of the interest bearing borrowings, then only the question of disallowance of interest would arise, otherwise not. On the other hand, the claim of the assessee is that there were sufficient non interest bearing reserves or surplus available. The AO is required to investigate the correctness of the claim that whether the assessee had sufficient non interest bearing fund available and in what form those were utilized by the assessee. If the assessee is in a position to demonstrate that the non-interest....
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....nd held that the Assessing Officer should determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income and/or income from mutual fund which do not form part of the total income as contemplated U/S.14A of the I.T. Act, 1961. It has also been directed that the Assessing Officer can adopt a reasonable basis for effecting the apportionment. It has also been observed by the Hon'ble Court that while making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and material having a bearing on the facts and circumstances of the case. 6.1. In this judgement at the end, the Hon'ble Court has also recapitulated the conclusion and pronounced that a finding is required whether the investment in shares is made out of own funds or out of borrowed funds. A nexus is required to be established between the investments and the borrowings. In section 14A of the Act expenditure incurred in relation to exempted income is to be disallowed only if the Assessing Officer is satisfied with the expenditure claimed by the assessee pertaining to the said exempt income. Rather,....
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....e Tribunal in the earlier years would have no relevance in considering disallowance in assessment year 2002-2003 in the light of Section 14A of the Act. 73. For the reasons which we have indicated, we have come to the conclusion that under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form pan of the total income under the Act and if so to quantify the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing an opportunity to the assessee to produce its accounts and to place on the record all relevant material in support of the circumstances which are considered to be relevant and germane. For this purpose and in light of our observations made earlier in this section of the judgment, we deem it appropriate and proper to remand the proceedings back to the Assessing Officer for a fresh determination. Conclusion: 74. Our conclusions in this judgment are as follows; i) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable fo....
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....ing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case." 6.4 Due to the decision of the Hon'ble Bombay High Court, it is legally correct to refer this issue back to the stage of the AO to be decided de novo as per the guidelines of the Hon'ble Court. The outcome of the above discussion is that the "Additional Ground" raised by the Revenue may be treated as allowed but only for statistical purpose." 8. In the absence of any distinguishing features pointed out by the Departmental Representative, facts being identical, respectfully following the precedent we restore this issue back to the file of the Assessing Officer for adjudication afresh with the same directions as given by the Tribunal in the Assessment Year 2006-07 in the above quoted order. Needless to mention that he shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue. Thus, this ground is allowed for statistical purpose....
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....00/- as assets written off costing less than Rs. 5,000/-. The Assessing Officer held the same to be plant and machinery and after allowing depreciation thereof, disallowed net amount of Rs. 1,04,52,500/-. 15. On appeal, the Commissioner of Income Tax (Appeals) confirmed the action of the Assessing Officer by observing that the earlier provision allowing write-offs of tools and equipments costing less than Rs. 5,000/- at the rate of 100% was no longer on the statute book after 01.04.1996 and such items of office equipments form part of plant and are required to be capitalized. 16. The Authorized Representative of the assessee during the course of hearing has filed before us an order of the Hon'ble Gujarat High Court in the case of CIT Vs. ADI Artech Transducers (P) Limited (supra) and submitted that the Hon'ble High Court has held that expenditure towards purchase of drills, tools and mills which are consumed during the operations and do not have life of more than few days, was revenue expenditure and submitted that in the present case of the assessee, as the assets in question have life of a few days should be allowed deduction to the assessee as revenue expenditure. The Depart....
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....esentative of the assessee submitted that therefore this ground of appeal of the assessee needs to be dismissed. Accordingly, this ground of appeal of assessee is dismissed. 22. In Revenue's appeal, ground no. 1 is directed against the order of the Commissioner of Income Tax (Appeals) deleting the addition of Rs. 6,84,06,000/- on account of disallowance of prior paid expenses. 23. The brief facts of the case are that the Assessing Officer observed that the assessee has debited Rs. 6,84,06,000/- as expenditure under the head prior paid expenses. No explanation was offered as to why the same should be allowed. The Assessing Officer observing that the assessee follows mercantile system of accounting since the expenditure of above amount related to earlier period, the same was disallowed. 24. Before the Commissioner of Income Tax (Appeals) the assessee submitted that after restructuring of the erstwhile GEB, the year under consideration was second year of operation of the assessee company. Thus, all the expenditure accounted under the head prior paid expenses were allocated to company as a result of supply/transfer of the running business undertaking. Hence all the above expendit....
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....ance portion, which the assessee has not to pay, has never been claimed. 6.5 In view of the above, it is held that the treatment accorded by assessee was in line with the accepted accounting practices and pronouncements. Accordingly, disallowance of Rs. 6,84,06,000/- is directed to be deleted." 27. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. The undisputed facts of the case are that the assessee claimed deduction of Rs. 6,84,06,000/- as expenditure under the head prior paid expenses. The Assessing Officer, observing that the assessee was following mercantile system of accounting and therefore such expenses did not relate to the year under consideration, disallowed deduction for the same to the assessee. 28. On appeal, the Commissioner of Income Tax (Appeals) observed that the interest and other financial charges payable to the bank was the bulk of the expenses relating to earlier years. These charges and interest payable to the bank were disputed by the assessee and after negotiation the same aggregating to Rs. 227.04 lakhs was crystallized during the year and therefore, the same was payable during the ye....
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.... has claimed Rs. 1,53,32,30,000/- on account of miscellaneous losses and write-off. A show cause notice was issued to the assessee to explain why the said amount should not be disallowed. The assessee replied that the erstwhile GEB was unbundled into seven companies based on their functional lines. During the year, the company has carried out review of its various accounts and found that certain advances (net of creditors) were not recoverable. In absence of relevant details and record, an amount of Rs. 1,53,32,30,000/- was written off. The Assessing Officer observed that since the assessee itself admitted that it does not have relevant details and record except names of parties for which such sums are written off during the year under consideration. The assessee is not able to prove that the said advances were given only for business purpose. In addition, the assessee also failed to submit that the said amount represents amount not recoverable for sale of electricity supplied to various customers. In absence of the above details, the Assessing Officer disallowed the sum of Rs. 1,53,32,30,000/- in respect of sundry balances written off debited to the profit and loss account. 32. ....
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....ecord. In the instant case, the Assessing Officer found that the assessee has claimed deduction on account of miscellaneous losses and write-off of Rs. 1,53,32,30,000/-. According to Assessing Officer, the assessee could not file the relevant details and names of parties for which such sums were written off during the year under consideration. Therefore, he disallowed the deduction for the same. On appeal before the Commissioner of Income Tax (Appeals), the assessee submitted that during the Assessment Year 2002-03, Gujarat State suffered very severe drought. The availability of power to farmers for running water pumps to save the standing crops was not sufficient. Hence, Government directed the Electricity Board to purchase Naphtha based power which was costlier compared to thermal power. The power thus purchased was distributed to the farmers. The Government in order to compensate for the high cost of Naphtha based power announced subsidy of Rs. 354 crores payable to the assessee. The assessee accordingly in Assessment Year 2003-04 showed Rs. 354 crores receivable from the Government as its income and paid tax thereof. It was explained that during the year under consideration, th....
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....profit and loss account. The assessee was required to furnish the details in respect of the same and to show how tax been deducted at source in respect of such payment. However, the assessee failed to furnish the required details. Therefore, by invoking the provisions of section 40(a)(ia) of the Act, the Assessing Officer disallowed the entire expenses of Rs. 3,53,84,000/-. 37. Before the Commissioner of Income Tax (Appeals), the assessee submitted that it was required to furnish the details by 18.12.2009. However, on 17.12.2009 itself, the Assessing Officer passed order disallowing the said expenses. Copies of the details in this regard were filed before the Commissioner of Income Tax (Appeals). It was submitted that since the tax had been deducted, there was no infringement of section 40(a)(ia) and therefore, the disallowance may be deleted. 38. The Commissioner of Income Tax (Appeals) after considering the submissions of the assessee has held as under: "I have considered the submission of learned AR of the assessee and the fact of the case. From the details filed in this regard is seen that the payment pertained to legal and consultancy charges, technical fees, profession....