TaxTMI 
TaxTMI 
2020 (4) TMI 229
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....ting the disallowance of Rs. 2,56,00,942/- made by the Assessing Officer u/s.14A of the Act. 2) The Ld.Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in allowing relief to the Assessee after rejecting the recomputation of the Long Term Capital Loss by the Assessing Officer at Rs. 47,74,277/- as against claim of the Assessee at Rs. 8,20,72,056/-. 3) The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the addition made of the amount disallowed u/s.14A of the Act while computing the Book Profit/Income u/s.115JB of the Act. 3. Brief facts of the case are that assessee engaged in the business of Generation, Transmission and Distribution of Electricity. The return of income for the year under consideration was filed and subsequently assessment u/s.143(3) of the Act was passed on 30/12/2008. Subsequently, the case was reopened by issuing statutory notice and after seeking reply of the assessee, assessment order u/s.143(3) r.w.s.147 of the Act was passed on 17/02/2011 thereby making additions/disallowances under different heads. 4. Aggrieved by the order of the AO, assessee preferre....
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....taxable income. In the past, it was seen that assessee's were pushing the expenses relating to exempt income which were not taxable towards taxable income and thereby reducing the taxable income wrongly. It was to curb this mischief that the Parliament enacted section 14A and also to overcome the decision of Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corpn. v. CIT [2000] 2421TR 450, wherein it was held that if the exempted income and the taxable income are earned from one and indivisible business then the apportionment of expenditure could not be sustained. The intention of the Legislature is clearly evident from the Memorandum explaining the provisions contained in the Finance Bill wherein it was explained that only those expenses could be claimed as deduction which are incurred in relation to earning the taxable income. The use of the expression -only to the extent' in the memorandum is clear indicator that only that part of expenses can he allowed as deduction which is related to the earning of taxable income. Accordingly, when the income is exempt and does not form part of the total income then, no expenditure whether (direct or indirect in relatio....
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....n 14A. If that way of interpretation of section 14A was to be accepted, then the method of computing the expenditure as relatable to the exempt income as provided in rule 8D, would become meaningless and the words 'in accordance with such method as may be prescribed' in sub-section (2) for determining the amount disallowable would require obliteration, which is not possible. The expression 'in relation to ' has been used in various sections apart from section 14A, such as sections 36(1)(ix), 35(2AB). The phrase 'relating to' has been used again in several sections including sections 36(l)(vii), 28(ii)(c). The phrase 'wholly and exclusively for the purposes of has been used in sections 37 and 57(iii). On going through the use of the above and other similar expressions in different parts of the Act, it is clearly borne out that these have not been used interchangeably. The Legislature is fully conscious of an employment of an appropriate expression, depending upon its intent of expanding or contracting the scope of the section. Wherever it intends to give a wider meaning, it uses the phrase like 'in relation to ' or. 'attributable to &....
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.... disallowable under section 14A, which have any relation with the income not chargeable to tax under the Act. Be that as it may, the discussion about the apportionment of direct or indirect expenditure towards taxable and exempt income has become academic in view of rule 8D, which prescribes mechanism for working out the disallowance under section 14A. In that scenario, the further question raised by the parties about the onus on the Assessing Officer or the assessee for bringing a particular amount of expenditure in the purview of section 14A and the manner of computation of disallowance had ceased to be of any relevance since the Assessing Officer is bound to adopt rule 8D for making disallowance under section 14A, where he is not satisfied with the correctness of the claim of the assessee in respect of such an expenditure. In view of the above narrated facts and points of law disallowance u/s. 14A r.w.r. 8D is reworked as under. Details Rs. (a) Direct expenses Nil (b) Indirect expenses (Interest charged to P & L A/c.) 434725125 (c) Investment as on 31.3.2005 0 (d) Investment as on 31.3. 2006 1951037000 (e) Average of(c) + (d) ....
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....same. In this connection reliance may be placed on the following judicial pronouncements: I. Wimco Seedlings Ltd. vs. Deputy Commissioner of Income Tax 107 ITD 267 II. Indo-German International (P.) Ltd. vs. Deputy Commissioner of Income Tax 185 Taxman 103 III. Deputy Commissioner of Income-tax, Range 3(1), Mumbai vs. Beck India Ltd. 26 SOT 141 IV. Impulse (India) (P.) Ltd. :vs_ _ Assistant Commissioner. of Income-tax (OSD), New Delhi 22 SOT 368. V. CIT vs. Hero Cycles Ltd. [2010] 189 Taxman 50 (P& H High Court) . Without prejudice to the above, it may be appreciated that the appellant is having enough share capital and reserves and surplus of the aggregate amount of Rs. 2,60, 718 lakh as against investment in shares / mutual fund of only Rs. 19,510 lakh. Thus the appellant is having enough interest free funds of its own and in such circumstances there is no justification for disallowance of interest on this ground. In this connection the appellant may refer to the following: "(i) Decision of the Bombay High Court in CIT v. Reliance Utilities and Power Ltd. (313 1TR 340) (ii) Decsiion of the ITAT, Ahmedabad, in....
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....y Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. [194 Taxman 203], Hence, the said provisions are not applicable for the present year. The appellant has shown that it has aggregate interest free funds by way of share capital and reserves amounting to Rs. 195.10 crores which is more than the investment in shares and mutual funds amounting to Rs. 129.8 crores. Thus, the appellant is having enough interest free funds and, therefore,, also the disallowance out of interest expenditure could not be made having regard to the ratio of decision of Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. [313 ITR 340]. Said decision is also followed by ITAT, Ahmedabad in the case of AC!T Vs. Hipolin Limited. For this reason also, the disallowance of Rs. 2,56,00,942/- out of interest expenditure made by the A. O. as per section 14A was not justified. The A. O. is therefore directed to delete the disallowance of Rs. 2,56,00,942/- made on this count. The disallowance of Rs. 48,77,592/- made on account of administrative expenses u/s. 14A of the Act, has been confirmed by my predecessor vide his appellate order dated 19/02/2009, The same is, therefore, upheld. ....
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....d in the case of ACIT vs. Hipolin Limited in which the Hon'ble Bench had also decided the identical issue while keeping in view the principles laid down by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd.(supra). Since Ld.CIT(A) had rightly concluded that disallowance of Rs. 2,56,00,942/- out of interest expenditure made by the Assessing Officer as per section 14A of the Act was not justified keeping in view the principles laid down by the Hon'ble Bombay High Court as well as the Coordinate Bench of ITAT Ahmedabad and even no new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the Ld.CIT(A). Therefore, we find no reason to interfere with or deviate from the findings so recorded by the Ld.CIT(A). Thus, we uphold the order of the ld.CIT(A) and ground raised by the Revenue is dismissed. Ground No.2 of Revenue's appeal 12. This ground raised by the Revenue relates to challenging the order of Ld.CIT(A) in allowing relief to the Assessee after rejecting the recomputation of the Long Term Capital Loss by the Assessing Officer at Rs. 47,74,277/- as against claim of the assessee at ....
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....rence to certain modes of acquisition. Both the sections operate in different field. Explanation (iii) to section 48 deals with the indexation and it covers 'what' needs to be indexed and 'from when'. 'What' refers to cost of acquisition and 'from when' refers to year from which indexation needs to be done. Whereas, section 49 deals with only one situation, as to 'what' is the cost with reference to certain modes of acquisition. Therefore 'what' needs to be indexed is supplied by section 49, wherever applicable, but the question 'from when' the cost needs to be indexed is not answered by section 49 it is answered by Explanation (iii) to section 48. Thus when Explanation (iii) to section 48 defines indexed cost of acquisition in a strict and in an unambiguous terms the language cannot be interpreted in a different manner than what is clearly said. On a plain reading of Explanation (iii) to section 48 it is amply clear that benefit of indexation for cost of acquisition is available to the assessee from the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whi....
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....ate to the fullest extent the intention of the Legislature; reproduced below throw light on the rules of interpretation. "Interpretation postulates the search for the true meaning of the words used in the statute. If the language of the statute is plain, obvious meaning is to be applied. Rules of interpretation are applied only to resolve the ambiguities. The object and purpose of interpretation is to ascertain the MENS LEGIS, i. e. the intention of the law, as evinced in the statute. If the precise words used are plain and unambiguous, we are bound to construe them in their ordinary sense. Words may be modified or varied where their import is doubtful or obscure........ The word ''indexed cost of acquisition" is nowhere mentioned in Section 51 of the Act. As such, it is beyond the competence of the Court to substitute it. The language of the statute is clear and explicit. The words of the statute speak the mens legis. As such recourse cannot be made to the purposive theory of interpretation. " Thus, where precise words used were plain and unambiguous, the provisions were to be construed in their ordinary sense. As far as the provisions o....
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....improvement incurred by the previous owner, the interpretation of Explanation (iii) of section 48 to mean that it did not allow indexation for the period of holding of the previous owner, would lead to anomaly. The fact of the matter was that section 49(1) which specifies the method of determining the cost of acquisition of asset provides that "the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the properly acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be." It meant that in case, of acquisition of asset in the manner mentioned in section 47, "cost of acquisitions" shall be the aggregate of the cost of acquisition, cost of improvement by previous owner and the cost improvement by the beneficiary owner. Thus, there was no question of allowing "indexed cost of improvement" separately in cases of acquisition of asset in the manner covered by section 47 of the Act. Indexation of cost of acquisition was allowable with reference to the year in which the asset was first held by assessee, which in the instant case was F. Y. 2005-06. Thus....
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....ke of immediate reference, a copy of the order of the Hon'ble Special Bench passed in ITA No. 7315/Mum/2007 is attached at Annexure - 'C' hereof. (b) Pertinently, the Department's appeal against the above decision of the Special Bench has been comprehensively rejected by the Hon 'ble Bombay High Court in its decision in CIT v. Manjulaben J. Shah rendered on 11.10.211 in ITA No.3378 of 2010. A copy of the judgment of the Bombay High Court is attached at Annexure - 'D'. For the sake of immediate reference the most relevant portion of the judgement of the Bombay High Court in the above decision is quoted below. "13) In the present case, the capital asset in question (Flat No. 1202-A) was originally acquired by the previous owner (daughter) on 29/1/1993 and the same was acquired by the assessee under a gift deed dated 2/J/2003 without incurring any cost. The assessee sold the said capital asset on. 30/6/2003 for Rs. 1,10,00,000/-. Since the assessee held the capital asset for less than thirty six months (2/1/20-03 to 30/6/2003) in the ordinary course, ay per Section 2(42A) of the Act the assessee would have held the asset as a short term c....
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....f the revenue that since the indexed cost of acquisition as per clause (in) of the Explanation to Section 48 of the Act lias to he determined with reference to the Cost Inflation Index for the first year in which the asset was held by (he assessee and in the present case, as the assessee held the. asset with effect from 1/2/2003, the first year of' holding the asset would be FY 2002-03 and accordingly, the cost inflation index for 2002-03 would be applicable in determining the indexed cost of acquisition. 17) We see no merit in the above contention. As rightly contended by Mr. Rai, learned counsel for the assessee, the indexed cost of acquisition has to be determined with reference to the cost inflation index for the first year in which the capital asset was 'held by the assessee1. Since the expression 'held by ,' the assessee' is not defined under Section 48 of the Act, that / expression has to. be understood as defined under Section 2 of the.. Act. Explanation l(i)(b) to Section 2(42A) of the Act -provides that in determining the period for which an asset is held by an assessee under a gift, the period for which the said asset was held by the....
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....y clear that the object of the statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset inter alia acquired by an assessee under a gift or will as provided under Section 49 of the Act where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital asset acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was held by the previous owner while determining the indexed cost of acquisition of that asset to the assessee. In other words, in the absence of any indication in clause (Hi) of the Explanation to Section 48 of the Act that the words 'asset was held by the assessee' has to be construed differently, the said words should be construed in accordance with the object of the statute, that is,' in the man....
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.... the effect of inflation. As per the CBDT Circular No. 636 dated 31/8/1992 [see 198 ITR 1 (St)] a fair method of allowing relief by way of indexation is to link it to the period of holding the asset. The said circular further provides that the cost of acquisition and the cost of improvement have to be inflated to arrive at .the indexed cost of acquisition and the indexed cost of improvement and then deduct the same from the sale consideration to arrive at the long term capital gains. If indexation is linked to the period of holding the asset and in the case of an assessee covered under Section 49(1) of the Act, the period of holding the asset has to be determined by including the period for which the said asset was held by the previous owner, then obviously in arriving at the indexation, (he first year in which the said asset was held by the previous owner would be the first year for which the said asset was held by the assessee. 23) Since the assessee in the present case is held liable for long term capital gains tax by treating the period for which the capital asset in question was held by the previous owner as the period for which the said asset was held by the assessee....
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....f capital asset by amalgamating company to the amalgamated company if the amalgamated company is an Indian Co. In the appellant's case these conditions are fulfilled. Now reference may be made to section 49 which refers to cost with reference to the asset becoming property of the assessee in certain cases. Sub-section 1(iii)(e) refers to the transaction as stated in section 47 which includes section 47(vi). For the transaction so referred to in section 49(i) it clearly provides that, the cost of asset as per said .transactions shall be deemed to be the cost for which previous owner had acquired it. As stated above, section 48 or any other section does not define the term "first year in which asset was held by the. assessee". When the above provisions are referred to viz. section 47, 48 and 49, for the purpose of holding period in the absence of any other provisions, one has to refer to section 2 (42A) wherein the definition of short term capital asset is given. Explanation I of the said sect ion states that in determining the period for which the capital asset is held by the assessee the transactions referred to therein provide for including the perio....
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....inancial asset, allotted without any payment and on the basis of holding of any other financial asset, the period shall be reckoned from the date of the allotment of such financial asset;] (g) in the case of a capital asset, being a share or shares in an Indian company, which becomes the properly of the assessee in consideration of : a demerger, there shall be included the period for which the share or shares held in the demerged company were held by the assessee ;] (h) in the case of a capital asset, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisalion or corporatisation of the recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporatisation; (ha) in (he case of a capital asset, being equity share or shares in a company allotted pursuant lo demutualisalion or corporatisaiion of a recognised stock exchange in India as referred to in clause (xiii) of section 47, there shall be included the period for wh....
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....had claimed the cost of previous owner and indexation of such cost from the date when the relevant investments were acquired by the previous owner. The A.O. noticed that the investments which were sold by the appellant were acquired by the appellant in a scheme of amalgamation which became effective from 01/04/2005. Therefore, according to the A.O. in view of Explanation (iii) of section 48 of the Act for the purpose of working out index cost, the cost inflation index for the year 2005-06 was required to be adopted for both the year of transfer and year of acquisition. He has thus held that for the purpose of index cost, the year in which the asset was first held by the assessee is to be considered. On the other hand, the appellant has claimed that the index cost is to be considered with reference to the year in which the asset was acquired by the previous owner. It is noted that the investment were acquired by the appellant on scheme of amalgamation of other companies with it. The provisions of section 47(vi) defines that any transfer in a scheme of amalgamation shall not be regarded as transfer and nothing contained in Section 45 shall apply. Now, as per the provisions o....
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..../04/2005. However, as per Revenue, for the purpose of indexation cost, the year in which the asset was first 'held' by the assessee is to be considered, but as per assessee, the indexation cost is to be considered with reference to the year in which the asset was 'acquired by the previous owner'. We also notice that the investments were acquired by the assessee in a scheme of amalgamation of other companies and the provisions of section 47 of the sub-clause (vi) defines that any transfer in a scheme of amalgamation shall not be regarded as "transfer" and nothing contained in section 45 shall apply. Now, therefore, as per the provisions of section 49(1)(e) of the Act, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it. Therefore, keeping in view the provisions of section 49(1), the cost of asset of such investment is to be taken as that of the previous owner. Since as per section 48 of the Act or any other section do not define the term "first year in which asset was held by the assessee". Thus, in such circumstances, from the conjoint reading of sections 47, 48 & 49 the picture becomes clear. For the pu....
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....hat as per explanation 1 (f) of section 115JB only such expenditure, which are specifically relatable to the income to which section 10 applies are to be added back in the computation of section 115JB and no adjustme.nl of notional disallowance as per section 14A is permissible. It is submitted that the disallowance it/s. 14Ais made by invoking Rule 8D of Income-tax Rules which is only notional amount worked out by the A.O. by applying formula, otherwise no specific expenditure is pointed which is actually found to have been incurred for exempt income. In this connection it is submitted that for the purpose of section 115JB the A.O. has to consider the Profit & Loss Account as prescribed under the provisions of the Companies Act, adjustment which could be made are only those which are prescribed in section 115JB. The adjustment so prescribed are following: " Explanation [1].-For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2), as increased by - (a) the amount of income-lax paid or payable, and the provision therefor; or (b) the amounts car....
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....unabsorbed depreciation, whichever is less as per books of account. It is submitted that as per explanation 1 (f) referred to above, only those expenditure which are specifically relatable to .income to which section 10(other than clause 38 of that section 10) or section 11 or section 12 are applicable are to be disallowed. No notional disallowance could have been made for the purpose of this section. Only those direct expenditure which are relatable to earning of income u/s. 10 (other than section 10 (38) could have been adjusted. The A.O. was, therefore, not justified in making this adjustment. This may be appreciated in view of the ITAT Delhi in the case of Goetze (India) Ltd. reported at 32 SOT 101. A copy of the said decision is attached. In the case before the ITAT, Ahmedabad (the appellant being Gujarat State Energy Generation Ltd.) vide order dated 15-4-2011 the ITAT has approved the following decision of the CIT (Appeals) in that case: "7.2 The matter has been considered. The decision of Hon'ble Supreme Court in the case of Apollo Tyres (supra) is quite unambiguous. Only such items which are specifically mentioned in the Explanation to s....