AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2023 (6) TMI 216
X X X X Extracts X X X X
X X X X Extracts X X X X
....was filed on 29.03.2018 declaring total income of Rs. 302,91,27,610/- and book profit u/s. 115JB of Rs. 450,21,46582/-. 2.1. During the year under consideration, the assessee earned exempted dividend income of Rs. 1,21,28,448/- and assessee suo moto disallowed a sum of Rs. 28,78,876/- under section 14A of the Act. The return was taken up for scrutiny assessment, after calling for various details the Assessing Officer made disallowance u/s. 14A applying Rule 8D as follows: I Expenditure incurred as claimed by assessee (A) Amount of expenditure by way of interest debited in the P & L A/c. 2266605891 Opening Value Closing Value (B) Average investment on which tax free income is received or receivable 8370400000 10482400000 9426400000 (C ) Average value of total assets as appearing in the Balance Sheet 66524200000 70830400000 68677300000/ II (A)X(B)/(C) 31,11,06,199 III 0.5% of the average value of investment on which tax free income is received or receivable 4,71,32,000 &n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome as follows: Particulars Balance as on 31.03.2016 Balance as on 31.03.2015 Total investments considered by AO 10,48,22,86,312 8,37,04,79,627 Investments from which exempt income is earned during F.Y.2015-16 Arya Omnitalk Radio Talking 6,00,50,000 6,00,50,000 Atul Limited 9,00,49,084 9,66,49,684 Amol Dicalite Ltd 5,77,500 5,77,500 Total 15,06,76,584 15,06,76,584 Average Value of Investments 15,06,76,584 3.3. Thus the assessee submitted the working u/s. 14A read with Rule 8D as follows: Particulars Considering Net Interest Expenditure as per Para 2.4 (as per the order of CIT(A) for AY 2015-16 A Interest Expenses directly relating to exempt income under rule 8D(2)(i) 0 B Proportionate disallowance of interest expenses under rule 8D(2)(iii): (I II/III) 0 (I) Interest Expenses as discussed in Para 2.4 supra 3,91,63,787 Interest Income as per Para 2.5 59,65,68,413 Net Interest Expenditure 0 (II) Average val....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts in detail and confined the disallowance made u/s. 14A restricting the same to the extent of dividend income earned by the assessee after taking into account, the suo moto disallowance of Rs. 28,78,876/- made by the A.O. Thus the Ld. CIT(A) confirmed the disallowance u/s. 14A to Rs. 92,49,972/- by observing as follows: "....(ii) So far as disallowance of proportionate interest expenditure under Rule 8D(2)(ii), it is observed that AO has computed such disallowance based upon interest expenditure of Rs 222.66 crores. As held in preceding years, interest paid on borrowed funds for specific purpose cannot be considered for the purpose of disallowance u/s 14A of the Act. As per decisions referred in funds for specific purpose cannot be considered for the appellate order of earlier years, it is observed that interest expenditure in respect of general borrowing can only be considered for such disallowance The break up of such expenditure is as under: Particulars Amount (in Rs. ) Interest on inter corporate deposits 2,86,86,446 Other interest 1,04,77,341 Total 3,91,63,787 It is observed that as against interest expenditure of Rs 3,91 crores, appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in case of Adani Port and Special Economic Zones in ITA No. 3481 and 3482/Ahd/2014 dated 12/02/2019. (iii) Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. v/s. Commissioner of Income Tax 372 ITR 694 (iv) Hon'ble Supreme court in the case of PCIT VS Caraf Builders & Constructions (P.) Ltd [2019] 112 taxmann.com 322 Thus following the decisions rendered by Hon'ble Supreme Court and Jurisdictional High Court which are binding in case of Appellant, the disallowance of administrative expenditure under the provisions of section 14A r.w.r 8D is restricted to exempt income of Rs. 1,21,28,448/-. Further it is observed that the Appellant has while filing Return of Income made disallowance of Rs. 28,78,876/- and accordingly disallowance u/s 14A is restricted to Rs. 92,49,972/-. Thus, related grounds of appeal are partly allowed. 4.1. Similarly, on the addition of Rs. 35,53,59,323/- made u/s. 14A r.w. Rule 8D while computing the Book Profit u/s. 115JB of the Act, the Ld. CIT(A) deleted the same observing as follows: ".... During the course of Appellate Proceedings the Appellant argued that merely because disallowance is mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der s. 115JB towards disallowance made under s 14A of the Act. We similarly find that judgment of Ho'ble Bombay High Court in CIT vs. Bengal Finance and Investments Pvt. Ltd. in ITA No 337 of 2013 order dated 10/02/2015 also complements the issue. Thus, seen on the anvil of the judicial flat available squarely on the issue, we are disposed to assign merits to the contention on behalf of the Assessee. At this juncture, we pause to note the concern of revenue seeking to plead possible redundancy of clause (1) to Explanation to s 115JB, in the event of disagreement with the action of Assessing Officer. We are alive to such concerns. However, as noted, we are governed by the superior wisdom available in this regard. Hence, remedy to revenue, if any, perhaps lies elsewhere. Accordingly, respectfully following the decisions us governing the filed we direct the AO to delete the adjustments made on account of estimated disallowance determined under 14A of the Act while computing book profit u/s 115JB of the Act 7. In the result, appeal of the Assessee is allowed by the same token, the appeal of the Revenue integrated to same point requires to be decided in negative and against....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allowance of proportionate interest expenditure is justified. The Ld. Counsel further submitted that the interest on general borrowings was Rs. 3.91 crores as against which interest income earned by the assessee of Rs. 59.65 crores and accordingly no disallowance of interest expenditure is justified, as interest income earned during the year is more than interest paid on general borrowings. Thus the Ld. Counsel submitted this issue is squarely covered by the decision of the Jurisdictional High Court in the case of Sintex Energy Ltd. against which SLP filed by the Revenue also dismissed by Hon'ble Supreme Court on 23.03.2018. Therefore the deletion made by Ld. CIT(A) does not require any interference and the ground no. 1 raised by the Revenue is liable to be dismissed. 6.1. Per contra, the Ld. CIT-DR Shri Sudhendu Das appearing for the Revenue could not place any contrary facts or case laws before us. In the absence of the same, we have no hesitation in confirming the order passed by the Ld. CIT(A) who deleted the addition of interest expenditure of Rs. 31,11,06,199/- under Rule 8D(2)(ii) of the Act, thus the ground no. 1 filed by the Revenue is devoid of merits and the same is h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Vireet Investment Pvt. Ltd. reported in [2017] 82 taxmann.com 415 (Delhi - Trib.) held as follows: ".....Only those investments are to be considered for computing average value of investment which yielded exempt income during the year. [Para 11.16] As far as argument relating to meaning to be ascribed to the phrase 'shall not' used in rule 8D(2)(iii) is concerned, the revenue's contention is that it refers to those investments which did not yield any exempt income during the year but if income would have been yielded, it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the computation of average value of investments for the purposes of rule 8D(2)(iii). The assessee's contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and cannot be accepted [Para 11.17] In view of the above discussion, the matter is restored back to the file of Assessing officer for recomputing the disallowance under section 14A in terms o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company's income for purpose of computation of income under section 115JB of the Act. Further the Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. [2022] 139 taxmann.com 375 (Karnataka) held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd [2022] 143 taxmann.com 305 (Ahmedabad-Trib.) held that disallow ances made under section 14A read with rule 8D could not be applied to provision of section 115JB of the Act. In view of the settled position of law on this issue, we are hereby dismissing Department's appeal with respect to Ground No.3." 10. In the result, the appeal filed by the Revenue is hereby dismissed. C.O. No. 11/Ahd/2021 for A.Y. 2016-17 11. The Assessee in the Cross Objection raised the following Grounds: 1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erred in restricting the disallowance of 14A r.w.r. 8D of the Act to the extent of Rs. 92,49,972/- instead of ordering the deletion of the entire disallowance made by the Assessing Officer.....