TaxTMI 
TaxTMI 
2023 (7) TMI 1378
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....he Assessee in ITA No. 281/Ahd/2018 for A.Y. 2013-14 reads as under: 1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has held to consider the interest on loans raised by erstwhile GEB for the purpose of disallowance under section 14A of the IT Act, 1961. It is submitted that the disallowance is uncalled for and be directed to be deleted. 1.1 The learned Commissioner of Income Tax (Appeals) further erred in law and facts has held that in the event the disallowance under section 14A of the Act computed as per the directions comes out to be lesser than the dividend income, then such dividend income shall be treated as taxable income. 2.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts has set aside the additions of 1,08,81,663/- being Guarantee Fees paid to the Government of Gujarat in consideration of it issuing the guarantee for various unsecured loans with the direction to re-verify the claim despite the fact that the documents establishing the facts were submitted at the time of appeal hearing. 3.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has confirmed the disallowance of pri....
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.... CIT(A) observed as under: ".....5.3.1. In the current assessment year, the appellant has claimed to have paid 52.36 crores as interest on working capital. There is no fresh investment during the year under consideration. Hence, the AO is directed to recompute the disallowance u/s 14A as per Rule 8D according to the following directions: a) The interest paid on working capital borrowing of Rs. 52.36 crores will not be considered for making disallowance out of interest expenses. b) The investment made in equity share of subsidiary companies of Rs.1061.61 crores during F.Y. 2008-09, 1280.28 crores during F.Y. 2009-10, 450.21 crores during F.Y. 2010-11 and 308.2 crores during F.Y. 2011-12 will not be considered for making disallowance out of interest expenses but the same will be considered for making disallowance out of administrative expenses. The appellant gets part relief accordingly. c) If the disallowance u/s 14A r.w.r. 8D computed in view of above directions comes to less than the dividend income of 10,73,61,000/- treated as exempt by the AO, then instead of making disallowance, the dividend income shall be treated as taxable as shown by the appellant in the return o....
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....sue on hand after relying on the order of his predecessor for the Assessment Years 2008-09 which was also subsequently upheld by the ITAT in ITA No. 899/AHD/2012 vide order dated 22nd June 2016. The relevant finding of the ITAT reads as under: "38. We have heard the rival contentions and perused the material on record and gone through the decision referred and relied upon by both the parties. Through this ground Revenue has challenged the action of ld. CIT(A) deleting the disallowance of guarantee fees at Rs.4.76 crores. 39. We observe that ld. AR has referred and relied on the decision of the co-ordinate bench in the case of Gujarat Energy Transmission Corpn. Ltd. (supra), wherein similar issue regarding the claim of guarantee fees paid to Government of Gujarat has been dealt with by the Tribunal as to whether the guarantee fees is an expenditure of capital in nature or revenue in nature and has observed as under :- 35. We find that the Tribunal in its order dated 8.5.2015 cited supra has held as under: "6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld. CIT(A) deci....
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....nature. The addition is directed to be deleted. 6.2. I have considered the submissions of the ld.AR and the facts of the case. The jurisdictional Bench of ITAT has held in the case of Shri Rama Multi Tech vs. ACIT, 92 TTJ 568, that in determining the nature of expenditure incurred for obtaining loan, it is irrelevant to consider the purpose of loan. The amount spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency. In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was revenue expenditure. In the instant case, the assessee has secured the loan by creating a charge (hypothecation of its assets). Hence the ratio of the above mentioned two cases would squarely apply. Accordingly, it is held that the AO was not justified in making the disallowance of Rs.45,24,582/-, which is directed to be deleted." 6.1 The ld. CIT(A) has followed the decision o....
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....e AO and the Learned CIT (A) for the Assessment Year 2008-09. In fact, the Learned CIT(A) for the assessment Year 2008-09 held that there was no benefit accrued to the assessee which is in the enduring nature but directed the AO to verify whether such guarantee fees relates to the capital work in progress and if that be so, the same needs to be capitalized. 22. However, the assessee did not prefer any appeal against the order of the Learned CIT(A) for the Assessment Year 2008-09. In other words, the assessee was not aggrieved by the direction of the Learned CIT (A) to verify the claim of the assessee whether such guarantee fees relates to the capital work in progress for the Assessment Year 2008-09. But the assessee for the year under consideration has challenged the direction of the Learned CIT (A) to verify whether such guarantee fee relates to the capital working progress. As the assessee did not challenge such direction of the Learned CIT(A) for the assessment Year 2008-09 before the ITAT, it implies that such direction has reached to its finality for that assessment year. Therefore, there was no dispute for the ITAT for the Assessment Year 2008-09 for the direction issued b....
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....iod expenses for Rs. 408.01 lacs. On query, the assessee has explained that all expenditure booked under this head crystallized in the hands of the company only during the year under consideration therefore same expenditure cannot be added back. The Assessing Officer has not accepted the submission of the assessee stating that assessee was following mercantile system of accounting in which the expenses related to the prior period were not an allowable expenses. Therefore, the prior period expenses amounting to Rs. 408.01 lacs was disallowed and added to the total income of the assessee. 13. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee stating that assessee has not made any submission showing that the prior period income was crystallized in the previous year relevant to the assessment year under consideration. 14. During the course of appellate proceedings before us, the ld counsel has submitted that similar issue in the case of Group concern Gujarat Urja Vikas Nigam Ltd. was adjudicated by the Co-ordinate Bench of the ITAT vide ITA No. 996/Ahd/2011 for assessment year 1988-89 dated 31st May, 2017 and the is....
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....fore deem it expedient to restore the issue back to the file of AO for examining the issue de novo after verifying facts as may be considered necessary and expedient in accordance with law. The AO shall bear in mind the ratio laid down by the Hon'ble Gujarat High Court in the case of Adani Enterprises Ltd. (supra) while adjudicating the issue. Needless to say, reasonable opportunity shall be provided to the assessee while adjudicating the issue. Hence, all the contentions of the assessee are kept open. The issue raised as per Ground No.4 is thus set aside to the file of AO in terms of directions noted above. As a result, Ground No.4 is allowed for statistical purposes." In the light of the decision of Co-ordinate Bench as cited above, we restore this issue to the file of Assessing Officer for deciding de-novo after verification the facts and material as per the ratio laid down by the Hon'ble Gujarat High Court in the case of above cited case of Adani Enterprises Ltd. As a result, this ground of appeal of the assessee is allowed for statistical purposes. " 8.1. Respectfully following the order passed by the Coordinate Bench of this Tribunal we are disposing of these grounds....
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....omputation of disallowance u/s.14A read with rule 8D accordingly. 2. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to allow the Guarantee fee after verification disregarding the applicable statutory provisions contained under section 37 of the I.T. Act which do not allow any expenditure of capital nature.". 3. "On the facts and in the circumstances of the case and in law, without following the ratio taken earlier in the case of M/s. Dakshin Gujrat Vij Co. Ltd. and other subsidiary companies of the assessee, the ld. CIT(A) erred in deleting the addition of Rs. 3750 lacs being 15% of capital grant received by the assessee which was neither reduced from the cost of capital assets nor offered portion of it as revenue receipts as treatments of grants/ subsidies given by the subsidiary companies in their accounts, but taken to 'reserve and surplus' account and utilized in investment activities." 4. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to treat the interest income of Rs. 62.67 lacs and miscellaneous income of 270.83 lac....
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....t of 250 crores which works out to Rs. 37.50 crores and added to the total income of the assessee. 14.1. Ld. Counsel further submitted that this issue is now in settled in favour of the assessee by the Hon'ble High Court of Gujarat in assessee's own case for A.Y. 2010-11 filed by the Revenue in Tax Appeal No. 63 of 2020 vide judgment dated 17-02- 2020 wherein it was held as follows: "....9 So far as question No.2[c] proposed by the Revenue is concerned, the Assessing Officer in the assessment order has stated that the assessee has not received any grant of subsidy during the year under consideration but the subsidy or grant which was received in the earlier years was to be considered as income or to be reduced from the cost of assets. Therefore, the Assessing Officer estimated 15% of grant of Rs.2500 Lac which worked out at of Rs.3750 Lac as income of the assessee. 10 The assessee, therefore, being dissatisfied, filed an appeal before the CIT(A). The CIT(A) deleted the addition holding that the assessee has not acquired any fixed assets on which depreciation has been claimed, and therefore, such grants cannot be reduced from cost of fixed asset of the assessee on the basis of....
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....nds raised by the Revenue is hereby rejected. 15. Ground No. 4 namely treatment of interest income of Rs. 62.67 lacs and miscellaneous income of Rs. 270.83 lacs as "business income" instead of "income from other sources". The Ld. Counsel submitted that his issue is also covered against the Revenue's appeal before the High Court of Gujarat in Tax Appeal No. 63 of 2020 wherein it was held as follows: 13 With regard to question No.2[d], the Assessing Officer noticed that as per Schedule 14, the assessee has shown other income consisting of interest on loan and advances, incentives from CPSU, etc. The Assessing Officer was of the view that this income was to be assessed as income from other sources instead of business income shown by the assessee. 14 On appeal, the CIT(A) as well as the Tribunal held that the interest income is required to be treated as business income instead of income from other sources. The Tribunal in its order observed as under: "10 We have heard the rival contentions and perused the material on record on this issue. The assessing Officer has treated the aforesaid income under the head income from other sources without controverting the submission of the ....
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....eleted addition made in the book profit on the ground that no addition could have been made in view of the decision of this Court in the case of Alembic Ltd (Tax Appeal No.1249 of 2014) and the provisions of sub - sections (2) and (3) of Section 14A cannot be made applicable to clause (f) of Explanation to Section 115JB of the Act, 1961. 6 The Revenue, therefore, went in appeal before the Tribunal and the Tribunal relying upon the decision of the Special Bench of the ITAT in the case of ACIT vs. Vineet Investment vide 165 ITD 27 (Delhi) and the decision in Alembic Ltd upheld the order passed by the CIT(A). 7 The issue as to whether the addition made under Section 14A of the Act, 1961 while computing book profit under Section 115JB of the Act, 1961 is no more res integra. Accordingly, this Court in the case of Principal Commissioner of Income Tax vs. Gujarat Fluorochemicals Ltd [Tax Appeal No.28 of 2019 decided on 17th June 2019] has dismissed the appeal filed by the Revenue by holding as under: "22. The third question proposed by the revenue is in context with the adjustment made on account of the disallowance under section 14A in computing the book profit. In this context....
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....oregoing discussion, we find no infirmity with the orders of the AO and we hold that the AO has rightly disallowed the expenditure of Rs.73,07,018/by invoking the provisions of Section 14A of the Act read with the Rule 8D of Income Tax Rules, 1962 for computing book profit u/s. 115JB(2) of the Act read with clause (f) to Explanation 1 to clause 115JB(2) of the Act. We, therefore, set aside the orders of the CIT(A) and restore the orders of the AO. We order accordingly. In the case of CIT (Central-II) Vs. Goetze (India) Limited, the Hon'ble Delhi High Court has in ITA No.1179/2010 vide order dated 09.12.2013, held that the disallowance u/s.14A is to be taken into consideration for the purposes of calculating book profits u/s. 115JB. The relevant paras of the judgment are reproduced below. "36. By order dated 16th May, 2012, the following substantial questions of law were framed in the present appeals:" (i) Whether the Income Tax Appellate Tribunal was right in holding that while computing book profit under Section 115JA (sic. Section 115JB) of the Income Tax Act, 1961, no disallowance under Section 14A was required to be made? Learned counsel for the respondents-assessee, duri....
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.... of CIT Vs. Goetze India Ltd. (supra). However, the Tribunal after placing reliance upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd., 88 ITR 192 (SC) and other decisions has held that it is incumbent upon it follow the decision of Hon'ble Delhi High Court in the case of Bhushan Steel. In this case, Hon'ble Delhi High Court has held as under: " However, Ld. Senior Counsel has relied on the decision in the case of Bhushan Steel Ltd. (supra) wherein it has been held as under: " ITA 593/2015 PR. CIT .....Appellant Through: Mr. N.P. Sahni, Senior Standing Counsel with Mr. Nitin Gulati, Advocate Versus BHUSHAN STEEL LTD.  ....
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....ains to addition of Rs.1,14,43,040/under Section 115JB of the Act being the expenditure estimated on earning of dividend income under Section 14A of the Act. 6.1 The Assessing Officer on referring to the said provision of Section 115JB(2) of the Act added the said amount considering that any amount of expenditure relatable to the income exempted under Section 10 of the Act shall need to be added in the profit shown in the 'Profit and Loss Account'. When the matter travelled to the CIT (Appeals), since it deleted the addition of Rs.1,14,43,040/while deciding the question No.1, it consequently deleted such addition under Section 115JB of the Act on the ground that this would not serve any purpose. The Tribunal decided the said issue as follows: "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 ....
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....d that an amount disallowed under section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law. 24. Respectfully following the above decision, we hold that no addition in the book profit would be made on the basis of calculations worked out under section 14A of the Act. We allow this ground of appeal in both the years and delete the additions." 23. We take notice of the fact that in context with the third proposed question, the ITAT placed reliance on the following decisions: (1) CIT Vs. Alembic Ltd. (Tax Appeal No.1249/2014) (2) CITI Vs. Gujarat State Fertilizers & Chemicals Ltd. (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 section 14A of the Act." 8 In view ....