TaxTMI 
TaxTMI 
2024 (11) TMI 816
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....of convenience. Asst. year 2016-17 is taken as the lead case. 2. Brief facts of the case the assessee is a company engaged in the business of manufacturing Wind Turbine Generators [WTG], Rotor blades, parts of WTG, etc. For the Asst. year 2016-17 assessee filed its Return of Income on 28-11-2016 declaring total loss of Rs. 1128 crores, which was revised on 31-10-2017 declaring current year loss as Rs. 1128 crores to give effect to the Scheme of Amalgamation of its three subsidiary companies. 2.1. First issue is disallowance u/s. 14A RWR 8D: The assessee company has made investment in shares of various companies. Since, substantial investments are made in shares, mutual funds etc, the income from which does not form or shall not form part of taxable income and are prima facie exempt from tax and not includible in the taxable income, the provisions of section 14A of the Act are attracted and made suo-moto disallowance of Rs. 3,93,211/=. However the AO without recording his dissatisfaction issue a Show Cause Notice to the assessee to explain as to why provisions of Rule 8D read with section 14A should not be invoked. 2.2. In response the assessee vide letters dated 09-10-2019....
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....u/s 115JB, hence disallowance u/s. 14A cannot be applied while computing book profit. Further in opening line of first sub-section it has been clearly mentioned that the subject disallowance is to be made for the purpose of computing income under THIS CHAPTER only i.e. Chapter IV which relates to computation of Total Income as per ITR, whereas section 115JB is forming part of Chapter XII-B to which provisions of section 14A cannot be applied. Thus it may be appreciated that the title itself suggest the section provides for disallowance of expenses to be made while computing TOTAL INCOME. It is pertinent to note that u/s. 115JB total income is not computed but BOOK PROFIT is computed and comparison is made between tax on total income and tax on book profit. There is no deeming of total income u/s 115JB, hence disallowance u/s. 14A cannot be applied while computing book profit. Further Hon'ble ITAT in assessee's own case relating to the A.Y. 2011-12 in ITA No 619/Ahd/2017 dated 25-06-2019 held that amount of disallowance u/s. 14A worked out as per provision of Rule 8D cannot be made to income computed u/s. 115JB of the Act. 3. The Ld AO held that nowhere in the sectio....
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....ompany originally filed an application for approval of the Scheme of Arrangement before the Hon'ble High Court of Gujarat, which was subsequently transferred to the National Company Law Tribunal vide order dated 06.03.2017 in view of Rule-3 of The Companies (Transfer of pending proceedings) Rules, 2016. It is thereafter the Scheme of Amalgamation was duly approved by NCLT vide order dated 31.05.2017. The "appointed date" as per the Scheme of Amalgamation was "01.01.2016". Relevant and operative clauses of the Scheme of Amalgamation as approved by NCLT reads as follows: Clause 12.2: The "value of investments" in equity shares as well as preference shares of the Transferor companies held by the Transferee company "shall stand cancelled" in the books of the Transferee company, without further act or deed. The "cost of acquisition" of such equity and preference shares in the hands of transferee company, shall be treated as "consideration" paid for acquisition of business of the Transferor Companies. Clause 12.6: The "difference" arising between the "net asset value" taken over (i.e. assets minus external liabilities) of the Transferor companies and the "value of i....
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....is further seen that the assessee has claimed depreciation of Rs. 132.48 Crores on the goodwill so created. Since, the intangible assets in the form of goodwill was owned/held by the amalgamating companies prior to the amalgamation at NIL cost only, after amalgamation, it has to be taken as NIL cost in the hands of the amalgamated company. * Besides the case laws relied upon by the assessee are distinguished on facts supra. * The intricacies of fifth proviso to section 32(1), section 49(1)(iii)(e). Explanation 7 to section 43(1) and/or Explanation 2(b) to section 43(6)(c) and section 55(2)(a)(ii) have already been discussed and established that Depreciation cannot be claimed on goodwill arising out of amalgamation under the existing provisions of the Income-tax Act. 1961 in the present set of circumstances which exists in this case. 5.8. Further, it has been held by no less than Hon'ble Apex Court in the case of Baroda Distributors P Ltd. 155 ITR 120 that: "To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in....
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....of AO in holding that the goodwill has to be taken at NIL cost in the hands of the appellant. 7. Both the lower authorities have erred in law and on facts in not properly appreciating and considering various submissions, evidences and supporting documents placed on record during the course of the assessment proceedings and not properly appreciating various facts and law in its proper perspective. 8. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in levying interest u/s. 234A/B/C of the Act. 9. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in initiating penalty u/s. 271(1)(c) of the Act. 10. The Ld. CIT(A) has erred in not considering various facts and in not appreciating the facts and law in their proper perspective. 11. The Appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 8. The solitary Ground of Appeal filed by the Revenue in ITA No. 302/Ahd/2023 for A.Y. 2016-17 reads as under: "Whether the Ld. CIT(A) has erred in law a....
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....thus the present department appeals are liable to be dismissed. 9.2. Ld CIT DR Shri Prithviraj Meena appearing for the Revenue could not dispute above facts and also could not place on record any contrary decision passed by any Higher Forum, however he pleaded to sustain the addition made by the Assessing Officer and allow the department appeals. 9.3. This issue is no more res-integra since the same is settled by the Special Bench decision in the case of ACIT vs. Vireet Invest ments Pvt. Ltd 82 Taxmann.com 415 (Delhi Tribunal) (SB) wherein it was held as follows: '... The question is, whether the amount or amounts of expenditure relatable to exempt income as contemplated in clause (f) to Explanation 1 to section 115JB(2) could be arrived at by resorting to provisions of section 14A or not. The department, contention, is that the object of section 14A and clause (1) to Explanation 1 to section 115JB(2) is same and, therefore, it cannot be disputed that section 14A can be resorted to for finding out the expenditure relatable to any income which is exempt. [Para 6.2] When the question arises as to the applicability of similar provisions in different parts of th....
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....llows: "22. The third question proposed by the revenue is in context with the adjustment made on account of the disallowance under section14A in computing the book profit. In this context, the findings recorded by the ITAT are as follows: 17. Next common issue involved in both years is, whether the amount disallowed under section 14A read with rule 8D deserves to be added back in the book profit for the purpose of section 115JB. In other words, whether 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 201314, 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 S....
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....) 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, during the course of hearing, has fairly conceded that the first question has to be answered in favour of the Revenue and against the assessee in view of specific provisions in the Explanation 1 below Section 115JB(2) clause (f). 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 appellant Revenue and against the respondent assessee." 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) : (2....
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....or computation of the income for 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. The view taken by the ITAT cannot be faulted with. It is consistent with the decision in Apollo Tyres Ltd. V. Commissioner of Income Tax 255 ITR 273 (SC) which held that "the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J." The Court declines to frame a question on the above issue." 21. Apart from the above, we have a binding precedent before us - one from Hon'ble jurisdictional High Court and other from the Hon'ble Bombay High Court. The question considered by the Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra) is as under: "Whether on the facts and in the circumstances of the case and in law, the I....
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....ue 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 earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed." 8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of Income tax vs. Gujarat State Fertilizers & Chemicals Ltd. (supra), we are of the opinion that issue Nos.(iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 23. S....
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....ied for computing the book profit u/s. 115JB of the Act and thereby delete the addition made by the AO. Thus the Ground raised by the Revenue is devoid of merits and liable to be dismissed. 10. In the result the appeal filed by the Revenue in ITA No. 302/Ahd/2023 relating to the Asst. year 2016-17 is hereby dismissed. 11. Now we deal with the Assessee's Appeal in ITA No.198/Ahd/ 2023 for A.Y. 2016-17. Ground Nos.1 to 4 are relating to disallowance made u/s. 14A rwr 8D of the Act, which was confirmed by the Ld CIT[A]. Ld Counsel Mr. Soumitra Choudhury appearing for the assessee filed a detailed Written Submission on this issue which reads as follows: "Assessee most respectfully submits that the impugned disallowance is contrary to law and is unsustainable for the following reasons: i. Reliance on CBDT Circular No.05/2014 by the AO to make disallowance u/s. 14A of the Act is bad in law: The AO primarily placed reliance on the Circular issued by the Central Board of Direct Taxes (CBDT) viz., Circular No. 05/2014 dated 11.02.2024 wherein it was clarified by the Board that the intention of the legislature was to disallow deductions on expenditures incurr....
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.... by the revenue held that the observation of CIT(A), ITAT and Hon'ble Delhi High Court while relying upon Cheminvest Ltd. (supra)has rightly ordered in favour of the Assessee i.e. in the absence of any exempt income reported by assessee disallowance was impermissible. Thus, these judicial observations adhere to the same reasoning that Section14A would only apply where exempt income is earned in the relevant previous year. Therefore, Section14A would not apply to a notional/anticipated exempted income that is not earned in the relevant previous year. The Hon'ble High Court of Delhi in the case of Prl.CIT Vs. IL & FS Energy Development Co. Ltd. (2017) 84 taxmann.com 186(Delhi) has held that CBDT Circular upon which extensive reliance is placed by revenue does not refer to rule 8D(1) at all but only refers to the word "includible" occurring in the title to rule 8D as well as the title to section 14A. The circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered. The Court held that the process of interpretation adopted by the CBDT will be a truncated rea....
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....on shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. 5. This amendment will take effect from 1st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause i respect of other provisions of the Income-tax Act an provide that no deduction shall be allowed in relation 1 exempt income, notwithstanding anything to the contra contained in this Act. 7. This amendment will take effect from 1st April, 20 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." Thus, Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment made to Section 14A will take effect from 1st April, 2022 and apply in relation to the assessment year 2022-23 and subsequent assessment years. This Explanation was considered by ITAT Guwahati Bench in ACIT -Vs- Williamson Financial Services Ltd....
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.... earned, there can be no disallowance u/s. 14A of the Act, is the revenue's reliance on the Hon'ble Apex Court decision in Maxopp Investment Ltd. v. CIT(2018) 91 taxmann.com 154. An observation in paragraph 40 of the said judgment is to the effect that Section 14A has to be invoked for disallowance of any expenditure in relation to any exempt income irrespective of fact whether the dividend is actually earned or not in the FY." This view of the Revenue is not correct because the Apex Court has not rejected the theory of apportionment. The observation of Hon'ble Apex Court in above judgment that "Whether dividend is earned or not becomes immaterial" is in the context of holding the shares as stock-in-trade and it becomes a business activity of the assessee to deal in those shares as a business proposition. There is no applicability of section14A in respect of the shares held as stock-in-trade and that is why it is observed that in respect of stock-in-trade whether dividend is earned or not becomes immaterial. Similar view was expressed by Hon'ble Delhi High Court in Pr.CIT v. PNB Housing Finance Ltd (2023 146 taxmann.com 5 following Maxopp's case (supra) holding ....
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....terpretation held that disallowance u/s 14A irrespective of whether assessee has earned exempted income or not. However, this decision was reversed by Hon'ble Madras High Court in Tamilnadu Road Development Co. Ltd. v. Dy. CIT (2021) 124 Taxmann.com 599 (Mad) and held that "Provisions of section 14A read with rule 8D will have no applicability if there is no exempt income earned or received during previous year though disallowance is linked to expenditure incurred on investment which could fetch exempt income." In view of the above judicial pronouncements, the order of CIT(A) sustaining the disallowance made by the AO u/s. 14A of the Act, cannot be sustained and deserves to be deleted. (iii) Since the Own funds of the Assessee were much more than the investments made by the Assessee, no disallowance can be made u/s. 14A of the Act on account of interest expenditure: As against "Investments" of Rs. 2652.4 crore, assessee has interest free funds of Rs. 2928.17 crore/- as at 31.03.2016 i.e. almost 1.1 times of the advances (Pg.55 of CIT(A)'s order). The said fact is not in dispute. The CIT(A)'s contention that some of the reserves do not generate....
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....nder this Act. If no satisfaction is recorded on the basis of the accounts of the assessee, then no disallowance by invoking rule 8D can be made. If the AO has merely expressed a casual dissatisfaction on the claim of disallowance made by the assessee and nowhere has, he examined the books of accounts of the assessee so as to arrive at a dissatisfaction having regard to the accounts of the assessee, rule 8D cannot be invoked. A casual kind of compliance about dissatisfaction is not envisaged in section 14A(2). Merely writing in the assessment order that he is not satisfied with the claim of the assessee is not sufficient, but he has also to give reasons after examining the accounts of the assessee that the claim of disallowance made by the assessee is not enough or is not adequately related to exempted income. The compliance of dissatisfaction has to be substantive and not merely a pretence. The following cases support the above proposition Dy. CIT v. Galileo India (P.) Ltd. (2017) 88 taxmann.com 739(Del-Trib); CIT v. Brigade Enterprises Ltd. (2021) 124 taxmann.com 237(Kar); CIT v. Sociedade De Fomento Industrial (P.) Ltd. (2021) 123 taxmann.com 38(Bom); Essilor I....
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....8D after considering various other High Court judgements as follows: "... 12. Section 14A of the Act, which was inserted with retrospective effect from 1st April 1962, provides for disallowance of the expenditure incurred in relation to income exempted from tax. From 11th May 2001, a proviso was inserted in Section 14A to clarify that it could not be used to reopen or rectify a completed assessment. Sub-sections (2) and (3) of Section 14A were inserted with effect from 1st April, 2007 to provide for methodology for computing of disallowance under Section 14A. However, the actual methodology was provided in terms of Rule 8D only from 24 th March 2008. There was a further amendment to Rule 8D with effect from 2nd June 2016 limiting the disallowance the aggregate of the amount of expenditure directly relating to income which does not form part of total income and an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not form part of the total income. It is also provided that the amount shall not exceed the total expenditure claimed by the Assessee. 13. In the....
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....read with Rule 8D would not arise. 18. The CBDT Circular upon which extensive reliance is placed by Mr. Hossain does not refer to Rule 8D (1) of the Rules at all but only refers to the word "includible" occurring in the title to Rule 8D as well as the title to Section 14A. The Circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered. 19. In the considered view of the Court, this will be a truncated reading of Section 14 A and Rule 8D particularly when Rule 8D (1) uses the expression 'such previous year'. Further, it does not account for the concept of 'real income'. It does not note that under Section 5 of the Act, the question of taxation of 'notional income' does not arise. As explained in Commissioner of Income Tax v. Walfort Share and Stock Brokers Pvt. Ltd [2010] 326 ITR 1 (SC), the mandate of Section 14A of the Act is to curb the practice of claiming deduction of expenses incurred in relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making....
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....of any expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. The Supreme Court explained that the expression "incurred for making or earning such income‟, did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: "What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, ....
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....the present Asst. Year. 14.1. We need not labour ourself on this issue, since very recently Hon'ble Guwahati High Court reversed the decision of the ITAT Guwahati Bench in Williamson Financial Services Ltd vide its Judgement dated 24-09-2024 in ITA No.4 of 2024 and others and held that the Amendment to Section 14A by the Finance Act, 2022 is to be applicable Prospective only, after considering the judgements rendered by Delhi, Calcutta, Madras and Madhya Pradesh High Courts by observing as follows: ".... 12. Learned counsel for the Revenue has frankly admitted that in view of the Memorandum Explaining the Provisions of the Finance Bill, 2022, issued by the Ministry of Finance, it is now settled that the Explanation inserted to Section 14A of the Act of 1961, is prospective in nature and cannot be made effective retrospectively. 13. Heard the learned counsel appearing for the parties and also perused the material placed on record. The Explanation to Section 14A of the Income Tax Act, 1961 is inserted vide Finance Bill, 2022. The Ministry of Finance, Union of India, issued Memorandum Explaining the Provisions in the Finance Bill, 2022. The relevant extract of the....
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....ar in relation to such exempt income. 5. This amendment will take effect from 1st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income-tax act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act. 7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." 14. Taking note of above, the Division Bench of Delhi High Court in "Pr. CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra), considering the question whether the Explanation inserted to Section 14A of Act of 1961 is retrospective or prospective in nature, has held as under: "However a perusal of the Memorandum of the Finance Bill, 2022 ([2022] 440 ITR (St.) 226) reveals that it explicitly stipulates that the amendment made to Section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. Th....
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....ture referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India." The Finance Act, 1999 which followed the Bill incorporated the substituted Explanation to Section 9(1)(ii) without any change. The Explanation as introduced in 1983 was construed by the Kerala High Court in CIT v. S.R. Patton [(1992] 193 ITR 49 (Ker), while following the Gujarat High Court's decision in CIT v. S.G. Pgnatale [(1980) 124 ITR 391 (Guj)] to hold that the Explanation was not declaratory but widened the scope of Section 9(1)(ii). It was further held that even if it were assumed to be clarificatory or that it removed whatever ambiguity there was in Section 9(1)(ii) of the Act, it did not operate in respect of periods which were prior to 1-4-1979. It was held that since the Explanation came into force from 1-4-1979, it could not be relied on for any purpose for an anterior period. In the appeal preferred from the decision by the Revenue before this Court, the R....
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....h effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P) Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts". (emphasis supplied) 7. The aforesaid proposition of law has been reiterated by the Supreme Court in M.M Aqua Technologies Ltd. V. Commissioner of Income Tax, Delhi-III, [2021] SCC OnLine SC 575. The relevant portion of the said judgment is reproduced hereinbelow (page 597 OF 436 ITR):- "Second, a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. This was stated in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717 as follows (page 318 of 279 ITR): '17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in ....
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....olkata in M/S Jas Toll Road Company Ltd. (supra) has dismissed the appeal filed by the Revenue while relying on the decision of the Delhi High Court rendered in "Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra) and held that the explanation inserted to Section 14A by Finance Act, 2022 will be applicable prospectively. The operative portion of the decision rendered in M/s Jas Toll Road Company Ltd. (supra) is reproduced hereunder: "Upon careful consideration and going through the materials on record we find that the learned tribunal was fully justified in dismissing the appeal filed by the revenue affirming the order passed by the Commissioner of Income Tax [Appeals], Kolkata-20. The issue involved in the case is that whether disallowance under Section 14A of the Act can be made even if the assessee has not earned any exempt income, the issue is no longer res integra and there are several decisions to the effect that amendment made under Section 14A of the Act by Finance Act, 2022 will be applicable prospectively and disallowance should not exceed the exempt income earned by the assessee during the year. The PCIT has also noted the decision of ....
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....these appeals are answered as follows: (i) the order passed by the Tribunal dated 06.07.2022, holding that insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory and thereby retrospective in nature, is erroneous in law. (ii) the findings of the Tribunal to the effect that the insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory, is contrary to the legislative intention as expressed in Memorandum to the Finance Bill, 2022. 21. Consequently, we allow the present appeals. The impugned order dated 06.07.2022 passed by the Tribunal in ITA Nos.159/Gau/2019, 154/Gau/2019, 155/Gau/2019 and 156/Gau/2019 is set aside and the orders passed by the CIT(A) dated 31.01.2019 are affirmed. 22. We have also taken note of the fact that the Bench of the Tribunal, in earlier decision dated 09.11.2022 rendered in ITA No.103/Kol/2021, while relying on decision of Delhi High Court in "Pr.CIT Vs. Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra) has held that the Explanation inserted to Section 14A is applicable prospectively. However, the same Bench, while deciding the Miscellaneous Applicat....
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....dated 23.7.2014, wherein it was held that when investments are made out of common pool of funds and non-interest bearing funds were more than the investments in tax free securities, no disallowance of interest expenditure u/s. 14A can be made. The Hon'ble Court accepted the ratio laid down in these decisions and held that no disallowance can be made u/s. 14A of the Act, when own funds available were far more than the investments made by the Assessee. 15.1. Hon'ble Supreme Court in the case of CIT -Vs- UTI Bank Ltd. reported in [2022] 142 taxmann.com 136 held that where interest free own funds available with assessee exceeded their investments in tax free securities, investments would be presumed to be made out of assessee's own funds and proportionate disallowance was not warranted u/s. 14A of the Act by observing as follows: "Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Tax-free bonds/securities) - Whether legal issue relating to disallowance under section 14A was squarely covered by Supreme Court in South Indian Bank Ltd. v. CIT [2021] 130 taxmann.com 178/283 Taxman 178/438 ITR 1/ [2021] 1....
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....ce over and above suo-motu disallowance made by the assessee u/s 14A of the Act is called for. 16.1. In this connection reliance is placed on Jurisdictional High Court in the case of PCIT -Vs- CIMS Hospital Pvt Ltd. reported in (2021) 125 taxmann.com 227 held that where Assessing Officer did not record satisfaction as per section 14A[2], Rule 8D could not be applied for computation of amount of expenditure to be disallowed u/s. 14A of the Act by observing as follows: "... 6. In order to consider whether the Tribunal has the correctly deleted disallowance made under section 14A of the Act-1961 read with rule 8D of the Rules-1962, it would be germane to refer section 14A of the Act-1961, which reads thus:- "Expenditure incurred in relation to income not includible in total income:-- 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part ....
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....of rule 8D is done away with. It clarifies that the judgment in the case of Maxopp Investment Limited does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds and utilized them for making investment into securities earning tax free income, Section 14A read with rule 8D would be attracted automatically. The assessee has further relied on the judgment in the case of Principal Commissioner of Income-tax v. Gujarat State Financial Services Limited in the Tax Appeals Nos.1252, 1253 and 1255 of 2018 decided on 15th August 2018, which has followed the decision in the case of Shreno Limited (supra) dealing with the same issue and also an identical argument taken by the department. 18. The language of section 14A of the Act is plain and clear Before invoking rule 8D, the Assessing Officer is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. To put it in other words, the condition precedent of recording the requisite satisf....
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.... from the Department and no representation was filed from the Income Tax Authorities in response to the notice served in the month of April 2017.No response does not mean that the appellant by amalgamation skip the statutory tax liability. The amalgamation has been carried out as per Companies Act but Statutory taxes will be applicable as per Income Tax Act. The valuation report of Goodwill was prepared by the valuer on 08.07.2017 whereas the NCLT passed its order on 31.5.2017. This proves that the Valuation of Goodwill was carried out after the order passed by the NCLT. Therefore, it is established that the NCLT never sent the Goodwill valuation report to the Income Tax Department even if any notice was sent to the department. 3 Moreover, the company too did not give any prior notice/information about the said scheme of arrangement to the Department. 18.2. In reply Mr. Soumitra Choudhury the Ld Counsel appearing for the assessee submitted that when a Scheme of Amalgamation has been duly approved by the Competent Authority namely NCLT, the Revenue cannot seek to review the terms of the scheme and come to a conclusion that the excess consideration paid over and ....
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....at SE Electricals Limited, SE Blades Limited & Suzlon Wind International Limited (Transferor Companies) and Suzlon Wind International Limited (Demerged Company) was amalgamated with Suzlon Energy Limited, PAN: AADCS0472N] with effect from 01.01.2016 as per National Company Law Tribunal (NCLT) order dated 31.05.2017. The department has not filed any appeal against the said order of NCIT. Submitted for your kind perusal. Yours faithfully, " 18.5. Since the department has not filed any appeal against the said order of NCLT, that order has attained finality. The Revenue if aggrieved against NCLT order, it ought to challenged the same in the manner known to law in the appropriate Forum, having not done so, it is not open to the Revenue to raise this Ground before this Tribunal. Therefore in our considered view the argument of the Revenue is hereby liable to be rejected. 19. On merits of the case, Ld Counsel submitted that a detailed explanation about the nature of the proposed amalgamation was provided to the AO and it was explained as to how the : - ◦ Decision of amalgamation' was based on 'commercial expediency'; ◦ Asse....
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.... calculated at the prescribed rates, as if the amalgamation or demerger had not taken place, and such deduction shall be apportioned between the amalgamating company and the amalgamated company or [the demerged company and resulting company], as the case may be in the ratio of the number of days for which the assets were used by them. Whether it will come into operation when goodwill was not an item of asset in the hands of the amalgamating and amalgamated company and comes into existence for the first time as a result of excess consideration paid over and above the net value of the assets transferred in the process of amalgamation. (ii) Section 49(1)(iii)(e) which deals with cost of acquisition in the hands of the previous owner, which is not applicable in the present case as the Goodwill was never the asset of the previous owner. (iii) Explanation 7 to Section 43(1): Where an asset is acquired by amalgamating company, without incurring any financial outlay and such asset is transferred to amalgamated company without incurring any financial outlay. The Assessee did incur financial outlay and hence this provision prior to the Amendment will not be applicable. ....
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....est in the company. In the process goodwill has arisen in the books of the company." 2. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 3. The Assessing Officer held that goodwill was not an asset falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 ['Act', for short]. We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3. -- For the purposes of this sub-section, the expressions 'assets' and 'block of assets' shall mean- [a] tangible assets, being buildings, machinery, plant or furniture; [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature." 4. Explanation 3 states that the expression 'asset' shall m....
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....ssessee's claim of depreciation. In the return filed for the assessment year 2010-11, the assessee had not raised such a claim. However, during the course of assessment proceedings, the assessee presented revised computation which included the assessee's claim of depreciation of Rs. 7.19 crores on the goodwill expanded at the time of amalgamation of the companies. The assessee pointed out that such claim would be allowable by virtue of the judgement of the Supreme Court in case of CIT v. Smifs Securities Ltd. [2012]_348 ITR 302/210 Taxman 428/24 taxmann.com 222. The Assessing Officer disallowed the claim on two grounds. Firstly, that the claim was not made in the original return nor did the assessee file the revised return. The second ground was that the claim was fictitious and the goodwill has been accounted as a balancing factor in the hands of the assessee without acquisition of an intangible asset as contemplated under Section 32 of the Act. 4. The assessee carried the matter in appeal. The CIT (Appeals) as well as the Tribunal both ruled in favour of the assessee. With respect to raising an additional claim without revising the return the Tribunal relied on t....
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....y Assessing Officer - Whether in view of decision of Supreme Court in case of CIT v. Smifs Securities Ltd. [2012] 24 taxmann.com 222, since goodwill is a part and parcel of intangible assets, assessee was eligible for depreciation on goodwill. ... ... ... 32.4. From the above, it would appear that the intent of the Legislature is to make amalgamation a tax neutral scheme for companies as well as for the shareholders and not to provide a tax planning mechanism to either of them. However, a conjoint reading of the above provisions reveal that the assets which were transferred by the amalgamating company to the amalgamated company in the process of amalgamation were not made subject to the capital gain tax. Furthermore, the 6th proviso to section 32 of the Act has limited the amount of depreciation available to the amalgamated company post amalgamation to the extent of the amount of intangible assets/goodwill being self-generated assets. However, we note that all the relevant provisions of the Act as discussed above deal with respect to the assets available/recorded in the books of the transferor/ amalgamating company. In other words, the assets which have been acqui....
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....s held that the goodwill falls within the definition of the assets under the category of any other business or commercial rights of similar nature. The relevant extract reads as under: Explanation 3 to section 32(1) states that the expression 'asset' shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading of the words 'any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates that goodwill would fall under the expression 'any other business or commercial rights of a similar nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). (Para 4) In view of the above, it is opined that Goodwill is an asset under Explanation 3(b) to section 32(1). (Para 5) In view of the above judgment, there remains no ambiguity that the goodwill is part and parcel of intangible assets. Hence, the assessee is eligible for depreciation on the goodwill. 32.7. Moving further, we note that for claiming the depre....
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....) would apply only in a case where an "asset" is "transferred" in the course of "amalgamation" by "transferor company" to the "transferee company" and would not apply when a particular "asset" is a "result" of amalgamation. 24. Further we need to take on record the law with regard to allowing depreciation on goodwill has since been amended by the Finance Act, 2021 by making the following statutory amendments: Section 2(11): Definition of 'Block of Assets' has been amended to specifically provide that 'Goodwill of a Business or Profession' shall not form part of block of assets comprising of 'Intangible Assets'. Section 32 (1)(ii): 'Goodwill of a Business or Profession' has been specifically excluded from the definition of assets on which depreciation shall be calculated. Explanation 3(b) of Section 32(1): 'Goodwill of a Business or Profession' has been specifically excluded from the definition of intangible assets. Section 43(6)(c)(ii): Definition of WDV of the block of assets has been amended to provide that written down value of Goodwill is required to be reduced from the Opening WDV in such cases, whe....