TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 329
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion of section-14A of the Income Tax Act, 1961 r.w. rule 8D of Income Tax Rules, 19627 2. On the facts and in the circumstances of the case and in law, whether Ld. CII(A) erred in restricting the disallowance u/s. 14A to exempt income claimed by Assessee despite provision the fact that as per CBDT Circular No 5/2014 (dated 11/02/2014) Rule BD read with section 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income and such disallowance is mandatory? 3. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) has erred in not considering the clarification introduced through Finance Act, 2022 wherein it was clarified that disallowance u/s. 14A are applicable even when no exempt Income has been accrued or arisen during the year ? 4. On the facts and in the circumstances of the case and in law, whether the Li. CIT(A) has erred in restricting the disallowance u/s. 14A only upto amount of exempt income when Ld. CIT(A) has itself accepted that 'appellant company has failed to carry out the computation exercise, as per the provisions of Sec. 14A r.w. R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant submits that the assessing officer in the alternative be directed to consider only those investments which have actually yielded exempt during the year and excluding those investments which have not yielded any income during the year while working out the average value of the investment." 4. Brief facts of the case are that assessee is engaged in the business of generation of power, power project under development which includes coal, gas, hydro and solar based energy projects filed its return of income for A.Y. 2013-14 on 28.11.2013 declaring total income at Rs. 2.48 crores. The return was revised on 16.05.2024 offering certain additional income. The case was selected for scrutiny. During the assessment, from the computation of income, the assessing officer noted that assessee has shown dividend of Rs. 2.17 crores which were claimed exempt under section 10(34) and 10(35) of Income Tax Act. The assessee has made suo moto disallowance under section 14A of Rs. 55,21,722/- related with exempt income. The suo moto disallowance was not accepted by the assessing officer. The assessing officer asked the assessee to furnish complete details of exempt income and issued show cause not....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Rs. 50.48 crores and after allowing set off of suo mote disallowance made addition of Rs. 49.93 crores and also added such book profit under section 115JB. 5. The assessing officer further noted that during the year under consideration, the assessee company is sold a helicopter and has shown long term capital gain. The assessing officer further noted that helicopter was acquired from Reliance Natural Resources Ltd (RNRL) on demerger during F.Y. 2010-11. The helicopter was sold during the year for Rs. 8.84 crores. The written down value of this block of asset was of Rs. 25.34 lakhs. The differential value of Rs. 8.58 (8.84 - 25.34 lakhs) was treated as capital gain. The assessee considered such gain as long term capital gain on the ground that it was sold after holding for more than 36 months. During the assessment, the assessee was asked to explain why gain arising from sale of asset (Helicopter) being part of depreciable asset used for business purpose and depreciation was claimed in earlier years should not be considered as short term capital gain. The assessee filed its reply dated 11.02.2016. In the reply, the assessee stated that helicopter was purchased in 2005 and was he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orking out suo moto disallowance in relation to exempt income. The assessee furnished the details of share capital, reserve and surplus and tax free investment available with the assessee company. The assessee relied on various case laws on the ratio of law that when interest free funds are available then presumption can be drawn that investments were out of interest free funds. In alternative, it was also submitted that no disallowance under section 14A can be made in respect of investment which have not yielded any exempt income. In without prejudiced submission, it was submitted that disallowance may be made in respect of investment which yielded exempt income as held by Special Bench of Delhi Tribunal in ACIT vs Vireet Investment Pvt. Ltd. (2017) 82 taxmann.com 415 (Delhi). In other without prejudiced submission, the assessee submitted that disallowance must be restricted to the exempt income of Rs. 2.17 crores earned during the year. To support such submission, the assessee relied on number of decisions has recorded on page no. 24 & 25 of impugned order. 7. On the treatment of long term capital gain on sale of helicopter as short term capital gain, the assessee submitted th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e heard the submission of learned Authorised Representative (ld. AR) of the assessee and the learned Commissioner of Income Tax - Departmental Representative (CIT-DR) for the revenue. Firstly, we are considering the grounds of appeal raised by revenue in its appeal in ITA No. 890/Mum/2023 and the Grounds raised in CO by assessee. The ld. AR of the assessee submits that during the year under consideration, the assessee earned exempt income of Rs. 2.17 crores. The assessee in the suo moto disallowance made disallowance of Rs. 55,21,722/-. The assessing officer provide a justification of suo moto disallowances. The assessing officer disregarded the explanation of assessee and invoked the provision of Rule 8D. The assessing officer made disallowance of Rs. 50.48 crores and after allowing set off of suo moto disallowances of Rs. 55.21 lakhs made a net disallowance of Rs. 49.93 crores and also added such disallowances to the book profit. The ld. CIT(A) restricted the disallowance under section 14A to the extent of exempt income and also removed it from book profit. The ld. AR of the assessee submits that it is a well-settled principle in income tax proceeding that disallowance under sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... section 115JB is in consonance of decision of Delhi Tribunal in ACIT vs Vireet Investment Pvt. Ltd. (supra). Therefore, we do not find any infirmity in the order passed by ld. CIT(A) to that extent. 13. We also find that assessee has also challenged the action of ld. CIT(A) in restricting the disallowance under section 14A with a specific request that only investment which yielded exempt income should be considered for the purpose of disallowance under Rule 8D(iii). Thus, considering the decision of Delhi Tribunal in Vireet Investment Pvt. Ltd., we direct the assessing officer to re-compute the disallowance under Rule 14A in accordance with the decision of special bench of Delhi Tribunal in Vireet Investment. In the result, grounds of appeal raised by revenue in its appeal is dismissed and consequently, the grounds of appeal raised by assessee in its cross objection is allowed for statistical purpose. ITA 1348/Mum/2023 (A.Y. 2013-14) (Assesses Appeal) 14. In assessee's appeal, the sole ground of appeal relates to treating the gain on sale of helicopter as short term capital gain against the long term capital gain claimed by the assessee. The ld. AR of the assessee submits....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her purposes, including for section 74 for determining the question whether the gain arising from sale thereof could be set off against long term capital losses. The special bench of Mumbai Tribunal in case of SKF India Ltd. vs DCIT (2024) 168 taxmann.com 328 (Mumbai - SB), while deciding the issue of rate of tax applicable on capital gain arising on sale of depreciable asset under section 50, by referring and relying upon the decision of jurisdiction High Court in CIT vs Ace Builders (P) Ltd. (2025) 281 ITR 210 and the decision of Hon'ble Apex Court in CIT vs Dempo Co. Ltd. 387 ITR 354, has held that deeming fiction is only for the purpose of section 50 and all for other provisions including section 74, the asset remains a long term capital asset. The ld. AR of the assessee prayed that assessee is eligible to set off long term capital losses against the gain arising from sale of helicopter even though the said gain is regarded as gain arising from transfer from short term capital asset for the purpose of section 50. To support his submission, the ld. AR of the assessee also relied upon the decision of Hon'ble Bombay High Court in CIT vs Manali Investments (2013) 39 taxmann.com 4 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m 855 / 281 ITR 210 (Bombay) held that capital gain arising out of sale of depreciable asset under section 50, even though deemed to be capital gain arising from transfer of short term capital asset that fiction was to be confined only section 50 and it could not convert short term capital asset into long term capital asset and vice- versa for other purpose of the Act. Thus, rate of tax would be in term of section 112 at the rate of 20%. 18. We find that Hon'ble Jurisdiction High Court in CIT vs Ace Builders (P) Ltd. (supra) in para 25 of order held that fiction created by the legislature in section 50 has to be confined to the purpose for which it is created. Section 50 was enacted with the object of denying multiple benefits to the owners of a depreciable asset, however, that restriction is limited to the computation of capital gains and not to the exemption provision. If depreciation has been availed on long-term capital asset, then, the capital gains has to be computed in the manner prescribed under section 50 and the capital gains tax will be charged as if such capital gain is arising out of short-term capital asset. In that case, the capital gains was invested in the manne....