TaxTMI 
TaxTMI 
2026 (7) TMI 1101
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....ified in deleting the addition of Rs. 6,97,664/ made on account of disallowance of interest expenditure which was attributable to capital work in progress and was liable to be capitalized?" ii. "Whether the Ld. ITAT was justified in relying on the decision of the Hon'ble High Court of Gujarat in assessee's own case in Tax appeal No.63 of 2020, and holding that the adjustment made on account of disallowance u/s 14A read with rule 8D of the Income Tax Act, in computation of book profit u/s 115JB of the Income Tax Act, is not as per law without appreciating that the amount disallowable u/s 14A read with rule 8D of the Act is covered under clause (f) of Explanation 1 to Section 115JB(2) and thus, the said amount has to be added back while computing the book profits?" 4 The brief facts leading to the filing of the present tax appeal are that the respondent - assessee is a Public Sector Undertaking, inter alia engaged in the business of purchase, sale and distribution of electricity. 4.1 The assessee filed its Return of Income for the Assessment Year 2017-18 on 18.10.2017, declaring total income of Rs. 90,92,02,810/- after setting off brought forward losses to the ....
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....O directed to make disallowance under section 36(1)(iii) of the IT Act which has been deleted by the learned ITAT by impugned judgement and order. At the outset it is required to be noted that while deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act, the learned ITAT has relied upon the decision of the Bombay High Court in the case of Reliance Utilities and Power Ltd. (Supra) and has specifically observed that the interest free funds as on the date of balance-sheet were far in excess of investments as on 31.03.2004. In para 23 [AY 200405] and while deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act, the learned ITAT has observed as under. "23. From the audited Balance Sheet as on 31.03.2004 placed on record it is seen that as on 31.03.2004 the investments of the Assessee are to the tune of Rs. 5.82 crore as compared to Rs.46,000/ in the immediately preceding financial year meaning thereby that the investments to the extent of Rs. 5,82,28,953/ have been made during the year. It is also seen from the Balance Sheet that the interest free funds in the form of share capital, reserves and surplus and unsecured lo....
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....nder section 36(1)(iii) of the IT Act. Under the circumstances, no error and/or illegality has been committed by the learned ITAT in deleting the disallowance made by the AO under section 36(1)(iii) of the IT Act. No question of law much less substantial question of law arise with respect to deletion of the disallowance made by the AO under section 36(1)(iii) of the IT Act." 5.1 The first question of law raised in this appeal, therefore, being of the same nature, is now answered by this Court. Further, in the present case, the Tribunal has given a categorical finding of fact that assessee was having interest free funds in excess of the investments and therefore, it can be said that the investments were made out of interest free funds. It was further observed that addition of Rs. 6,97,664/- was made by the Assessing Officer out of the interest expenditure without appreciating the fact that the expenditure was in respect of existing building which was already put in use in earlier years and hence there was no question of capitalization of any interest on account of the same. The interest is added to cost of long term asset and is included in depreciation of long term asset. Theref....
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....de reference to decision of Hon'ble Delhi High Court in the case of CIT Vs. Geotze India Ltd., 361 ITR 505. According to the ld. DRP, this decision has been considered by the Special Bench in the case of Vireet Investment P. Ltd. (supra) but placed reliance upon Hon'ble Bombay High Court in the case of Vodafone India Services P. Ltd. ACIT, 361 ITR 0531 (Bom) and held that DRP is not bound by the ratio laid down by the Special Bench. The discussion made by the DRP on this issue in the assessment year 2013-14 reads as under: "10.3 In the case of Viraj Profiles Ltd. [2015] 64 taxmann.com 52 (Mum Trib), the Hon'ble Bench has elaborately discussed the issue and held that the disallowance is liable to be calculated as per Rule 8D of the Rules. After discussing the decisions which have also been relied on by the appellant, the Hon'ble Bench has concluded that, "In view of our foregoing 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 th....
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....tradictory orders at the end of the Tribunal Therefore, Special Bench was constituted to consider the following question: "Whether expenditure incurred to earn exempt income computed under section 14A could not be added while computing book profit under section 115JB of the Act." 20 When the Special Bench has considered this question, it was confronted with two decisions of the Hon'ble Delhi High Court diagonally opposite to each other. One referred by the Id. DRP also in the present case, rendered in the case of CIT Vs. Goetze India Ltd. (Supra) and other in the case of Pr CIT Vs. Bhushan Steel ITAT, Special Bench has reproduced both these orders in Vireet Investment P. Ltd. (supra) and thereafter it considered as to which decision ought to be followed by a subordinate authority. The department advanced an argument that in the case of Bhushan Steel, Hon'ble Delhi High Court failed to consider subsequent decision 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 upo....
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.... 7. So far as issue Nos. (iii) and (iv) are concerned, the learned counsel for the assessee has relied on the decision of this court in the case of Commissioner of Incometax-1 v. Gujarat State Fertilizers & Chemicals Ltd., reported in (2013) 358 ITR 323 (Gujarat) Where this court has held in paragraph Nos 6 to 6.5 this court has observed as under: 6. So far as the fourth question is concerned, it pertains 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: ....
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....2009) 32 SOT 101 (Del.), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?" .... ..... ..... 4. So far as question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. Vs. DCIT in ITA No.3850/Mum/2010 to held 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 144 of the Act. We allow this ground of appeal in both the years and delete the additions." 23. W....