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2015 (5) TMI 843 - AT - Income TaxDisallowance u/s 14A - Held that - The contention put forth by the ld. AR that it had earned dividend income of ₹ 262907.86 lakhs without incurring any expenses does not convince us at all. The term expenditure as per section 14A would include the expenditures that are related to investments made i.e. expenditures on administration, capital expenses, travelling expenses, operating expenses etc. It is difficult to accept that the assessee company was making investments decisions to the tune of ₹ 6,31,637 lakhs of public money without incurring a single penny out of its pocket. Such decisions are highly strategic in nature and are required to be made by highly qualified and experienced professionals. The same would also require market research and analysis. The assessee company by acquiring controlling interest in the subsidiary companies would also be required to attend board meetings and make policy decisions with regard to the aforesaid huge amount of investments made. By no stretch of imagination, it can be assumed that such activities were done without incurring any expenditure. It is pertinent to mention here that even the assessee did not rebut the findings of AO that the assessee was required to supervise and administer all the investments made. Thus in the present case the nexus between the expenditure incurred and the dividend income was established by the revenue authorities - Decided against assesse. Disallowance computed as per Rule 8D of the Rules cannot be applied u/s 115JB - Held that - Provisions of section 14A are restricted to computation of income under normal provisions of the Act which cannot be extended to the computation of income u/s 115JB of the Act as relying upon the decisions of ITAT Delhi Bench in the case of Goetze (India)ltd vs CIT (2009 (5) TMI 615 - ITAT DELHI ). - Decided in the favour of the assesse. Expenses pertaining to foreign exchange fluctuation disallowed - Held that - In view of the submissions made by the ld. AR the issue is restored back to the file of AO to examine as to whether the assessee has in fact booked profit on account of foreign exchange fluctuation. If that be so, the same shall be dealt with in accordance with judgement in the case of Woodward Governor India (2009 (4) TMI 4 - SUPREME COURT) wherein held market to market loss is an expenditure incurred by the assessee and thus allowable as deduction. - Decided in favour of assesse for statistical purposes only Disallowance of prior period expenses - Held that - Assessee had coal dumps against which deposits were received by it. The assessee had earned interest income on the said deposits and certain legal disputes against the claim by the coal dealers of coal dumps are pending in the courts. The assessee feels that such interest may have to be paid back to the said claimants. It is a fact that the assessee has not accounted the prior period expenses which had been stated to have been processed during the year. It is still a contingent liability which had not yet finalised and the assessee had made a provision in apprehension to write off it as bad debts. In the circumstances and facts of the case we find no infirmity in the order of the ld. CIT(A), who has rightly disallowed the claim of assesse - Decided against assesse. Disallowance u/Rule 8D(2)(ii) and Rule 8D(2)(iii) of IT Rules - CIT(A) deleted addition - Held that - Rule 8(2)(ii) can be invoked when the assessee had incurred expenditure by way of interest during the previous year relevant to assessment year which is not directly attributable to any particular income or receipt. The assessee had invested ₹ 6,31,637.37 Lakhs in its subsidiaries and had received the same amount from Govt. of India as subscribed share capital. It is pertinent to mention here that the assessee is a public sector undertaking of the Govt. of India and whole of the subscription of the share capital was subscribed by Govt of India till the present A.Yr. and there was no private placement in the form equity before A.Yr.2008-09. The entire share capital invested in the subsidiary companies from which exempt income in the form of dividend was earned was received by the assessee from the Govt. of India. The assessee had not raised loan or borrowed money for making investment in the subsidiaries. In the written submissions filed before the ld. CIT(A) the assessee had also explained the interest expenditure incurred by it was relatable to the business income of the asessee, which was non exempt. In view thereof, we do not find merit in the contentions raised by the revenue - Decided against revenue.
Issues Involved:
1. Disallowance of proportionate business expenditure for earning dividend income under Section 14A and Rule 8D. 2. Disallowance of proportionate business expenditure for computing book profit under Section 115JB. 3. Disallowance of prior period expenses. 4. Disallowance of provision for market-to-market foreign exchange transactions under normal provisions. 5. Disallowance of provision for market-to-market foreign exchange transactions for computing book profit under Section 115JB. Detailed Analysis: 1. Disallowance of Proportionate Business Expenditure for Earning Dividend Income under Section 14A and Rule 8D: The assessee contested the disallowance of Rs. 31,58,18,185/- proportionate business expenditure alleged to be utilized to earn dividend income. The AO applied Rule 8D, disallowing Rs. 1,51,03,21,925/- (Rs. 1,19,45,03,740/- under Rule 8D(2)(ii) and Rs. 31,58,18,185/- under Rule 8D(2)(iii)). The CIT(A) deleted the addition under Rule 8D(2)(ii) but upheld the addition under Rule 8D(2)(iii). The Tribunal held that the AO had recorded proper satisfaction for disallowance under Section 14A. The assessee's claim of incurring no expenditure was not accepted, as investment decisions require significant expenses. The Tribunal remanded the issue of computation under Rule 8D(iii) to the AO to exclude investments from non-dividend-paying companies. The assessee's grounds were dismissed on merits but allowed for statistical purposes regarding computation. 2. Disallowance of Proportionate Business Expenditure for Computing Book Profit under Section 115JB: The assessee contended that disallowance under Rule 8D could not be applied for computing book profit under Section 115JB. The Tribunal agreed, citing ITAT Delhi and Ahmedabad Bench decisions, and partly allowed the assessee's ground. 3. Disallowance of Prior Period Expenses: The AO disallowed Rs. 5,93,000/- as prior period expenses, stating the assessee failed to prove the crystallization of liability during the year. The CIT(A) upheld the disallowance, terming it a contingent liability. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the assessee's ground. 4. Disallowance of Provision for Market-to-Market Foreign Exchange Transactions under Normal Provisions: The AO disallowed Rs. 23.30 crores based on CBDT Instruction No.3/2010. The assessee relied on the Supreme Court decision in CIT vs. Woodward Governor India (P) Ltd., arguing the loss was an allowable expenditure. The Tribunal remanded the issue to the AO to verify if the assessee booked profit on foreign exchange fluctuation in subsequent years and directed to deal with it per the Supreme Court judgment. The ground was allowed for statistical purposes. 5. Disallowance of Provision for Market-to-Market Foreign Exchange Transactions for Computing Book Profit under Section 115JB: Similar to the normal provisions, the Tribunal remanded the issue to the AO for verification and directed to follow the Supreme Court judgment. The ground was allowed for statistical purposes. Revenue's Appeal: The revenue contested the deletion of Rs. 1,19,45,03,740/- disallowed under Rule 8D(2)(ii). The Tribunal noted that the assessee, a public sector company, received funds from the Government of India for investments in subsidiaries, with no borrowed funds involved. The CIT(A) correctly deleted the disallowance, and the revenue's ground was dismissed. Conclusion: The assessee's appeal was partly allowed for statistical purposes, and the revenue's appeal was dismissed. The Tribunal directed the AO to recompute certain disallowances and verify the treatment of foreign exchange fluctuations.
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