2015 (10) TMI 2816 - AT - Income Tax

Disallowance u/s 14A r.w. Rules 8D(2)(ii) - HELD THAT - As decided in own case 2015 (5) TMI 727 - ITAT DELHI sole ground of the assessee is allowed with a direction to the AO that the disallowance u/s 14A read with Rule 8D(iii) of the I.T. Rules should also be made for the year under consideration in this appeal i.e. for A.Y. 2008-09 and the AO is also directed to give set off of amount of suomoto disallowance already made by the assessee in the computation of returned income. We, therefore, by respectfully following the aforesaid referred to order restored this issue back to the file of the AO to be decided in accordance with the directions given vide order dated 20.05.2015 in assessee s own case 2015 (5) TMI 727 - ITAT DELHI for the assessment year 2008-09. Disallowance on account of diminution in value of fertilizer bonds - assessee received Fertilizers Companies, Government of India, Special Bonds against the fertilizer subsidy from the Government of India, as per Scheme, against the sale of fertilizer - HELD THAT - As decided in own case 2015 (5) TMI 727 - ITAT DELHI for the assessment year 2008-09 e fertilizer bonds received by the assessee in lieu of cash subsidy also deserves to be given the same treatment as foreign exchange because foreign exchange is also received in lieu of cash/Indian National Rupee (INR) and the same is also shown as current trading assets in the books of accounts as per well accepted accounting principles. - Decided against revenue.

Summary

Issues Involved:
1. Non-allowance of actual loss on sale of fertilizer subsidy bonds.
2. Disallowance under Section 14A of the Income Tax Act, 1961.
3. Deletion of disallowance on account of diminution in the value of fertilizer bonds.

Issue-wise Detailed Analysis:

1. Non-allowance of Actual Loss on Sale of Fertilizer Subsidy Bonds:
The assessee raised the issue that the CIT(A) erred in not allowing the actual loss of Rs. 6.98 crores suffered on the sale of fertilizer subsidy bonds and not excluding Rs. 0.06 crores being the profit on bonds credited to the Profit & Loss Account. However, this ground was not pressed by the assessee, and thus, it was dismissed as infructuous.

2. Disallowance under Section 14A of the Income Tax Act, 1961:
The core issue was the sustenance of disallowance made by the AO under Section 14A read with Rule 8D(2)(ii) of the Income Tax Rules, 1962. The AO worked out the disallowance at Rs. 2.42 crores but the CIT(A) restricted it to Rs. 1.58 crores. The CIT(A) observed that the assessee did not maintain separate accounts for investments, and thus, it could not be established that the investments were made from non-interest-bearing funds. The CIT(A) found that the AO had wrongly taken the average amount of investments and corrected it, leading to a revised disallowance. The ITAT, following its earlier order for the assessment year 2008-09, remanded the issue back to the AO for re-evaluation in accordance with the directions given in the previous order.

3. Deletion of Disallowance on Account of Diminution in the Value of Fertilizer Bonds:
The AO disallowed Rs. 7.21 crores claimed by the assessee as a loss due to the diminution in the value of fertilizer bonds, considering it a notional loss. The CIT(A) deleted this disallowance, agreeing with the assessee that the bonds were held as current business assets, and the loss was allowable. The ITAT upheld the CIT(A)'s decision, referencing its earlier order for the assessment year 2008-09, where it had ruled that the loss on fertilizer bonds, treated as current trading assets, was allowable as a business loss.

Conclusion:
Both the appeals of the assessee and the department were partly allowed for statistical purposes. The disallowance under Section 14A was remanded back to the AO for re-evaluation, while the deletion of disallowance on the diminution in the value of fertilizer bonds was upheld.