2019 (6) TMI 1006 - HC - Income Tax

Disallowance u/s.14A on account of administrative expenses - HELD THAT - In the present case, it is required to be noted that in the earlier years, the assessee was also having mixed funds and still considering the fact that the assessee was already having sufficient surplus interest free funds, the Division Bench of this Court has held that the disallowance under Section 14A is not permissible. At the cost of repetition, it is observed that the said decision has attained finality between the parties. Not only that, but the Department has followed the same in the subsequent assessment years also. Considering all, it cannot be said that the Tribunal has committed any error in deleting the disallowance made by the AO u/s 14A. See GUJARAT STATE FERTILIZERS AND CHEMICALS LTD 2018 (8) TMI 922 - GUJARAT HIGH COURT . Set off of loss incurred on sale of fertilizers bonds - treating it as business loss and blatantly ignoring the fact that the fertilizer bonds subscribed to by the assessee falls within the bracket of section 2(14) - Whether sale of fertilizer bonds is not allowable as business loss and is to be instead treated as capital loss? - HELD THAT - Proposed question is concerned, the same is also covered by the findings recorded by the Co-ordinate Bench in para 17 2018 (8) TMI 922 - GUJARAT HIGH COURT of its judgement wherein it was confirmed the finding of tribunal that loss of sale of fertilizer bond is business loss It transpires from the records that due to cash crunch Government of India at a certain point of time discharged its dues of paying the subsidy by replacing cash/cheque with the fertilizer bonds. These bonds are saleable in the open market and the prices of such bonds are varying. Against the subsidy income duly credited in the profit and loss account, assessee received fertilizer bonds. When these bonds were sold in the open market it fetched less value than the value at which they were given to the assessee. This gave rise to a loss which has been claimed as business loss. - appeal of revenue is dismissed

Summary

Issues involved:
1. Disallowance of administrative expenses under Section 14A of the Income Tax Act, 1961.
2. Treatment of loss incurred on sale of fertilizer bonds as business loss.

Analysis:

Issue 1: Disallowance of administrative expenses under Section 14A:
The Tax Appeal under section 260(A) of the Income Tax Act was filed by the revenue against the order passed by the Income Tax Appellate Tribunal regarding the disallowance of administrative expenses under Section 14A for the A.Y. 2010-11. The main contention raised was whether the ITAT erred in restricting the disallowance made under Section 14A to a specific amount without following Rule 8D of the Income Tax Rules. The Co-ordinate Bench in a previous case involving the same assessee had held that if the assessee had sufficient funds available, more than the amount invested for earning dividends, then disallowance of interest expenditure under Section 14A is not permissible. The decision of the Division Bench in the previous case had attained finality, and it was noted that the Department had followed the same in subsequent assessment years as well. Therefore, the Tribunal was justified in deleting the disallowance made by the Assessing Officer under Section 14A, and the appeal was dismissed based on the precedent set by the previous judgment.

Issue 2: Treatment of loss on sale of fertilizer bonds as business loss:
The second proposed question in the Tax Appeal raised the issue of whether the loss incurred on the sale of fertilizer bonds should be treated as a business loss or a capital loss. The Tribunal observed that the appellant company, engaged in manufacturing fertilizers, received subsidies from the Government based on the quantity of fertilizer dispatched. Due to a cash crunch, the Government replaced cash/cheque subsidies with fertilizer bonds, which were later sold in the market at a lower value, resulting in a loss claimed as a business loss. The Tribunal referred to a judgment of the Hon'ble Apex Court in a similar case where it was held that the loss incurred was a revenue loss and not a capital loss. The Tribunal found that the loss on the sale of fertilizer bonds should be treated as a business loss, considering the nature of the transaction and the operational context of the appellant company. The Co-ordinate Bench's decision in this regard supported the treatment of the loss as a business loss, and the appeal was dismissed based on the findings and reasoning provided in the previous judgment.

In conclusion, the High Court upheld the decisions of the Co-ordinate Bench in both issues raised in the Tax Appeal, emphasizing the importance of precedent and consistent interpretation of tax laws in similar cases involving the same assessee.