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TMI Blog2015 (5) TMI 420X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of assessee. Depreciation claimed on inflated cost of windmills - CIT(A) allowed claim - Held that:- CIT(A), who allowed the claim of depreciation, placing reliance on the decision of his predecessors in assessment years 2002-03, 2003-04 and 2008-09 in the case of Karma Energy Ltd. (now amalgamated with the assessee). The issue was taken by the department before the ITAT and the ITAT, after considering detailed replies and submissions from either side, rejected the appeal as filed by the department, allowing the claim of depreciation - Decided against revenue. Exclusion of tax free investments from which no income was earned from the working of average tax free investment for the purpose of working under Rule 8D - Held that:- The assessee had interest free own funds of ₹ 8248.44 lacs and investments of ₹ 5162.95 lacs. This would clearly show that there would be no diversion of interest bearing funds. In such a case, the decision of Reliance Utilities and Power Ltd reported in [2009 (1) TMI 4 - HIGH COURT BOMBAY] would squarely cover the conduct of the assessee.Since the assessee did not intend to earn dividend and the investments made were from interest fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,095/- under section 14A of the Income Tax Act, 1961. 5. The facts are that the assessee received dividend income of ₹ 3,060/- from M/s Malad Shakari Bank Ltd. Since the bank is not a scheduled bank, it was not covered u/s 115O and therefore, the dividend received from this bank became taxable. The assessee did not claim the income to be exempt and included the same in the tax computation. 6. The AO noticed the figure of dividend and called for an explanation from the assessee, as to why the statutory disallowance of expense be not made on the income claimed as dividend. The assessee explained to the AO that the assessee has not claimed this income of dividend as exempt and hence provisions of section 14A read with Rule 8D would not be applicable. 7. The AO negated the explanation of the assessee resorted to Rule 8D and computed the disallowance of ₹ 52,06,481/-. 8. The assessee took the issue before the CIT(A), who after considering the submissions and case laws cited before him, reduced the disallowance to ₹ 19,76,095/-. 9. Against this decision of the CIT(A), the assessee is before the ITAT. 10. Before us the primary issue is, that whether on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and in law, the Ld. CIT(A) erred in deleting the disallowance made as per sub clause (ii) of Rule 8D(2) r.w.s. 14A of the Income Tax Act. 3. On the facts and in the circumstances of the case, the impugned order of the Ld. CIT(A) is contrary to law to be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary . 17. The facts are, The facts of the case are that the assessee had purchased 12 windmills from M/s NEG Micon (I) Pvt Ltd, Chennai. Thereafter, a survey operation was conducted on M/s NEG Micon. On the analysis of the sale price of windmills to other buyers, the survey party arrived at a conclusion that the assessee has been charged on the higher side by the said party and to that extent even the assessee has shown the purchase price of windmill on higher side. On the alleged inflated amount, depreciation was disallowed by the Assessing officer from the AY 2002-03 onwards. Consequently, during the year under consideration, the Assessing Officer disallowed deprecation of ₹ 1,536/- . 18. The issue was brought up before the CIT(A), who allowed the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the provisions of section 14A read with rule 8D are applicable to it. It has, therefore, suo moto disallowed an amount of ₹ 98.86 lacs u/s. 14 A read with rule 8D. 2.3 However, the assessing officer has not agreed with the correctness of the computation of disallowance made by the A.O. While computing the disallowance u/s. 14A in its computation of income, the appellant had excluded certain interest expenditure which has a direct nexus with loans from IREDA, IDBI, loans from banks for purchase of foreign bills packing credit etc. The CIT(A) has decided this issue in favour of the appellant in A.Y. 2006-07 which has been accepted by the Department. The appellant's contention in this regard was accepted and the interest expenditure for the purposes of computing disallowance u/s. 14A rule 8D was computed by the Assessing Officer as follows: Total interest expenditure 623.70 Interest expenditure which has no nexus with investment IREDA 56.25 IDBI 11.23 Banks-foreign bills purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree funds. As mentioned by the CIT(A) in para 2.4 2.5, the order, that the assessee had interest free own funds of ₹ 8248.44 lacs and investments of ₹ 5162.95 lacs. This would clearly show that there would be no diversion of interest bearing funds. In such a case, the decision of Reliance Utilities and Power Ltd reported in 313 ITR 340 would squarely cover the conduct of the assessee. The AR also placed reliance on the decision of Shoppers Stop Ltd vs ACIT in ITA No. 144 4475/Mum/2010. 32. Coming to the next aspect, i.e. whether the investments were made for dividend yielding or non dividend yielding. It has been argued by the AR that the assessee made investments in companies to gain control and not to earn the dividend. The factum of dividend income as declared at ₹ 25.57 lacs and disallowance computed by the assessee at ₹ 98.86 lacs is undisputed. 33. Since the assessee did not intend to earn dividend and the investments made were from interest free funds, in our opinion, the CIT(A) was correct to hold that no further disallowance was called for. We, therefore, sustain the order of the CIT(A), deleting the disallowance of ₹ 97.25 lacs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of exempt income yielding investments, though no income had been earned. The Special Bench decided the case in favour of the department. But the case is distinguishable because, in the instant case, there was no exempt income, hence no disallowance would be made. We are fortified in the decision, placing reliance on the decision of ACIT vs M. Baskaran, ITA No. 1717/Mds/2013, wherein the Coordinate Bench at Chennai, held, Heard both sides. Perused orders of lower authorities and submissions made by the assessee and the decisions in relied on. No doubt in the decision of the Special Bench of Delhi Tribunal in the case of Cheminvest Ltd. Vs. ITO (supra), the Special Bench held that disallowance under section 14A can be made even in the year in which no exempt income has been earned or received by the assessee. The decision of Special Bench of the Tribunal has been impliedly overruled by the decisions of High Courts in the following cases: 6. In the case of M/s Shivam Motors P Ltd (supra), before the Hon ble Allahabad High Court, the Revenue raised the following question of law:- Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in the present case, we are concerned with the assessment year 2009-2010 such formula was correctly applied by the Revenue. We however, notice that subsection (1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act no deduction shall be allowed n respect of expenditure incurred by the assessee n relate on to income which does not form part of the total income under the Act. In the present case the tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of Commissioner of Income Tax v Winsome Textile Industries Ltd reported in (2009) 319 ITR 204 (Pun] Har) in which also the Court had observed as under: 7 We do not find any merit in this submission The judgment of this court in Abhishek Industries Ltd (2006) 286 ITR 1 was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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