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TMI Blog2016 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... ch investments in funds giving tax free income would have been made and also there is no specific observations by the Assessing Officer that during the previous year any such funds bearing interest have been diverted/applied to investments, income of which is not forming part of total income and, therefore, there seems to be no possibility of application of Rule 8D in relation to interest expenditure. As regards apportionment of administrative and establishment expenses debited to the profit and loss account towards exempt income earned during the year on one hand, assessee which is a limited company has provided audited financial statement along with audit report u/s 44AB wherein no specific disallowance u/s 14A is appearing and on the other hand, the Assessing Officer has not gone specifically through the books of account so as to bring any fact that any such expenditure has been incurred for earning exempt income. Therefore, Assessing Officer was not correct in applying section 14A read with Rule 8D in the case of the assessee. However, looking to past history, previous assessments made and the decision of co-ordinate Bench, as well as accepting the fact that one cannot ignor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irected against the order of CIT(A)-I, Baroda, in appeal No.CAB-I/283/11-12, dated 31.8.2012. Assessment was framed under section 143(3) of the Income-tax Act, 1961 (in short the Act) by DCIT, Cir.1(1), Baroda, for Asst. Year 2009-10. 2. Briefly stated facts of the case are that assessee is a Limited Company engaged in the business of manufacturing and trading of chemicals and generation of power. Return of income was filed on 23.9.2009 declaring total income of ₹ 88,18,01,350/- and thereafter the return of income was revised on 6.9.2010. The case was selected for scrutiny and notice u/s 143(2) was issued on 19.8.2010 and duly served. The assessment was completed by the Assessing Officer at a total income of ₹ 162,29,20,947/-. Various additions were made by the Assessing Officer and the issues in the appeal of assessee are against confirmation of various additions/disallowance by ld. CIT(A). 3. Following grounds are raised in this appeal by assessee:- 1) The Hon'ble CIT(A)-I, Baroda has erred in not accepting your appellant's contention, holding that the order passed by the ld. Dy.CIT is bad in law contrary to legal pronouncement. It is therefore sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Schedule VI to the Companies Act, 1956 hence further adjustments as above, to profit as per final accounts are not permissible under section 115JB. It be held so now and book profit as declared be accepted now. 6) The Hon'ble CIT(A)-I, Baroda has erred in confirming the charging of interest u/s 234B/234C of the Act. The AO be directed to delete the said interest. Your appellant craves for leave to alter/amend/withdraw/modify any of the above grounds and/or to add any ground before disposal of appeal. 4. Ground No.1 is general in nature hence needs no adjudication. 5. Ground No.2 is in relation to confirmation of disallowance of ₹ 14,01,000/- being amortization of lease rent paid treating the same as of capital nature by CIT(A). Assessing Officer referred to disallowance on similar issue in Asst.Year. 2008-09 and made disallowance in Asst. Year 2009-10 of ₹ 14,01,000/- being amortization of lease rent. 6. Aggrieved, the assessee went in appeal before the CIT(A) who confirmed the disallowance by observing as under :- 3.2 I have considered the matter, which is covered by my decision dated 3.11.2011 in appellant's case in CAB-I/25/10-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sole question no.1 in Tax Appeal No.780 of 2013 is required to be answered in favour of the assessee and against the revenue. 10. Respectfully following the decision of Hon'ble Jurisdictional High Court, we hereby delete the disallowance of ₹ 14,01,000/- made on account of amortization of lease rent which was treated as capital expenditure by the Assessing Officer. This ground of assessee's appeal is allowed. 11 Ground No.3 relates to confirmation of addition of ₹ 2,26,90,000/- made Assessing Officer by invoking the provisions of section 14A r.w.s. rule 8D, by CIT(A). During the course of assessment proceedings the AO made disallowance of ₹ 2,26,90,000/- by invoking provisions of section 14A read with Rule 8D of Income-tax Rules. Appellant had earned dividend income of ₹ 6,78,87,800/- claimed exempt u/s 10(34), tax free interest from UTI of ₹ 1,11,766/- claimed exempt u/s 10(35) and compensation for CTC phase out of ₹ 3,79,09,618/- claimed exempt u/s 28(va(ii). In response to AO's proposal to make disallowance u/s 14A, appellant made submissions identical to submissions made in this regard during assessment for Asst. Year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income of assessee and similarly administrative and other establishment expenses which are incurred by the assessee for business purposes, there always remains some element of expenditure which may have been incurred for earning tax free income. The relevant portion of rule 8D reads as under :- 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer wherein he is dissatisfied with the correctness of the books of account of the assessee nor he has specifically pointed out about wrong claim of expenses made by the assessee. It seems that on the basis of profit and loss account where the assessee has shown exempt income under section 10(34), under section 10(35) and exempt under proviso to section 28(va)(ii), he has assumed that there ought to have been some expenditure in the form of interest paid or administrative expense which have been incurred for earning income which do not form part of total income. Therefore, the conditions which was required to be adhered before adopting the method prescribed under Rule 8D was not complied by the Assessing Officer as is evident from the assessment order. 18. Further in regard to the interest expenditure that whether there is any application of interest bearing fund to investments giving tax free income, we have gone through the audited balance sheet of the assessee company from which it is revealed that investments as on 31st March, 2009 are at ₹ 117.28 crores appearing in the assets side and the share-holders fund comprising of share capital and reserves and surplus to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electricity sold and arrived at a conclusion that assessee earned has not earned any profit rather incurred losses. Aggrieved, assessee went in appeal before the CIT(A) who replaced the rate taken by the Assessing Officer at ₹ 2.23 by ₹ 3.11 per unit and accordingly asked the Assessing Officer to recomputed the profits of eligible undertaking for the purpose of section 80IA(iv). However, ld. CIT(A) has confirmed in his order that assessee is eligible for deduction under section 80IA(4) in respect of electricity generated by it for captive consumption. Aggrieved, the assessee is now in appeal before the Tribunal. 21. The ld. AR of the assessee submitted that similar issue in assessee's own case has been dealt by the Tribunal in ITA Nos. 179, 180 181/Ahd/2010 for Asst. Years 2005-06 to 2007-08 (copy placed on record). So he submitted that the issue may be decided in view of the above decision of the Tribunal. 22. The ld. DR supported the orders of lower authorities. 23. We have considered the rival submissions and perused the material on record. We find that the co-ordinate Bench in assessee's own case for Asst. Years 2005-06 to 2007-08 has decided simi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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