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TMI Blog2017 (1) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... JB - Held that:- We uphold the grievance of the assessee and direct the Assessing Officer not to make any disallowance under section 14A while computing book profit under section 115JB. See Sobha Developers case [2015 (2) TMI 940 - ITAT BANGALORE] - Decided in favour of assessee Disallowance of foreign travel expenditure - 75% time on the trip was used for personal purposes of the director - Held that:- The foreign visit was at least partly for business purposes and, therefore, just because this visit resulted in, assuming it is correct, personal benefit to the director, the expenses incurred on the visit cannot be disallowed as personal expenses. This is at best expense of the assessee company which resulted in benefit to the director. In any event, there is no material whatsoever to come to the conclusion that 75% time on this trip was used for personal purposes of the director. The case relied upon by the CIT(A) was a case in which a detailed analysis of the activities of the director was carried out and then this conclusion was drawn. There is no such material on record in this case. Once the CIT(A) came to the conclusion that the trip was for some business purposes, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the interest bearing funds have not been used in making the investments from which the dividend income is earned. It was also explained that the borrowings from the bank are used for the purpose of which borrowings were made i.e. for financing ONGC liability, for use as capital expenditure and for working capital requirements. It was also explained by the assessee that while term loan of ₹ 45.43 crores which was taken from Bank of Baroda for financing ONGC liability could clearly be linked to the end use, the other borrowings for working capital etc. could not be correlated one to one receipt of loan fund and its utilisation due to voluminous transactions. The sanction letters from the banks showing end use of the loan was nevertheless filed by the assessee. It was also pointed out by the assessee that the interest-free funds available to the assessee are in any event cannot be more than the investment in this tax exempt income yielding investment, and the assessee also filed statement showing utilization of interest bearing funds. These explanations however did not satisfy the Assessing Officer who proceeded to invoke section rule 8D by observing that assessee could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee were thus rejected. While so rejecting the contentions of the assessee, the learned CIT(A) observed as under:- 5.3 I have considered the contentions of the AO and the submissions of the appellant. So far as the appellant s first contention that no satisfaction has been raised by the AO as to how claim of the appellant in respect of disallowance under section 14A is incorrect is concerned, it is seen from the assessment order that the AO has stated as follows: The assessee contention that only disallowance u/s 14A possible in this case is only ₹ 1 lakh, which was disallowed by the assessee in its computation. The contention of the assessee is not acceptable. The assessee could not justify that no interest bearing fund has been diverted for making investment from where it has got exempted income. Further, the assessee must have incurred some expenditure like telephone, stationery, personnel cost, etc. for investment in mutual funds etc. In these circumstances, I am satisfied that this is a fit case to invoke the provisions of section 14A of the Income Tax At, 1961. Further, rule 8D was come into effect from 24.3.2008 i.e. for assessment year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 213 (Ker)] and the judgement of Hon ble Calcutta High Court in the case of Dhanuka Sons Vs CIT [(2011) 12 taxmann.com 227 (Cal)] . The proposition supported by these judicial precedents were stated to be (a) that when no separate books of accounts are maintained, the disallowance by reference to rule 8D will be justified; and (b) that onus is on the assessee to show that no interest bearing funds were used in making investments on which tax exempt income is earned. A reference was also made to Hon ble Supreme Court s judgment CIT Vs Walfort Shares Stock Brokers Pvt Ltd [(2010) 192 Taxman 211 (SC)] but then this judgement only to support proposition that expenditure relating to income not forming part of dividend income has to be taken into account in computation of income from heads which are taxable and this proposition is not really relevant to the issue in appeal before us nor is it in dispute. The CIT(A) thus concluded that the contentions of the assessee are required to be dismissed as adhoc disallowance computed by the appellant is not acceptable and hence is rejected . It was in this backdrop that the learned CIT(A) also rejected the claim of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee are far in excess of the investments yielding tax exempt income, and in such a situation, as held by Hon ble jurisdictional High Court, in the case of CIT vs. UTI Bank Limited [(2013) 32 taxmann.com 370 (Guj)] , has approved the stand of this Tribunal in following the principle, laid down by Hon'ble Bombay High Court in case of CIT v. Reliance Utilities Power Ltd. ( supra ), which states that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available, and, accordingly, no disallowance under section 14A in respect of interest payment can be made in such a situation. Once the Hon ble jurisdictional High Court holds this approach, it cannot be open us to hold that even where investment in tax exempt income are much less than interest free funds available to the assessee any part of the interest expenditure can be attributed to the investments in such investments. It is in such a situation wholly irrelevant whether the investments are made from common pool of funds, consisting of interest free and interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions and perused the orders of lower authorities and material available on record. The undisputed facts of the case are that the Assessing Officer observed that the assessee has made investment of ₹ 21,14,07,850/- and the assessee has paid interest on borrowed funds of ₹ 40,10,861/-. He also observed that the assessee has not made disallowance of interest expenditure according to section 14A read with Rule 8D of the Act. He therefore computed the proportionate disallowance of interest expenditure at ₹ 5,84,706/- and disallowed the same. Before the Commissioner of Income Tax (Appeals), the assessee submitted that the assessee had borrowed funds for the purposes of vehicle and old loan of ₹ 2005/- for Captive Power Plant, and therefore no borrowed funds were used for non-business purposes. Further, the assessee relied upon the decision of the Hon'ble Supreme Court in the case of S A Builders (supra) and Munjal Sales Corporation (supra) and the decision of Hon'ble Mumbai High Court in the case of Reliance Utility Power Ltd. (supra) where it was held that if the interest free funds of the assessee were sufficient for making investments, no disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer and confirmed by the Commissioner of Income Tax (Appeals). Our above view finds support from the decision of the Hon'ble Delhi High Court in the case of CIT v. Consolidated Photo Finvest Ltd. (2012) 211 Taxman 184 (Del.). Therefore, we set aside the orders of lower authorities and delete the disallowance of ₹ 6,22,228/-. Thus, ground no.1 of appeal of the assessee is allowed. We are in complete agreement with the view taken by the learned Tribunal and the reasons given by the learned Tribunal while deleting the disallowance of interest expenses under Section 14A of the Act . 5.2 Now, so far as the contention on behalf of the appellant with respect to applicability of Rule 8D of the Rules with effect from 31.03.2006 is concerned, there cannot be any dispute about the same. However, it is required to be noted that the AO made the disallowance under Section 14A of the Act solely on the ground that the assessee failed to justify that the investment was made out of the interest free funds. However, both the learned CIT(A) as well as the learned Tribunal have found otherwise. Under the circumstances, the decision of the Bombay High Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental Representative could not demonstrate that the disallowance offered by the assessee suo motu is inadequate. In view of these discussions as also bearing in mind entirety of the case, we are of the considered view that authorities below were indeed in error in sustaining the impugned disallowance of ₹ 79.30 lakhs. We therefore delete the same. 11. In the result, ground no.1 is allowed. 12. In ground no.2, the assessee has raised the following grievance: 2. Addition of expenses disallowed u/s 14A while computing book profits u/s. 115JB: 2.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the Assessing Officer by making addition of the expense of ₹ 79.30 lacs disallowed u/s 14A read with rule 8D while computing book profits u/s. 115JB without considering that the Assessing Officer had not recorded satisfaction as to how the amount of claim in respect of disallowance is incorrect. 2.2 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the Assessing Officer by making addition of the expense of ₹ 79.30 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956)97b, which is different from the previous year under this Act, - (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and the method and rates for calculating the depreciation which have been adopted for preparing such accounts including profit and loss account for such financial year or part of such financial year falling within the relevant previous year. Explanation [1]. - For the purposes of this section, book profit means the net profit as shown in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit as shown in the profit and loss account for the relevant previous year prepared in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956). Expln.1 below Sec.115JB(2) also provides for certain additions and deductions from the said profit where such sums have either been added or reduced while arriving at the profit as per profit and loss account for the relevant previous year prepared in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956). 31. In the present case we are concerned with one item which needs to be added to the total income laid down in the first part of Expln.1 clause (f) viz., the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply. Another item which needs to be excluded to the total income laid down in the second part of Expln.1 clause (ii) viz., the amount of income to which any of the provisions of section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply, if any such amount is credited to the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneous. The question to be asked is as to how to give effect to the provisions of clause (f) to Explanation (1) to section 115JB of the Act. We do not think that there is any prohibition to adopt the disallowance made by the AO u/s.14A of the Act read with Rule 8D of the rules, while computing total income under the normal provisions of the Act. The argument of the learned counsel for the Assessee that section 14A of the Act is very specific and is applicable only for the purpose of computing total income under Chapter IV of the Act and that section 115JB appears in Chapter XII-B of the Act dealing with specific provisions relating to certain companies and therefore the provisions of Sec.14A read with Rule 8D of the Rules cannot be applied while making addition to net profit as per profit and loss account u/s.115JB Expln.1 clause (f) of the Act, because the expression expenditure relatable is used in sub-clause (f) of Explanation (1) to section 115JB of the Act whereas expression with the expression used in 14A of the Act is expenditure incurred by the assessee in relation to and therefore only direct expenditure attributable to earning of income which does not form part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ms Y R Amin. It was stated by the assessee that this visit was undertaken to understand opportunities available in expanding and diversifying in the markets. It was also stated that Ms Amin had visited various manufacturing plants and interacted with key personnel, technology professionals and consultants et. The Assessing Officer was, however, not convinced with these explanations. He was of the view that no tangible ad reliable evidence was filed to prove that the foreign visit of Ms Y R Amin was for any business purpose . The expense was thus disallowed. In appeal, learned CIT(A) held that in the present case, the details of visit were furnished but the same are not supported by the vouchers and other documentary evidences which could show that assessee actually carried out certain business activity during the course of visit but considering the submissions made, the entire visit cannot be termed as personal . He also noted that as per decisions of Hon ble jurisdictional High Court in the case of CIT Vs Shahibag Entrepreneurs [(1995) 215 ITR 810 (Guj)] , a visit which is wholly personal and gratuitous can be disallowed. Based on the decision of this Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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