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TMI Blog2017 (5) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... making investment. Therefore, as rightly observed by the learned CIT [A] as well as the learned Tribunal, the purpose was, on capital account and any exchange fluctuation resulting into profit or loss should be treated on capital account and adjusted from the cost of the asset, but it cannot have any impact on the revenue account. At this stage, it is required to be noted that in the case of the very assessee, the assessee had incurred loss in the same account in the earlier assessment years as well as subsequent assessment year and the treatment given by the assessee has been accepted. Therefore, the learned CIT [A] as well as the Tribunal has rightly deleted the disallowance made on account of foreign gain. - Decided against revenue. - TAX APPEAL No. 268 of 2017 - - - Dated:- 4-5-2017 - M.R. SHAH, AND B.N. KARIA, JJ. FOR THE APPELLANT : Mr NITIN K MEHTA, ADVOCATE FOR THE OPPONENT : Mr JP SHAH, Sr Advocate with Mr. MANISH J SHAH, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE Mr. JUSTICE M.R. SHAH) 1. Feeling aggrieved and dissatisfied with the impugned common Order passed by the Income Tax Appellate Tribunal, C Bench, Ahmedabad dated 18th March 2016 passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d has deleted the disallowance of expenditure in respect of interest and administrative expenditure of ₹ 54,39,916/= under Section 14A of the Act. By the impugned common judgment and order, the Tribunal has dismissed the appeal preferred by the Revenue and has confirmed the order passed by the learned CIT [A] deleting the disallowance of ₹ 39,48,81,350/= incurred towards foreign exchange gain. 6. Feeling aggrieved and dissatisfied by the impugned common judgment and order passed by the learned Tribunal, the Revenue has preferred the present Tax Appeal with the aforestated proposed question of law. 7. We have heard learned advocate Shri Nitin K Mehta, learned counsel appearing on behalf of the Revenue and Shri J.P Shah, learned Senior Advocate appearing on behalf of the respondent-assessee. 8. At the outset, it is required to be noted that the Assessing Officer made disallowance in respect of interest and administrative expenses of ₹ 54,39,916/= under Section 14A of the Act read with Rule 8D of the I.T Rules. However, it is required to be noted and it does not seem to be in dispute that in the A.Y 2010-2011, the assessee was having reserve fund of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in both the years is that it has made investment in the mutual fund with growth option . In the case of growth option, no dividends are declared by the mutual fund, and only income declared by an investor is in the form of capital gains. The capital gains derived by the assessee on mutual fund are taxable and not an exempt income derived by the assessee on mutual fund are taxable and not an exempt income derived from such investment. In the Asstt. Year 2009- 2010, the assessee has offered a sum of ₹ 19.,22 Crores on sale of such investment for taxation as short/long term capital gain. Similarly, in the Asstt. Year 2010-2011, a sum of ₹ 8.23 Crores has been offered. The investment made by the assessee was not out of interest bearing fund. It has its own surplus fund out of which investment has been made. The assessee has demonstrated that it had own funds of ₹ 1981.55 Crores in the A.Y 2009-10 and investment in the mutual fund was only 144.51 Crores. The assessee had also submitted that its investment in earning exempt income has reduced during the year from 78.45 crores to ₹ 18.09. The assessee has submitted these details in its submissions re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emicals Limited , reported in [2015] 376 ITR 553 [Gujarat] needs a reference. In the said decision, it is observed and held by the Division Bench of this Court that when the assessee had sufficient interest-free funds out of which concerned investments had been made, disallowance under Section 14A is not justified. 10. Now so far as impugned order passed by the learned Tribunal in deleting the disallowance of ₹ 39,48,81,350/= incurred towards foreign exchange gain is concerned, at the outset, it is required to be noted that the money was borrowed by the assessee in foreign exchange for the purpose of expanding its business and making investment. Therefore, as rightly observed by the learned CIT [A] as well as the learned Tribunal, the purpose was, on capital account and any exchange fluctuation resulting into profit or loss should be treated on capital account and adjusted from the cost of the asset, but it cannot have any impact on the revenue account. At this stage, it is required to be noted that in the case of the very assessee, the assessee had incurred loss in the same account in the earlier assessment years as well as subsequent assessment year and the treatment g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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