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TMI Blog2018 (4) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... ospective amendment. Hon’ble jurisdictional high court in CIT vs. National Dairy Development Board [2017 (6) TMI 736 - GUJARAT HIGH COURT] holds that such a liability does not arise in case of retrospective amendment. We thus see no reason to interfere with learned CIT(A)’s findings under challenge. - ITA No. 737 & 1671/Ahd/2012, Cross Objection Nos. 96 & 156/Ahd/2012, ITA Nos. 1670 & 1663/Ahd/2012, 983 And 1163/Ahd/2014 - - - Dated:- 13-4-2018 - SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER For The Revenue : Shri Surendra Kumar, CIT. D.R. For The Assessee : Shri S. N. Soparkar, Shri P. M. Mehta and Smt. Urvashi Shodhan, A.Rs. ORDER PER S. S. GODARA, JUDICIAL MEMBER The instant batch of eight cases arise against the CIT(A)-XIV, Ahmedabad s separate lower appellate orders dated 24.01.2014 in case no. CIT(A)-XIV/DCIT(OSD)/Cir.-8/252/2012-13 in assessment year 2003-04, dated 31.01.2012 in case no. CIT(A) XIV/ACIT Cir. 8/287/09-10 in assessment year 2007-08, dated 14.05.2012 in case nos. CIT(A) XIV/ACIT Cir. 8/271/10-11 and CIT(A) XIV/ACIT Cir. 8/189/2011-12 for assessment years 2008-09 and 2009- 10; respectively. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that correctness of Section 14A r.w. Rule 8D disallowance its quantifications as well as the consequential MAT adjustment u/s.115JB of the Act. We thus take up this common issue first for the sake of completeness and brevity. 6. This assessee is a company making investments in shares, debentures and security. It derived exempt dividend income of ₹ 67,45,61,270/- in the impugned assessment year without apportioning any corresponding expenditure thereto. The Assessing Officer framed his regular assessment on 29.12.2009 disallowing the amount in question of ₹ 1,49,66,635/- as per Rule 8D of the Income Tax Rules. This followed consequential MAT adjustment as well in assessee s books profits computed u/s.115JB of the Act. 7. The CIT(A) restricts the above disallowance to ₹ 25lacs only in the nature of administrative expenditure and further deletes the above book profits adjustment in question as follows: 3.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The A. O. has made the disallowance u/s. 14A by applying the provisions of Rule 8D. The appellant has submitted that provisions of Rule 8D are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uires considerable managerial and staff level intervention and, therefore, will result in substantial expenditure therein. It is noted from the audited accounts that the appellant has earned dividend of ₹ 19,26,81,869/- in the preceding year, whereas the dividend earned in this year is ₹ 67,45,61,270/-, which shows that there is a substantial increase of more than 3 times in earning of the dividend. The claim of the appellant that in the earlier year a disallowance of ₹ 6.79 lacs was made and the same should be considered for this year also is not acceptable as there is a substantial increase to the earning of dividend and the investment have also been reshuffled substantially as the balance sheet show that there is a vast difference between the investment of earlier year and in the present year even though the total value of investment more or less remains equal. Therefore, the facts of the earlier year and the present year are different and the yardstick applied by the A. O. in the earlier years cannot be applied to the facts of the present year. It is to be noted that the appellant is also showing income by way of interest, capital gain on sale of shares which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding ground is that the Assessing Officer had rightly invoked Rule 8D in the impugned assessment year as reversed in the lower appellate proceedings. It fails to dispute that the hon ble apex court s recent judgment in (2018) 401 ITR 445 (SC) CIT vs. M/s. Essar Teleholdings Ltd. as well as hon ble jurisdictional high court s decision in CIT vs. Torrent Power Ltd. (2014) 363 ITR 474 (Guj) settle the law that Rule 8D of the Income Tax Rules applies w.e.f. assessment year 2008-09 only. We reiterate that we are in assessment year 2007-08. We thus find no merit in Revenue s first substantive ground. The same is accordingly rejected. 9. Learned CIT.D.R s. next argument is that the CIT(A) ought to have upheld the entire addition of ₹ 1.99 crores than the administrative figure of ₹ 25lacs only. Without prejudice to the fact that Rule 8D does not apply in the impugned assessment year. He quotes hon ble apex court s judgment in (2018) 91 taxmann.com 154 (SC) Maxopp Investment Ltd vs. CIT(A) as well as Godrej Boyce Manufacturing Co. Ltd. v. DCIT [2017] 394 ITR 449 (SC) that an assessee s expenditure in case of exempt income is to be apportioned for the purpose of computing Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cs. Hon ble apex court s decision hereinabove make it clear that the relevant expenditure has to be apportioned in case of exempt and taxable income. It has come on record that this administrative expenditure disallowance issue has arisen in preceding assessment year as well. Learned senior counsel refers to the preceding year s developments qua the very issue to fairly offer the impugned disallowance @5% of the sum in question amounting to ₹ 1,49,66,635/-; coming to ₹ 7.5lacs. He however fails to rebut the CIT(A) s distinction drawn in his above extracted operative findings. We take into account all these facts and circumstances to partly accept assessee s arguments to restrict the impugned disallowance to a lump sum amount of ₹ 8lacs only. The assessee s substantive ground is therefore partly accepted whereas Revenue s corresponding plea seeking to revive the entire disallowance fails. 12. This leaves us with yet another important aspect of Revenue s pleadings seeking to restore consequential MAT adjustment u/s.115JB of the Act qua the abovestated Section 14A disallowance. This tribunal s recent special bench decision in ACIT vs. Vireet Investment Pvt. Ltd. c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2 Decision : I have carefully perused the submission made by the appellant. It is observed from the assessment records that the appellant has not made any such claim in the return of income. However, the amendment which has been referred by the appellant has come into effect after the return was filed by the appellant and, therefore, the appellant might have been prevented by a genuine reason for not making such claim in the return. The A. O. is, therefore, directed to examine the matter in accordance with the law and records. The ground of appeal is, therefore, partly allowed . 14. It transpires that the CIT(A) has only directed the Assessing Officer to examine the relevant facts. The Revenue s case before us is that the assessee has nowhere raised such a claim by way of original or revised return. The instant plea is no more acceptable as per hon ble jurisdictional high court s decision in CIT v. Mitesh Impex s case (supra). It is further evident the hon ble jurisdictional high court s recent judgment has decided the very legal issue in Vodafone Essar Gujarat Ltd. s case (2017) 397 ITR 55 (Guj) as follows: 23. By way of culmination of above judicial p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 115JB) as clarified in preceding paragraphs. The assessee s CO No.96/Ahd/2012 is partly accepted. Assessment year 2008-09 ( Assessee s Revenue s cross appeals ITA No.1663 1670/Ahd/2012) 16. We notice first of all that the assessee s appeal ITA No. 1663/Ahd/2012 raises two substantive grounds of appeal challenging the lower appellate authority s action in affirming Assessing Officer s action inter alia making Section 14A r.w. 8D disallowance and also in setting aside the issue regarding its claim for reduction of ₹ 4,03,25,000/- in the nature of provision written back in respect of diminution in the value of investigation for computing book profits u/s.115JB of the Act. The Revenue s as many grounds in its cross appeal ITA No. 1670/Ahd/2012 seek to revive Section 115JB book profits adjustment pertaining to the above Section 14A disallowance and also challenge the CIT(A) s action in setting aside the above latter issue of diminution in value of investment (as raised in assessee s appeal) back to the Assessing Officer for appropriate adjudication. 17. We advert to former common issue of Section 14A disallowance. There is no dispute that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initially arrived at 0.5% figure of ₹ 3,24,34,056/-. He then reduced the said sum of ₹ 64.26lacs with the following reasoning: The direct expenditure is taken to be the total employees remuneration and benefits as the time and effort required to trade the shares has been negligent or rather it would be appropriate to state that trading of shares has been nonexistent during the year. Since Vs % of the average investment is more than the total general and administration expense, so the disallowance is restricted to the total general administration expense and depreciation Expense. The total disallowance comes to ₹ 23609877/- (Rs.17183354/- + ₹ 4095120/-+ ₹ 23,31,403). Accordingly a disallowance of ₹ 21278474/-is made. Reliance is placed upon the following judgements'. 19. It is evident that the Assessing Officer had taken the latter two sums in the nature of general/administrative expenses and depreciation for the purpose of computation the administrative expenditure in issue. Learned Departmental Representative fails to dispute that the impugned head of administrative expenditure is an indirect expenses as against the direct on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 47 (vi) defines that any transfer in a scheme of amalgamation shall not be regarded as transfer and nothing contained in Section 45 shall apply. Now, as per the provisions of section 49(l)(e), the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property, acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee as the case may be. Therefore, in view of section 49(1), the cost of asset of such investment is to be taken as that of the previous owner. As pointed out by the A. R., section 48 or any other section does not define the term first year in which asset was held by the assessee . However, when provisions of section 47, 48 49 are to be applied and -considered together, the picture becomes clear. For the purpose of holding period, it would be relevant to refer to section 2(42A) wherein the short term capital asset is defined. As per explanation of the said section, the period for which the asset is held by the assessee is to be determined by including the period for which asset was held by the previous owner as referred to in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of action hereinabove as well to reject Revenue s instant substantive ground as well as main appeal ITA No.1671/Ahd/2012. 25. This leaves us with assessee s cross objection no. 156/Ahd/2012 raising sole substantive ground challenging correctness of Section 14A disallowance of ₹ 2,43,69,906/- out of ₹ 2,43,82,266/-. The same comprises of direct expenditure of ₹ 1,93,96,561/- having nexus with assessee s exempt income. There is no material on record before us to rebut the said nexus. We thus affirm the impugned direct expenditure disallowance. There is no proportionate interest expenditure disallowance made in the impugned assessment year. Last head therefore comes to be that of administrative expenditure and depreciation of ₹ 20,26,956/- and ₹ 29,58,749/- totaling to ₹ 49,85,705/-. The assessee derived exempt income from dividend of ₹ 48.76 crores, share in partnership firm to ₹ 1.618 crores, interest income of ₹ 14.74 crores and other income of ₹ 3.70lacs only. A safe presumption can be drawn that the assessee incurred major part of its administrative expenses qua the exempt income only. We thus affirm the impugned admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (2017) 83 taxmann.com 109 (Guj) in CIT vs. National Dairy Development Board holds that such a liability does not arise in case of retrospective amendment. We thus see no reason to interfere with learned CIT(A) s findings under challenge. The Revenue s instant ground as well as main appeal ITA No.983/Ahd/2014 fail accordingly. 28. We now advert to assessee s cross appeal ITA No. 1163/Ahd/2014. Its first substantive ground is that the CIT(A) has erred in law as well as on facts in upholding Assessing Officer s action adding the amount in question of ₹ 13.85crores after concluding the same to be for write off and not as a provision for diminution in value of its investments with the following detailed discussion: ( A) Ground No.1 is against the disallowance and addition of ₹ 13,85,00,000 while computing book profit u/s.115JB of the Act on the contention that impugned item debited to the P L account was, in truth and substance, a write off and not a provision for diminution in the value of its investment to which alone the newly retrospectively inserted clause (i) in the explanation to section 115JB(2) could apply. Firstly, the appellant in affirmation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CIT v. Yashaswi Leasing Finance Ltd. (2012) 204 Taxman 602 (Kar.) Similar view is taken by Hon'ble Punjab Haryana High Court in the case of CIT v. Steriplate (P)Ltd. (2012) 20 taxman. Com.375. As discussed in para 5.1 (A) that appellant to substantiate the contention that the amount is actual written off and not a provision, relied on Hon'ble Supreme Court in the case of Vijaya Bank (supra) and Hon'ble Karnataka High Court case of Yokogawa India Ltd. (supra) with due regards, I am not inclined to accept that ratio of these cases are applicable to appellant's case or the facts are similar to the facts of these cases. In both the cases the issue was related to bad debts and section 3b(1)(vii) of the Act was involved. Irrespective of the facts that whether the same was provision or actual write off, in the case of appellant, ₹ 13,85,00,000 is neither related to any debt nor any bad debt. The appellant's business activities of share trading as elaborated at para 5.1(B) above under the continued licence as NBFC cannot treat the Provisions in diminution of investment as bad debts . As explained earlier, the provision for bad de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting books profits. Both parties are ad idem that the same needs to be remitted back to the Assessing Officer to frame consequential assessment more particularly in view of his findings on the very issue in preceding paragraphs. The assessee informs us during the course of hearing that if a provision is disallowed in earlier assessment year and added herein as well, the same would result in case of double disallowance. Relevant reference is also drawn to our findings right from the lead assessment year 2007-08. We therefore direct the Assessing Officer to frame consequential assessment as per law in above terms. The instant ground is taken as accepted for statistical purposes. The assessee s cross appeal ITA No.1163/Ahd/2014 is partly accepted in above terms. 31. We quote our detailed discussion hereinabove to partly allow Revenue s appeal ITA No.737/Ahd/2012 for statistical purposes, dismiss its other appeals ITA Nos.1670 1671/Ahd/2012 and ITA No.983/Ahd/2014 and partly allow assessee s appeals ITA Nos.1663/Ahd/2012 1163/Ahd/2014 and CO Nos. 96 156/Ahd/2012. Ordered accordingly. [ Pronounced in the open Court on this the 13th day of April, 2018. ] - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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