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TMI Blog2018 (6) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... 1452/Ahd/2012 in assessment year 2008-09 has been confirmed by the hon'ble Gujarat High Court in Tax Appeal No. 557 of 2017. On the other hand learned Departmental Representative is unable to controvert this contention. 3. The brief facts of the case are that assessee has filed its return of income on 29.09.2011 declaring nil income. The case of the assessee was selected for scrutiny assessment and a notice u/s.143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee has received dividend income of Rs. 98,39,301/-, out of the above amount, it has claimed a sum of Rs. 97,18,731/- as exempt u/s.10(34) of the Income Tax Act. The assessee has disallowed a sum of Rs. 1lakh at its own u/s.14A towards administrative expenses. Learned Assessing Officer made an analysis of the accounts and thereafter observed that it is quite difficult to find out exact expenditure incurred by the assessee for earning exempt income therefore with the help of Rule 8D he worked out the disallowance at Rs. 1,19,21,511/- an addition of this amount was made. 4. Dissatisfied with the disallowance of the impugned amount, assessee carried the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78,400 18,44,83,772 (5,44,16,447) 31 -Mar-06 27,80,20,171 (161) 17,45,82,420 (99,01,352) 31 -Mar-07 32,55,68,485 4,75,48,314 65,22,20,000 47,76,37,580 31 -Mar-08 34,50,41,480 1,94,72,995 64,30,84,000 (91,36,000) 31 -Mar-09 34,49,07,480 (1,34,000) 73,76,07,000 9,45,23,000 31 -Mar-10 34,49,07,480 - 43,83,72,000 (29,92,35,000) 31 -Mar- 11 34,49,07,480 - 45,33,83,000 1,50,11,000 1.4 The following facts correlating the borrowed funds and the investments made for various years clearly establishes that the borrowed funds have not been used for making the investments. These details were already submitted with the Assessing Officer during assessment proceedings but the same have not been considered. We again reiterate the facts cotrelating the borrowed funds and the investments made for various years: * The total investments in shares covered under section 14A amounted to Rs. 3449.07 Lacs as on 31st March 2011. * As against this the total borrowings as on 31.03.2011 was Rs. 4533.83 lacs. * As against this the own funds of the Appellant were Rs. 8166.72 lakhs as on 31.03.2011. * As on 31.03.2005 there was a decrease in b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "8. Having thus heard learned counsel for both sides and having perused the orders on record, we find that in the present case assesses had sufficiently explained its investment for borrowed funds pointing out that loan was obtained in the assessment year 1997-1998 and its majority of the investment for tax free security were made before the said period. Only a small portion of investment was made subsequently. Assesses had demonstrated that it had other sources of investment and that therefore, according to assessee no part of the borrowed funds could be stated to have been diverted to earn tax free income. When CIT(Appeals) and the tribunal both on facts in the present case found that the assessee did not invest borrowed funds the for earning interest free income, we are of the view that not applying provision of Section 14A of the Act for taxing such interest was justified. No question of law therefore, is arising for our consideration. With respect to the second question, we find that total impact on revenue is Rs. 10,700/-. Only on this ground, we are not inclined to consider the question raised. " We respectfully submit that the above decision is squarely applicable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such the assesses was having interest free funds out of which the investment was made. Therefore, Tribunal has deleted the entire disallowance of Rs. 12,06,954/- made by the AO u/s 14A. We are in complete agreement with the view taken by the Tribunal and the reasons given by the Tribunal while deleting the disallowance of interest expenses u/s 14A. 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 u/s .14 A solely on the ground that the assessee failed to justify that the investment was made out of the interest free funds. However, both the CIT(A) as well as the Tribunal have found otherwise. Therefore, we confirm the impugned judgment and order passed by the Tribunal insofar as deleting the disallowance of interest expenses u/s 14A in its entirety..." Copy of decision is enclosed as Annexure C(i). * We invite reference to the judgment of the Jurisdictional Gujarat High Court in the case of Gujarat Industrial /Development Corporation Limited - 84 CCH 87. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound of appeal, grievance of the assessee is that learned CIT(A) has erred in confirming the inclusion of disallowance u/s.14A while computing book profit. Learned counsel for the assessee at the very outset submitted that this issue is fairly covered in favour of assessee by the order of the ITAT passed in assessment year 2008-09 which has been upheld by the hon'ble High Court. The ground raised by the assessee in present year read as under: "2. Disallowance u/s. 14A in 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 upholding the action of the Assessing Officer making addition of the amount disallowed u/s.14A r.w.rule 8D in computing the book profits u/s.115JB. 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 disallowing u/s14A read with rule 8D without appreciating that the Appellant had sufficient own funds for making the investments and most of the borrowing were taken for the purpose of business and not for making investments." The order of tribunal in assessment year 2008-09 on this issue rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company: Provided that while preparing the annual accounts including profit and loss account, - (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 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 Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at when an Assessee is a company and the income-tax, payable on the total income as computed under this Act (under the normal provisions of the Act) in respect of any previous year relevant to the assessment year is less than prescribed percentage (this percentage keeps changing for various AYs) of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. Book profit for the purpose of Sec.115JB of the Act has been defined by Expln.-1 below Sec.115JB(2) as net 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning income which does not form part of the total income under the Act than that can be adopted for the purpose of addition under clause (f) of Expln.1 below Sec.115JB(2) of the Act. Rule 8D of the rules come into play only when there is no other basis for arriving at the quantum of expenditure incurred in earning income which does not form part of the total income under the Act. 34. In our opinion, the question formulated by the CIT(A) whether Sec. 14A of the Act read with Rule 8D of the rules can be imported into the provisions of clause (f) to Explanation (1) to section 115JB of the Act, is itself erroneous. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w this ground of appeal and direct the Assessing Officer not to make any disallowance u/s.14A while computing book profit u/s.115JB. 8. In the next ground of appeal, grievance of the assessee is that learned CIT(A) has erred in upholding the disallowance of foreign travel expenditure to the extent of 75%. With the assistance of learned representatives, we have gone through the record carefully, it emerged out from the record that similar expenditure was made in assessment year 2008-09 and dispute travelled up to the Tribunal. The Tribunal has deleted the disallowance by observing as under: "16. In ground no.3, the assessee has raised the following grievance :- "3. Disallowance of foreign travel expenditure Rs. 9,74,612/- : 3.1 On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming 75% of the disallowance made by the Assessing officer of expenditure on foreign travel incurred by the Appellant presuming it to be for non business purposes." 17. So far as this disallowance is concerned, the relevant material facts are like this. During the course of the assessment proceedings, the Assessing Officer noted that the assessee has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no disallowance can be made for the reason that the expenses are personal in nature. Even if an expense incurred in the course of business gives personal benefit to a director, it is incurred in the course of business and is allowable as such and cannot be viewed as a personal expense. In the light of the findings of the CIT(A), which have not been challenged by the Assessing Officer, 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 not open to him to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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