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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 ..... t of deduction for these expenses- particularly when there is no material to hold that the visit was for personal purposes. - Assessee appeals allowed. - ITA No. 251/Ahd/2016 - - - Dated:- 6-6-2018 - Shri Pramod Kumar, Accountant Member And Shri Rajpal Yadav, Judicial Member For The Assessee : Shri S. N. Soparkar, A.R. For The Revenue : Shri Mudit Nagpal, Sr. D.R. ORDER PER : Rajpal Yadav, Judicial Member The assessee is in appeal before Tribunal against the order of learned CIT(A)-2, Vadodara, dated 19.11.2015 passed for A.Y. 2011-12. 2. The grounds of appeal taken by the assessee are not in consonance with Rule 8 of ITAT Rules, they are descriptive and argumentative in nature. In brief, in the first fold of grievance, assessee pleaded that the learned CIT(A) has erred in confirming the disallowance required to be made u/s. 14A of the Income Tax Act, 1962 read with Rule 8D of the Income Tax Rules. Learned counsel for the assessee at the very outset submitted that the issue in dispute is fairly covered in favour of assessee by the order of ITAT passed in assessment years 2008-09 to 2010-11. He further pointed out that order of ITAT passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is that it has more interest free funds than interest bearing funds. According to the assessee, a presumption is to be drawn that interest free funds were used by it for investment and therefore no disallowance is required to be made. The assessee has specifically demonstrated the details on the strength of hon ble Gujarat High Court s decision in the case of Gujarat Power Corporation Ltd. that no interest expenditure is disallowable in its case. The submissions being placed in the paper books and its imperative to take note of relevant submissions which read as under: 1.3 With the factual details available and given below, it can be clearly seen that own funds have been used for the purpose of investments. We would like to make a reference to the chart at Annexure B enclosed herewith which shows the quantum of investments and borrowings as well as the incremental borrowings and investments from A. Y. 2005-06 to A. Y. 2011-12. The summary of the quantum of investments and borrowings as well as the incremental investments and borrowings from 31.03.2005 to 31.03.2011 is reproduced as under: Year Ended Investments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 47,76,37,580 /- and whereas the investments merely increased by ₹ 4,75,48,314/-. The said increase in borrowings was for paying off the liabilities towards ONGC amounting to ₹ 45,39,90,000/-. Also, during A. Y. 2007-08, the Assessing Officer has verified the fact that the ONGC payments were made out of borrowed funds. Since a major part of the borrowings was made for paying the liability towards ONGC, the same cannot be considered for the purpose of disallowance u/s. 14A. The Assessing Officer also allowed the benefit of exclusion of interest paid on ONGC liability while working out disallowance u/s. 14A read with rule 8D in A. Y.200V-08, A. Y.2008-09, A. Y. 2009-10 and AY. 2010-11 Thus, it is very clear that the incremental investment amounting to ₹ 4,75,48,314/- have been made out of interest free own funds of the Appellant. As on 31.03.2008, borrowed funds have decreased by ₹ 91,36,000/- and the investments increased by ₹ 1,94,72,995/-.Thus, the incremental investments have clearly not been totally funded out of the borrowings but from own funds. As on 31.03.2009, borrowed funds have increased by ₹ 9,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in Balance Sheet reveals that there are no purchase and sale of investments during the year. Further dividend is credited to the bank account of the Assessee through ECS (Electronic Clearing Service) and no human intervention is required and hence, the question of incurring any administrative expenses does not arise. 1.6 The_AppelIantis interest free funds i.e. Share Capital and Reserves and Surplus are sufficient to cover the cost price of the shares. Thus there could not be any disallowance of interest because none of the interest bearing funds has been used for the purpose of investment in shares. The details of interest free funds available with the Appellant are as under: Particulars 31.03.2011 (Rs. In lacs) Share Capital 3401.38 Reserves and Surplus (Excluding Revaluation Reserve and reducing debit balance of Profit Loss account) 4765.34 Total Own Funds 8166.72 Cost of Investments made 3449.07 1.7 It is evident from the above that there are sufficient interest fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest on such loan. The Assessee also invested in shares and received dividend u/s 10(34). AO made disallowance u/s 14A and made addition of interest expenditure on exempted income(guarantee Fee and service charges) u/s 14A. CIT(A) allowed Assessee's appeal and deleted addition. ITAT upheld CIT(A)'s decision. Held, assessee had not used borrowed funds for investment in equity shares. Revenue failed to establish that assessee had incurred any expenses for earning dividend income from amount borrowed. Tribunal had held _that since sufficient interest free funds were available with assessee and revenue had failed to establish link between borrowed fund and investment made by assessee in equity shares, addition made on account of disallowance by AO was not justified. Both CIT(A) and Tribunal had rightly allowed interest free expenses incurred for earning dividend and allowed deduction on net income received. Revenue s Appeal dismissed. Copy of decision is enclosed as Annexure C(ii). 6. It is pertinent to observe that Section 14A contemplates that expenditure attributable to earning of exempt income would be disallowed to assessee. There is no dispute with regard to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 lacs disallowed u/s 14A read with rule 8D while computing book profits u/s 115JB without appreciating that the Appellant had sufficient own funds for making the investments and most of the borrowings were taken for the purpose of business and not or making investments. 13. This issue, as learned representatives fairly agree, is covered by decision of a coordinate bench of this Tribunal, in the case of DCIT Vs Sobha Develope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 profit and loss account for the relevant previous year prepared under sub-section (2), as increased by ( a) the amount of income-tax paid or payable, and the provision therefor; or ( b) the amounts carried to any reserves, by whatever name called [, other than a reserve specified under section 33AC]; or ( c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared 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 profit and loss account. 32. On the issue of reducing/excluding the share of profits from the profit as per the P L account, in view of clause (ii) to Explanation (1) to section 115JB(2) of the Act, viz., the amount of income to which any of the provisions of section 10, we are of the opinion that the contentions put forth by the assessee are acceptable. In this regard, we are also of the view that decision rendered by the Bangal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific 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 the total income under the Act can be added under clause(f) of Expln.1 below Sec.115JB(2) of the Act, cannot be accepted. In our view, there is no difference between the expression expenditure relatable and the expression expenditure incurred by the Assessee in relation to . Both the expressions mean that whatever expenditure are incurred to earn income which does not form part of the total income under the Act, both direct and indirec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 incurred expenditure of ₹ 12,99,483 on UK and USA visit undertaken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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