9911796707
TMI Blog2020 (10) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... alized - HELD THAT:- As assessee did not prefer any appeal against the order of CIT(A) for the Assessment Year 2008-09. Assessee was not aggrieved by the direction of CIT (A) to verify the claim of the assessee whether such guarantee fees relates to the capital work in progress for the AY 2008-09. But the assessee for the year under consideration has challenged the direction of CIT-A verify whether such guarantee fee relates to the capital working progress. As the assessee did not challenge such direction of CIT(A) for the assessment Year 2008-09 before the ITAT, it implies that such direction has reached to its finality for that assessment year. Therefore, there was no dispute for the ITAT for the AY 2008-09 for the direction issued by the Learned CIT(A). Accordingly, it cannot be inferred that the order of the Learned CIT(A) for the Assessment Year 2008-09 has merged with the order of ITAT insofar the direction issued by CIT(A) to verify the claim of the assessee for the guarantee fees whether such fees relates to the capital work in progress. Accordingly, it cannot be said that the issue raised by the assessee is a covered issue by the order of the ITAT in the own case of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as income of the assessee company. Treating the interest income - business income OR income from other sources - HELD THAT:- Revenue has failed to controvert the aforesaid contention and the findings of the ld. CIT(A),therefore after considering the material fact that interest earned on loan and advances from deposit placed with Mega Power Project towards its sharing of power and interest of UL pool account received from M/s. Power Grid Corporation India Ltd were directly related to the business of the assessee therefore, this ground of appeal of the Revenue stands dismissed. - Shri Rajpal Yadav, Vice President And Shri Waseem Ahmed, Accountant Member For the Assessee : Shri M. K. Patel Shri M. J. Shah AR's For the Revenue : Shri Virendra Ojha, CIT DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: In this bunch of appeals two appeals have been filed by the Assessee and one appeal has been filed by the Revenue for A.Y. 2009-10which are arising from the separate order of the Ld. CIT(A)-I Baroda dated 29.10.2012 19.09.2014, in the assessment proceedings under Section143(3) under Section 250 r.w.s. 143(3)of the Income Tax Act, 1961for A.Y. 2009-10 (in short the Act ). First we tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. 3. The first issue raised by the assessee is that the Learned CIT (A) erred in restricting the addition of ₹ 50,85,00,000/- out of the total addition of ₹ 238,20,40,627/- made by the AO under the provisions of Section 14A read with Rule 8D of Income Tax Rule though the assessee has not incurred any expenditure in the earning of dividend income. 4. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of purchase and sale of electricity. The assessee in the year under consideration declared dividend income of ₹ 1,116.61 lakhs on the investments which was shown as on 1st April 2008 and 31st March 2009 at ₹ 5,58,204.74 lakhs and ₹ 6,64,856.04 lakhs respectively in its balance sheet. The assessee at the same time has claimed the deduction on account of interest expenses amounting to ₹ 13,122.56 Lacs in the year under consideration on the borrowed fund amounting to ₹ 3,28,754.64 lakhs. 4.1 However, the assessee during the assessment proceedings claimed that it has not incurred any expenditure in the earning of the dividend income. But the AO disregarded the contention of the assessee b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the issue on hand after relying on the order of his predecessor for the Assessment Year 2008-09 which was subsequently set aside by the ITAT for fresh adjudication. The relevant finding of the ITAT reads as under: 8. On the other hand, ld. DR supported the orders of lower authorities. 9. We have heard the rival contentions and perused the material on record. In these grounds raised by the assessee and the Revenue challenge the action of ld. CIT(A). We observe that an addition of ₹ 152.46 crores was sustained, made by ld. Assessing Officer which was sustained to ₹ 61.46 crores by ld. CIT(A) and, therefore, assessee has raised the ground against the sustained addition of ₹ 61.46 crores whereas Revenue has challenged the deletion of ₹ 91 crores out of the disallowance u/s 14A of the Act. 10. In ITA No.1874/Ahd/2010 vide its order dated 20.6.2014 the Tribunal adjudicated the issue relating to disallowance u/s 14A and held as under :- 7. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. The undisputed facts of the case are that the Assessing Officer found that the assessee has earned tax free div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned addition of ₹ 18796.82 lacs was made by the AO without having any discussion in respect of the applicability of Section 14A of the IT Act. Likewise, learned CIT(A) has also not discussed the applicability of the provisions of Section 14A of IT Act, however, after considering the merits of the case, deleted the addition. With this clarification, we have examined the facts and the issue as emerged from the corresponding assessment order passed u/s. 143(3), dated 26.12.2008. It was noted by the AO that the assessee had claimed a huge amount of interest expenditure of ₹ 19360.59 lacs, as per the following bifurcation. (Rs. in lacs) Particulars Amount Interest on Term Loans 8981.35 Working Capital 8184.50 Others 677.63 Bank Charges Guarantee Fees 591.65 19435.13 Less: Interest Capitalized 74.54 19360.59 4.1 At the same time, it was also found by the AO that the assessee had made the investment of ₹ 5,47,709.74 lacs on which dividend earned was at ₹ 508.18 lacs. The AO's objection was that on one hand the assessee has diverted the huge funds towards such investment having exempted income and on the other hand borrowed huge funds of ₹ 3,46,272.51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial restructuring plan approved by the Government of Gujarat which was integral to the demerger. This was clearly commercially expedient for the appellant company. The business itself was viable only under the plan of restructuring, which required the company to have cross-holdings in the unbundled companies of GEB. In fact, the appellant became the holding company of the generating and transmission companies. Looking to the facts and circumstances of the case, I am of the opinion that there was no diversion of borrowed funds for non-business purposes. Accordingly, the addition of ₹ 18796.82 lacs is directed to be deleted. 6. With this factual background, we have heard both the sides. Learned DR has primarily placed reliance on a decision of respected Special Bench of ITAT Mumbai in the case of ITO V/s. Daga Capital Management Pvt. Ltd., 117 ITD 169 (Mum) (SB). Learned DR has also pleaded that in one of the assessment year, i.e., in A.Y. 2007-08 learned CIT(A) had sustained the same nature of addition. From the facts of the case, we have noted that there was re-structuring according to which erstwhile GEB was demerged into seven different companies. Post restructuring; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erger scheme and as a result a resulting company comes into existence. The resulting company in consideration of such transfer of an undertaking ofthe demergerd company issues shares to the share holders of the demerged company. Therefore, the responsibility of the resulting company was also required to be ascertained by the AO. This is the first aspect, which was not examined by the AO and the order of the Revenue Authorities are silent on this subject. 6.3 Next question is about the huge amount of interest expenditure claimed by the assessee. The AO is required to examine first the correctness of the claim. Whether the interest on term loans, bank charges and guarantee fees were in respect of the business of the assessee. Thereafter, the AO is also required to give a clear finding about the borrowings made by the assessee on which the said interest was paid. The next step is that the AO has to examine the sources of the funds which were invested for earning the dividend income. If the source of such investment is out of the interest bearing borrowings, then only the question of disallowance of interest would arise, otherwise not. On the other hand, the claim of the assessee is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bombay High Court pronounced in the case of Godrej Boyce Mfg. Co.Ltd. Mumbai vs. Dy.CIT in Income tax Appeal No.626 of 2010 and Writ Petition No.758 of 2010 order dated 12/08/2010, { now reported as 328 ITR 81(Bom) } wherein the Hon'ble High Court has upheld the constitutional validity of section 14A of the I.T. Act, 1961 and held that the Assessing Officer should determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income and/or income from mutual fund which do not form part of the total income as contemplated U/S.14A of the I.T. Act, 1961. It has also been directed that the Assessing Officer can adopt a reasonable basis for effecting the apportionment. It has also been observed by the Hon'ble Court that while making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and material having a bearing on the facts and circumstances of the case. 6.1. In this judgement at the end, the Hon'ble Court has also recapitulated the conclusion and pronounced that a finding is required whether the investment in shares is made out of own funds or out of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation (supra) and Radhasoami Satsang (supra) holding that there must be consistency and definiteness in the approach of the revenue would not apply to the facts of the present case, because of the material change introduced by Section 14A by way of statutory disallowance in certain cases. There, the decisions of the Tribunal in the earlier years would have no relevance in considering disallowance in assessment year 2002-2003 in the light of Section 14A of the Act. 73. For the reasons which we have indicated, we have come to the conclusion that under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form pan of the total income under the Act and if so to quantify the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing an opportunity to the assessee to produce its accounts and to place on the record all relevant material in support of the circumstances which are considered to be relevant and germane. For this purpose and in light of our observations made earlier in this section of the judgment, we deem it approp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income / income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case. 6.4 Due to the decision of the Hon'ble Bombay High Court, it is legally correct to refer this issue back to the stage of the AO to be decided de novo as per the guidelines of the Hon'ble Court. The outcome of the above discussion is that the Additional Ground raised by the Revenue may be treated as allowed but only for statistical purpose. 8. In the absence of any distinguishing features pointed out by the Departmental Representative, facts being identical, respectfully following the precedent we restore this issue back to the file of the Assessing Officer for adjudication afresh with the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in objective with which S. 14A was enacted. 2.2 Broadly stated, the new Rule 8D provides as under : (i) The method prescribed in the Rule is to be applied only if the AO is not satisfied with : (a) The correctness of the claim of expenditure incurred for earning the exempt income made by the assessee or (b) The claim made by the assessee that no expenditure has been incurred for earning exempt income. (ii) The method prescribed in the Rule states that the expenditure in relation to income which does not form part of the total income shall be the aggregate of the following amounts : (a) The amount of expenditure directly relating to income which does not form part of total income. (b) In the case of interest on borrowed funds which is not directly attributable to any particular income or receipt, the amount computed in accordance with this following formula : A x B C A = Amount of interest, other than the amount of interest which is directly attributable to the exempt income stated in (a) above. B = The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the las ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d also decisions wherein the disallowance u/s 14A of the Act on account of interest expenditure are held to be incorrect if the assessee has sufficient equity and general reserve to cover the investments. 14. We are, therefore, of the view that applying the decision of the co-ordinate bench in assessee s own case in ITA No.1874 1821/Ahd/2010 for Asst. Year 2007-08 is dated 20.6.2014 the matter is set aside to the file of Assessing Officer to examine the facts and figures of the case in the light of our observations made above in order to arrive at a final conclusion as to whether disallowance u/s 14A is to be made and if so, then the amount thereof which in no case should exceed the exempted income earned by assessee during the year under appeal. It is needless to mention that ld. Assessing Officer shall allow reasonable and sufficient opportunity of hearing to the assessee before adjudicating the same. These grounds of assessee and the Revenue are allowed for statistical purposes. 15. Now we take ground no.3 of assessee s appeal which reads as below :- 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the enhancement of Book Profit co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subject to the direction to verify that such guarantee commission was not connected with the capital work in progress wherein the impugned loans were utilized as held by his predecessor for the Assessment Year 2008-09. The relevant finding of the Learned CIT (A) stands as under: 4.2. Similar issue was involved in appeal No. CAB/1/152/101-11 in appellant s own case for A.Y. 2008-09. My predecessor had observed as follows in his appellate order dated 3.2.2012. I have considered facts of the case and appellant s submissions. Guarantee fees was an annual recurring expenditure incurred by the appellant (Guarantee fees was payable to Government of Gujarat every year in respect of loans taken by appellant and guaranteed by Government of Gujarat. As held by Hon ble Supreme Court in the case of India Cements Ltd. 60 ITR 52 (SC), loan cannot be treated as asset or advantage resulting in enduring benefit. Guarantee fees paid to Government of Gujarat was in connection with raising of loans and enduring benefit or advantage could not be said to have resulted by taking such loans. Only if the assets acquired out of such loans were not put to use till the end of previous year, i.e. 31.3.2008, g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the decision referred and relied upon by both the parties. Through this ground Revenue has challenged the action of ld. CIT(A) deleting the disallowance of guarantee fees at ₹ 4.76 crores. 39. We observe that ld. AR has referred and relied on the decision of the co-ordinate bench in the case of Gujarat Energy Transmission Corpn. Ltd. (supra), wherein similar issue regarding the claim of guarantee fees paid to Government of Gujarat has been dealt with by the Tribunal as to whether the guarantee fees is an expenditure of capital in nature or revenue in nature and has observed as under :- 35. We find that the Tribunal in its order dated 8.5.2015 cited supra has held as under: 6. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) decided these issues in paras- 5.2 5.3 and 6.2 respectively by observing as under:- 5.2. I have considered the submissions of the ld.AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the revenue field has exercised the courts in numerous cases. From an analysis of such cases a few guiding pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency.In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was revenue expenditure. In the instant case, the assessee has secured the loan by creating a charge (hypothecation of its assets). Hence the ratio of the above mentioned two cases would squarely apply. Accordingly, it is held that the AO was not justified in making the disallowance of ₹ 45,24,582/-, which is directed to be deleted. 6.1 The ld.CIT(A) has followed the decision of the Tribunal passed in ITA No.738/Ahd/2009 for AY 2006-07 in the case of Himalaya Machinery Pvt.Ltd., dated 5.6.2009 and in the case of Shri Rama Multi Tech vs. ACIT reported at 92 TTJ 568. 6.2. The ld.CIT-DR could not distinguish the facts of the case, therefore we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see did not prefer any appeal against the order of the Learned CIT(A) for the Assessment Year 2008-09. In other words, the assessee was not aggrieved by the direction of the Learned CIT (A) to verify the claim of the assessee whether such guarantee fees relates to the capital work in progress for the Assessment Year 2008-09. But the assessee for the year under consideration has challenged the direction of the Learned CIT (A) to verify whether such guarantee fee relates to the capital working progress. As the assessee did not challenge such direction of the Learned CIT(A) for the assessment Year 2008-09 before the ITAT, it implies that such direction has reached to its finality for that assessment year. Therefore, there was no dispute for the ITAT for the Assessment Year 2008-09 for the direction issued by the Learned CIT(A). Accordingly, it cannot be inferred that the order of the Learned CIT(A) for the Assessment Year 2008-09 has merged with the order of the Learned ITAT insofar the direction issued by the Learned CIT(A) to verify the claim of the assessee for the guarantee fees whether such fees relates to the capital work in progress. Accordingly, it cannot be said that the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustaining the disallowance of ₹ 1,21,06,721/- on account of depreciation not eligible at the rate 60% being computers. 30. The AO during the assessment proceedings found that the assessee has treated certain value of the plant and machinery i.e. ₹ 2,69,03,826/- as computers and claimed depreciation at the rate of 60% on such plant and machinery. As per the AO, the assessee is eligible to claim depreciation at the rate of 15% on the computerized plant and machinery and not 60% on the same. On question, the assessee could not substantiate its claim for depreciation at the rate of 60% based on documentary evidence. Accordingly, the AO disallowed the excess depreciation (more than 15%) amounting to ₹ 1,21,06,721/- and added the same to the total income. 31. Aggrieved assessee preferred an appeal to the Learned CIT(A) who has confirmed the order of the AO by placing reliance on the order of his predecessor for the Assessment Year 2008-09. The relevant extract of the order is reproduced as under: 6.2. Similar issue was involved in appeal No. CAB/1/152/10-11 in appellant s own case for A.Y. 2008-09. My predecessor had observed as follows in his appellate order dated 3.2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant finding of the ITAT reads as under: 24. We have heard the rival contentions and perused the material on record. Through this ground, assessee is aggrieved with the disallowance of depreciation of ₹ 9174986/- claimed on the computers. We find that during the assessment proceedings assessee has himself submitted the revised computation of depreciation on the computers and has agreed that depreciation has been claimed excess by ₹ 9174986/-. Thereafter the matter which was almost closed due to the submission made by assessee, was revived back by the assessee by raising ground against this addition before ld. CIT(A) and gave various details and documents supporting the ground that depreciation disallowed needs to be re-worked as various types of expenditure which are fully allowable during the year are included in addition of block of assets, computers and similarly there are various machines which are actually eligible for depreciation @ 60% have been subjected to depreciation @ 15% only. We further observe that ld. CIT(A) has looked into this aspect and has open the way for examining the relates facts towards calculation of correct depreciation in the block of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of Section 115JB of the Act, has added the disallowance made under the normal computation of Income under Section 14A r.w.r. 8D of Income Tax Rule for ₹ 50.85 crores in pursuance to the clause (f) of Explanation 1 to Section 115JB of the Act. 43. However, we note that in the recent judgment of Special Bench of Hon ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: In view of above discussion, the computation under clause (f) of Explanation 1 to Section 115JB(2), is to be made without resorting to the computation as contemplated under Section 14A, read with rule 8D of the Income-tax Rules, 1962. 44. The ratio laid down by the Hon ble Tribunal is squarely applicable to the facts of the case on hand. Thus, it can be concluded that the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have restored other cases involving identical issues to the file of AO for making the disallowance as per the Clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the Clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore, our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus,in the interest of justice and fair play we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the Clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus, the ground of appeal of the assessee is partly allowed. 47. The issues raised by the assessee in ground No. 6, 7 and 8 either are premature to decide, consequential or general in nature, therefore, we dismiss the same as infructuous. Hence, the grounds of appeal of the assessee are dismissed. 48. In the result, the appeal filed by the assessee is partly allowed for the statistical purposes. Coming to the ITA No. 37/AHD/2013(Revenue s Appeal) (A.Y. 2009-10):- 49. Revenue has raised the following grounds of appeal: 1. On the facts and in the circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l is allowed for statistical purposes. 52. The second issue raised by the Revenue is that the Learned CIT(A) erred in deleting the addition made by the AO for ₹ 4.44 crores on account of guarantee fees representing the enduring benefit to the assessee. 53. At the outset we note that the issue raised by the Revenue has already been adjudicated by us along with the ground of appeal of the assessee in the preceding paragraph bearing No.19 to 22 of this order. Respectfully, following the same, we uphold the finding of the Learned CIT(A). Hence, the ground of appeal of the Revenue is dismissed. 54. The third issue raised by the Revenue is that the Learned CIT(A) erred in deleting the addition made by the AO for ₹ 3550 lakh being 15% of the grant received by the assessee of ₹ 25000 lakhs. 55. The assessee in the year under consideration has received a grant of ₹ 25,000 lakhs from the government of Gujarat which has been shown under reserve and surplus in the balance sheet which was utilized by acquiring the shares of the subsidiary companies. However, the AO was of the view that the grant received from the Government of Gujarat is either towards the revenue accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidy during the year but was of the view that the subsidy or grant which was received in earlier years were to be taken to the revenue or to be reduced from the cost of assets. Therefore, the assessing officer has estimated 15% of grant of ₹ 2500 lacs which worked out at ₹ 3750 lacs as income of the assessee. The Id. CIT(A) has deleted the aforesaid addition holding that the assessee has not acquired any fixed assets on which depreciation has been claimed, therefore ,such grants cannot be reduced from cost of fixed asset of the assessee company. With the assistance of Id. authorized representatives, we have gone through the material on record pertaining to the submission of the assessee stating that the assessee has not received any grant during the year and the grants received originally from the Govt. of Gujarat were apportioned against the subsidiary companies on appropriate basis. In F.Y. 2007-08, the State Government vide various GRS decided to convert the grant given during the F.Y. 2005-06 to 2007-08 for implementation of Jyoti Gram Yojna (JGY) into equity share capital. Accordingly, the total grants received during the aforesaid financial years were allocated am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities below to the extent favourable to them. 66. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that, the tribunal in the own case of the assessee involving identical facts and circumstances has decided the issue in favour of the assessee in ITA No. 3358/AHD/2015 for the assessment year 2008 -09. The relevant extract is reproduced as under: 10. We have heard the rival contentions and perused the material on record on this issue. The assessing officer has treated the aforesaid income under the head income from other sources without controverting the submission of the assessee on the basis of which it was claimed that these income were of the nature of business income as elaborated in para seven of this order. The ld. CIT(A) has decided the issue in favour of the assessee stating that this issue was decided in favour of the assessee for assessment year 2009-10. During the course of appellate proceedings, the Revenue has failed to controvert the aforesaid contention and the findings of the ld. CIT(A),therefore after considering the material fact that interest earned on loan and advances from deposit placed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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