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TMI Blog2015 (10) TMI 2816X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A of the Act on account of interest expenditure to the extent of R. 1,58,32,130/- in the fact and circumstances of the case of the appellant. 3. That, the Appellant Company craves leave to amend, alter, withdraw and/or add any one or more grounds of appeal before at the time of hearing of appeal." 3. Ground No. 3 is general in nature so it does not require any comments on our part while Ground No. 1 was not pressed and the ld. Counsel for the assessee gave in writing as under: "G. No. 1 Infructuous as claim is allowed on accrual and therefore, not pressed" Sd/- V. P. Gupta Advocate Accordingly, Ground No. 1 is dismissed as not pressed. 4. Ground No. 2 relates to the sustenance of disallowance made by the AO u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act) r.w. Rules 8D(2)(ii) of Income Tax Rules, 1962. 5. Facts related to this issue in brief are that the assessee in its return of income disallowed a sum of Rs. 21,83,313/- being 10% of the tax free dividend and interest income i.e. Rs. 2,18,33,132/- which was claimed as exempt. The AO however worked out the disallowance at Rs. 2,42,73,330/- and made the addition of Rs. 2,20,37,330/- by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no truth in the submission of the appellant that investment in shares and securities have been made out of own funds available with the appellant company. It is seen that appellant has only disallowed Rs. 21,83,313/- being 10% of the exempt income as expenses relating to earning exempt income. This disallowance made by the appellant is not in accordance to the provisions of Rule 8D prescribed by the Act w.e.f. 01.04.2008. It is seen that the cost of funds which have been invested in earning exempt income and which is directly related has been debited to the profit and loss account. Similarly the expenditure on administration and on investment is embedded in the expenditure debited to the profit and loss account. It is also seen from the balance sheet that funds borrowed by the appellant were put in a common account and it is not ascertainable from the records whether investment was made out of own funds or funds borrowed during F.Y. 2008-09. No separate account is maintained for the investment purposes which could prove that funds used were not from the interest bearing loans obtained by the appellant during the year and in earlier years. Since no such evidence has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Rs. 20,10,250/- at 0.5% on average investments of Rs. 40.205 Crores. Since, the appellant has offered addition of Rs. 21,83,313/- on account of administrative expenses in the return of income, disallowance offered by the appellant company is to be accepted. Accordingly, the disallowance made by the Assessing Officer in the computation of taxable income of Rs. 2,20,37,330/- is to be restricted to Rs. 1,58,32,130/-. The Assessing Officer is directed accordingly." 7. Now the assessee is in appeal. The ld. Counsel for the assessee at the very outset stated that this issue is covered in favour of the assessee by the earlier order dated 20.05.2015 of the ITAT in ITA No. 1447/Del/2012 for the assessment year 2008-09, copy of the said order is furnished which is placed on record. 8. In his rival submissions the ld. DR strongly supported the order of the AO. 9. We have considered the submissions of both the parties and carefully gone through the material available on the record. It is noticed that the facts for the year under consideration are identical to the facts involved in the preceding year i.e. assessment year 2008-09 which was a subject matter of adjudication in ITA No. 1447/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraph no. 3.1 at page 7, 8 & 9 of the impugned order and submitted that the CIT(A) in the subsequent assessment year 2010-11 has not make any disallowance in regard to interest expenditure and has made disallowance u/s 14A read with Rule 8D(iii) of the I.T. Rules after giving credit of suomoto disallowance of the assessee. The ld. DR fairly accepted that the assessee was granted relief by the CIT(A) in A.Y. 2010-11 in the said manner and there was no disallowance on account of interest expenditure in F.Y. 2009- 10 relevant to A.Y. 2010-11. 17. In view of above noted facts and circumstances, we note that the assessee company was granted relief by the CIT(A) for A.Y. 2010-11 with following conclusions: "3.1 I have carefully considered the facts of the case and the submissions of the appellant in this regard. In regard to the disallowance under section 14A read with Rule 8D of the Income Tax Rules for interest expenditure, the appellant company gave date-wise details of investments held by the company as on 31.03.2010 and also explained the position regarding disallowance on account of interest with reference to particular investments in earlier years. The company as on 31.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in Annexure A7 to A9. It emerges from the details that during the current year, the appellant had made the investment of Rs. 4.16 crore out of its own funds as demonstrated with the bank statements and other documentary evidence. No specific disallowance of interest has been made by the AO in the earlier years regarding the tax free investments which are forming part of the total investments of Rs. 58.85 crore. In view of this, the disallowance of interest of Rs. 1,33,27,000 under Rule 8D(ii) r.w.s. 14A of the Act is not warranted." 18. In view of above, at the outset, we observe that we are unable to see any order of the appellate or higher firm to show that the relief granted by the CIT(A) on this issue in A.Y. 2010- 11 vide his order dated 10.06.2014 has been altered, modified or set aside. Hence, we can safely presume that the Department has accepted this contention of the assessee that the assessee has not diverted his interest bearing funds for the purpose of investments or any other manner for making investment which accrue tax free income for the assessee. In the same manner, we are further inclined to hold that the Revenue authority has not brought out any fact to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Crores against the fertilizer subsidy from the Government of India, as per Scheme, against the sale of fertilizer. He further observed that the assessee claimed deduction for loss of Rs. 7.21 crores on account of diminution in the value of the fertilizer bonds held at the year end, out of the bonds received during the year and in earlier year in lieu of fertilizer subsidy. He also pointed out that the assessee in the 'Notes on Computation of Taxable Income' had stated that on valuing the bonds at the market rate prevailing on 31.03.2009, there was a loss of Rs. 7.21 Crores on account of diminution in value of bonds which had been claimed in the computation of taxable income as business loss for the reason that those bonds were in the nature of business asset. The AO did not find merit in the submission of the assessee and disallowed Rs. 7.21 crores by observing in para 3.1 of the assessment order which read as under: "3.1 After due consideration on the submissions made by the AR of the assessee company as above, I have observed that the question as to why the valuation of the Bonds at the market rate prevailing on 31.3.2009 was done, remained unanswered. Further, probably the ans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have considered the submission of both the parties and perused the material available on the record. It is noticed that an identical issue having similar fact has already been adjudicated by this Bench of the Tribunal in assessee's own case vide order dated 20.05.2015 wherein the relevant findings are given in paras 12 & 13 of the said order in ITA No. 1836/Del/2012 for the assessment year 2008-09 which read as under: "12. In view of the above noted facts and circumstances of the present case, we are inclined to hold that as we have already observed that the assessee company was compelled to receive fertilizer's bonds in lieu of cash fertilizers subsidy by the Government of India. The AO has not brought out any allegation that the assessee company bought fertilizers bonds for the purpose of making investment and thus, the bonds were to be given the same treatment which was to be given to cash in hand, foreign currency or cash in bank as current trading assets. In this situation, we respectfully take cognizance of decision of Hon'ble Apex Court in the case of Patnaik & Company (supra) and decision of Hon'ble Jurisdictional High Court of Delhi in the case of CIT vs. D.S. Bisht ..... X X X X Extracts X X X X X X X X Extracts X X X X
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