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TMI Blog2023 (6) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... se of computation of income under section 115JB of the Act. Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. [ 2022 (4) TMI 1187 - KARNATAKA HIGH COURT] held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd [ 2022 (8) TMI 88 - ITAT AHMEDABAD] held that disallowances made under section 14A read with rule 8D could not be applied to provision of section 115JB. Decided against revnue. - ITA No. 473/Ahd/2020 And C.O. No. 11/Ahd/2021 - - - Dated:- 31-5-2023 - Shri Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member For the Assessee : Shri Vartik Choksi, A.R. And Shri Biren Shah, A.R. For the Revenue : Shri Sudhendu Das, CIT-DR ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the appellate order dated 09.07.2020 passed by the Commissioner of Income Tax(Appeals)-1, Ahmedabad, arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) relating to the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. Commissioner of Income Tax (Appeals) and submitted that the assessing officer having failed to record his satisfaction in respect of suo moto disallowance made by the assessee, hence adoption of Rule 8D in making disallowance is bad and violation of the provisions of law. No disallowance u/s. 14A r.w.r. 8D(ii) can be made, when there are sufficient interest free funds available to cover investment made by the assessee and relied upon Jurisdictional High Court judgment in the case of PCIT Vs. Sintex Industries Ltd. [2017] 82 taxmann.com 171 (Guj.), PCIT Vs. GMM PFAULDER Ltd. [Tax Appeal No. 506 of 2017], PCIT Vs. Alembic Limited [Tax Appeal Nos. 553 554 of 2017]. 3.1. The assessee contended that investment resulting to taxable income should be excluded and only the investment yielding exempt income shall be subject matter of disallowance u/s. 14A of the Act. The assessee company has total investment of Rs. 1048.24 crores as follows: Particulars Amount as on 31.03.2016 Amount as on 31.03.2015 7 year NSC 0.0059 0.0059 Investment in LLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the order of CIT(A) for AY 2015-16 A Interest Expenses directly relating to exempt income under rule 8D(2)(i) 0 B Proportionate disallowance of interest expenses under rule 8D(2)(iii): (I II/III) 0 (I) Interest Expenses as discussed in Para 2.4 supra 3,91,63,787 Interest Income as per Para 2.5 59,65,68,413 Net Interest Expenditure 0 (II) Average value of investments actually earning exempt income as per para 2.7 15,06,76,584 a. Opening balance (as on 31.03.2015) 15,06,76,584 b. Closing Balance (as on 31.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of ACIT Vs. Vireet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (SB). 4. The Ld. CIT(A) considered the above arguments in detail and confined the disallowance made u/s. 14A restricting the same to the extent of dividend income earned by the assessee after taking into account, the suo moto disallowance of Rs. 28,78,876/- made by the A.O. Thus the Ld. CIT(A) confirmed the disallowance u/s. 14A to Rs. 92,49,972/- by observing as follows: .(ii) So far as disallowance of proportionate interest expenditure under Rule 8D(2)(ii), it is observed that AO has computed such disallowance based upon interest expenditure of Rs 222.66 crores. As held in preceding years, interest paid on borrowed funds for specific purpose cannot be considered for the purpose of disallowance u/s 14A of the Act. As per decisions referred in funds for specific purpose cannot be considered for the appellate order of earlier years, it is observed that interest expenditure in respect of general borrowing can only be considered for such disallowance The break up of such expenditure is as under: Particulars Amount (in Rs. ) Interest on inter c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exempt dividend income earned during the year under consideration. Reliance is also placed on following decisions: (i) Hon'ble Supreme Court in the case of Maxopp Investment Limited [2018] 91 taxmann.com 154. (ii) Hon'ble Ahmedabad ITAT in case of Adani Port and Special Economic Zones in ITA No. 3481 and 3482/Ahd/2014 dated 12/02/2019. (iii) Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. v/s. Commissioner of Income Tax 372 ITR 694 (iv) Hon'ble Supreme court in the case of PCIT VS Caraf Builders Constructions (P.) Ltd [2019] 112 taxmann.com 322 Thus following the decisions rendered by Hon'ble Supreme Court and Jurisdictional High Court which are binding in case of Appellant, the disallowance of administrative expenditure under the provisions of section 14A r.w.r 8D is restricted to exempt income of Rs. 1,21,28,448/-. Further it is observed that the Appellant has while filing Return of Income made disallowance of Rs. 28,78,876/- and accordingly disallowance u/s 14A is restricted to Rs. 92,49,972/-. Thus, related grounds of appeal are partly allowed. 4.1. Similarly, on the addition of Rs. 35,53,59,323/- made u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee. We also take note of decision of the Special Bench rendered in ACIT vs. Vireet Investment Pvt. Ltd. Anr. 165 ITD 27 (Delhi) [SB] where it was held that the AO was net entitled to tinker with book profits contemplated under s. 115JB towards disallowance made under s 14A of the Act. We similarly find that judgment of Ho'ble Bombay High Court in CIT vs. Bengal Finance and Investments Pvt. Ltd. in ITA No 337 of 2013 order dated 10/02/2015 also complements the issue. Thus, seen on the anvil of the judicial flat available squarely on the issue, we are disposed to assign merits to the contention on behalf of the Assessee. At this juncture, we pause to note the concern of revenue seeking to plead possible redundancy of clause (1) to Explanation to s 115JB, in the event of disagreement with the action of Assessing Officer. We are alive to such concerns. However, as noted, we are governed by the superior wisdom available in this regard. Hence, remedy to revenue, if any, perhaps lies elsewhere. Accordingly, respectfully following the decisions us governing the filed we direct the AO to delete the adjustments made on account of estimated disallowance determined under 14A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.37 crores were made by the assessee from huge interest free funds available in the form of cash profit. Thus the interest expenditure incurred on borrowings were for specific business purpose and no disallowance of proportionate interest expenditure is justified. The Ld. Counsel further submitted that the interest on general borrowings was Rs. 3.91 crores as against which interest income earned by the assessee of Rs. 59.65 crores and accordingly no disallowance of interest expenditure is justified, as interest income earned during the year is more than interest paid on general borrowings. Thus the Ld. Counsel submitted this issue is squarely covered by the decision of the Jurisdictional High Court in the case of Sintex Energy Ltd. against which SLP filed by the Revenue also dismissed by Hon ble Supreme Court on 23.03.2018. Therefore the deletion made by Ld. CIT(A) does not require any interference and the ground no. 1 raised by the Revenue is liable to be dismissed. 6.1. Per contra, the Ld. CIT-DR Shri Sudhendu Das appearing for the Revenue could not place any contrary facts or case laws before us. In the absence of the same, we have no hesitation in confirming the order passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investments which has given rise to the exempt income, which does not form part of total income is to be considered for computation of Rule 8D. 8.1. The Special Bench of the Delhi Tribunal in ACIT vs. Vireet Investment Pvt. Ltd. reported in [2017] 82 taxmann.com 415 (Delhi Trib.) held as follows: ..Only those investments are to be considered for computing average value of investment which yielded exempt income during the year. [Para 11.16] As far as argument relating to meaning to be ascribed to the phrase 'shall not' used in rule 8D(2)(iii) is concerned, the revenue's contention is that it refers to those investments which did not yield any exempt income during the year but if income would have been yielded, it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the computation of average value of investments for the purposes of rule 8D(2)(iii). The assessee's contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration Ltd. [2022] 142 taxmann.com 413 (SC) dismissed the SLP filed by the Department against High Court s ruling that disallowance made under section 14A could not be added in assessee-company's income for purpose of computation of income under section 115JB of the Act. Further the Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. [2022] 139 taxmann.com 375 (Karnataka) held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd [2022] 143 taxmann.com 305 (Ahmedabad-Trib.) held that disallow ances made under section 14A read with rule 8D could not be applied to provision of section 115JB of the Act. In view of the settled position of law on this issue, we are hereby dismissing Department's appeal with respect to Ground No.3. 10. In the result, the appeal filed by the Revenue is hereby dismissed. C.O. No. 11/Ahd/2021 for A.Y. 2016-17 11. The Assessee in the Cross Objection raised the following Grounds: 1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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