TMI Blog2015 (8) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... eals) in assessment year 2008-09 in directing the Assessing Officer to calculate book profits in accordance with the method detailed by the Tribunal in aforesaid case. Accordingly, the appeal of Revenue is dismissed. Disallowance made u/s. 14A r. W. Rule 8D - Held that:- Assessee in its return of income did not make any disallowance with respect to exempt income. The stand of assessee is that no expenditure was incurred for earning tax free income. However, the Assessing Officer made disallowance of ₹ 1,48,820/- without assigning cogent reasons. The burden lies on the Assessing Officer to prove the nexus between the expenditure to be disallowed and non-taxable income. The Assessing Officer cannot simply brush aside the claim of assessee, in respect of disallowance u/s. 14A of the Act. The Assessing Officer has not refuted the claim of assessee that there was direct credit of dividend through ECS and no interest bearing funds were utilized for making investment. A perusal of assessment order shows that the Assessing Officer has mechanically applied the provisions of Rule 8D without giving reasons for rejecting the assertions for making no disallowance by the assessee. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciation of previous years under MAT provisions. The Assessing Officer in scrutiny assessment disallowed the same by following the decision of the Authority for Advance Rulings (AAR) in the case of Rashtriya Ispat Nigam Ltd. reported as 285 ITR 1 (AAR). In assessment year 2008-09, the Assessing Officer further included the book profits amounting to ₹ 4,24,21,240/- of Bangalore and Pune units of M/s. Kailash Auto Builders Ltd. (KABL) that were merged with the assessee company in pursuance of order from BIFR. Apart from above additions, the Assessing Officer made disallowance of ₹ 1,40,820/- u/s. 14A r. W. Rule 8D of the Income Tax Rule. Aggrieved by the assessment orders, the assessee filed appeals before the Commissioner of Income Tax (Appeals) for the respective assessment years. In assessment year 2007-08, the Commissioner of Income Tax (Appeals) upheld the findings of Assessing Officer with respect to disallowance of carried forward business loss and unabsorbed depreciation in computing book profits u/s. 115JB. In assessment year 2008-09, the Commissioner of Income Tax (Appeals) accepted the claim of the assessee and permitted the set off of brought forward busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds, which are exempt from tax. The assessee had made investment in mutual funds in the year 1994 from its capital and reserves and no interest bearing funds were utilized. During the year there were only 18 transactions with respect to redemption of mutual funds. As far as dividend is concerned, the same was directly credited in the bank account of the assessee through ECS. Thus, no disallowance was required to be made on earning interest free income during the impugned assessment year. 3.2 The ld. AR submitted that the second ground raised by the assessee in appeal for assessment year 2008-09 is with respect to inclusion of profits of Bangalore and Pune units for computation of book profit u/s. 115JB. The books of account for the period relevant to the assessment year 2008-09 were finalized on 28-06-2008. The BIFR passed order for merger of Bangalore and Pune units on 18-08-2008 and the same was received on 01-10-2008. The assessee filed its return of income for assessment year 2008-09 on 21-08-2008. The Annual General Meeting of the assessee company was held on 29-09-2008. An appeal was filed against the order of BIFR before the Appellate Authority for Industrial and Financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no disallowance was made by the assessee on its own. Disallowance was required to be made u/s. 14A r. W. Rule 8D. As regards second ground in appeal of assessee for assessment year 2008-09, the ld. DR submitted that the assessee has included the profits of Bangalore and Pune units under normal computation but ignored the same for computation of book profits u/s. 115JB. Once, the assessee is including profits of the above said two units while computing profits under normal computation the same should have been considered for computation of book profits u/s. 115JB as well. Although, the order of AAIFR was passed after the preparation of books of account, however there is no bar in recasting the books after considering of profits of two amalgamated units. To support his submissions, the ld. DR referred to the decision of Mumbai Bench of Tribunal in the case of DCIT Vs. Beck India Ltd. reported as 127 TTJ 410 (Mumbai). 5. We have heard the submissions made by the representatives of both the sides and have examined the orders of the authorities below. We have also considered the decisions on which both the sides have placed reliance. For the sake of convenience, we will first take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le computing book profits for 115JB, reduction be allowed for the lower of carried forward losses or unabsorbed depreciation of the past years. Therefore, the determination of such losses or depreciation in the past years be also made on similar proposition, in the absence of any specific provision in the Statute. Even in the past years, the losses and depreciation to be carried forward be determined on the similar principles, i. E. after setting off of the lower of depreciation or losses. Apart from the fact that there is no specific provision in the Statute, we are also guided by the spirit of section 205(1)(b) of the Companies Act, 1956. In terms of section 205(1)(b) also, the surplus is to be determined after reducing lower of the loss or depreciation. Though strictly speaking the rule of section 205(1)(b) of the Companies Act is not applicable, inasmuch as for the purposes of the said section the expression loss includes depreciation, whereas for the purposes of section 115JB it is specifically provided that for clause (iii) of Explanation 1 the expression loss shall not include depreciation. So, however, we want to emphasis on the basic principle enshrined in section 115J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income Tax (Appeals) for assessment year 2008-09 in allowing the claim of the assessee in the light of order of Tribunal rendered in the case of Kirloskar Ferrous Industries Ltd. Vs. Addl. CIT (supra). After perusal of the order of the Tribunal, we also find that Ruling in the case of Rashtriya Ispat Nigam Ltd. (supra) was considered by the Co-ordinate Bench. We concur with the findings of the order of Commissioner of Income Tax (Appeals) in assessment year 2008-09 in directing the Assessing Officer to calculate book profits in accordance with the method detailed by the Tribunal in aforesaid case. Accordingly, the appeal of Revenue is dismissed. 5.2 Since, the issue involved in the appeal of the assessee for assessment year 2007-08 is identical, the same has to be allowed for the reasons stated above. 6. In the result, the appeal of the assessee i. E. ITA No. 1322/PN/2011 for assessment year 2007-08 is allowed and the appeal of the Revenue i. E. ITA No. 1713/PN/2012 for assessment year 2008-09 is dismissed. ITA No. 1675/PN/2012 (A. Y. 2008-09) 7. Now, we proceed to decide the appeal of the assessee for assessment year 2008-09. The first ground raised by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rule 8D goes through section 14A(2) of the Act. The provisions of subsection (2) of section 14A are as under: Section 14A(1) xxxxxxxxxxxx (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed56, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. Thus, a bare perusal of above provisions would show that a duty is cast upon the Assessing Officer to give reasoned findings that the expenditure or even no expenditure disallowed by the assessee is incorrect before resorting to the provisions of Rule 8D. 7.2 The Assessing Officer has not refuted the claim of assessee that there was direct credit of dividend through ECS and no interest bearing funds were utilized for making investment. A perusal of assessment order shows that the Assessing Officer has mechanically applied the provisions of Rule 8D without givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14A could not stand. We notice that assessee itself disallowed the interest which is directly applicable, Dmat charges and administrative exp on estimation totaling to ₹ 1,55,44,610. Assessee is a hundred crore turnover company. AO has not examined any expenditure claimed in P L account so as to relate to exempt income, nor gave a finding that assessee claim is not correct for any reason. Rule 8D cannot be invoked directly without satisfying about the claims or otherwise. Consequently, the disallowance was not permissible. We therefore, allow the ground of appeal. 7.4 Thus, in view of well settled law and the facts of the case the disallowance made u/s. 14A r. W. Rule 8D is deleted. We accept this ground of appeal of the assessee. 8. The second ground in appeal of the assessee is, Whether the profits of Bangalore and Pune units that have been merged with the assessee company are to consider for the purpose of computation of book profits u/s. 115JB? During the course of assessment proceedings, the Assessing Officer observed that an amount of ₹ 4,24,21,240/- representing profits of Bangalore and Pune units were included in the normal computation of the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 were adopted. 5 01-10-2008 Order of BIFR issued. 6 07-11-2008 Copy of BIFR order filed with ROC. 7 18-03-2009 Order by AAIFR on appeal by the Department. The aforesaid sequences of events have not been rebutted by the Department. Thus, it is evident that the order of BIFR and the order of the Appellate Authority were received after the accounts of the assessee were finalized and adopted in the Annual General Meeting of the assessee company. Here it would be relevant to refer to the order of BIFR and Scheme of Arrangement to determine the effective date of implementation of merger. The assessee has placed on record in the form of paper book, the order of BIFR at pages 52 to 62 and the Scheme of Arrangement between Kailash Auto Builders Pvt. Ltd. and assessee at pages 147 to 178. A perusal of BIFR order shows that the sanctioned scheme finally accepted by the BIFR is to be implemented from the date of order i. E. 18-08-2008. In the Scheme of Arrangement sanctioned by BIFR the effective date has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting policies, Accounting Standards, method and rates for depreciation which it had adopted for the purpose of preparing such accounts which it had laid before its annual general meeting. This proviso is conspicuously missing in s. 115J where sub-s. (1A) deals with the same issue. Apollo Tyres Ltd. s case (supra) of the apex Court, referred supra, was one under the provisions of section 115J, where a proviso similar to one given under sub-section (2) of section 115JB was absent. Therefore, we are of the opinion that application of the same ratio in a case to which s. 115JB applies, for the purpose of considering the allowability or otherwise of a second set of final accounts would not be relevant. Sub-section (2) of section 115JB, through its proviso simply mandates that an assessee has to adopt the same accounting policies, standards, etc. when preparing its annual accounts for the purpose of section 115JB, which of course, has to be in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956. Nowhere in this section is there a ban on an assessee from doing such an exercise, when it can do so legitimately, on account of a scheme of amalgamation, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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