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2016 (1) TMI 125 - ITAT AHMEDABAD

2016 (1) TMI 125 - ITAT AHMEDABAD - TMI - Disallowance being amortization of lease rent - treating the same as of capital nature by CIT(A) - Held that:- Similar issue in assessee's own case has been decided in respect of Asst. Years 2005-06 to 2007-08 wherein decided the issue in favour of assessee considering the decision of this Court in the case of Sun Pharmaceutical Industries Limited (2009 (3) TMI 587 - Gujarat High Court ) as well as decision of the Hon'ble Supreme Court in the case of Mad .....

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of assessee

Disallowance u/s 14A - Held that:- As the assessee seems to be having sufficient interest free funds out of which investments in funds giving tax free income would have been made and also there is no specific observations by the Assessing Officer that during the previous year any such funds bearing interest have been diverted/applied to investments, income of which is not forming part of total income and, therefore, there seems to be no possibility of application of Rule .....

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fact that any such expenditure has been incurred for earning exempt income. Therefore, Assessing Officer was not correct in applying section 14A read with Rule 8D in the case of the assessee. However, looking to past history, previous assessments made and the decision of co-ordinate Bench, as well as accepting the fact that one cannot ignore the possibility of incurring some expenditure for earning exempt income which have been debited to the profit and loss account and to cover up such possibi .....

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o 2007-08 has decided similar issue by observing deduction allowable to the assessee u/s 80IA in respect of captive consumption of power, the rates fixed by Electricity Board i.e. GEB in the present case, has to be applied and not the price fixed by the legislative mandate. He has also noted that in the present case, the assessee is prevented by legislative mandate from selling power to any person other than GEB and the rates fixed by GEB was ₹ 1.86 per unit only but the GEB is asking the .....

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ovision for doubtful debt and claim of provision of diminution in value of investment and provision for loss in the derivative were added back to the book profit - Held that:- The issue has been decided by the co-ordinate Bench in assessee's own case for Asst. Year 2004-05 wherein it was fairly conceded by the ld. AR that this issue has to be decided against the assessee as per clause (i) of Explanation 1 to section 115JB and hence, this issue is decided against the assessee - ITA No. 2398/Ahd/2 .....

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are that assessee is a Limited Company engaged in the business of manufacturing and trading of chemicals and generation of power. Return of income was filed on 23.9.2009 declaring total income of ₹ 88,18,01,350/- and thereafter the return of income was revised on 6.9.2010. The case was selected for scrutiny and notice u/s 143(2) was issued on 19.8.2010 and duly served. The assessment was completed by the Assessing Officer at a total income of ₹ 162,29,20,947/-. Various additions wer .....

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de by AO and confirmed by CIT(A) Baroda be directed to be deleted. 2) The Hon'ble CIT(A)-I, Baroda has erred in confirming the disallowance of ₹ 14,01,000/- on account of amortization of lease rent treating the same as of capital nature. Your appellant submits that the disallowance made by AO and confirmed by Hon'ble CIT(A) is unwarranted. Same be directed to be deleted now. 3) The Hon'ble CIT(A)-I, Baroda has erred in confirming the addition of ₹ 2,26,90,000/- being made .....

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ooks of accounts have been maintained and all conditions laid down u/s 80IA are fulfilled. Hence there is no justification to disallow your appellant's claim by adopting the market rate of units other than rate adopted by your appellant. It is therefore, submitted that the deduction u/s 80IA is rightly claimed by your appellant and hence be allowed now. 5) The Hon'ble CIT(A)-I, Baroda has erred in confirming the recomputation of book profit u/s 115JB of the Act and increasing book profit .....

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ntile and such liabilities are ascertained. Further, final accounts has been prepared as per Accounting Standards prescribed the Institute of Chartered Accountants of India and same are in accordance with Schedule VI to the Companies Act, 1956 hence further adjustments as above, to profit as per final accounts are not permissible under section 115JB. It be held so now and book profit as declared be accepted now. 6) The Hon'ble CIT(A)-I, Baroda has erred in confirming the charging of interest .....

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imilar issue in Asst.Year. 2008-09 and made disallowance in Asst. Year 2009-10 of ₹ 14,01,000/- being amortization of lease rent. 6. Aggrieved, the assessee went in appeal before the CIT(A) who confirmed the disallowance by observing as under :- "3.2 I have considered the matter, which is covered by my decision dated 3.11.2011 in appellant's case in CAB-I/25/10-11 for AY 2008-09. Facts of the case and appellant's submissions being identical, disallowance of ₹ 14,01,000/- .....

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f judgment placed on record). 8. The ld. DR supported the orders of lower authorities and opposed the submissions of ld. AR. 9. We have considered the rival submissions and perused the material on record. Similar issue in assessee's own case has been decided by Hon'ble Gujarat High Court in Tax Appeal Nos. 778,779 & 780 of 2013 vide order dated 21/10/2013, in respect of Asst. Years 2005-06 to 2007-08 wherein the Hon'ble High Court has decided the issue in favour of assessee and h .....

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to Services Pvt. Ltd. (supra), we are of the opinion that the learned Tribunal has committed an error in distinguishing the aforesaid decisions and not applying the same to the facts of the case on hand. Considering the aforesaid two decisions, it is to be held that the aforesaid lease rent was deductible as revenue expenditure and the learned Tribunal has erred in holding that ₹ 3,36,224/- after amortization of lease rent paid for the land is capital expenditure. Under the circumstances, .....

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we hereby delete the disallowance of ₹ 14,01,000/- made on account of amortization of lease rent which was treated as capital expenditure by the Assessing Officer. This ground of assessee's appeal is allowed. 11 Ground No.3 relates to confirmation of addition of ₹ 2,26,90,000/- made Assessing Officer by invoking the provisions of section 14A r.w.s. rule 8D, by CIT(A). During the course of assessment proceedings the AO made disallowance of ₹ 2,26,90,000/- by invoking provis .....

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Officer noted that appellant had incurred interest on funds borrowed and had not maintained separate accounts for sources of funds utilized for investment activities. Assessing Officer did not accept that funds deployed for earning tax free income were entirely out of interest free funds. Assessing Officer held that it was a case of falling u/s 14A(2). The assessment year involved being subsequent to Asst. Year 2008- 09, Assessing Officer invoked Rule 8D to compute disallowance u/s 14A at ₹ .....

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sent issue may be decided in accordance with the decision of the Tribunal for Asst. Year 200 4-05. 14. On the other hand the ld. DR supported the orders of lower authorities. 15. We have heard the rival contentions and perused the material on record. The ld. AR has referred to the order of Co-ordinate Bench in ITA No.4556/Ahd/2007 in assessee's own case for Asst. Year 2004-05 wherein the issue regarding disallowance under section 14A has been decided. However, the above decision of co-ordina .....

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referred. Generally the main reason which initiates the possibility of attraction of section 14A in the mind of Assessing Officer is the claim of interest paid on borrowed funds utilized in making investments which will fetch interest free income to the assessee and, therefore, interest expenditure claimed to the extent of such investments needs to be added back to the income of assessee and similarly administrative and other establishment expenses which are incurred by the assessee for business .....

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income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the pr .....

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t day of the previous year ; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent of the average of the 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 last day of the previous year. 3) For the purposes of this rule, the "total assets" shal .....

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e made by assessee or the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. The expenditure in relation to income which does not form part of total income shall be aggregate of the following: (1) The amount of expenditure directly related to income which does not form part of total income. (2) Pro-rata calculation of interest expenditure claimed on the funds applied to investments, income from which .....

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hat on the basis of profit and loss account where the assessee has shown exempt income under section 10(34), under section 10(35) and exempt under proviso to section 28(va)(ii), he has assumed that there ought to have been some expenditure in the form of interest paid or administrative expense which have been incurred for earning income which do not form part of total income. Therefore, the conditions which was required to be adhered before adopting the method prescribed under Rule 8D was not co .....

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totaling at ₹ 1244.92 crores which shows that assessee was having sufficient source of interestfree funds which might have been invested in the tax-free income bearing investments. Further out of the total exempt income shown by the assessee ₹ 37,09,618/- is exempted under the proviso to section 28(va)(ii) in relation to sum received as compensation from the Multilateral fund of the Montreal Protocol on substories that deplete the Ozone Layer under the U.N.E.P. and this income is rel .....

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no possibility of application of Rule 8D in relation to interest expenditure. 19. As regards apportionment of administrative and establishment expenses debited to the profit and loss account towards exempt income earned during the year on one hand, assessee which is a limited company has provided audited financial statement along with audit report u/s 44AB wherein no specific disallowance u/s 14A is appearing and on the other hand, the Assessing Officer has not gone specifically through the boo .....

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unt and to cover up such possibility we are of the view that a lump sum disallowance of ₹ 1,00,000/- will meet the ends of justice. We do so. Accordingly this ground of assessee is partly allowed. 20. Ground no.4 - has arisen due to reduction in the deduction claimed by assessee under section 80IA wherein the Assessing Officer has estimated the rate of ₹ 2.23 per unit for units of electricity sold and arrived at a conclusion that assessee earned has not earned any profit rather incur .....

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appeal before the Tribunal. 21. The ld. AR of the assessee submitted that similar issue in assessee's own case has been dealt by the Tribunal in ITA Nos. 179, 180 & 181/Ahd/2010 for Asst. Years 2005-06 to 2007-08 (copy placed on record). So he submitted that the issue may be decided in view of the above decision of the Tribunal. 22. The ld. DR supported the orders of lower authorities. 23. We have considered the rival submissions and perused the material on record. We find that the co-or .....

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d i.e. GEB in the present case, has to be applied and not the price fixed by the legislative mandate. He has also noted that in the present case, the assessee is prevented by legislative mandate from selling power to any person other than GEB and the rates fixed by GEB was ₹ 1.86 per unit only but the GEB is asking the assessee to pay at ₹ 4.55 per unit and hence, he has directed the AO to allow deduction u/s 80IA as claimed, being the market rate of ₹ 4.55 per unit of power. N .....

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