TMI Blog2011 (2) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... t has drawn attention to ITAT, Ahmedabad s decision in its own case for Assessment Year 2003-04 on same issue in its favour in ITA No.3594/AHD/2007 and also Learned Commissioner of Income Tax (Appeals) s order for Assessment Year 2005-06 following the ITAT order. It is seen that the Hon ble ITAT s decision in this regard is as under: We have heard the parties and considered rival submissions. The controversy in question is squarely decided by the Tribunal, Delhi Bench, in the case of Jindal Steel Power Ltd. (supra) and Mumbai Bench in the case of West Coast Paper Mills Ltd. (supra) holding on unequivocal terms that the market value postulated by the provisions of section 80IA shall be the price at which the assessee purchases electricity from Electricity Board and not the one which is fixed by the legislative mandate. Therefore, respectfully following the above Tribunal decisions, we direct the A.O.to allow grant of deduction under section 80IA to the assessee by taking the price of electricity supplied by GEB to assessee as consumer as market value for the purpose of deduction under section 80IA. The assessee succeeds on this ground. Since in Assessment Year 2006-07, facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made. However, the Assessing Officer held that the appellant had not filed the cash/fund flow statement to show that no borrowed funds had been utilized for making such investments and, therefore, held that the appellant had actually used interest bearing borrowed funds for making these investments. He further held that the appellant must have incurred and claimed other expenses like demat, telephone, conveyance, consultancy fees, administrative expenses towards making such investments and earning exempt income there from. Therefore, he made an adhoc disallowance of 10% of the total dividend and interest income. In this regard, it is observed that the Assessing Officer has nowhere mentioned in the order that he had specifically asked for the furnishing of the cash /fund flow statement and that the appellant had failed to do so. The appellant has been of the belief that its own funds were much higher than its investments and it had shown this on record. From this, it cannot be said that the appellant failed to discharge the onus. Moreover, from this it cannot be automatically presumed that the appellant had utilized the borrowed fund for non business purposes i.e. for making suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer for readjudicating the same in light of the decision of Mumbai Special Bench of the Tribunal in the case of ITO vs. Daga Capital Management Pvt. Ltd., for Assessment Year 2001-02 in ITA No.8057/Mum/2003 order dated 22-10-2008. He submitted that later on the Hon ble Bombay High Court has decided the issue in the case of Godrej and Boyce Manufacturing Co. Ltd. v. P. K. Gupta, Commissioner of Income-tax (2010) 328 ITR 81 (Bom) and therefore the matter should be restored back to the file of the Learned Assessing Officer for readjudicating the issue in the light of the decision of the Hon ble Bombay High Court. 10. We find that the Hon ble Bombay High Court has held as under:- By the Finance Act of 2001, Parliament enacted section 14A of the Income-tax Act, 1961, with retrospective effect from April 1, 1962. Prior to the insertion of section 14A, the Revenue had sought to disallow the expenditure incurred in relation to exempt income. However, the Supreme Court in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452and in Rajasthan State Warehousing Corporation v. CIT [2000] 242 ITR 450held that where there is one indivisible business giving rise to taxable income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of clause (33) of section 10. (Clause (33) of section 10 was omitted by the Finance Act of 2003. Clauses (34) and (35) which were inserted by the same Finance Act, now provide that income by way of dividends referred to in section 115-O and income received in respect of the units of a mutual fund specified in clause (23)(b) shall not be included in computing the total income of any person for the previous year). Plainly dividend income and income from mutual funds are incomes which by virtue of the provisions of section 10, do not form part of the total income under the Act. Expenditure incurred in relation to the earning of such income has to be disallowed under section 14A. The expression income which does not form part of the total income under the Act must receive its plain and grammatical construction. Such income is income which is not includible in computing the total income of the assessee under the provisions of the Act for a previous year. Income-tax is a tax on income in the hands of the assessee. Hence, when section 14A disallows expenditure incurred by the assessee in relation to income which does not form part of the total income, it would include categories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid. The provisions of rule 8D of the Rules, are not ultra vires the provisions of section 14A, more particularly sub-section (2) and do not offend article 14 of the Constitution. Different dates have been provided in the provisions of section 14A and rule 8D for their enforcement. Sub-section (1) of section 14A was inserted with retrospective effect from April 1, 1962, to overcome the decisions of the Supreme Court. At the same time, the theory of apportionment of expenditure between taxable and non-taxable income has, in principle, been now widened under section 14A. Reading section 14 in juxtaposition with sections 15 to 59, it has been observed that the words expenditure incurred in section 14A refer to expenditure on rent, tax, salary, interest, etc., in respect of which allowances are provided for. Thirdly, sub-sections (2) and (3) were introduced by a legislative amendment brought about by the Finance Act of 2006. Rule 8D has essentially put into place an artificial method of estimating the expenditure that can be regarded as being relatable to income that does not form part of the total income under the Act. Sub-section (4) of section 295 empowers the rule-making autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly with effect from assessment year 2008- 09. Even prior to assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer had to enforce the provisions of sub-section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record. The proceedings for assessment year 2002-03 would stand remanded to the Assessing Officer. The Assessing Officer should determine as to whether the assessee had 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 reason-able basis for effecting the apportionment. While making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and relevant or ger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06, where Learned Commissioner of Income Tax (Appeals) have decided the issue in favour of appellant vide para 40 and para-41 Page No.42 to page No.43 of order for Assessment Year 2002-03 dated 20-4-2007) as under: I have considered the rival submissions and perused the case law. I am in agreement with the appellant s submission. Following the Supreme Court decision in case of Bharat Earth Movers (supra) and of the Indore Tribunal in case of Eicher Motors Ltd. (supra), the addition made on account of the provision for leave encashment and for gratuity cancelled. 14. The Learned Departmental Representative supported the order of the Learned Assessing Officer. 15. The Learned Authorised Representative of the assessee submitted that after the retrospective amendment made in section 115JB the provision bad and doubtful debt is not allowable deduction in computing the book profits and accordingly the decision of Hon ble Supreme Court in CIT vs. HCL Comnet Systems and Services Ltd., 305 ITR 409(SC) is neutralized. However, he submitted that the issue has been decided by Ahmedabad Bench of the Tribunal in the case of ITO vs. Gujarat Paguthan Energy Corporation Ltd., wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Tribunal we restore this issue back to the file of the Learned Assessing Officer to readjudicate the same in the light of the above quoted decision of the Tribunal after allowing reasonable and proper opportunity of hearing to the assessee. Thus, these grounds of appeal are allowed for statistical purposes. 18. Ground No.5 of Revenue s appeal reads as under:- The Learned Commissioner of Income Tax (Appeals) erred in allowing reduction of ₹ 16,55,000/- being withdrawal from revaluation reserve for computing book profit. 19. The Learned Commissioner of Income Tax (Appeals) decided the issue by observing as under:- Ground No.(v) is regarding addition of withdrawal from revaluation reserve of ₹ 16,55,000/- to the book profit under section. 115JB. It is submitted by the appellant that the same issue was decided in its favour by the Hon ble ITAT in its own case in A.Y. 2003- 04 (page-50, para-78) as under:- We have heard both the parties and considered rival submissions. Learned Commissioner of Income Tax (Appeals) has followed the order of Tribunal in assessee s own case for Assessment Year 1998- 99, which in turn, has held that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessment Year 2005-06, where I decided the issue in favour of the appellant (para-10 page 20-21) following my predecessor, Learned Commissioner of Income Tax (Appeals)-I s order dated 25-9-2007 for Assessment Year 2004-05 (page 27, page 23) as under: As regards the addition of provision for wealth tax to the book profits, it is observed that the issue is directly covered by the decision of ITAT Kolkatta Spl. Bench in case of Usha Martin Industries Ltd. (supra) where it has been held that provision for wealth tax does not fall within any of the items of the Explanation to section115JA and therefore, the same cannot be added back to arrive at book profit . Following the above decision for the purpose of Section 115JB since the two provisions are similar, the addition made by the Assessing Officer of ₹ 90,00,000/- is cancelled. As there are no changes in facts and following the above orders, the disallowance of ₹ 7 lacs made on this account is cancelled. 25. The Learned Departmental Representative supported the order of the Learned Assessing Officer. 26. The Learned Authorised Representative of the assessee submitted that in Assessment Year 2005-06 the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore respectfully following the decision of the Special Bench of the Tribunal in the case of Usha Martin Industries Ltd (supra) and the decision of this Tribunal in assessee s own case for Assessment Years 2000- 01 and 2001-02 dated 16-7-2008 in ITA Nos.1750 and 1751/Ahd/2004 we confirm the order of the Learned Commissioner of Income Tax (Appeals) in deleting the addition of ₹ 7 lacs on account of Wealth tax provision in computing the book profits of the assessee. Thus, this ground of appeal of the Revenue is dismissed. 30. The Cross objection filed by the assessee reads as under:- 1. Confirming disallowance of deduction under section 80HHC for computing book profit. 31. At the outset, we would like to observe that the Cross objection filed by the assessee is barred by limitation of 22 days and the assessee has filed condonation application for condoning the delay in filing the Cross objection. The Learned Departmental Representative submitted that he has no objection in condoning the delay in filing of cross objection by the assessee and deciding the ground taken by the assessee in the cross objection on merits. Therefore, the delay in filing of cross objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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