TMI Blog2018 (8) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... PEAL NO. 901 of 2018 With R/TAX APPEAL NO. 902 of 2018 - - - Dated:- 31-7-2018 - MR. M.R. SHAH AND MR. A.Y. KOGJE, JJ. For The Petitioner : Mr.Varun K.Patel(3802) For The Respondent : Mr Manish J Shah(1320) COMMON ORAL ORDER ( PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. Feeling aggrieved and dissatisfied with the impugned order passed by the learned Income Tax Appellate Tribunal, A Bench, Ahmedabad dated 29.11.2017 passed in ITA No.339/AHD/2012 for the Assessment Year : 2008-2009, the order passed in ITA No.178/Ahd./2013 for the Assessment Year : 2009-2010, and ITA No.38/Ahd./2013 (Revenue's Appeal) for the Assessment Year : 2009-2010, the Revenue has preferred the present Tax Appeals No.900/2018, 901/2018 and 902/2018. 2. In Tax Appeal No.900/2018, arising out of the impugned order passed in ITA No.339/Ahd/2012 for the Assessment Year : 2008-2009, the Revenue has proposed the following question of law :- ( a) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in restricting the disallowance made u/s. 14A of the Income Tax Act to ₹ 10 lacs (on ad-hoc basis) from ₹ 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing the assessee s claim for deduction u/s. 80IA of the Income Tax Act, 1961 for generating power for captive consumption, when the assessee had adopted rate on which the GEB supplied power to its consumers ignoring the rate on which power generating company supplied its power to GEB? 5. From the aforesaid, it appears that the proposed question 2.(b) in the respective Tax Appeals are common. 6. Considering the fact that the identical question / issue is at large before this Court in Tax Appeal No.935/2018, in the case of Alembic Limited, all these Tax Appeals are ADMITTED to consider the following question of law :- ( b) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in allowing the assessee s claim for deduction u/s. 80IA of the Income Tax Act, 1961 for generating power for captive consumption, when the assessee had adopted rate on which the GEB supplied power to its consumers ignoring the rate on which power generating company supplied its power to GEB? 7. Now so far as proposed question No.2(a) in Tax Appeals No.900/2018 and 901/2018 are concerned, they are with respect to the disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 14A(2) of the Act read with Rule 8(d) of the Rules. Considering the fact that incase of the very assessee but in respect of the earlier assessment years, the High Court has quashed and set aside such disallowance made under Section 14A of the Act on the ground that the assessee was already having surplus interest free funds and therefore, the Assessing Officer was not justified in making the disallowance under Section 14A of the Act. The learned ITAT observed in the present order also similar is the situation and the assessee in the year under consideration is also having surplus interest free fund. Consequently, the learned ITAT deleted the disallowance made by the Assessing Officer made under Section 14A(2) of the Act read with Rule 8(d) of the Rules. 11. Feeling aggrieved and dissatisfied with the impugned order passed by the learned ITAT in deleting the disallowance made by the Assessing Officer under Section 14A(2) of the Act read with Rule 8(d) of the Rules, the Revenue has preferred the present Appeal with the following proposed question of law :- (a) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in ground no.2 of the respective appeals for A.Y. 2008-09 2009-10 relates to disallowance for interest and administrative expenditure confirmed by Ld. CIT (A) which were made by the A.O. invoking the provisions u/s.14A of the Act and thereby applying rule 8D to calculate interest disallowance at ₹ 1.21 crores and ₹ 6.86 crores and disallowance of administrative expenses at ₹ 0.66 crores and 2.07 crores for A.Y. 2008-09 2009-10 respectively. 7. We find that there is no dispute to the following facts for A.Y. 2008-09 2009-10 respectively. - Dividend income earned at ₹ 14.77 crores and ₹ 19.70 crores. - Average investment at ₹ 132.43 crores 413.71 crores. - Interest expenditure at ₹ 44.68 crores ₹ 39.17 crores. - Surplus Interest free funds (share capital + reserve surplus) at ₹ 1473.33 crores ₹ 1931.47 crores. 8. We find that Ld. A.O. merely on looking to the figure of dividend income, interest expenditure and investment fetching tax free income invoked the provisions u/s.14A and applied the method provided in rule 8D of Income Tax rules and calculated the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions and gone through the orders of authorities below. In A.Y. 2004- OS, we have held that no disallowance u/s. 14A of the Act is called for in respect of interest expenditure because the own funds of the assessee is much higher than the investment in share etc., Regarding other administrative expenses, we have confirmed a disallowance of ₹ 5 lakh in A.Y. 2004-05 and hence, in the present year also, we confirm the disallowance of ₹ 5 lakh regarding other administrative expenses and delete the balance disallowance. This ground of Revenue s appeal is partly allowed. For A.Y. 2007-08 8. We have considered rival submissions and perused the material available on record and gone through the order of authorities below and the Tribunal decision cited by Ld. A.R. of the assessee. Regarding disallowance out of interest expenditure, we are of considered opinion that no such disallowance is called for when the own interest free funds is far in excess of investment in tax free securities and the A.O. could not prove any nexus between interest bearing borrowed funds and such investment in tax free securities and therefore, the same is deleted. In respect of disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or A.Y. 2004-05 stands confirmed by Hon ble High Court of Gujarat in Tax Appeal No.126/2013 dated 25.06.2013. The above judgment and decision were for the assessment year preceding assessment year 2008-09. From A.Y. 2008- 09 onwards amendment was brought in rule 8D thereby prescribing a method for calculation of disallowance u/s. 14A of the Act. However the condition precedent to applying Rule 8D of Income Tax Rule is that the A.O. has to make a proper satisfaction from the records of the assessee that such expenses have been incurred towards making the investment and earning the exempt income. In the instant appeal no such satisfaction has been recorded by the learned Assessing Officer pointing out any error in the calculation of the administrative expenses rather he has mechanically applied the method provided under Rule 8D of Income Tax Rule. 14. We also observe that Hon ble Jurisdictional High Court in the case of Pr. CIT vs. India Gelatin and Chemical Limited (2015) 376 ITR 553 (Gujarat) adjudicating similar issue of administrative disallowance u/s. 14A of the Act for A.Y. 2009-10 thereby confirming the order of the Tribunal limiting the disallowance suo moto made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the proceeding years, i.e. 2005-2006 to 2007-2008. The Division Bench of this Court in the aforesaid decision has specifically observed that in a case where the assessee was having sufficient funds available with it, more than amount invested for earning the dividend, the disallowance in respect of interest expenditure under Section 14A of the Act read with Rule 8(d) of the Rules is not permissible. The decision of the Division Bench of this Court in the case of the very assessee for the Assessment Year : 2004-2005 has attained finality. In the present case, it is required to be noted that in the earlier years also more particularly, even in the Assessment Year : 2004-2005, the assessee was also having mixed funds and still considering the fact that the assessee was already having sufficient surplus interest free funds, the Division Bench of this Court has held that the disallowance under Section 14A of the Act is not permissible. At the cost of repetition, it is observed that the said decision has attained finality between the parties. Not only that, but the Department has followed the same in the subsequent assessment years also. Considering the aforesaid facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. This gave rise to a loss which has been claimed as business loss. 33. It is true that these bonds were shown as investment in the Balance Sheet. Before moving further we would like to go to the judgment of Hon ble Apex Court in the case of Patnaik and Co. Ltd. wherein a company subscribed for a Government loan on a promise by the Government that assessee will receive preferential treatment in placing the order for motor vehicles which is turn would be supplied to Government departments. Assessee claimed a certain amount of loss sustained by it on disposing of its subscription and claimed it as business loss. Revenue disallowed treating it as capital loss. Tribunal held it as business loss but Hon ble High Court took different view confirming the action of the A.O. However, Hon ble Apex Court held it to be a Revenue loss by observing that there was nothing to show that there is any reason for the assessee to hold on the investment in the loan indefinitely. There was no enduring advantage. Thus the investment does not bring in an asset of a capital nature and the loss suffered by the assessee was a Revenue loss. 18. Thus, from the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X
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