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TMI Blog2018 (4) TMI 1600X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee relates to the disallowance made u/s. 14A of the Act read with Rule 8D amounting to Rs. 17.54 crores . 5. During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has earned interest on bonds and Debentures amounting to Rs. 3.99 crores and dividend of Rs. 60.72 lacs which were claimed as exempt u/s. 10(15)(iv)/10(23G) of the Act. The A.O. found that the assessee has made disallowance of Rs. 3,49,242/- u/s. 14A of the Act which was 1% of the total administrative expenses. The A.O. was of the firm belief that the disallowance made by the assessee is not in line with the provisions of Section 14A read with Rule 8D of the Act. Therefore, the Assessee was asked to explain why disallowance should not be made as per the provisions of Section 14A read with Rule 8D of the Act. 6. The assessee explained that the investment in tax free securities has been made from own funds and that no borrowed funds have been utilized for the purpose of making of such investment. It was further explained that the interest inflow was Rs. 672.98 crores and whereas interest outflow was Rs. 542.80 crores. It was strongly contended that since there is a net positive i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of surplus funds of Government Board/Corporations and other institutions. 12. As per the directions of the Government of Gujarat, the assessee has parked its surplus funds in Government securities and bonds in earlier years. We find that the A.O. has mechanically computed the disallowance u/s. 14A as per Rule 8D without establishing any nexus between the borrowed funds and utilization thereof in making tax exempt investment. In our considered opinion, common expenses which are to the allocated in terms of the formula under rule 8D will be only such interest expenses which are directly attributable to borrowings specifically used for tax free incomes. Moreover, the interest income earned by the assessee is far more in excess of the interest expenditure and the interest free funds are sufficient to cover up investments and the investments are brought forward from earlier financial years. In our considered opinion, facts of the case do not warrant for any disallowance on account of interest expenditure. 13. Insofar as the administrative expenses are concerned, there is no dispute that certain administrative expenses have to be apportioned towards earning of tax free income. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contra, the ld. D.R. strongly supported the findings of the lower authorities. 20. We have carefully considered the orders of the authorities below. It is true that as per directions of the Government of Gujarat, the assessee had made the contribution of Rs. 30 crores. However, in our considered opinion, the directions of Gujarat cannot override the provisions of the Income Tax Act. We find that the assessee has contributed 30% of its profit which is akin to appropriation of profit and this 30% cannot be construed as charge against profit. 21. The contribution made by the assessee to GSEDS is eligible for deduction u/s. 80G of the Act and that has been allowed by the A.O. By making the contribution, the assessee has only followed the dictat of the Government of Gujarat but nowhere has demonstrated the nexus between the contribution and the commercial expediency vis-à-vis benefits to the assessee. The contribution so made is eligible for deduction u/s. 80G and therefore in our understanding of the facts, the claim of entire contribution as deduction u/s. 37 of the Act is not tenable. 22. The assessee has relied upon various judicial decisions. We have considered those judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is due to the mandate issued by - the Finance Department of the Government of Gujarat requiring the Public Sector Enterprises (PSE) owned and controlled by it to deposit surplus moneys with the appellant. Accordingly, the expenditure incurred on renovation and modernization of Finance Department Building was for the benefit of the business since it ensured continued cordial relations with the Finance Department at whose instance appellant was able to get deposits from the state PSEs and at whose instance the expenditure was incurred by the appellant for renovation and modernization of Finance Department Building. Further, the appellant has also demonstrated that renovation and modernization of Finance Department building would enhance image of Finance Department which would benefit the appellant's business which is positively benefited from the image of the Finance Department and its decisions. Further, the property in the furniture and fittings, etc. vests in the Finance Department as per correspondence from the Finance Department dated 25/01/2007 (page no. 65 of the paper book). Accordingly, no new asset owned by the appellant has come into existence nor has the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. For our detailed discussion therein, we direct the A.O. to restrict the disallowance to 10% of the administrative expenses. The assessee will get part relief. ITA No. 1023/Ahd/2014 Revenue's appeal for A.Y. 2008-09 35. Ground no. 1 relates to the deletion of the disallowance made on expenses of Rs. 1.40 crores towards renovation and modernization. 36. An identical issue has been considered by us in ITA No. 1550/Ahd/2013 qua ground no. 1 of that appeal. For our detailed discussion therein, this ground is dismissed. 37. Ground no. 2 relates to the deletion of the disallowance of depreciation on assets purchase and lease back. 38. An identical issue has been considered by us in ITA No. 1550/Ahd/2013 qua ground no. 2 of that appeal. For our detailed discussion therein, ground no. 2 is dismissed. ITA No. 2360/Ahd/2013 Assessee's appeal for A.Y. 2010-11 39. The only grievance of the assessee relates to the disallowance made u/s. 14A read with Rule 8D of the Act. 40. A similar issue has been considered by us in ITA No. 1478/Ahd/2013 vide ground no. 2 with its sub ground and additional ground. For our detailed discussion therein, we direct the A.O. to restrict the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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