TMI Blog2018 (4) TMI 1600X X X X Extracts X X X X X X X X Extracts X X X X ..... administrative expenses have to be apportioned towards earning of tax free income. The disallowance of ₹ 349242/- made by the assessee will not suffice. We find that the total administrative expenses claimed in the statement of total income are at ₹ 3.50 crores. In our considered opinion, at least 10% of such expenditure should be apportioned towards earning of exempt income. Therefore, a disallowance of ₹ 35 lacs should meet the ends of justice. We accordingly direct the A.O. to restrict the disallowance at ₹ 35 lacs. This ground alongwith all its sub ground and the additional ground are treated as partly allowed. Non granting of deduction contributed by the assessee to Gujarat Socio Economic Development Society (GSEDS) u/s. 37 r.w.s. 28 - claim of the assessee was denied on the ground that the assessee is a separate entity from the Finance Department of Government of Gujarat and the scope of business cannot be enlarged to an extent where the expenditure is incurred without commensurate benefit to its business - Held that:- It is true that as per directions of the Government of Gujarat, the assessee had made the contribution of ₹ 30 crores. The dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for A.Y. 2010-11. 2. Since the common issues are involved in all these appeals, they were heard together and are disposed of by this common order for the sake of convenience and brevity. 3. Representatives of both sides agreed that facts of A.Y. 2009-10 may be considered for the disposal of the impugned appeals. On such concession, we first take up ITA No. 1478/Ahd/2013 Assessee s appeal for A.Y. 2009-10. 4. The first grievance of the assessee relates to the disallowance made u/s. 14A of the Act read with Rule 8D amounting to ₹ 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 ₹ 3.99 crores and dividend of ₹ 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 ₹ 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 disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entioned elsewhere, all the investments are brought forward balances from earlier years. 11. The assessee is a non banking financial company registered with Reserve Bank of India and is 100% a Government of Gujarat Company and is engaged in the business of providing financial assistance to Government of Gujarat Enterprises. Company s main source of funds are in the form of Inter Corporate Deposits from Government of Gujarat controlled enterprises. The Company also performs Treasury management 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are bound to follow their directive of the Finance Department while deputing surplus funds and are bound to deposit such funds with the assessee company. 19. It was brought to our notice that the assessee is bound to follow the directions of the Government of Gujarat and on such directions, the assessee had made the contribution of ₹ 30 crores and therefore the claim should be allowed on the grounds of commercial expediency. The ld. counsel drew our attention to the various instructions issued by the Government of Gujarat. Per 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he A.O. to delete the addition. The relevant findings of the ld. CIT(A) read as under:- 7.4 I have considered the facts of the case, the order of the Assessing officer and the submissions of the appellant. The claim of the appellant is that of allowability of deduction under section 37 of the IT Act being revenue expenditure incurred out of commercial expediency. The appellant has demonstrated that there is an element of commercial expediency in view of the fact that he entire business of the appellant, from which substantial taxable income is generated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Authority while giving relief to the assessee on this issue has followed the decision of the Co-ordinate Bench in earlier assessment year. Therefore, no interference is called for. Ground no. 2 is also dismissed. 32. In the result, the appeal filed by the Revenue is dismissed. ITA No. 2456/Ahd/2014 Assessee s appeal for A.Y. 2008-09 33. The only grievance relates to the disallowance made u/s. 14A read with Rule 8D of the Act. 34. A similar issue has been considered by us in ITA No. 1478/Ahd/2013 qua ground no.2 with its sub ground and additional ground of that 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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