TMI Blog2019 (7) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... given a clear finding that the assessee had interest free funds of its own As decided in CORRTECH ENERGY PVT. LTD. [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] assessee did not make any claim for exemption of any income from payment of tax - It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made MAT computation - disallowance under section 14A in computing the book profit - HELD THAT:- No error could be said to have been committed by the ITAT in taking the view that no addition in the book profit can be made on the basis of the calculations worked out under section14A Deduction u/s 80IA( 4) at the rate on which the GEB supplied power to its customers - generation of power for captive consumption - HELD THAT:- This issue is directly covered by the decision of this Court in the case of CIT Vs. Gujarat Alkalies and Chemicals [ 2016 (10) TMI 1111 - GUJARAT HIGH COURT] for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DVO for ascertaining the fair market value of a capital asset. Such ascertainment of fair market value with the aid of the DVOs report would have no relevance for the purpose of determining full value of consideration received or accruing as a result of the transfer of the capital asset for the purposes of section 48 - reference to DVO for ascertaining the fair market value of the capital asset as on the date of the sale in the present case would be wholly redundant. Date of transfer of the Wind Energy Business of GFL to IRL on slump sale is 30/03/2012 - HELD THAT:- This question is corelated to the question aforesaid and squarely covered by Gauranginiben S. Sodhan (supra). ITAT committed no error in passing the impugned order. - Decided against revenue - R/TAX APPEAL NO. 11 of 2019 With R/TAX APPEAL NO. 28 of 2019 - - - Dated:- 17-6-2019 - MR J. B. PARDIWALA AND MR A.C. RAO, JJ. For The Appellant (s) : MR.VARUN K.PATEL (3802) For The Opponent (s) : MR B S SOPARKAR (6851) ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. As the issues raised in bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case, the learned ITAT has erred in law and on facts in allowing the assessee's claim of deduction u/s.80IA(4) of the Income Tax Act, 1961 at the rate on which the GEB supplied power to its consumers ignoring the rate on which power generating company supplied its power to GEB? ( e) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in treating the income from realization of carbon credits as capital in nature, despite the fact that the realization from carbon credits has been treated by the assessee itself as revenue income and offered to tax and in fact in actualities they are revenue receipt? ( f) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in deleting the disallowance of ₹ 21,47,672/made on account of late payment of employees contribution towards PF/ESI u/s.36(1)(va) r.w.s.2(24)(x) of the Income Tax Act? ( g) Whether on the facts and in circumstances of the case, the learned ITAT has erred in law and on facts in not upholding the entire addition of ₹ 436.8 Crores mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer at ₹ 43.35 lakh. The Assessing Officer called upon the assessee to explain whether any expenditure pertained to such income and had been added back and if not, why the expenses incurred under section14A read with Rule8D of the Rules should not be disallowed. The Assessing Officer was not convinced with the explanation offered by the assessee and ultimately, proceeded to disallow the expenditure incurred in accordance with the Rule8D of the Rules, 1962. 9. The assessee being dissatisfied with the disallowance in the draft assessment orders passed by the Assessing Officer filed its objections before the DRP. The DRP overruled the objections preferred by the assessee. The DRP took the view that the borrowings and the internal accruals were being credited in the same account and mixed funds had been generated. The DRP considered it as interest bearing mixed funds and took the view that the Rule8D of the Rules was applicable. 10. Ultimately, the matter was carried before the appellate tribunal. The tribunal by its impugned common judgment for both the assessment years allowed the appeals in part. 11. The rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the previous year; C= the average of total asset as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; 15. On the other hand, Mr. Soparkar, the learned senior counsel appearing for the assessee submitted that the issue as regards the disallowance under Section14A read with Rule8D of the Rules has been well dealt with by the ITAT and the ITAT after due consideration of the position of law as well as the materials on record, has recorded a finding that the assessee was able to establish that it was having sufficient interest free funds, which could have taken care of the investments. According to Mr. Soparkar, the ITAT committed no error in taking the view that the interest expenditure could not have been disallowed with the aid of Rule8D. 16. The findings recorded by the ITAT with regard to the first proposed question are as under: - 11. We have considered rival contentions and gone through the record carefully. Before we embark upon an inquiry on the facts of the present case, in order to determine the amount of expenditure requires to be disallowed under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred in order to exempt income, then also subsection (2) can be applied. As far as interpretation and construction of scope and ambit of section 14A read with rule 8D made by the ld. DRP on the strength of various authoritative pronouncements are concerned, there is no dispute. Dispute between the parties relates to actual working on the basis of meaning explained by the DRP. When the ld. DRP has applied the scope and its application on the facts of the case of the assessee, then it failed to apply correctly. The ld. DRP has totally ignored the judgment of the Hon'ble High Court in the case of CIT Vs. UTI Bank Ltd. (supra) rather it has not made any discussion on it. Similarly, it has ignored judgment of Hon'ble Bombay High Court in the case of Reliance Utilities Power Ltd. (supra). The judgment of Hon'ble Bombay High Court in the case of Reliance Utilities Power Ltd. (supra) has been followed by the Hon'ble Gujarat High Court in the case of CIT Vs. UTI Bank Ltd. (supra). The question of law considered by the Hon'ble Bombay High Court in the case of Reliance Utilities Power Ltd. (supra) reads as under: Whether on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestments would be out of the interestfree fund generated or available with the company, if the interestfree funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT. 14. Hon'ble Court have laid down that if there be funds available; both interest free, overdrafts and loans taken, then a presumption would arise that investment would be out of interest free funds generated or available with the company. The ld. DRP has failed to take note of the ratio laid down in these decisions. It proceeded on the presumption that since funds are mixed, therefore, it is presumed that direct interest expenditure cannot be worked out and Rule 8D is to be applied. Whereas, the stand of the assessee is that its interest free funds is far more than the investment. For example, in the assessment year 2012-13, it was having interest free funds of ₹ 2272.44 crores and their investment was of ₹ 351.76 crores. Similarly, in the assessment year 2013-14, interest free funds are of ₹ 2653.57 crores against investment of ₹ 534.52 crores. A chart showing availabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Supreme Court in S.A.Builders Limited (supra) is not applicable to the issue involved in the present case as the decision in the case of S.A.Builders Limited (supra) is with respect to Section 36(i)(iii) of the Income Tax Act, whereas in the present case the issue is with regard to the disallowance under Section 14A read with Rule 8D in the context of the assessee having mixed funds, i.e. interest free as well as interest bearing funds. In the case of S.A.Builders Limited (supra), the relevant assessment years were Assessment Years 1990-91 and 1991-92, i.e. prior to the insertion of Rule 8D in the Income Tax Rules by the Income Tax (Fifth Amendment) Rules, 2008 w.e.f. 24th March 2008. It is also submitted that Section 14A has been inserted in the Income Tax Act by the Finance Act, 2001, with retrospective effect from 1st April 1962. 8. It is further submitted that after the insertion of Rule 8D, in all the cases of mixed funds, i.e. interest free as well as interest bearing funds, the subsequent decision of the Supreme Court in the case of Maxopp Investment Limited (supra), more particularly para 42 regarding the case of M/s.Avon Cycles Limited, would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not being satisfied having regard to the accounts maintained by the assessee and the suo motu disallowance made by the assessee under Section14A of the Act. We may reproduce the relevant observations of the Supreme Court in this regard thus: Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned the expenditure but the Assessing Officer did not accept the assessee's apportionment. In that eventuality, he will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares or making the investment in shares is to be examined by the Assessing Officer. 16. We also refer to and rely upon a decision of this Court in the case of Principal Commissioner of Income Tax v. Shreno Limited, reported in (2018)409 ITR 401 (Gujarat), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of subrule (1) of Rule 8D of the satisfaction to be arrived by the Assessing Officer before applying the formula given in subrule (2) of Rule 8D is done away with. In other words, the judgment in case of Maxopp Investment Ltd., does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds i.e. interest free as well as interest bearing funds and utilized them for making investments into securities earning tax free income and the rest applicability of the Section 14A read with Rule 8D would be automatic. We are conscious that neither in M/s. Max India Ltd., Punjab Haryana nor in Gujarat State Fertilizer and Chemicals case, this High Court had noticed the judgment of the Supreme Court in case of Maxopp Investment Ltd. Nevertheless in view of the discussion above, in our opinion the situation would not change on account of the said judgment of the Supreme Court. 17. This Court, in Shreno Limited (supra), has taken the view that Maxopp Investment Limited (supra) cannot be seen or understood to be fundamentally changing the understanding and interpretation of Section 14A and Rule 8D. It went on to hold that the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that Hon'ble Gujarat High Court (in Corrotech) and Hon'ble Delhi High Court in (Chemvest) have concurred with each other that if there is no dividend income or tax free income in a year then no disallowance u/s.14A can be made. This explication was amplified and employed subsequently by ITAT to construe that working of expenditure for disallowance u/s.14A should not exceed more than dividend income itself. In the case of Joint Investment Pvt. Ltd. Vs. CIT (ITA No.117/2015, decided on 25.2.2015) Hon'ble Delhi High Court has observed that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that entire tax exempt income is to be disallowed. The ITAT, Ahmedabad has restricted the disallowance equivalent to exempt income (ITA No.3266/AHD/2015, ITA No.261/AHD/2012, ITA No.1281/AHD/2012 decided on 7.12.2016. The ld. counsel for the assessee agreed for disallowance to the extent of dividend income earned by it in both the years. However, that would give an excessive relief to the assessee in the assessment year 2013-14 because assessee itself has disallowed a sum of ₹ 75 lakhs whereas dividend income is only ₹ 43.35 lakhs. Thus, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1249 of 2014 as well as decision of Hon'ble Bombay High Court in the case of CIT Vs. Bengal Finance Investment P. Ltd. in Tax Appeal No.337 of 2013. He placed on record copies both these decisions. Apart from the above, he placed upon reliance Special Bench decision of the ITAT in the case of CIT Vs. Vireet Investment P. Ltd. 165 ITD 27. On the other hand, ld. CITDR relied upon the order of DRP. 18. We have duly considered rival contentions and gone through the record carefully. We find that ld. DRP has relied upon the order of the ITAT, Mumbai in the case of DCIT Vs. Viraj Profiles Ltd., (2016) 46 ITR (Trib) 0626 (Mum) and held that addition required to be made in the book profit could be calculated as per Rule 8D of the Income Tax Rules. The ld. DRP thereafter made reference to decision of Hon'ble Delhi High Court in the case of CIT Vs. Geotze India Ltd., 361 ITR 505. According to the ld. DRP, this decision has been considered by the Special Bench in the case of Vireet Investment P. Ltd. (supra) but placed reliance upon Hon'ble Bombay High Court in the case of Vodafone India Services P. Ltd. ACIT, 361 ITR 0531 (Bom) and held that DRP is not boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondentassessee. The assessee has relied upon the judgment of ITAT special bench in the case of Vireet Investment Pvt. Ltd. In this regard, it is pertinent to mention that Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. Additional Commissioner of Income Tax Ors. (2014) 264 CTR 0030 (Bom) : (2013) 96 DTR 0193 (Bom) : (2014) 361 ITR 0531 (Bom) : (2014) 221 Taxman 0166 (Bom); has held that the proceedings before DRP are extension of assessment proceedings. Therefore, they are not bound by the decision of Tribunals unlike CIT(A) as long as the issue is not acceptable on merit and/or the issue is being contested by the department. In this case, the decision of Hon'ble Delhi High Court in the case of Goetze (India) Ltd cited above is also in favour to the department on this issue which also shows that the view of AO confirmed by the Panel is a plausible view. 19. There were contradictory orders at the end of the Tribunal. Therefore, Special Bench was constituted to consider the following question: Whether expenditure incurred to earn exempt income computed under section 14A could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 89,00,000 was not justified. The view taken by the ITAT cannot be faulted with. It is consistent with the decision in Apollo Tyres Ltd. V. Commissioner of Income Tax 255 ITR 273 (SC) which held that the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J. The Court declines to frame a question on the above issue. 21. Apart from the above, we have a binding precedent before us one from Hon'ble jurisdictional High Court and other from the Hon'ble Bombay High Court. The question considered by the Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra) is as under:- Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s.14A of the Act in computation of book profit u/s. 115JB of the Act is not as per law without appreciating that the amount disallwable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but a liability relating to assets. We find no fault in the approach adopted by both the authorities. The addition under section 115JB of the Act of a sum of ₹ 1,14,43,040/when was made as an expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed. 8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of IncometaxI vs. Gujarat State Fertilizers Chemicals Ltd. (supra), we are of the opinion that issue Nos.(iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed. 23. Similarly, Hon'ble Bombay High Court has formulated following question in the case of Bengal Finance Investments P. Ltd. (supra) and replied as under:- ( b) Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Gujarat Alkalies and Chemicals Ltd.; 395 ITR 247 . It is also covered by the decision of the Supreme Court in the case of M/s. Alembic Ltd. (Tax Appeal No.553 554 of 2017 . It appears that Special Leave Petitions filed by the revenue are pending before the Supreme Court questioning the correctness of the view taken by this Court in the aforesaid two judgments. So far as the Gujarat Alkalies and Chemicals Ltd, (supra) is concerned, it takes the view as under: - 3. In both the tax appeals though slightly differently worded, the questions concerning the same assessee are identical and concern the issue of deduction under section 80IA of the Income Tax Act granted to the assessee by the Tribunal on captive power generation plant. The second question is with respect to recognising such claim on the basis of purchase price of power from GEB and substituting the rates of 2.47 per unit adopted by the Assessing Officer. 4. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length. Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. 26. The fifth question proposed by the revenue whether the income from the Carbon Credits is capital in nature. This issue is squarely covered by the following decisions:- ( 1) M/s. Alembic Ltd. Tax Appeal No.553 554 of 2017 ( 2) CIT Vs. My Home Power Ltd. [2014] 46 Taxmann.com 314 ( 3) Subhash Kabini Power Corporation Ltd. (KHC) [2016] 69 Taxmann.com 394 27. We quote the relevant observations made by this Court in the Alembic Limited (supra) as under: - 6. The last surviving question pertains to the treatment that the assessee's income from trading of carbon credits should be given. The Tribunal held that receipts should be in the nature of capital receipts and therefore, would not invite tax. This issue has been examined by two High Courts. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proposed by the revenue is with regard to the ITAT not upholding the addition of ₹ 436.8 crore made by the Assessing Officer as income from the short term capital gain due to the Slump Sale of Wind Energy Business to the IRL. 31. This issue is also squarely covered by the decision of this Court in the case of Commissioner of Incometax Vs. Gauranginiben S. Sodhan Indl. Reported in [2014] taxmann.com 356 (Gujarat) , wherein in Paragraphs11 and 12, the following has been observed: - 11. Taking the question of ascertaining the fair market value on the date of sale, we notice that section 48, which is also contained in chapter IV of the Act pertains to method of computation of capital gain. A detailed mechanism has been provided for such computation of the income chargeable under the head Capital Gains. It provides, inter alia,that the income chargeable under the Head Capital Gains, shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the amounts mentioned therein that is the expenditure incurred wholly and exclusively in connection with such transfer an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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