TMI Blog2019 (11) TMI 411X X X X Extracts X X X X X X X X Extracts X X X X ..... cted to recomputed the disallowance u/s 14A of the Act afresh under normal provisions of the Act. Accordingly, the grounds raised by the assessee as well as by the revenue in this regard are allowed for statistical purposes subject to directions mentioned hereinabove. Disallowance u/s 14A while computing the book profits u/s 115JB - HELD THAT:- We find that this is a legal issue and goes into the root of the matter and does not involve any verification of facts and hence the same is admitted herein. We find that the Hon‟ble Special Bench of Delhi Tribunal in the case of Vireet Investments [ 2017 (6) TMI 1124 - ITAT DELHI] had categorically held that the computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause (f) of Explanation 1 to Section 115JB(2) of the Act. We find that the Special Bench further held that only the actual expenses debited to the profit and loss account that are relatable to earning of exempt income should be considered for the said purpose. We direct the ld AO to compute the disallowance in the light of the said Special Bench decision. Accordingly the Additional Ground No.2 A raised by the assessee is allowed for statisti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder for the sake of convenience. 2. Set off of Interest on Income Tax Refund with Interest charged on income tax demands Ground No.1 of Assessee Appeal The brief facts of this issue is that the assessee received interest from income tax department to the tune of ₹ 43.81 crores and also paid interest to income tax department on its tax demands to the tune of ₹ 6.57 crores. The assessee sought to set off the interest paid on income tax demands with the interest received from income tax department in the return of income. The ld AO disallowed the interest paid on income tax demands to the tune of ₹ 6.57 crores as the same is not allowable in terms of section 40(a)(ii) of the Act and accordingly taxed the gross interest received from income tax department of ₹ 43.81 crores under the head income from other sources. The ld CITA by placing reliance on the order passed by his predecessor for the Asst Years 2007-08 and 2005-06 in assessee‟s own case upheld the action of the ld AO. The ld CITA further directed the ld AO to verify the assessment records of Asst Year 1990-91, 2003-04 and 2005-06 in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me party i.e. Government of India and therefore, both transactions should be taken together. 5. We do not find that the Tribunal has, in permitting this exercise, in any way violated any of the provisions of the Income Tax Act, 1961. It was a peculiar situation between the Assessee and the Department. The Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well. In such circumstances we are of the opinion that the second question also does not raise any substantial question of law. 2.2. Respectfully following the said decision, the ground no. 1 raised by the assessee is allowed. 3. Disallowance under section 14A of the Act read with Rule 8D of the Rules Ground No. 2 (i) to 2(v) and Ground 2 (vii) including modified Ground No. 2(vi) of assessee appeal Additional Ground No. 2A of assessee appeal Ground Nos. 2 3 of revenue appeal The brief facts of this issue are that the assessee earned dividend of ₹ 1008.49 crores on long term investments from subsidiary companies and ₹ 570.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act. The ld AO also did not allow the netting of interest received with interest paid in the assessment. Thereafter, the ld AO worked out the disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules as under:- Rs Under Rule 8D(2)(i) - 152,46,00,000 Under Rule 8D(2)(ii) - 132,71,03,860 Under Rule 8D(2)(iii) - 56,21,25,500 341,38,29,360 3.3. The assessee submitted before the ld CITA that the ld AO erroneously adopted the figures of Asst Year 2007-08 and accordingly had computed the wrong disallowance figure at ₹ 341.38 crores supra. The ld CITA observed that the ld AO vide letter dated 28.12.2011 intimated him that enhancement is required to be made to the disallowance made u/s 14A of the Act. Accordingly, vide orffice letter dated 5.1.2012, the ld AO was directed u/s 250(4) of the Act by the ld CITA to make further enquiries on the enhancement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order for the AY 2007-08. In the course of appeal proceedings, the appellant was asked to furnish details of expenses which was furnished vide letter dated 28.01 .2013 which shows that the expenditure of ^ 138.59 Crores are on account of payment and provision for employees ^ 11.82 Crores, rent of ^ 2.16 Crores, rate taxes of ^ 3.01 Crores, consultancy fee of ^ 7.63 Crores, premium on forward covers in relation to external commercial borrowings of * 40.41 Crores, travel expenses of ^ 2.46 Crores, non-whole time directors commission of ^ 14.83 Crores, legal fees at * 5.58 Crores, credit rating fees of ^ 1 .82 Crores, professional fees of ^ 1 .54 Crores, filing fees of T 14.86 Crores, arranger fee of ^ 19.79 Crores and less than ^ one crore under certain other heads. Thus, it is clear that the expenditure of * 138.59 has not been directly incurred towards arning of exempt income. The expenditure of ^ 138.59, therefore, is not to be considered as direct penseJor the purpose of Rule 8D(2)(i) on estimate basis. h^-(iii) As pointed out by the AO in the remand report, the interest expenditure of * 39.73 Crore are direct interest expenditure on account of investment in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should also be considered for the purpose of computing disallowance under Rule 8D(2) of the Rules, subject to ensuring that those investments had actually yielded exempt income to the assessee. 3.6.1. Subject to the above directions, the ld AO is directed to recomputed the disallowance u/s 14A of the Act afresh under normal provisions of the Act. Accordingly, the grounds raised by the assessee as well as by the revenue in this regard are allowed for statistical purposes subject to directions mentioned hereinabove. 3.7. We find that the assessee had raised an additional ground vide Ground No. 2A in respect of disallowance u/s 14A of the Act while computing the book profits u/s 115JB of the Act. We find that this is a legal issue and goes into the root of the matter and does not involve any verification of facts and hence the same is admitted herein. We find that the Hon‟ble Special Bench of Delhi Tribunal in the case of Vireet Investments reported in 165 ITD 27 had categorically held that the computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause (f) of Explanation 1 to Section 115JB(2) of the Act. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons were found to be or likely to unviable. The investment in shares made by the assessee in TCS Ltd is reflected as Investments in the balance sheet of the assessee. The assessee had declared similar long term capital gains whenever certain shares of group companies were sold by it in earlier years and the same were accepted as such by the ld AO. But during this year, the ld AO sought to treat the gains received on sale of shares of TCS as business income by holding that the sole purpose of holding these shares was to acquire control of the business and to take active part in the businesses of these companies and hence he observed that the income arising from transfer of such stake has necessarily to be treated only as business income only. Since the assessee company has got huge borrowings in its balance sheet, which would normally be done only by a trader in shares and not investor in shares. The ld AO placed reliance on the Circular No. 4/2007 and held that the motive of the assessee in holding these shares were only to make profit and hence assessee is to be treated only as a trader eventhough the said investment is shown in the balance sheet under the head Investments̶ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (CBDT) vide its Circular No. 6/2016 dated 29.2.2016 had categorically held in para 3(b) as under:- (b) In respect of listed shares and securities held for a period of more than 12 months immediately preceding the date of its transfer, if the assessee desires to treat the income arising from the transfer thereof as Capital Gain, the same shall not be put to dispute by the Assessing Officer. However, this stand, once taken by the assessee in a particular Assessment Year, shall remain applicable in subsequent Assessment Years also and the taxpayers shall not be allowed to adopt a different/contrary stand in this regard in subsequent years; 6.3.1. Hence in view of the aforesaid CBDT circular which is binding on the revenue authorities,we do not find any infirmity in the action of the ld CITA in directing the ld AO to treat the gains on sale of shares to be treated as long term capital gains and consequently grant exemption u/s 10(38) of the Act since STT was duly suffered thereon. Accordingly, the Ground No. 4 raised by the revenue is dismissed. 7. The Ground No. 5 raised by the revenue is challenging the action of the ld CITA in del ..... X X X X Extracts X X X X X X X X Extracts X X X X
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