TMI Blog2023 (12) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... nue that once there are mixed funds, Rule 8 would be attracted automatically. We are of the view that the ITAT rightly relied on the decision of the Bombay High Court in the case of CIT Vs. Reliance Utilities Power Ltd. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] Whether Tribunal is justified in upholding that the disallowance made under section 14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule? - The aforesaid second question is squarely covered by the decision of this Court in the case of Correctch Energy Pvt. Ltd. [ 2014 (3) TMI 856 - GUJARAT HIGH COURT] In our opinion, no error not to speak of any error of law could be said to have been committed by the ITAT in this regard MAT adjustment on account of disallowance u/s.14A - HEDL THAT:- We hold that no addition in the book profit would be made on the basis of calculations worked out under section 14A of the Act. We allow this ground of appeal in both the years and delete the additions Deduction u/s.80IA(4) - GEB supplied power to its consumers - Tribunal was of the opinion that the market value of the electricity supplied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt: (A) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal is justified in deleting the addition made under Section 14A read with Rule8D merely on the basis that the relevant investments are out of assessee's old and own interest free funds, which exceeded tax free investments even though no material was placed on record by the assessee to establish that the said funds were available for investment at the relevant point of time? (B) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal has erred in deleting the disallowance made u/s. 14A of the Act, without appreciating that the assessee was maintaining mixed funds and failed to establish that funds deployed for the earing tax free income were entirely out of interest-free funds? (C) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal is justified in upholding that the disallowance made under section14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule? (D) Whether on the facts and in circumstances of the case and in law, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said funds were available for investment at the relevant point of time. Mr. Patel submitted that Rule8D of the Rules makes it clear that if the Assessing Officer having considered the accounts of the assessee, is not satisfied with the (1) correctness of the claim of the expenditure made by the assessee; or (2) the claim made by the assessee that no expenditure had been incurred in relation to the exempted income for the previous year then the taxpayer can determine such value of expenditure following the lines of Subsection(2) of Rule 8D. Rule8D(2) reads as follows: Rule8D(2) (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely: (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributed to any particular income or receipt, an amount computed in accordance with the following formula, namely: AXB/C where A= amount of expenditure by way of interest other than the amount of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 199091 and 199192, 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 applicable for disallowance under Section 14A and such disallowance is required to be assessed as per the provisions of Rule 8D only. The decision of this Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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), more particularly paragraphs 16 and 17, which read thus : 16. The primary question which the Supreme Court considered in case of Maxopp Investment Ltd., (Supra) was whether disallowance of expenditure under Section 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 judgment of the Supreme Court does not lay down the proposition that, the requirement of subrule (1) of Rule 8D of recording the satisfaction by the Assessing Officer before applying the formula given in subrule (2) of Rule 8D is done away with. It cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount disallowed under section 14A read with rule 8D deserves to be added back in the book profit for the purpose of section 115JB. In other words, whether the additions which have been confirmed by the Tribunal at Rs.1.55 crores in the assessment year 201213 and Rs.75 lakhs in the assessment year 201314, deserves to be added back in the book profit computed for the purpose of section 115JB. 17.1 The ld. counsel for the assessee at the very outset contended that this issue is covered in favour of the assessee by the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Alembic Ltd. in Tax Appeal 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first question has to be answered in favour of the Revenue and against the assessee in view of specific provisions in the Explanation 1 below Section 115JB(2) clause (f). The Assessing Officer it is stated had made an addition of Rs.88,292/ to the book profits towards expenditure incurred having nexus with dividend income, which were exempt under Section 10(33). Recording the said statement, the first question is answered in favour of the appellant Revenue and against the respondent assessee. 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance, and with Explanation 115JB not specifically mentioning Section 14A of the Act, the addition of Rs.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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the approach adopted by both the authorities. The addition under section 115JB of the Act of a sum of Rs.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 on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of Rs.78,84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 similar controversy observed as under: 3. With respect to Question [B], the issue pertains to sub Section (8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in this context that the question of substituting the actual consideration by the market value comes into picture. 4.5 Similarly, in case of the last question (F), the coordinate bench has answered the same as below: 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 Karnataka High Court in case of CIT v. Subhash Kabini Power Corporation Ltd. reported in (2016) 385 ITR 592 (Karn) and Andhra Pradesh High Court in case of Commissioner of Income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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