TMI Blog2022 (12) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... pital work-in-progress in respect of such loans borrowed - HELD THAT:- As decided in own case in [ 2020 (10) TMI 1021 - ITAT AHMEDABAD] wherein CIT(A) directed to verify the certificate filed during the appellate proceedings that the loans on which guarantee fees was paid were utilized for construction of power plants at that time and there was no capital work-in-progress in respect of such loans during the Financial Year 2014-15. Both the assessee counsel as well as the Ld. D.R. could not place on record what is the giving effect order passed by the A.O. thereafter, pursuant to the direction of the Ld. CIT(A). Therefore this ground no. 2 is also set aside to the Assessing Officer for proper verification and adjudication. Disallowance u/s 14A r.w.r. 8D while determining the income under the provisions of MAT - HELD THAT:- As this case is already remanded back to the Assessing Officer for verification for the earlier two issues under consideration for the Assessment Year 2015-16, this issue is also remanded back to the Assessing Officer for verification of the same and allow the submission of the assessee, if the same is found to be is in order - Ms. Annapurna Gupta, Accountant Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Gujarat State Energy Generation Ltd. in ITA No. 1777/Ahd/2009 for the Assessment Year 2006-07 has given relief to the assessee by holding that disallowance made u/s. 14A is not required to add back to the book profit. However the Ld. CIT(A) issued a direction to the Assessing Officer to include the dividend income while computing book profit. 4. Aggrieved against these additions, the assessee is in appeal before us raising the following Grounds of Appeal: 1.0 The learned Commissioner of Income Tax (Appeals) erred in law and on facts has held to consider the interest on loans raised by erstwhile GEB for the purpose of disallowance under section 14A of the I T Act, 1961. It is submitted that the disallowance is uncalled for and be directed to be deleted. 1.1 The learned Commissioner of Income Tax (Appeals) further erred in law and on facts has held that in the event the disallowance under section 14A of the Act computed as per the directions comes out to be lesser than the dividend income, then such dividend income shall be treated as taxable income. 1.2 The learned Commissioner of Income Tax (Appeals) also erred in law and on facts has not given any findings and/or observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustained addition of Rs.61.46 crores whereas Revenue has challenged the deletion of Rs.91 crores out of the disallowance u/s 14A of the Act. 10. In ITA No.1874/Ahd/2010 vide its order dated 20.6.2014 the Tribunal adjudicated the issue relating to disallowance u/s 14A and held as under :- 7. We have heard the rival submissions and perused the orders of lower authorities and materials available on record. The undisputed facts of the case are that the Assessing Officer found that the assessee has earned tax free dividend income of Rs 1283.95 lakhs and that the assessee has claimed interest expenditure of Rs 18,325.41 lakhs. The assessee has not attributed any expenditure towards earning of exempt dividend income. Therefore, by invoking the section 14A read with Rule 8D he made disallowance of Rs 197.80 crores. We find that a similar issue had come up before this Tribunal in assessee s own case in the immediately preceding Assessment Year 2006-07 wherein the Tribunal restored the matter back to the file of the Assessing Officer for adjudication afresh by observing as under: 2. At the outset, our attention has been drawn on an additional ground of appeal raised by the Revenue Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital 8184.50 Others 677.63 Bank Charges Guarantee Fees 591.65 19435.13 Less: Interest Capitalized 74.54 19360.59 4.1 At the same time, it was also found by the AO that the assessee had made the investment of Rs.5,47,709.74 lacs on which dividend earned was at Rs.508.18 lacs. The AO's objection was that on one hand the assessee has diverted the huge funds towards such investment having exempted income and on the other hand borrowed huge funds of Rs.3,46,272.51 lacs on which claimed interest of Rs. 19360.59 lacs. Therefore, the AO was of the view that the assessee had diverted the borrowed funds for earning exempted income. The assessee's contention was that the investment during the year was only Rs.102.32 lacs and rest of the investment was made in the earlier years. According to the AO, if the assessee had not made such investment either in the year under consideration or in earlier years then the assessee would not have been required to borrow interest bearing loans. The AO has placed reliance upon the case of H.R Sugar Factory, 187 ITR 366 (Aid) for the legal proposition that the assessee could have otherwise avoided its liability of interest by not giving interest fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT Mumbai in the case of ITO V/s. Daga Capital Management Pvt. Ltd., 117 ITD 169 (Mum) (SB). Learned DR has also pleaded that in one of the assessment year, i.e., in A.Y. 2007-08 learned CIT(A) had sustained the same nature of addition. From the facts of the case, we have noted that there was re-structuring according to which erstwhile GEB was demerged into seven different companies. Post restructuring; the assessment year under consideration is the first year of operation of the assessee company. On one hand, those were the facts which were relied upon by the learned CIT(A). However, on the other hand, the AO has reproduced some of the replies of the assessee through which it was claimed that the said investment was not made by the assessee company out of the borrowed funds but from the consumers, contribution and subsidiaries. There was a reference of the annual accounts of the year 2005-06. The assessee has also informed that during the year under consideration the assessee company had invested only a sum of Rs.11.25 lacs. Rest of the investments were the share capital of the subsidiary companies as per the terms of the Financial Restructuring Plan approved by the Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing about the borrowings made by the assessee on which the said interest was paid. The next step is that the AO has to examine the sources of the funds which were invested for earning the dividend income. If the source of such investment is out of the interest bearing borrowings, then only the question of disallowance of interest would arise, otherwise not. On the other hand, the claim of the assessee is that there were sufficient non interest bearing reserves or surplus available. The AO is required to investigate the correctness of the claim that whether the assessee had sufficient non interest bearing fund available and in what form those were utilized by the assessee. If the assessee is in a position to demonstrate that the non-interest bearing funds have actually been invested to earn exempted income then the assessee's claim is legally correct. Thereafter, the question of the invocation of Section 14A comes into play. As far as the applicability of the decision of Special Bench is concerned the same now stood covered by the decision of Hon'ble Bombay High Court pronounced in the case of Godrej and Boyce, 328 ITR 81 (Bom). For the sake of completeness herein below repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing its accounts and material having a bearing on the facts and circumstances of the case. 6.1. In this judgement at the end, the Hon'ble Court has also recapitulated the conclusion and pronounced that a finding is required whether the investment in shares is made out of own funds or out of borrowed funds. A nexus is required to be established between the investments and the borrowings. In section 14A of the Act expenditure incurred in relation to exempted income is to be disallowed only if the Assessing Officer is satisfied with the expenditure claimed by the assessee pertaining to the said exempt income. Rather, the Court was very specific that in case, no such exercise was carried out by the Assessing Officer then the matter is to be remanded back for afresh investigation. It has also been made clear that the proviso to section 14A of the Act was effective from 2001-02. The Hon'ble Court has also pointed out the importance of Rule 8D of the I.T. Rules, 1962. It was made clear that sub-section (1) to section 14A was inserted with retrospective effect from 01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing an opportunity to the assessee to produce its accounts and to place on the record all relevant material in support of the circumstances which are considered to be relevant and germane. For this purpose and in light of our observations made earlier in this section of the judgment, we deem it appropriate and proper to remand the proceedings back to the Assessing Officer for a fresh determination. Conclusion: 74. Our conclusions in this judgment are as follows; i) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1); ii) The payment by a domestic company under Section 115O(1) of additional income tax on profits declared, distributed or paid is a charge on a component of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt. The outcome of the above discussion is that the Additional Ground raised by the Revenue may be treated as allowed but only for statistical purpose. 8. In the absence of any distinguishing features pointed out by the Departmental Representative, facts being identical, respectfully following the precedent we restore this issue back to the file of the Assessing Officer for adjudication afresh with the same directions as given by the Tribunal in the Assessment Year 2006- 07 in the above quoted order. Needless to mention that he shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue. Thus, this ground is allowed for statistical purpose. 11. We further observe that Rule-8D of the IT Rules came into effect from Asst. Year 2008-09 with respect to provisions of section 14A of the Act which reads as follows :- Sec. 14A. Expenditure incurred in relation to income not includible in total income. (1)For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income or receipt, the amount computed in accordance with this following formula : A x B C A = Amount of interest, other than the amount of interest which is directly attributable to the exempt income stated in (a) above. B = The average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the relevant accounting year. C = The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the relevant accounting year. The term Total Assets means total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. (c) An amount equal to % of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the relevant accounting year. 12. We also observe that ld. Assessing Officer applied the facts and figures of the assessee company into the method provided under Rule 8D of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sufficient opportunity of hearing to the assessee before adjudicating the same. These grounds of assessee and the Revenue are allowed for statistical purposes. 15. Now we take ground no.3 of assessee s appeal which reads as below :- 3.0 The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the enhancement of Book Profit computed under section 115JB of the Income Tax Act, 1961 by Rs.61,45,72,000/- on account of disallowance made under section 14A of the Income Tax Act, 1961. 16. At the outset ld. AR submitted that this ground relates to the disallowance under section 14A of the Act due to which book profit u/s 115JB was enhanced by ld. Assessing Officer and the fate of this ground depends on the decision to be taken for ground no.1 raised by them. 10.1 As the facts of the case on hand are identical to the facts of the case as discussed above which has been set aside to the file of the AO for fresh adjudication as per the provisions of law by the ITAT as discussed above. Respectfully following the order of this Coordinate Bench in the own case of the assessee, we set aside the issue on hand to the file of the AO for fresh adjudication in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) decided these issues in paras- 5.2 5.3 and 6.2 respectively by observing as under:- 5.2. I have considered the submissions of the ld.AR and the facts of the case. The issue relating to whether an item of expenditure lies in the capital or the revenue field has exercised the courts in numerous cases. From an analysis of such cases a few guiding principles/tests can be identified. One of the important tests for categorizing any expenditure as capital in nature is whether the laying out of the impugned expenditure results in the acquisition of creation of any new asset. Where no such asset is created, it would be indicative of an expenditure which was not capital in nature. Another test relates to the principle of enduring benefit . Enduring benefit may be in the form of long lasting use of an asset or the acquisition of a right to exploit certain commercial processes, etc. In the instant case, the assessee did not acquire any right to exploit a commercial technology or process, and neither was the benefit enduring , since the payment of gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified in making the disallowance of Rs.45,24,582/-, which is directed to be deleted. 6.1 The ld.CIT(A) has followed the decision of the Tribunal passed in ITA No.738/Ahd/2009 for AY 2006-07 in the case of Himalaya Machinery Pvt. Ltd., dated 5.6.2009 and in the case of Shri Rama Multi Tech vs. ACIT reported at 92 TTJ 568. 6.2. The ld.CIT-DR could not distinguish the facts of the case, therefore we do not see any reason to interfere with the order of the ld. CIT(A), same is hereby upheld. Thus, these two grounds raised in the Revenue's appeal are rejected. 36. DR could not point out any good reason as to why the above quoted order of the Tribunal should not be followed for the year under consideration. In the absence of distinguishing features being pointed out by the DR, and the facts being identical, respectfully following the above quoted decision of the Tribunal, we confirm the order of the CIT(A), and dismiss this ground of appeal of the Revenue. 40. We are of the view that the issue raised in this ground is squarely covered by the decision of co-ordinate bench referred above in the case of Gujarat Energy Transmission Corpn. (supra) and respectfully following the same, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, there was no dispute for the ITAT for the Assessment Year 2008-09 for the direction issued by the Learned CIT(A). Accordingly, it cannot be inferred that the order of the Learned CIT(A) for the Assessment Year 2008-09 has merged with the order of the Learned ITAT insofar the direction issued by the Learned CIT(A) to verify the claim of the assessee for the guarantee fees whether such fees relates to the capital work in progress. Accordingly, it cannot be said that the issue raised by the assessee is a covered issue by the order of the ITAT in the own case of the assessee for the Assessment Year 2008-09 as contended by the ld. AR for the assessee. In view of the above and after considering the facts in totality, the grounds of appeal of the assessee and the Revenue are dismissed. 4.4. Though the Ld. CIT(A) directed to verify the certificate filed during the appellate proceedings that the loans on which guarantee fees was paid were utilized for construction of power plants at that time and there was no capital work-in-progress in respect of such loans during the Financial Year 2014-15. Both the assessee counsel as well as the Ld. D.R. could not place on record what is the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
