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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: SHRI N.K. BILLAIYA & SHRI MAHAVIR PRASAD
PER N.K. BILLAIYA, ACCOUNTANT MEMBER
ITA No. 101/Ahd/15 & C.O. No. 40/Ahd/15 2 . A.Y. 2011-12 1. ITA No.101/Ahd/2015 & C.O. No. 40/Ahd/2015 are appeal by the Revenue and cross objection of the assessee preferred against the order of the Ld. CIT(A)-I, Baroda dated 27.10.2014 pertaining to A.Y. 2011-12.
The appeal and cross objection were heard together and are disposed of by this common order for the sake of convenience and brevity.
The grievance of the revenue is twofold. Firstly, the revenue is aggrieved by the deletion of the disallowance of Rs. 14,07,314/- made u/s. 14A r.w. rule 8D in book profit u/s. 115JB of the Act. Secondly, the revenue is aggrieved by the deletion of the addition in computing the book profit of Rs. 791.7 lacs transferred to debenture redemption reserve. The cross objection of the assessee relates to the disallowance u/s. 14A amounting to Rs. 14,07,314/-.
At the very outset, the ld. counsel for the assessee stated that the issues raised by the revenue have been decided in earlier years in assessee’s own case by the Tribunal and the order of the Tribunal has been confirmed by the Hon’ble Gujarat High Court insofar as it relates to the disallowance u/s. 14A r.w. Rule 8D in book profit u/s. 115JB of the Act. It is the say of the ld. counsel that the second grievance is also decided by the Tribunal in A.Y. 2009-10 & 2010-11 in assessee’s own case in favour of the assessee and against the revenue. The ld counsel placed the relevant orders of the Hon’ble High Court of Gujarat and the Co-ordinate Bench for consideration. Per contra, the ld. D.R. could not bring any distinguishing decision in favour of the revenue.
We have carefully considered the orders of the authorities below qua the issues. We find force in the contention of the ld. counsel. We find that while deleting
ITA No. 101/Ahd/15 & C.O. No. 40/Ahd/15 3 . A.Y. 2011-12 the disallowance u/s. 14A r.w. Rule 8D in book profit u/s. 115JB of the Act. The ld. CIT(A) has followed the order of the Tribunal in the case of Alembic Ltd. (group company) for A.Y. 2007-08 & 2009-10. We find that the said order of the Co-ordinate Bench was confirmed by the Hon’ble High Court of Gujarat in Tax Appeal No. 553 of 2017 with Tax Appeal No. 554 of 2017 wherein the Hon’ble High Court was, interalia, seized with the following substantial question of law: (2) Whether on the facts and in the circumstances of the case and in law, the ITAT is justified in holding that the 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 disallowable under section 14A is covered under clause (f) of Explanation to Section 115JB(2)?
And the findings of the Hon’ble High Court read as under:- 3. First and second questions are interlinked and pertain to disallowance under section 14A of the Act. The first question is connected with Rule 8D whereas the second is with respect to disallowance for the purpose of computation of book profit under section 115JB of the Act. The assessee had made investments earning tax free income. The assessee also had borrowed funds paying interest. The Assessing Officer was of the view that sum of Rs.75,02,592/ which represented the interest expenditure HCNIC Page 2 of 6 Created On Sat Sep 02 08:06:18 IST 2017 O/TAXAP/553/2017 ORDER of the assessee, should be disallowed with the aid of section 14A of the Act. CIT (Appeals) as well as Tribunal however came to factual findings that the assessee had substantial interest free funds far in excess of the investments in earning tax free income. The Tribunal while confirming the view of CIT (Appeals) made the following observations 8. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. As the facts emerge, we find that the assessee's own funds, i.e., equity, reserve and surplus funds amounting to Rs.32,699.06 lakhs far exceed the tax free investments. The impugned investments are old and out of own funds have not been rebutted. Relying on the 'Hon'ble Gujarat High Court judgments in the case of Hitachi Home and Life. Solutions (1) Ltd
ITA No. 101/Ahd/15 & C.O. No. 40/Ahd/15 4 . A.Y. 2011-12 (supra), Torrent Power Ltd (supra) and other judgments mentioned above, we are of the view that when the assessee possesses own funds much more than the tax free investments, the disallowance u/s 14A read with Rule 8D cannot be made. There is also merit in the plea of 1d. Counsel on the count that the burden of establishing the nexus has been wrongly attributed to the assessee and it was for the Assessing Officer to rebut the assessee's contention and demonstrate that the tax free investments were not from own funds but from borrowed funds. In the absence of such rebuttal, it cannot be assumed that the assessee made tax free investments out of borrowed funds. The assessee has suo moto offered Rs. 2 lakhs out of income of Rs.3,l8,472/as disallowed u/s 14A of the Act. In view of our foregoing observations and relying on Hon'ble Gujarat High Court judgments, we are of the view that no disallowance beyond what has been suo moto disallowed by the assessee can be made. In the result, the assessee's ground in this behalf is allowed and that of Revenue is dismissed."
The Tribunal on appreciation of facts came to the conclusion that the assessee had interest free funds in excess of investment generating exempt income. Therefore, no question of law arises.
On finding parity in the facts with the case in hand, respectfully follow the findings of the Hon’ble Jurisdictional High Court (supra) and decline to interfere. Ground no. 1 is accordingly dismissed.
Grievance raised vide ground no. 2 has also been decided by the Tribunal in the case of Alembic Ltd. (group company) for A.Y. 2009-10 & 2010-11. The relevant findings of the Co-ordinate Bench read as under:- 15. We have heard the rival contentions, perused the material available on record and gone through the orders of the authorities below. The entire issue has been discussed by the Coordinate Bench in the case of Genus Electrotech Ltd. (supra) and held that the debt redemption fund is to be excluded while computing the book profit u/s. 115JB of the Act. Following the judgment of the Tribunal (supra) and in view of the aforesaid other judicial pronouncements, we
ITA No. 101/Ahd/15 & C.O. No. 40/Ahd/15 5 . A.Y. 2011-12 see no infirmity in the order of the ld. CIT(A) which is upheld. This ground of the Revenue is also dismissed.
Respectfully following the decision of the Co-ordinate Bench in the case of the group company, we do not find any reason to interfere with the findings of the ld. CIT(A). Ground no. 2 is accordingly dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Grievance raised by the assessee in its cross objection is interlinked to the grievance raised by the revenue vide ground no. 1 of its appeal. The suo moto disallowance of Rs. 75,000/- as per the judgment of the Hon’ble Jurisdictional High Court of Gujarat (supra) should meet the ends of justice. We accordingly direct the A.O. to restrict the disallowance to Rs. 75,000/-. Cross Objection is partly allowed.
Order pronounced in Open Court on 05- 01- 2018 Sd/- Sd/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad: Dated 05/01/2018 Rajesh Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER
Deputy/Asstt.Registrar ITAT,Ahmedabad