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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI S. RIFAUR RAHMAN
2. Ground no.1, relates to the dispute arose out of learned CIT(A)’s order confirming the disallowance of ` 1,90,55,736, made under section 14A r/w rule 8D(2)(iii).
Brief facts are, during the assessment proceedings, from the computation of income, it came to be noticed by the Assessing Officer that the assessee has received ` 1,90,55,736, which was claimed as exempt dividend income against the assessee has not disallowed suo– motu any expenses under section 14A of the Act. The, therefore, sought explanation from the assessee to as to why the disallowance under section 14A r/w rule 8D should not be made, the assessee
3 Rosa Power Supply Co. Ltd. submitted that to develop the power plant the company has borrowed funds of ` 3006.12 crore and the entire borrowed fund has been used for the purpose of development of power plant and no amount of borrowed funds have been diverted for making investment in shares / mutual funds. The investment in mutual funds have been made out of shareholders’ funds of ` 2707.85 crore and, thus, no interest is relatable to the exempt income and no amount should be disallowed under section 14A r/w rule 8D. The Assessing Officer considered the reply of the assessee but held it to be not acceptable. The Assessing Officer held that the disallowance under section 14A has to be made without any discretion pursuant to the formula devised as per rule 8D. In support of this, the Assessing Officer relied upon certain judicial pronouncements viz. Daga Capital Management Pvt. Ltd.; Godrej Boyce Ltd., Bombay High Court decision; and M/s. Citicorp Finance (India) Ltd., 12 SOT 248. Accordingly, the Assessing Officer made total disallowance of ` 16,60,78,160 and added back to the total income of the assessee.
The assessee being aggrieved by the order passed by the Assessing Officer, filed appeal before the learned CIT(A) raising the dispute. However, during the course of hearing before the learned CIT(A) the assessee has not pressed this issue. Consequently, the 4 Rosa Power Supply Co. Ltd. learned CIT(A) dismissed the ground as not pressed and, hence, the assessee is in further appeal before the Tribunal.
Before us the learned Counsel for the assessee submitted that this issue is covered by the decisions of the Tribunal in T.D. Toll Road Pvt. Ltd. v/s DCIT, ITA no.1789/Mum./2019, order dated 28th February 2020, for the assessment year 2015–16, T.D. Toll Road Pvt. Ltd. v/s DCIT, ITA no.5981/Mum./2017, order dated 31st January 2019, for the assessment year 2013–14, wherein the Tribunal has decided this issue in favour of the assessee. He, therefore, prayed that the issue may be decided in accordance with the findings given by the Tribunal in the aforesaid case law. The learned Counsel for the assessee in support of his contention, also relied upon the following decisions:–
i) Reliance Power Ltd. v/s DCIT, IT no.5694 & 5975/Mum./ 2012 and and 5743/Mum./2013, Reliance Capital Ltd. v/s DCIT, and vice versa, ITA no.5693/ Mum./2012, ITA no.5537/Mum./2013 and ITA no.5764/Mum./ 2013, order dated 31.08.2017; ii) Reliance Capital Ltd. v/s ACIT, ITA no.4326 and 4794/ Mum./2012, order dated 13.09.2017; iii) Reliance Capital Ltd. v/s ACIT, ITA no.4008/Mum./2016, order dated 17.11.2017; iv) DCIT v/s Reliance Infrastructure Ltd., ITA no.4345 & 3407/Mum./2015, order dated 20.12.2017; and v) ACIT v/s Vireet Investment Pvt. Ltd., [2017] 82 Taxmann.com 415 (Mum.) (Trib.).
5 Rosa Power Supply Co. Ltd. 6. The learned Departmental Representative supported the orders of the authorities below.
Considered the rival submissions and perused the material on record. We find that the issue for our consideration is mutatis mutandis similar to the issue decided by the Co–ordinate Bench of the Tribunal in T.D. Toll Road Pvt. Ltd. v/s DCIT, ITA no.1789/Mum./2019, order dated 28th February 2020, for the assessment year 2015–16 and 2013–14 cited supra wherein the Tribunal has decided this issue in favour of the assessee and against the Revenue. For the sake of convenience, the relevant findings of the Tribunal is extracted below:–
“4. After hearing both the parties and perusing the material on record, we observe that undisputedly the assessee's own funds are more than the average investments in the shares securities/mutual funds which yielded exempt income. We are therefore of the view that no disallowance is required to be made under rule 8D2(ii). The issue is also covered by the decision of the co-ordinate bench of the Tribunal in assessee's own case in A.Y. 2013–14 vide order dated 31.01.2019 and ITA no.1646/M/2018 A.Y. 2014–15 order dated 31.01.2019. The co–ordinate bench of the Tribunal has decided the issue in favour of the assessee by following the decision of Hon’ble Bombay High Court in the case of “CIT vs. Reliance Utilities and Power Ltd.” (2001_178 taxman 135 (Bom.) and CIT v/s HDFC Bank Ltd., (2014) 366 ITR 505 (Bom.). Accordingly, we are setting aside the order of the CIT(A) on this issue and directing the A.O. to delete the disallowance under rule 8D2(ii). So far as the disallowance under rule 8D2(iii) is concerned, we find that the A.O. has calculated the average investments at ` 2,80,54,524/– as per Annexure–A attached with the assessment order which is wrong and cannot be accepted as it does not fall within the mechanism as provided under rule 8D2(iii). Since the assessee has no opening and closing investments at the beginning and end of the of the financial year, therefore the formula provided in the said rule fails and accordingly no disallowance can be made under rule 8D2(iii). The case of the assessee is supported by the 6 Rosa Power Supply Co. Ltd. decision of coordinate bench of the Tribunal in assessee's own case in A.Y. 2013-14 vide order dated 31.01.2019 whereas in subsequent year in ITA No.1646/M/2018 AX 201415 order dated 21.06.2019 the issue was restored to the AO to decide the matter afresh. After considering the rival contentions and arguments and the decisions of the coordinate benches , we are in agreement with the decision of the co- ordinate bench of the Tribunal in ITA No.5981/M/2017 (supra) wherein it has been held that the mechanism of calculation of disallowance under rule 8D2(iii) fails where there is no opening and closing statements during the year. Accordingly, we direct the A.O. to delete the disallowance under rule 8D2(iii) also. The A.O. is directed accordingly.”
Since the issue before us is covered by the aforesaid order of the Tribunal, respectfully following the same, we set aside the impugned order passed by the learned Commissioner (Appeals) and allow the ground no.1, raised by the assessee.
In the result, assessee’s appeal is allowed. ./2019 – Revenue’s Appeal Assessment Year – 2013–14 ITA no.1394/Mum./2019 – Revenue’s Appeal Assessment Year – 2015–16
Following grounds have been raised by the Revenue, which are common in both the captioned appeals:–
"Whether on the facts and circumstances of the case and in law, the CIT(A) was justified in relying upon a presumption of own funds to determine disallowance under section 14A of the Income Tax Act, 1961, when in fact the amended provisions applicable or the year provide a method for its determination". 2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in overlooking the facts that once expenditure relatable to exempt income was not 7 Rosa Power Supply Co. Ltd. in dispute, it is mandatory to follow Rule 8D for determi- nation of the amount of disallowance". 3. "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in not considering the reasons enumerated in Circular No.5 of 2014 issued by CBDT that the expenses which are relatable to earning of exempt income have to be considered for disallowance irrespective of the fact whether such income has been earned during the financial-year or not and ignoring the method of determi- nation as per Rule 8D of the Income Tax Rules, 1962". 4. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the amount of expenditure relatable to the exempt income and computed under sec. 14A r.w.r 8D is not required to be added to the book profit, which is contrary to the plain and literal meaning of language employed in clause (f) of Explanation-1 to Section 115JB of the I.T. Act".”
Insofar as grounds no.1, 2 and 3, in these appeals are concerned, before us, during the course of hearing, both the learned Counsel appearing for the parties have conceded that the issue raised by the Revenue for our consideration is identical to the issue raised by the assessee in its appeal being ITA no.1053/Mum./2019, assessment year 2013–14. Accordingly, the learned Counsel for the assessee prayed that this issue may be decided in favour of the assessee in accordance with the findings given by the Tribunal in T.D. Toll Road Pvt. Ltd. v/s DCIT, ITA no.1789/Mum./2017, for A.Y. 2015–16, order dated 28th February 2020.
Considered the rival submissions and perused the material on record. We find that the related facts and circumstances of the issue raised by the Revenue in these appeals is materially identical to the 8 Rosa Power Supply Co. Ltd. issue decided by us vide ground no.1, raised by the assessee in its appeal being ITA no.1053/Mum./2019, vide Para–7 and 8 above, wherein we have set aside the order of the learned CIT(A) by allowing the identical ground raised by the assessee. Consistent with the view taken therein, we have no hesitation in upholding the orders passed by the learned CIT(A) for both the years under consideration i.e., for the assessment year 2013–14 and 2015–16 and decline to interfere in the matter as such. Thus, the grounds no.1, 2 and 3, raised by the Revenue in both the years under consideration are dismissed.
Ground no.4, relates to disallowance under section 14A of the Act r/w rule 8D(2)(iii) of the I.T. Rules while computing book profit under section 115JB of the Act.
The Assessing Officer has added the disallowance of an amount 13. of ` 1,90,55,736, since the exempt dividend income against which the assessee has not suo–motu disallowed any expenses under section 14A of the Act. The assessee being aggrieved filed appeal before the first appellate authority.
The learned CIT(A) granted relief to the assessee by observing as follows:–
“5.3 DECISION: I have considered the facts of the case and submissions of the Appellant and also observations of the AO in his assessment
9 Rosa Power Supply Co. Ltd. order. On the issue of whether disallowance u/s 14A of the Act r.w.r 8D of the Rules is to be added back for computing book profit u/s 115JB of the Act, I find that there are conflicting decisions of various Tribunals including the Hon’ble jurisdictional Tribunal itself. I find that the Hon’ble President, Income -tax Appellate Tribunal, had constituted a Special Bench of the Hon’ble ITAT, Delhi in the case of ACIT vs. Vireet Investments P. Ltd. (ITA No.502/Del/2012) to adjudicate the following question: Whether the expenditure incurred to earn exempt income computed u/s 14A could not be added while computing book profit u/s 115JB of the Act. The Hon’ble Special Bench in its recent order dated 16.06.2017 had discussed the issue at length and held as under:– “6.22 In view of above discussion, we answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A read with rule 8D of the Income Tax Rules, 1962.” Further, in the case of CIT Vs. Bengal Finance & Investments Pvt. Ltd. (I.T.A. No. 337 of 2013) (order dated 10.02.2015) (Born.), the Hon'ble Bombay High Court has held that an amount disallowed u/s 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. Further, in the Appellant's own case in A.Y. 2012-13, my predecessor vide order dated 23.03.2016 has allowed the ground of appeal and held that: These grounds pertain to adding back Rs. 2,85,91,450/- on account of disallowance under section 14A while computing book profit u/s. 115JB of the Act in view of the decision at ground number 3 - 5 above, as well as decision of Hon'ble Mumbai Tribunal in Reliance Capital Ltd vs DCIT, ITA No.3303/Mum./2003, 3304/Mum./2003, 5535/Mum./2003 and 5413/Mum/2004, the addition is deleted. This ground of appeal is allowed." Respectfully following the above decision of the Hon’ble Jurisdictional High Court, Hon’ble Special Bench and the Appellant's own case in A.Y. 2012-13, the addition of disallowance u/s 14A of the Act r.w.r 8D of the rules to the book profit u/s 115JB of the Act is deleted. The Appellants grounds of appeal on this issue are allowed.”
10 Rosa Power Supply Co. Ltd. 15. Before us, the learned Counsel for the assessee relying upon the order of the first appellate authority submitted that the learned CIT(A) was indeed justified in allowing the claim of the assessee. He submitted that even otherwise also in support of his claim submitted that disallowance u/s 14A of the Act r/w rule 8D of the Rules to the book profit u/s 115JB of the Act is allowable. In support of his submissions, he relied upon the following case laws:– i) Reliance Power Ltd. v/s DCIT, ITA no.5694/Mum./2012, ITA no.5975/Mum./2012, ITA no.5545/Mum./2013 and ITA no.5743/Mum./2013 and vice versa ITA no.5693/Mum./2012, ITA no.5982/Mum./2012, ITA no.5537/Mum./2013, and ITA no.5764/Mum./2013, order dated 31.08.2017; ii) DCIT v/s Reliance Infrastructure Ltd., & 3407/Mum./2015, order dated 20.12.2017; iii) ACIT v/s Vireet Investment Pvt. Ltd., [2017] 82 taxmann.com 415 (Del.)(SB); and iv) CIT v/s Bengal Finance & Investments Pvt. LTd., ITA no.337 of 2013, order dated 10.02.2015 (Bom.).
Having considered the rival submissions and having perused the material on record in the light of the decisions relied upon by the learned Counsel for the assessee, we find that the issue for our adjudication is squarely covered by the Special Bench decision of this Tribunal rendered in assessee’s own case for the assessment year 2012–13, wherein the addition of disallowance u/s 14A of the Act r.w.r 8D of the rules to the book profit u/s 115JB of the Act is deleted. Since the issue raised by the Revenue in this appeal is materially identical
11 Rosa Power Supply Co. Ltd. and squarely covered by the Special Bench decision of the Tribunal in assessee’s own case for the assessment year 2012–13, we see no legal infirmity in the alleged impugned decision of the learned CIT(A) warranting interference at the instance of the Revenue. Thus, the ground raised by the Revenue is dismissed.