Gujarat Urja Vikas Nigam Board Vs DCIT (ITAT Ahmedabad)
The AO during the assessment proceedings has made the disallowance of Rs.50.85 crores in determining the income under normal computation of income under the provisions of Section 14A read with Rule 8D of Income Tax Rule. The AO made the addition of the same disallowance while determining the income of the assessee under the provisions of Section 115JB of the Act.
The Learned AR before us contended that disallowance made under the provisions of Section 14A read with Rule 8D under normal computation of income cannot be added to the income determined under the provisions of MAT.
We have heard the rival contentions of both the parties and perused the materials available on record. The AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for Rs.50.85 crores while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of Section 115JB of the Act, has added the disallowance made under the normal computation of Income under Section 14A r.w.r. 8D of Income Tax Rule for Rs.50.85 crores in pursuance to the clause (f) of Explanation 1 to Section 115JB of the Act.
However, we note that in the recent judgment of Special Bench of Hon’ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act.
The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case on hand. Thus, it can be concluded that the disallowance made under Section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under Clause (f) to Explanation 1 to Section 115JB of the Act.
However, it is also flawless that the disallowance needs to be made with respect to the exempted income in terms of the provisions of Clause (f) to Section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the Clause (f) to Explanation-1 of Sec. 115JB of the Act independently.
Disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra).
Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the Clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore, in the given facts &circumstances, we feel that ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus, we direct the AO to make the disallowance of 1% of the exempted income as discussed above under Clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the Clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the Clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore, our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus,in the interest of justice and fair play we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the Clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus, the ground of appeal of the assessee is partly allowed.
FULL TEXT OF THE ITAT JUDGEMENT
In this bunch of appeals two appeals have been filed by the Assessee and one appeal has been filed by the Revenue for A.Y. 2009-10which are arising from the separate order of the Ld. CIT(A)-I Baroda dated 29.10.2012 & 19.09.2014, in the assessment proceedings under Section143(3) & under Section 250 r.w.s. 143(3)of the Income Tax Act, 1961for A.Y. 2009-10 (in short “the Act”).
First we take up ITA No. 11/Ahd/2013for the A.Y. 2009-10(Assessee’s Appeal):-
2. The assessee has raised the following grounds of appeal:
“1.0 The Learned Commissioner of Income Tax (Appeals) erred in law and on facts has restricted the additions made under Section 14A of the IT Act, 1961 to 50,85,00,000/-considering the same as attributable to exempt dividend income. It is submitted that the disallowance is uncalled for and be directed to be deleted.
2.0 The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts has set aside the additions of Rs.4,44,00,000/- being Guarantee Fees paid to the Government of Gujarat in consideration of it issuing the guarantee for various unsecured loans with the direction to re-verify the claim despite the fact that the documents establishing the facts were submitted at the time of appeal hearing.
3.0 The Commissioner of Income Tax (Appeals) has erred in law and on facts has set aside the addition with respect to the prior period expense of Rs.21,47,000/-with the direction to re-verify the claim despite the fact that the documents establishing the facts that the same is a credit entry and already included in the Net Profits considered for computing the taxable income were submitted at the time of appeal hearing.
4.0 The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the disallowance of depreciation amounting to Rs.1,21,06,721/- on the basis that certain items included under the head computers do not qualify for depreciation @ 60% under the Income Tax Act, 1961.
5.0 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.50,85,00,000/- on account of disallowance made under Section 14A of the Income Tax Act, 1961.
6.0 The Learned Commissioner of Income Tax (Appeals) erred in law and on facts has dismissed the ground relating to the initiation of penalty proceedings under Section 271(1)(c) of the I T Act.
7.0 The Learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the charging of interest under Section 234B, 234C and 234D of the Income Tax Act, 1961.
8.0 The appellant craves leave to add to, alter, delete or modify any of the grounds of appeal either before or at the time of hearing of this appeal.”
3. The first issue raised by the assessee is that the Learned CIT (A) erred in restricting the addition of Rs.50,85,00,000/- out of the total addition of Rs. 238,20,40,627/- made by the AO under the provisions of Section 14A read with Rule 8D of Income Tax Rule though the assessee has not incurred any expenditure in the earning of dividend income.
4. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of purchase and sale of electricity. The assessee in the year under consideration declared dividend income of Rs.1,116.61 lakhs on the investments which was shown as on 1st April 2008 and 31st March 2009 at Rs.5,58,204.74 lakhs and Rs.6,64,856.04 lakhs respectively in its balance sheet. The assessee at the same time has claimed the deduction on account of interest expenses amounting to Rs.13,122.56 Lacs in the year under consideration on the borrowed fund amounting to Rs.3,28,754.64 lakhs.
4.1 However, the assessee during the assessment proceedings claimed that it has not incurred any expenditure in the earning of the dividend income. But the AO disregarded the contention of the assessee by observing that the own fund of the assessee is less than the investment and therefore it can be inferred that the borrowed fund has been utilized in the investments which have generated the dividend income. Accordingly, the AO invoked the provisions of Section 14A read with Rule 8D and made the disallowance of the following expenses:
