GMR Infrastructure Ltd Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that Share Application Money should not be included in the value of investments. Accordingly, for the purpose of computing disallowance under section 14A of the Income Tax Act, the Share Application Money should be excluded.
Facts-
The assessee contended that the own funds available with it as on 31-3-2008 was Rs. 5,604.57 crores, while the investment made was Rs. 4,753.34 crores. Accordingly it was contended that the interest disallowance was not called for. However, AO noticed that the loans and advances given by the assessee to its subsidiary companies have not been considered by the assessee. The AO noticed that the loans and advances stood at Rs. 170.04 crores as on 31-3-2007 and the same has increased to Rs. 1211.77 crores. The AO aggregated both the investments and Loans & advances and then noticed that there was net increase of own funds to the tune of Rs. 3,964.78 crores, while the net increase in both investments and Loans & Advances was Rs. 4.478.01 crores.
Accordingly, AO held that the assessee is not having sufficient own funds. With regard to the disallowance of Rs. 25.00 lakhs made by the assessee towards expenses, AO held that the above said disallowance is not sufficient. The AO worked out disallowance at Rs. 31,92,36,737 consisting of interest disallowance of Rs. 19,61,28,191 under rule 8D(2)(ii) and Expenditure disallowance of Rs. 15,31,08,546 under rule 8D(2)(iii). Accordingly, after setting off the voluntary disallowance made by the assessee, the assessing officer added the amount of Rs. 29,70,81,132 to the total income and also while computing book profit under section 115JB of the Act.
CIT(A) deleted the disallowance of interest made under rule 8D(2)(ii) but confirmed the disallowance of expenses made under rule 8D(2)(iii). Being aggrieved, the revenue has preferred the present appeal.
Conclusion-
Held that own funds available with the assessee would become lower, only if the value of investments and the amount of Loans and advances are aggregated together. If we compare the own funds with the value of investments, then the own funds were more. Hence the ratio laid down by the jurisdictional HC in the case of Microlabs Ltd to the effect that in such kind of cases, the presumption would be that the investments have been made out of own funds, would squarely apply to the facts of the present case. The only point of difference between AO and CIT(A) related to the amount of Rs. 1140.05 crores relating to “Advance for investments”, which was stated to be “Share Application Money”. It is held by Tribunal that Share Application Money should not be included in the value of investments. Hence for the purpose of computing disallowance under section 14A of the Act, the Share Application Money should be excluded. Hence CIT(A) was justified in excluding the same from the value of investments, accordingly, no reason was found to interfere with the order passed by CIT(A) on this issue. Accordingly, the disallowance of interest expenses enhanced by AO was set aside. Accordingly, appeal filed by revenue rejected.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The cross appeals filed by both the parties and the Cross objection filed by the assessee are directed against the order dated 30-05-20 17 passed by Ld CIT(A)-1 1, Bangalore and they relate to the assessment year 2008-09. All the grounds urged in the above said appeals relate to the disallowance made u/s 14A of the Income-tax Act, 1961 [‘the Act’ for short].
2. This is second round of proceedings. Earlier, the appeal filed by the assessee against the addition made u/s 14A of the Act was disposed of by the Tribunal, vide its order dated 28-08-2014 passed in ITA No.1522 (Bang) 2012. In the above said order, the Tribunal restored the issue of disallowance of interest expenditure under Rule 8D(2)(ii) and the administrative expenses u/r 8D(2)(iii) to the file of the AO with the following observations:-
“8. No doubt, in the case before us, assessee had made a suomotu disallowance for interest expenditure after netting the interest receipts, without taking aid of Rule 8D. Nevertheless, it had also raised a contention before the AO that its investments were much less than own funds. There is no dispute that the increase in its own funds for the previous year was Rs.3964.78 Crores. Additional investment made by the assessee during the relevant previous year was 3423.67 crores. Total investment of the assessee as on 31.3.2008 was Rs.4753.34 crores whereas own funds as on that date was Rs.5604.57 crores. The AO has taken a view that assessee had given loans/advances to interested or related parties apart from the above mentioned investment during the relevant assessment year. In other words, increase in the aggregate of investment and loan/advances would come to Rs.4478 crores viz., including increase in loan and advances of Rs.1042 crores to subsidiary companies. Or in other words, AO has disputed the claim of the assessee that increase in investments were only Rs.3436.00 crores as projected by the assessee. According to him, loans and advance of Rs. 1054.00 crores given to subsidiary companies, would also qualify as investment that could result in tax free income. Nevertheless, we find that this analysis made by the AO has never been put to the assessee. AO did not call for explanation with regard to his finding that the investments included loans/advances given to subsidiary companies. In addition the AO also not recorded the satisfaction with regard to the claim of the assessee that own funds were sufficient to meet the increase of investments. Decision of the Co-ordinate Bench in the case of Reliance Utilities & Power Ltd. (supra) would definitely come to the aid of the assessee. Nevertheless, whether such own funds were sufficient to cover the additional investments when aggregated with the advances given to subsidiary companies, and whether the latter could be considered is investments giving rise to tax free income requires a fresh look by the AO. Similarly, whether Rule 8D has to be applied with regard to the claim of indirect expenditure also requires a fresh look by the AO. We therefore, set aside the orders of the authorities below and remit the issue regarding disallowance u/s 14A of the Act, back to the file of the AO for consideration afresh in accordance with law.”
3. The assessee had earned exempt income of Rs.75,13,12,159/- and voluntarily disallowed Rs.5,2 1,55,605/- consisting of interest disallowance of Rs.4,96,55,605/- and expenditure disallowance of Rs.25,00,000/-.
4. Before AO, the assessee submitted that the own funds available with it as on 31.3.2008 was Rs.5,604.57 crores, while the investment made was Rs.4,753.34 crores. Accordingly it was contended that the interest disallowance is not called for. However, the AO noticed that the loans and advances given by the assessee to its subsidiary companies have not been considered by the The AO noticed that the loans and advances stood at Rs.170.04 crores as on 3 1.3.2007 and the same has increased to Rs.12 11.77 crores. The AO aggregated both the investments and Loans & advances and then noticed that there was net increase of own funds to the tune of Rs.3,964.78 crores, while the net increase in both investments and Loans & Advances was Rs.4,478.0 1 crores. Accordingly, the AO held that the assessee is not having sufficient own funds. With regard to the disallowance of Rs.25.00 lakhs made by the assessee towards expenses, the AO held that the above said disallowance is not sufficient. The AO worked out disallowance at Rs.34,92,36,737/- consisting of interest disallowance of Rs.19,61,28,191/- u/r 8D(2)(ii) and Expenditure disallowance of Rs.15,31,08,546/- u/s 8D(2)(iii). Accordingly, after setting off the voluntary disallowance made by the assessee, the AO added the amount of Rs.29,70,81,132/- to the total income and also while computing book profit u/s 1 15JB of the Act.
5. The Ld CIT(A) has prepared following chart showing details of own funds, investments and Loans and advances:-
