Gujarat State Electricity Corporation Limited Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that payment of guarantee fee to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan is revenue expenditure.
Facts- Revenue has preferred this present appeal contesting that CIT(A) has erred in deleting the addition made on account of disallowance of claim of guarantee fees paid to Government of Gujarat.
Notably, AO observed that the assessee paid guarantee fee to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan. AO did not accept the above explanation of the assessee on the ground that the assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees were claimed. Further, The AO observed that the cost of raising the finance can also not be considered as revenue expenses for want of details. He, accordingly, disallowed Rs.5,90,96,000/-. However, CIT(A) allowed the appeal.
Conclusion- Rajasthan High Court in CIT v. Metalising Equipment Co. Pvt. Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has been guaranteed by the Government of Gujarat. Hence, quite apart from the other sound reasons for treating the expenditure as revenue, it would be unrealistic to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG.
Held that in fact the Ld.CIT(A) deleted the above addition following assessee’s own case for the Assessment Year 2008-09 by holding that the guarantee fees is directed to be allowed as revenue expenditure.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
1. These cross appeals are filed by the Assessee and the Revenue as against separate appellate orders both dated 31-082018 & 21-08-2015 passed by the Commissioner of Income Tax (Appeals)-1, Vadodara arising out of the assessment orders passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years (A.Ys) 2014-15 & 2012-13. Since common issues are involved in all the above appeals, the same are disposed of by this consolidated order. First we will take up Revenue appeal in ITA No. 3165/Ahd/2018 relating to Assessment Year 2012-13.
2. The Grounds of appeal raised by the Revenue reads as under:
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to allow the Guarantee fee after verification disregarding the applicable statutory provisions contained under S 37 of the I.T.Act which do not allow any expenditure of capital nature.”
2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to treat the interest income/ miscellaneous receipts of Rs. 5648.08 lacs as business income instead of income from other sources without appreciating the fact that the receipt is not covered in clauses (i) to (vii) of S 28 of the Income tax Act under which such income is charged.”
3.”On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in by deleting the addition made on account of prior period income amounting to Rs. 0.48 lacs without accepting the fact that the assessee was following the mercantile system of accounting in which the expenses related to the prior period are not an allowable expense as the assessee company did not offer prior income.”
4.”On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in by directing the AO to work out the revised disallowance u/s. 14A r. w.r. 8D by excluding the interest paid on term loan subject to verification that claim of interest was in relation to term loans by overlooking rule 8D(ii) where it is specifically mentioned the method for determination of amount of expenditure incurred by way of interest during the year which is not directly attributable to any particular income.”
5. “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in by deleting the addition made in book profit.”
6. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary.
3. Ground No. 1: Disallowance of guarantee fees paid to Govt. of Gujarat of Rs. 93.98 lacs. This guarantee fees paid by the assessee to Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loans.
3.1. Ld. Counsel submitted that this issue is covered in favour of the assessee by Co-ordinate Bench of this Tribunal in the case of Gujarat Energy Transmission Corporation Ltd. in ITA No. 852/Ahd/2018 by order dated 24.08.2022. Per contra the Ld. D.R. could not contravent the above submissions of the assessee.
3.2. The Co-ordinate Bench of this Tribunal on guarantee fees paid to Govt. of Gujarat wherein it was held as follows:
13. We have carefully considered the decision passed by the Coordinate Bench in ITA Nos. 2790 & 2791/Ahd/2015. While deciding the ground in favour of the assessee, the Coordinate Bench has been pleased to observe as follows:
“2. The revised grounds of appeal raised by the Revenue is reproduced hereunder:
“1. “On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.262.93 lakhs made on account of disallowance of claim of guarantee fees paid to Government of Gujarat disregarding the applicable statutory provisions contained under S 37 of Income tax Act,1961 which do not allow any expenditure of capital nature. The disallowance was made by disallowing the claim as revenue expenditure as it is of enduring nature in the assessee’s business and hence capital in nature.”
2. “On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting the addition of Rs.42.86 lakhs made on account of disallowance of claim of cost of raising finance for specialized job as revenue expenditure. The ld.CIT(Appeals) erred in not appreciating the fact that as the result of this expenditure, the assessee had derived benefit of enduring nature, hence the expenditure is of capital nature.”
3. As pointed out on behalf of the assessee, both the aforesaid grounds are covered in favour of the assessee in its own case concerning AY 2008-09 in ITA No. 704/Ahd/2012 order dated 12.06.2015. The relevant para of the order of the Tribunal is reproduced hereunder:
“29. In the Revenue’s appeal, the ground no.1 of the appeal is directed against the order of the CIT(A) in deleting the addition of Rs.50,90,96,000/- made on account of disallowance of claim of guarantee fees paid to Government of Gujarat.
30. Brief facts of the case are that the AO observed that the assessee paid guarantee fee of Rs.5,69,35,000/- to the Govt. of Gujarat in consideration of guarantee issued by it for repayment of unsecured loan. Further, the assessee also claimed Rs.21,61,000/- on account of cost of raising finance under the head “cost of raising finance” as per the profit & loss account.
31. In reply to show cause notice to the assessee, the assessee submitted that erstwhile GEB has raised various loans, guarantee of which was given by Govt. of Gujarat, and for the guarantee given by the Govt. of Gujarat, the GEB is required to pay guarantee fees as per rules. After the split of the company, the said loan were still continued, which were guaranteed by the Govt. of Gujarat. Therefore, every year these guarantee fees become payable to Govt. of Gujarat on recurring basis. Regarding the cost of raising finance, the assessee submitted that the finance was raised during the year, and accordingly, the cost incurred for raising finance was charged to current year’s profit & loss account. The AO did not accept the above explanation of the assessee on the ground that the assessee did not furnish the details of the purpose for which the loans were taken for which the guarantee fees were claimed. Further, if the fees paid for loans facility in respect of fixed assets, nature of assets, the date of put-to-use has not been submitted. The assessee also failed to furnish any agreement with the Govt. of Gujarat for charging guarantee fees and method of its computation against the loan amounts. In the absence of these details it was not possible to entertain the assessee’s claim. The AO further observed that the cost of raising the finance can also not be considered as revenue expenses for want of details. He, accordingly, disallowed Rs.5,90,96,000/-.
32. On appeal, the CIT(A) observed that guarantee fee was an annual recurring expenditure incurred by the assessee. Guarantee fee was payable to Govt. of Gujarat every year in respect of loans taken by the assessee and guaranteed by the Govt. of Gujarat. As held by Hon’ble Supreme Court in the case of India Cements Ltd., 60 ITR 52 (SC), loan cannot be treated as asset or advantage resulting in enduring benefits. Guarantee fees paid to Govt. of Gujarat was in connection with raising of loans and enduring benefit or advantage could not be said to have resulted by taking such loans. Only if the assets acquired out of such loans were not put-to-use till the end of previous year i.e. 31.3.2008, the guarantee fees to such extent i.e. in respect of such loans only could be capitalized as cost of such asset. The assessee has certified that no new project was started or commissioned during the year for which above guarantee was paid, and the guarantee fees was in respect of loans for acquisition of capital assets, which were already put-to-use prior to 1.4.2007. The guarantee fees of Rs.5,69,35,000/- is directed to be allowed as revenue expenditure, subject to verification by the AO of the certificate filed during the appellate proceedings i.e. there was no capital work-in-progress in respect of loans on which guarantee fees was paid.
33. Regarding cost of raising finance of Rs.21 .61 lakhs is concerned, the CIT(A) observed that the same was an allowable deduction and being revenue expenditure, following the decision in the case of India Cements Ltd. (supra) disallowance of Rs.21,61,000/- was cancelled.
34. The DR supported the order of the AO, whereas, the AR of the assessee supported the order of the CIT(A) and submitted that the issue was now covered in favour of the assessee by the decision of this Tribunal in the case of assessee itself dated 8.5.2015 passed in ITA No.1931/Ahd/2010, 2974/Ahd/2010 and 3004/Ahd/2010.
35. We find that the Tribunal in its order dated 8.5.2015 cited supra has held as under:
“6. We have heard 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 guarantee commission was an annual charge. The benefit derived from payment of such commission thus lasted for exactly one year only. Such shortlived benefit cannot be categorized as “enduring”. Hence, I am inclined to the view that the payment of guarantee commission was a revenue expenditure. 5.3. Further, the jurisdictional Bench of ITAT had occasion to consider the allowability of guarantee commission paid to a Director of the company in respect of loans taken from the bank. In the case of Himalaya Machinery Pvt.Ltd. (ITA No.738/Ahd/2009) for AY 2006-07, the Tribunal held, vide order dt.5.6.2009, following the decision of the Rajasthan High Court in CIT v. Metalising Equipment Co.Pvt.Ltd., 8 DTR 12, that the payment of commission for guaranteeing repayment of loan was allowable as revenue expense. In the instant case, the loan has been guaranteed by the Government of Gujarat. Hence, quite apart from the other sound reasons for treating the expenditure as revenue, it would be unrealistic to say that the appellant company could derive any undue advantage or collateral benefit by making such payment to the GOG. In view of the totality of the circumstances, I am of the opinion that the AO was not justified in treating the payment of guarantee commission (Rs.8,39,04,550/-) as capital in nature. The addition is directed to be deleted. 6.2. I have considered the submissions of the ld.AR and the facts of the case. The jurisdictional Bench of ITAT has held in the case of Shri Rama Multi Tech vs. ACIT, 92 TTJ 568, that in determining the nature of expenditure incurred for obtaining loan, it is irrelevant to consider the purpose of loan. The amount spent on stamp duty, lawyer fees, etc. for obtaining loan secured by charge on its fixed assets is a revenue expenditure, because the transactions were entered into directly to facilitate the business of the company and payment of consultancy charges was made on ground of commercial expediency. In India Cements Ltd. vs. CIT, 60 ITR 52, the Supreme Court had also held that the expenditure incurred for securing the use of money for a certain period was revenue expenditure. In the instant case, the assessee has secured the loan by creating a charge (hypothecation of its assets). Hence the ratio of the above mentioned two cases would squarely apply. Accordingly, it is held that the AO was not justified 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.”
4. In parity with the order of the Tribunal, we are of the opinion that CIT(A) has rightly adjudicated the issue in favour of the assessee. We thus decline to interfere with the order of the CIT(A).”
13.1. In the absence of any changed circumstances, we do not find any reason to deviate from the stand taken by the Coordinate Bench Decision. Hence, we do not find any reason to interfere of the order passed by the Ld. CIT(A) in deleting the guarantee fees paid to the Government of Gujarat to the amount of Rs. 218.28 lakhs. The ground preferred by Revenue is, therefore, fails and thus, dismissed.
3.3. We have gone through the materials available on record as well as submissions made by both the parties. In fact the Ld.CIT(A) deleted the above addition following assessee’s own case for the Assessment Year 2008-09 by holding that the guarantee fees is directed to be allowed as revenue expenditure.
3.4. Respectfully following the Co-ordinate Bench decision, the grounds raised by the Revenue is devoid of merits and the same is hereby dismissed.
4. Ground no. 2: Treatment of interest income and miscellaneous receipts as “income from other sources” as against the claim as “business income”.
4.1. Ld. Counsel submitted that this issue is also covered in favour of the assessee by decision of Co-ordinate Bench of this Tribunal in ITA No. 753/Ahd/2018 by common order dated 24.08.2022 in the case of Gujarat Energy Transmission Corporation Ltd. wherein it was held as follows:
“…………….. 8.1. At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee with all his fairness submitted before us that the identical issue has been decided by the Coordinate Bench in assessee’s own case in ITA Nos. 2885 & 2886/Ahd/2015 [cited supra]. On this aspect he has drawn our attention to Page 10 of the above order filed before us. However, by and under the order passed by the Hon’ble Orissa High Court in the case of Odisha Power Generation Corporation Ltd. vs. ACIT, Circle-2(2), Bhubaneswar & ors. in ITA Nos. 1, 2, 3 of 2015 and ITA Nos. 24 & 25 of 2009 the issue has been decided otherwise. A copy of the same has also been submitted before us by the Ld. Counsel appearing for the assessee.
8.2. On the other hand, the Ld. D.R. relied upon the order passed by the lower authorities.
9. We have heard the rival submissions made by the respective parties, and we have also perused the relevant materials available on record and also gone through the order passed by the Hon’ble Orissa High Court in the case of Odisha Power Generation Corporation Ltd. (supra). It appears that the Hon’ble Orissa High Court while dealing with the issue the Court was pleased to observe as follows:
“12. The Assessee offered an explanation regarding interest income earned by it, from advances given to its employees as well as provision of electricity and water charges collected from water through its employees and contractors for facilities in the township, receipt from transit hostel, sale of scrap, insurance claim etc. The facilities were given to its employees for better conditions of employment. This was to improve the overall efficiency of the undertaking which is devoted to the single purpose of generation of power. The Court, therefore, has no difficulty in accepting the submission of the Assessee that the interest received on advances and loans given to its employees are receipts in normal course of carrying its business and should be considered as income derived from its essential business activities. Likewise, the late payment by GRIDCO for the electricity supplied, is sought to be made up by GRIDCO by issuing bonds on which the Assessee earns interest. This also therefore, has a direct nexus with the essential business activity of the Assessee.”
9.1. In that view of the matter we find it fit and proper to direct the Ld. AO to consider the issue afresh upon examining the same in regard to the head of income upon considering the relevant evidence in the light of the observation made by the Hon’ble High Court as mentioned hereinabove. We, thus, pass order accordingly. This ground is allowed for statistical purposes.
4.2. We have gone through the records and found that ld. CIT(A) held that the miscellaneous receipts of Rs. 5648.08 lacs treated as income from business. However the interest income of Rs. 4.56 crores was treated as “income from other sources”. Considering the judgment of the Orissa High Court in the case of Odisha Power Generation Corporation Ltd., we direct the Ld. CIT(A) to consider the issue afresh and pass orders accordingly. Thus the Ground No. 2 raised by the Revenue is allowed for statistical purpose.
5. Ground no. 3: Disallowance of prior period expenditure of Rs. 48,000/-.
5.1. The Ld. Counsel for the assessee submitted that this issue is also covered by setting aside the same to the file of the Assessing Officer by the Co-ordinate Bench of this Tribunal in ITA No. 753/Ahd/2018 by order dated 24.08.2022. The Ld. D.R. appearing for the Revenue has no objection in set aside the matter back to the file of the Assessing Officer for reconsideration.
5.2. After perusal of records, we find that the Co-ordinate Bench of this Tribunal held as follows:
4. We find that Coordinate Bench on the identical issue disposed of the ground by remitting the same to the file of the Ld. AO to adjudicate de novo with the following observation:
“12. During the course of assessment, the Assessing Officer noticed that assessee company has shown prior period income of Rs. 130.05 lacs after adjustment of prior period expenses for Rs. 408.01 lacs. On query, the assessee has explained that all expenditure booked under this head crystallized in the hands of the company only during the year under consideration therefore same expenditure cannot be added back. The Assessing Officer has not accepted the submission of the assessee stating that assessee was following mercantile system of accounting in which the expenses related to the prior period were not an allowable expenses. Therefore, the prior period expenses amounting to Rs. 408.01 lacs was disallowed and added to the total income of the assessee.
13. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee stating that assessee has not made any submission showing that the prior period income was crystallized in the previous year relevant to the assessment year under consideration.
14. During the course of appellate proceedings before us, the ld counsel has submitted that similar issue in the case of Group concern Gujarat Urja Vikas Nigam Ltd. was adjudicated by the Coordinate Bench of the ITAT vide ITA No. 996/Ahd/2011 for assessment year 1988-89 dated 31st May, 2017 and the issue was remanded back to the file of Assessing Officer for deciding afresh in the light of the decision of Hon’ble High Court in the case of PCIT vs. Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The ld. Departmental Representative was fair enough not to controvert these undisputed facts and findings of Co-ordinate Bench.
15. With the assistance of ld. representatives, we have gone through the decision of Co-ordinate Bench of ITAT in the case of Group concern Gujarat Urja Vikas Nigam Ltd. vs. ACIT for assessment year 1988-89 wherein similar issue has been set aside to the file of Assessing Officer for adjudicating afresh according to the direction laid down by the Hon’ble Gujarat High Court in the case of Adani Enterprises Ltd. in Tax Appeal No. 573 of 2016. The relevant part of the decision of the Co-ordinate Bench in the Gujarat Urja Vikas Nigam Ltd. supra as cited above is reproduced as under:-
“6. We have carefully heard the rival submissions and perused the orders of the authorities as well the case-laws referred. The assessee is aggrieved by the disallowance of prior period expenses of Rs.53.53crores as per Ground No.4 of its appeal. The disallowance has been made on the ground that the expenses under various heads as noted in the assessment order pertained to earlier years and the assessee which is following system of accounting should have made provision for expenses in those respective years and claimed them as deduction. We have gone through the break-up of the expenses as noted in para-8 of the assessment order and observe that certain expenses declared under the head ‘other adjustments Rs.30.75 crores’; ‘other charges Rs.79.34 lakhs’; ‘depreciation under provided Rs.7.86 crores’ etc. are ostensibly vague and does not indicate the nature of claim with sufficient particularity obscure. We simultaneously note that assessee is a State Government Undertaking and its accounts are subjected to review by CAG and therefore it cannot be postulated that there was any deliberateness in not furnishing relevant details before the revenue authorities. The bonafides of the Assessee is also augmented by the facts that the Assessee has reported staggering carry forward losses in its returned income. Thus, there is no immediate tax advantage accrued to the assessee by the claim of impugned prior period expenses per se. We therefore deem it expedient to restore the issue back to the file of AO for examining the issue de novo after verifying facts as may be considered necessary and expedient in accordance with law. The AO shall bear in mind the ratio laid down by the Hon’ble Gujarat High Court in the case of Adani Enterprises Ltd. (supra) while adjudicating the issue. Needless to say, reasonable opportunity shall be provided to the assessee while adjudicating the issue. Hence, all the contentions of the assessee are kept open. The issue raised as per Ground No.4 is thus set aside to the file of AO in terms of directions noted above. As a result, Ground No.4 is allowed for statistical purposes.”
In the light of the decision of Co-ordinate Bench as cited above, we restore this issue to the file of Assessing Officer for deciding de-novo after verification the facts and material as per the ratio laid down by the Hon’ble Gujarat High Court in the case of above cited case of Adani Enterprises Ltd. As a result, this ground of appeal of the assessee is allowed for statistical purposes. ”
4.1. Respectfully relying upon the order passed by the Coordinate Bench we are disposing of the ground by setting aside the issue to the file of the Ld. AO for de novo adjudication upon giving an opportunity of being heard to the assessee and upon considering the evidence which the assessee may choose to file at the time of hearing of the matter. This ground is allowed for statistical purposes.
5.3. Respectfully following the above decision by Co-ordinate Bench of this Tribunal, this ground no. 3 raised by the Revenue is set aside to the file of the Assessing Officer for de novo adjudication by giving proper opportunity to the assessee for being hearing. Thus this ground no. 3 raised by the Revenue is allowed for statistical purpose.
6. Ground No. 4 Disallowance u/s. 14A r.w. Rule 8D.
6.1. The Ld.Counsel for the assessee submitted that this issue was set aside to the file of the Assessing Officer for fresh adjudication by Co-ordinate Bench of this Tribunal in the case of Gujarat Urja Vikas Nigam Ltd. in ITA No. 406/Ahd/2019 by order dated 14.12.2022 wherein it was held as follows:
“….4.1. Regarding grounds no. 1.0 to 1.2 namely disallowance u/s. 14A. Both the parties submitted that this issue is squarely covered in assessee’s own case by Co-ordinate Bench of this Tribunal in ITA Nos. 11 & 37/Ahd/2013 dated 22.10.2020 wherein the Hon’ble ITAT remanded the matter back to the Assessing Officer for fresh adjudication by directing as follows:
10. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, there is no ambiguity that the Learned CIT (A) has decided the issue on hand after relying on the order of his predecessor for the Assessment Year 2008-09 which was subsequently set aside by the ITAT for fresh adjudication. The relevant finding of the ITAT reads as under:
“8. On the other hand, ld. DR supported the orders of lower authorities.
9. We have heard the rival contentions and perused the material on record. In these grounds raised by the assessee and the Revenue challenge the action of ld. CIT(A). We observe that an addition of Rs.152.46 crores was sustained, made by ld. Assessing Officer which was sustained to Rs.61.46 crores by ld. CIT(A) and, therefore, assessee has raised the ground against the sustained 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 reads as under:
“1(a) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition ofRs.187.97 crores u/s 14A of the Act on account of interest attributable to investment in shares without appreciating the fact that in view of Section 106 of the Indian Evidence Act, it was up to the assessee company to adduce evidence that all the borrowings were used for the purposes of business and its is assessee’ s own surplus fund that were invested in the shares and deposits earning exempted income, and, even in case of mixed funds, the disallowance of interest could be made.”
1(b) As an alternate plea, the Id. CIT(A) erred in not upholding the addition u/s. 14A on account of interest attributable to investment in shares to the extent in view of provisions of section 14A read with Rule 8D. “
3. Learned DR has pleaded that an addition of Rs. 187.97 crores which was made u/s 14A was deleted by learned CIT(A), however, it was not adjudicated as per the grounds of appeal. Learned DR has also argued that the assessee was required to adduce evidence that all the borrowings were used for the purpose of the business and the assessee’s own surplus funds were invested in the shares. Learned DR has also informed that in A.Y. 2007-08, the addition of similar nature was upheld by learned CIT(A). He has thus pleaded that the issue being legal in nature which has emerged from the facts already on record, therefore, the additional ground deserves to be admitted for adjudication.
4. After hearing both the sides, the additional ground of the Revenue Department is hereby admitted for adjudication. At the outset, it is worth to mention that the impugned addition of Rs.18796.82 lacs was made by the AO without having any discussion in respect of the applicability of Section 14A of the IT Act. Likewise, learned CIT(A) has also not discussed the applicability of the provisions of Section 14A of IT Act, however, after considering the merits of the case, deleted the addition. With this clarification, we have examined the facts and the issue as emerged from the corresponding assessment order passed u/s. 143(3), dated 26.12.2008. It was noted by the AO that the assessee had claimed a huge amount of interest expenditure of Rs. 19360.59 lacs, as per the following bifurcation.
