Case Law Details
HIGH COURT OF GUJARAT
Commissioner of Income-tax -I
versus
UTI Bank Ltd.
TAX APPEAL NO. 119 OF 2013
MARCH 22, 2013
ORDER
Akil Kureshi, J.
Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 31.07.2012 raising following substantial question of law for our consideration:
“1. Whether the Appellate Tribunal has substantially erred in confirming the order of the CIT(A) on dis allowance of interest expenditure u/s. 14A (Rs. 25.53 crores-Rs. 5.53 crores) in view of the decision of the Mumbai High Court in Godrej & Boyce Mft. Co. Ltd. [323 ITR 1]?
2. Whether the Appellate Tribunal has substantially erred in holding that compensation paid to property owner is revenue expenditure incurred for business, when it was compensation for non-occupation and a capital loss in nature?”
2. Question 1 arises out of two cross appeals filed by the revenue and assessee before the Tribunal against the order of the Appellate Commissioner. This issue was cumulatively considered by us in Tax Appeal No. 118 of 2013 in which also order has been passed today. We had declined the question making following observations:
“2. We may notice that the appellant has also suggested an additional issue in the following manner:
“Whether the Appellate Tribunal has substantially erred in holding that dis allowance u/s. 14A required “finding of incurring of expenditure” for dis allowance of part of administrative expenditure u/s. 14A, in the face of facts that infrastructure and human resources of Bank were employed for investing activities which earned exempt income, particularly, when the assessee itself disallowed certain part of interest expenditure u/s. 14A?”
3. The issue pertains to dis allowance under Section 14A of the Act made by the Assessing Officer which was partially deleted by the CIT(A). Such order of CIT(A) gave rise to cross appeals at the hands of the assessee as well as the revenue. Tribunal confirmed the view of the CIT(A) making following observations:
“33. We have heard the rival contentions and perused the material on record, The undisputed facts are that during the year the assessee has earned interest of Rs. 17.45 crore on tax free bond and debentures as against which the assessee had suo motu disallowed Rs. 5.53 crore being the interest expenses u/s. 14A as against which the AO has worked out the dis allowance of Rs. 32.76 crore. After giving the credit of dis allowance of Rs. 5.53 crore made by the Assessee, the AO disallowed Rs. 27.23 crore u/s. 14A. As on 31st March, 2003, the interest free funds available with the assessee was to the tune of Rs. 3404 crore (comprising of share capital of Rs. 230 crore Reserves of Rs. 689 crores and interest free demand deposits and Rs. 2485 crores) as against which the tax free investments were to the tune of Rs. 589 crore. Thus the interest free funds were far in excess of the investments. CIT(A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002-03 and accordingly he has followed the decision of CIT(A) for AY 2002-03. These facts have not been controverted by the Ld.D.R. nor have they brought on record any facts to the contrary. Honorable Bombay High Court in case of CIT Vs. Reliance Utilities & Power Ltd. (supra) has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available. In the present case, since the assessee has suo moto disallowed Rs. 5.53 crore u/s. 14A, respectfully following the decision of Bombay High Court, we are of the view that in the facts of the present case, no further dis allowance over and above than what has been disallowed by the Assessee is called for. As far as dis allowance of other administrative expenses is concerned, the undisputed fact is that the dis allowance has been made by the AO without giving a finding as to how much administrative expenditure has been incurred to earn the exempt income. In the case of Hero Cycles (supra) the Honorable High Court has held that the contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed u/s. 14A cannot be accepted. Dis allowance u/s. 14A requires finding of incurring of expenditure. In the present case, the AO has presumed that the assessee might have incurred expenditure to earn the exempt income. He has not given any finding of incurring of expenditure. In view of these facts and respectfully following the decision of High Court, we are of the view that no dis allowance of administrative expenses can be made. We accordingly direct for the deletion of the addition made by the AO and allow this ground of the assessee.”
4. In our opinion the Tribunal has committed no error. Basically the entire dis allowance has been made on the basis of facts emerging on record. The Tribunal also relied on the decision of the Bombay High Court in case of CIT v. Reliance Utilities & Power Ltd. reported in 313 ITR 340. Additionally, we find that the Assessing Officer had, without giving a finding as to how much administrative expenditure have been incurred to earn the exempt income, had made dis allowance. In the earlier years also, similar position obtained. That being the fact, no question of law arises.
5. In the result, tax appeal is admitted only for above noted question.”
3. Question 2 is with respect to the certain expenditure to the tune of Rs. 6 lacs approximately. The Tribunal observed as under:
“47. We have heard the rival contentions and perused the material on record. The factual matrix or the case is that the assessee had contracted with landlord to take a premise on lease for opening its branch though no formal agreement with the landlord was entered into. Based on the understanding, the landlord had started the construction of the premises as per the requirement of the assessee. Before the construction was completed the assessee came to know of the proposed construction of over bridge over the said property. The assessee was of the view that over bridge will cause hindrance to conduct the business and services. Accordingly it decided to terminate the understanding with the landlord. Based on the negotiation and understanding, the assessee agreed to compensate the landlord for the work done it by paying the compensation and the landlord agreed to withdraw all the claims against the assessee. Accordingly the assessee compensated the landlord by making a payment of Rs. 6 lacs in full and final settlement of all its claims. The aforesaid facts are not disputed by the Revenue. From the facts it is clear that the transaction in respect of which the compensation was paid arose during the course of business and was for the purpose of business. The expense has been incurred by the assessee to protect its interest and in lieu of the claims that could have been raised by the landlord. The incurring of expenditure has not been doubted by the Revenue. The Apex Court in case of J.K. Wollen v. CIT [1969] 72 ITR 612 (SC) has held that in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the IT Department. In view of the aforesaid facts and respectfully following the Apex Court we are of the view that the dis allowance made by the AO was rightly deleted by CIT(A) and it does not call for any interference. In the result, this ground of the Revenue is rejected.”
4. No question of law arises. Tax appeal is, therefore, dismissed.
