×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad (‘CIT(A)’ in short), dated 24.05.2016 arising in the assessment order dated 18.03.2015 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2012-13.
2. The assessee has also filed cross objection in the Revenue’s appeal as captioned above.
3. The grounds of appeal raised by the Revenue read as under:-
“(1) That the ld.CIT(A) has erred in law and on facts in deleting the addition of Rs.3,28,28,574/- made on account of disallowance u/s 14A r.w. Rule 8D of the Act.
(2) That the ld.CIT(A) erred in law and on facts in deleting Rs.21,98,109/- out of the addition of Rs.23,08,469/- made on account of disallowance of legal expenditure treated as capital expenditure.”
4. The grounds of appeal raised by the assessee in its cross objection read as under:-
“1. On the facts and circumstances f the case and in law, the Ld. CIT(A) has erred in upholding partial disallowance of Rs.19,49,768/- u/s. 14A of the I.T. Act out disallowance of administrative expenses, as narrated on pages 24 and 25 of his order.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upho ding partial disallowance of Rs.19,49,768/- u/s. 14A of the I.T. Act in the book profit of assessee u/s.115JB.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding disallowance of Rs.40,074 being employees’ contribution to P.F. and ESI u/s. 36[va], following the decision of the Jurisdictional High Court i.e. Hon’ble High Court of Gujarat in case of Gujarat State Road Transport Corporation 366 ITR 170.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding disallowance of Rs.1,10,300 being payment debited to ELP for obtaining Search Report for acquisition of Delhi Golf Link Properties Pvt. Ltd., as capital expenditure out of the total professional fees of Rs.23,08,469.”
5. First ground of Revenue’s appeal concerns addition of Rs.3,28,28,574/- by invoking Section 14A of the Act.
6. In the course of scrutiny assessment, it was noticed by the AO that assessee has earned dividend income of Rs.2.52 Crores from huge investments made in shares/mutual funds which give rise to tax free income. The AO accordingly invoked provisions of Section 14A of the Act and computed the disallowance under s.14A of the Act by applying the statutory formula under Rule 8D of the IT Rules. The disallowance towards interest expenditure was worked out to Rs.2,77,28,566/- by applying formula under Rule 8D(2)(ii). A disallowance of Rs.1,21,69,984/- was made towards administrative and managerial expenses by applying formula under Rule 8D(2)(iii) of the IT Rules. The aggregate disallowance was thus worked out to Rs.3,98,98,550/-.
7. In the first appeal, the CIT(A) deleted the disallowance made towards interest expenditure under Rule 8D(2)(ii) of the IT Rules and restricted the disallowance on administrative expenditure of Rs.19,49,768/-. The relevant operative part of the order of the CIT(A) is reproduced hereunder for ready reference:
“3.4 I have carefully considered the Assessment Order and the submission filed by the Appellant The Assessing Officer has observed that Appellant has earned dividend income of Rs. 2.52 crores and has made huge investment in shares/mutual funds which result into tax-free income. For making such investment and earning dividend, Appellant is required to incur various expenditure hence expenditure attributable to earning of such exempt income is required to be disallowed hence he applied provisions of Rule 8D and made aggregate disallowance of Rs. 3,47,78,342/- after giving relief of interest disallowance made in Return of Income for Rs.51,20,208/-. On the other hand, Appellant has argued that Assessing Officer has made disallowance on closing investments of Rs. 258.87 crores. It is argued that during the year under consideration it has made fresh investments of Rs. 28.92 crores in DB Properties Pvt. Limited and Delhi Golf-Link Properties Pvt. Limited and proportionate interest attributable to such investments to the extent of use of borrowed funds amounting to Rs. 51.20 lacs is already disallowed in Return of Income. It was also argued that investment is also made in mutual funds and same are growth schemes from which no dividend would ever be earned hence such investments cannot be subject matter of disallowance under Section 14A. With regard to balance investments in the shares of Adani Enterprises for Rs. 225.32 crores, it was argued that same were made in earlier years and in those years there was no interest bearing borrowings and even Assessing Officer has not made any proportionate interest disallowance except bank charges in those assessment years hence such investment should be excluded for making proportionate interest disallowance. So far as disallowance of administrative expenditure under Rule 8D(2)(iii) is concerned, it was argued that disallowance made by Assessing Officer has exceeded actual expenditure debited in Books of Account and majority of expenditure debited in Books of Account and claimed as expenditure pertains to rent income which is separately disclosed as income from business hence no such disallowance is called for.
3.5 On careful consideration of entire facts, it is observed that Assessing Officer has computed disallowance under Section 14A at Rs.3,98,98,550/- which includes proportionate interest disallowance for Rs. 2,77,28,566/- and administrative expenditure at Rs.1,21,69,984/-. So far as proportionate disallowance is concerned, following facts emerge from Appellant's submissions as well as from Assessment Order:
(i) The Appellant has shown opening investments of Rs.227.91 crores and closing investments of Rs.258 87 crores.
(ii) During the year under consideration Appellant has made two major investments of Rs. 28,92 crores in DB Properties Pvt. Limited and Delhi Golf Link Properties Pvt. Ltd., out of borrowed funds acquired from Adani Infrastructure & Developers Pvt. Limited and Adani Logistics Limited. Both the loans taken during the ye r under consideration is repaid before close of financial year. It is pertinent to note that repayment of such loan is out of interest-free funds available with Assessee and no new in erest bearing loan has been used for making repayment of such loan hence both the investments at year end are out of interest-free funds available with Appellant, this fact is further substantiated from Audited Annual Accounts that interest bearing loan at the yearend pertains to Mahasukh Adani Family Trust for Rs.26.08 crores and such loan is received on 8th June, 2011 which is much earlier to repayment of loan and same was used for giving advance. As Appellant has used borrowed funds for part period, it has already made disallowance of proportionate interest at Rs. 51,20,208/- in Return of Income hence such investment cannot be considered for making proportionate disallowance of interest under Rule 8D(2)(ii).
(iii) The closing investments of Rs. 4.61 crores and opening investments of Rs. 0.96 lacs is in growth scheme of mutual fund which is not capable of earning any exempt income hence no proportionate disallowance of interest can be made on such investment.