Gujarat High Court
The Principal Commissioner Of Income ... vs M/S Gujarat Flurochemicals Ltd on 5 September, 2023
Author: Biren Vaishnav
Bench: Biren Vaishnav, Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/423/2023 ORDER DATED: 05/09/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 423 of 2023
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THE PRINCIPAL COMMISSIONER OF INCOME TAX
Versus
M/S GUJARAT FLUROCHEMICALS LTD.
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Appearance:
MR NIKUNT K RAVAL(5558) for the Appellant(s) No. 1
for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BIREN VAISHNAV
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 05/09/2023
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV)
1. This tax appeal under Section 260A of the Income Tax Act, 1961 challenges the order of the Income Tax Appellate Tribunal, Ahmedabad dated 28.12.2022 passed in ITA No. 751/Ahd/2018 for the assessment year 2014-
15.
2. The following substantial questions of law arise for consideration of this court:
(A) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal is justified in deleting the addition made under Section 14A read Page 1 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined with Rule8D merely on the basis that the relevant investments are out of assessee's old and own interest free funds, which exceeded tax free investments even though no material was placed on record by the assessee to establish that the said funds were available for investment at the relevant point of time?
(B) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal has erred in deleting the disallowance made u/s. 14A of the Act, without appreciating that the assessee was maintaining mixed funds and failed to establish that funds deployed for the earing tax free income were entirely out of interest-free funds?
(C) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal is justified in upholding that the disallowance made under section14A read with Rule 8D cannot exceed the exempt income, in the absence of any such restriction being there in the relevant section or rule?
(D) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal is justified in holding that the adjustment made on account of Page 2 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined disallowance u/s.14A of the Income Tax Act, in computation of book profit u/s.115JB of the Income Tax Act, is not as per the law without appreciating that the amount disallowed under section14A is covered under Clause (f) of Explanation to Section 115JB(2)?
(E) Whether on the facts and in circumstances of the case and in law, the Appellate Tribunal is justified in allowing the assessee's claim of deduction u/s.80IA(4) of the Income Tax Act, 1961 at the rate on which the GEB supplied power to its consumers ignoring the rate on which power generating company supplied its power to GUVNL(GEB)?
(F) Whether on the facts and in circumstances of the case and in law, it is justified in treating the income from realization of carbon credits as capital in nature, despite the fact that the realization from carbon credits has been treated by the assessee itself as revenue income and offered to tax and in fact in actualities they are revenue receipt?
3. The brief facts of the case are that the assessee company had filed its return on 28.11.2014 declaring Page 3 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined total income under the normal provisions of Rs.6,97,07,710/- after deduction under Section 80IA(4) of the Act for Rs.33,65,17,895/-. For the current year (Long Term Capital Losses) were returned at Rs.2,43,43,741/-.
On the other hand, book profit under Section 115JB of the Act returned at Rs. 63,78,32,647/-. The scrutiny assessment under Section 143(3) of the Act was finalized on 29.12.2016.
4. Perusal of the order of the Tribunal would indicate that for the assessment year 2012-13, on the substantial questions of law raised in this appeal, this court in Tax Appeal No. 11 of 2019 with Tax Appeal No. 28 of 2019 had the occasion to consider this very substantial questions of law. They were answered accordingly.
4.1 So far as question (A) & (B) are concerned, the same are answered accordingly:
"14. Mr. Patel, the learned counsel appearing for the revenue vehemently submitted that the ITAT committed an error in deleting the addition made under Section14A read Page 4 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined with Rule8D of the Rules merely on the basis that the relevant investments were out of the assessee's old and own interest free funds, which exceeded the tax free investments. Mr. Patel submitted that the assessee failed to adduce any material to establish that the said funds were available for investment at the relevant point of time. Mr. Patel submitted that Rule8D of the Rules makes it clear that if the Assessing Officer having considered the accounts of the assessee, is not satisfied with the (1) correctness of the claim of the expenditure made by the assessee; or (2) the claim made by the assessee that no expenditure had been incurred in relation to the exempted income for the previous year then the taxpayer can determine such value of expenditure following the lines of Subsection(2) of Rule 8D. Rule8D(2) reads as follows:
Rule8D(2) "(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:
(i) the amount of expenditure directly relating to income which does not form part of total income; and
(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributed to any particular income or receipt, an amount computed in accordance with the following formula, namely:
AXB/C where A= amount of expenditure by way of interest other than the amount of interest included in clause (I) incurred during the previous year' B= the average of value of investment, Page 5 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C= the average of total asset as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;
17. We had the occasion to consider the provision of Section14A of the Act as well as Rule8D of the Rules in the Tax Appeal No.100 of 2019 decided on 18/06/2019 [Principal Commissioner of Income Tax, Vadodara1 Vs. Gujarat State Fertilizers and Chemicals Ltd.]. The very same argument, which is sought to be canvassed by Mr. Patel in the present tax appeal, was canvassed in the Tax Appeal No.100 of 2019. We would like to quote the relevant observations made by us including the submissions, which were canvassed by Mr. Patel and noted by us.
5. Mr. Patel submitted that the Assessing Officer rightly made the disallowance under Section 14A of the Act. He submitted that in a recent decision in the case of Maxopp Investment Limited (supra), the Supreme Court has reiterated that the purpose behind Section 14A of the Act is not to permit deduction of the expenditure incurred in relation to the income which does not form part of the total income. It is to ensure that the assessee does not get double benefit.
6. He further submitted that this Court, in the case of PCITII v. Shreno Limited, (2018)409 ITR 401 (Gujarat), has referred to the decision of the Supreme Court in the case of S.A.Builders Limited v.
Page 6 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined CIT, (288)ITR 1 and observed that the exposition of law made by the Supreme Court in the case of S.A.Builders Limited (supra) and the observations made therein have been applied by this Court on various occasions particularly in connection with the disallowance to be made under Section 14A of the Act and it has been held that if the assessee can demonstrate the availability of the surplus interest free funds for making the investment generating tax free income, the disallowance under Section 14A of the Act would not be justified.
7. Mr. Patel submitted that the decision of the Supreme Court in S.A.Builders Limited (supra) is not applicable to the issue involved in the present case as the decision in the case of S.A.Builders Limited (supra) is with respect to Section 36(i)(iii) of the Income Tax Act, whereas in the present case the issue is with regard to the disallowance under Section 14A read with Rule 8D in the context of the assessee having mixed funds, i.e. interest free as well as interest bearing funds. In the case of S.A.Builders Limited (supra), the relevant assessment years were Assessment Years 199091 and 199192, i.e. prior to the insertion of Rule 8D in the Income Tax Rules by the Income Tax (Fifth Amendment) Rules, 2008 w.e.f. 24th March 2008. It is also submitted that Section 14A has been inserted in the Income Tax Act by the Finance Act, 2001, with retrospective effect from 1st April 1962.
8. It is further submitted that after the insertion of Rule 8D, in all the cases of mixed Page 7 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined funds, i.e. interest free as well as interest bearing funds, the subsequent decision of the Supreme Court in the case of Maxopp Investment Limited (supra), more particularly para 42 regarding the case of M/s.Avon Cycles Limited, would be applicable for disallowance under Section 14A and such disallowance is required to be assessed as per the provisions of Rule 8D only. The decision of this Court in the case of Shreno Limited, which is based on the prior decision of the Supreme Court in the case of S.A.Builders Limited (supra) is, therefore, not applicable to the cases of mixed funds.
9. On the other hand, this Tax Appeal has been vehemently opposed by Mr.Manish Shah, the learned counsel appearing for the respondent - assessee. Mr.Shah submitted that the decision of the Supreme Court in the case of Maxopp Investment Limited (supra) should not be understood as clinching the issue with regard to the interpretation of Section 14A of the Act and Rule 8D of the Rules. He submitted that in the case of Maxopp Investment Limited (supra), the question before the Supreme Court was, whether the disallowance of expenditure under Section 14A of the Act would be applicable in a case where shares or stocks of a company were purchased for the purpose of gaining control over the said company and incidentally tax free dividend income was generated. He would submit that such an issue does not arise in the present case so as to make the dictum of Maxopp Investment Limited (supra) applicable to the case on hand. He submitted that Maxopp Page 8 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined Investment Limited (supra) should not be understood as laying down a proposition of law that the requirement of subrule (1) of Rule 8D of the satisfaction to be arrived at by the Assessing Officer before applying the formula given in subrule (2) of Rule 8D is done away. He submitted that the decision of the Supreme Court in Maxopp Investment Limited (supra) does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds, i.e. interest free as well as interest bearing funds, and utilized them for making investments into securities earning tax free income and the rest applicability of Section 14A read with Rule 8D would be automatic.
15. In Maxopp Investment Limited (supra), the Supreme Court has clarified that the satisfaction has to be recorded by the Assessing Officer to show that the voluntary disallowance of the expenditure made by the assessee on the expenditure incurred for earning exempt income is not in order. The Assessing Officer, in such circumstances, is obliged to assign reasons for he not being satisfied having regard to the accounts maintained by the assessee and the suo motu disallowance made by the assessee under Section14A of the Act. We may reproduce the relevant observations of the Supreme Court in this regard thus:
"Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, before applying the theory of apportionment, the Assessing Officer needs Page 9 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned the expenditure but the Assessing Officer did not accept the assessee's apportionment. In that eventuality, he will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares or making the investment in shares is to be examined by the Assessing Officer."
16. We also refer to and rely upon a decision of this Court in the case of Principal Commissioner of Income Tax v. Shreno Limited, reported in (2018)409 ITR 401 (Gujarat), more particularly paragraphs 16 and 17, which read thus :
"16. The primary question which the Supreme Court considered in case of Maxopp Investment Ltd., (Supra) was whether disallowance of expenditure under Section 14A of the Act would be applicable in a case where shares or stocks of a company were purchased for the purpose of gaining control over the said company and incidentally tax free dividend income was generated. The assessee had contended that the dominant intention for purchasing the shares was not for earning the dividend but to gain control over the business in the company in which the shares were purchased. The Supreme Court held that the purpose for which the shares were Page 10 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined purchased was inconsequential. As long as such investment generated tax free income, disallowance of expenditure for making such investment would be justified. This issue does not arise in the present case. However, it is true that while disposing of bunch of appeals by the said judgment the Supreme Court also considered the correctness of the view of the Punjab & Haryana High Court in case of Avon Cycles Ltd. It was the case in which the Assessing Officer had invoked Section 14A read with Rule 8D and apportion the expenditure between investments made for earning tax free income and the rest. The CIT (Appeals) had deleted the entire disallowance upon which in the appeal filed by the Revenue the Tribunal restored portion of the disallowance observing that the funds utilized by the assessee being mixed funds, the disallowance is confirmed in view of the provisions under Rule 8D(2) of the Rules. This decision of the Tribunal was challenged before the High Court. The Court held that the funds utilized by the assessee were mixed funds and the interest paid by the assessee is also an interest on the investments made, was the finding of fact and therefore, no substantial question of law arises. This judgment was carried in appeal by the assessee. The Supreme Court dismissed the appeal confirming the decision of the High Court.
17. We do not find that this portion of the judgment of the Supreme Court in case of Maxopp Investment Ltd., can be seen as fundamentally changing the understanding and interpretation of Section 14A and Rule 8D Page 11 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined of the Rules adopted by this Court and various Courts, noted above. This judgment does not lay down a proposition that the requirement of subrule (1) of Rule 8D of the satisfaction to be arrived by the Assessing Officer before applying the formula given in subrule (2) of Rule 8D is done away with. In other words, the judgment in case of Maxopp Investment Ltd., does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds i.e. interest free as well as interest bearing funds and utilized them for making investments into securities earning tax free income and the rest applicability of the Section 14A read with Rule 8D would be automatic. We are conscious that neither in M/s. Max India Ltd., Punjab & Haryana nor in Gujarat State Fertilizer and Chemicals case, this High Court had noticed the judgment of the Supreme Court in case of Maxopp Investment Ltd. Nevertheless in view of the discussion above, in our opinion the situation would not change on account of the said judgment of the Supreme Court."
17. This Court, in Shreno Limited (supra), has taken the view that Maxopp Investment Limited (supra) cannot be seen or understood to be fundamentally changing the understanding and interpretation of Section 14A and Rule 8D. It went on to hold that the judgment of the Supreme Court does not lay down the proposition that, the requirement of subrule (1) of Rule 8D of recording the satisfaction by the Assessing Officer before applying the formula given in subrule (2) of Rule 8D is done away with. It clarifies that the Page 12 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined judgment in the case of Maxopp Investment Limited does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds and utilized them for making investment into securities earning tax free income, Section 14A read with Rule 8D would be attracted automatically. The assessee has further relied on the judgment in the case of Principal Commissioner of Income Tax v. Gujarat State Financial Services Limited in the Tax Appeals Nos.1252, 1253 and 1255 of 2018 decided on 15th August 2018, which has followed the decision in the case of Shreno Limited (supra) dealing with the same issue and also an identical argument taken by the department.
18. The language of Section 14A of the Act is plain and clear. Before invoking Rule 8D, the Assessing Officer is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. To put it in other words, the condition precedent of recording the requisite satisfaction which is a safeguard provided in Section 14A should not be overlooked before going to Rule 8. In such circumstances we are not impressed by the submission canvassed on behalf of the Revenue that once there are mixed funds, Rule 8 would be attracted automatically.
18. We are of the view that the ITAT rightly relied on the decision of the Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd.
Page 13 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined [2009] 313 ITR 340/178 Taxman 135 (Bom.)."
4.2 Similarly, so far as question (C) is concerned, the coordinate bench has answered them as follows:
"21. The aforesaid second question is squarely covered by the decision of this Court in the case of Correctch Energy Pvt. Ltd. (supra). In our opinion, no error not to speak of any error of law could be said to have been committed by the ITAT in this regard."
4.3 So far as question (D) is concerned, the coordinate bench has answered them as follows:
"22. The third question proposed by the revenue is in context with the adjustment made on account of the disallowance under section14A in computing the book profit. In this context, the findings recorded by the ITAT are as follows:
17.Next common issue involved in both years is, whether the amount disallowed under section 14A read with rule 8D deserves to be added back in the book profit for the purpose of section 115JB. In other words, whether the additions which have been confirmed by the Tribunal at Rs.1.55 crores in the assessment year 201213 and Rs.75 lakhs in the assessment year 201314, deserves to be added back in the book profit computed for the purpose of section 115JB.Page 14 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023
NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined 17.1 The ld. counsel for the assessee at the very outset contended that this issue is covered in favour of the assessee by the judgment of Hon'ble Gujarat High Court in the case of CIT Vs. Alembic Ltd. in Tax Appeal No.1249 of 2014 as well as decision of Hon'ble Bombay High Court in the case of CIT Vs. Bengal Finance & Investment P. Ltd. in Tax Appeal No.337 of 2013. He placed on record copies both these decisions. Apart from the above, he placed upon reliance Special Bench decision of the ITAT in the case of CIT Vs. Vireet Investment P. Ltd. 165 ITD
27. On the other hand, ld. CITDR relied upon the order of DRP.
18. We have duly considered rival contentions and gone through the record carefully. We find that ld. DRP has relied upon the order of the ITAT, Mumbai in the case of DCIT Vs. Viraj Profiles Ltd., (2016) 46 ITR (Trib) 0626 (Mum) and held that addition required to be made in the book profit could be calculated as per Rule 8D of the Income Tax Rules. The ld. DRP thereafter made reference to decision of Hon'ble Delhi High Court in the case of CIT Vs. Geotze India Ltd., 361 ITR 505. According to the ld. DRP, this decision has been considered by the Special Bench in the case of Vireet Investment P. Ltd. (supra) but placed reliance upon Hon'ble Bombay High Court in the case of Vodafone India Services P. Ltd. ACIT, 361 ITR 0531 (Bom) and held that DRP is not bound by the ratio laid down by the Special Bench. The discussion made by the DRP on this issue in the assessment year 201314 reads as under:
Page 15 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined "10.3 In the case of Viraj Profiles Ltd.
[2015] 64 taxmann.com 52 (Mum Trib), the Hon'ble Bench has elaborately discussed the issue and held that the disallowance is liable to be calculated as per Rule 8 D of the Rules. After discussing the decisions which have also been relied on by the appellant, the Hon'ble Bench has concluded that;
"In view of our foregoing discussion, we find no infirmity with the orders of the AO and we hold that the AO has rightly disallowed the expenditure of Rs.73,07,018/ by invoking the provisions of Section 14a of the Act read with the Rule 8D of Income Tax Rules, 1962 for computing book profit u/s.115JB(2) of the Act read with clause (f) to Explanation 1 to clause 115JB(2) of the Act. We, therefore, set aside the orders of the CIT(A) and restore the orders of the AO. We order accordingly.
In the case of CIT (CentralII) Vs. Goetze (India) Limited, the Hon'ble Delhi High Court has in ITA No.1179/2010 vide order dated 09.12.2013, held that the disallowance u/s.14A is to be taken into consideration for the purposes of calculating book profits u/s.115JB. The relevant paras of the judgment are reproduced below.
Page 16 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined "36. By order dated 16th May, 2012, the following substantial questions of law were framed in the present appeals:
"(i) Whether the Income Tax Appellate Tribunal was right in holding that while computing book profit under Section 115JA (sic.
Section 115JB) of the Income Tax Act, 1961, no disallowance under Section 14A was required to be made?
Learned counsel for the respondentsassessee, during the course of hearing, has fairly conceded that the first question has to be answered in favour of the Revenue and against the assessee in view of specific provisions in the Explanation 1 below Section 115JB(2) clause (f).
The Assessing Officer it is stated had made an addition of Rs.88,292/ to the book profits towards expenditure incurred having nexus with dividend income, which were exempt under Section 10(33). Recording the said statement, the first question is answered in favour of the appellantRevenue and against the respondent assessee."
The assessee has relied upon the Page 17 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined judgment of ITAT special bench in the case of Vireet Investment Pvt. Ltd. In this regard, it is pertinent to mention that Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. Additional Commissioner of Income Tax & Ors. (2014) 264 CTR 0030 (Bom) :
(2013) 96 DTR 0193 (Bom) : (2014) 361 ITR 0531 (Bom) : (2014) 221 Taxman 0166 (Bom); has held that the proceedings before DRP are extension of assessment proceedings. Therefore, they are not bound by the decision of Tribunals unlike CIT(A) as long as the issue is not acceptable on merit and/or the issue is being contested by the department. In this case, the decision of Hon'ble Delhi High Court in the case of Goetze (India) Ltd cited above is also in favour to the department on this issue which also shows that the view of AO confirmed by the Panel is a plausible view.
19. There were contradictory orders at the end of the Tribunal. Therefore, Special Bench was constituted to consider the following question:
"Whether expenditure incurred to earn exempt income computed under section 14A could not be added while computing book profit under section 115JB of the Act."
20. When the Special Bench has considered this question, it was confronted with two decisions of the Page 18 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined Hon'ble Delhi High Court diagonally opposite to each other. One referred by the ld. DRP also in the present case, rendered in the case of CIR Vs. Goetze India Ltd. (Supra) and other in the case of Pr. CIT Vs. Bhushan Steel. ITAT, Special Bench has reproduced both these orders in Vireet Investment P. Ltd. (supra) and thereafter it considered as to which decision ought to be followed by a subordinate authority. The department advanced an argument that in the case of Bhushan Steel, Hon'ble Delhi High Court failed to consider subsequent decision of CIT Vs. Goetze India Ltd. (supra). However, the Tribunal after placing reliance upon the decision of Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd., 88 ITR 192 (SC) and other decisions has held that it is incumbent upon it follow the decision of Hon'ble Delhi High Court in the case of Bhushan Steel. In this case, Hon'ble Delhi High Court has held as under:
"However, Ld. Senior Counsel has relied on the decision in the case of Bhushan Steel Ltd. (supra) wherein it has been held as under:
"ITA 593/2015 PR. CIT .....Appellant Through: Mr. N.P. Sahni, Senior Standing Counsel with Mr. Nitin Gulati, Advocate Versus BHUSHAN STEEL LTD.
...Respondent Page 19 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined Through: Ms. Kavita Jha, Advocate with Ms. Roopali Gupta, Advocate.
ORDER 29.09.2015 ** ** ** ** **
7. Question No.6 concerns deletion of addition of Rs.89,00,000 made by the AO for computation of the income fore the purposes of Minimum Alternate Tax (MAT) under section 115JB of the Act. This pertained to the expenditure incurred for earning exempt income under section 14A read with Rule 8D. The ITAT has rightly held that this being in the nature of disallowance, and with Explanation 115JB not specifically mentioning Section 14A of the Act, the addition of Rs.89,00,000 was not justified. The view taken by the ITAT cannot be faulted with. It is consistent with the decision in Apollo Tyres Ltd. V. Commissioner of Income Tax 255 ITR 273 (SC) which held that "the Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to Section 115J." The Court declines to frame a question on the above Page 20 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined issue."
21. Apart from the above, we have a binding precedent before us - one from Hon'ble jurisdictional High Court and other from the Hon'ble Bombay High Court. The question considered by the Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra) is as under:
"Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that adjustment made on account of disallowance u/s.14A of the Act in computation of book profit u/s. 115JB of the Act is not as per law without appreciating that the amount disallwable under section 14A is covered under clause (f) of Explanation to section 115JB(2) and, thus, said amount has to be added back while computing amount of book profit?
22. The Hon'ble Gujarat High Court has replied this question as under:
7. So far as issue Nos.(iii) and (iv) are concerned, the learned counsel for the assessee has relied on the decision of this court in the case of Commissioner of IncometaxI v. Gujarat State Fertilizers & Chemicals Ltd., reported in (2013) 358 ITR 323 (Gujarat) Where this court has held in paragraph Nos.6 to 6.5 this court has observed as under:Page 21 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023
NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined
6. So far as the fourth question is concerned, it pertains to addition of Rs.1,14,43,040/ under Section 115JB of the Act being the expenditure estimated on earning of dividend income under Section 14A of the Act.
6.1 The Assessing Officer on referring to the said provision of Section 115JB(2) of the Act added the said amount considering that any amount of expenditure relatable to the income exempted under Section 10 of the Act shall need to be added in the profit shown in the 'Profit and Loss Account'.
When the matter travelled to the CIT (Appeals), since it deleted the addition of Rs.1,14,43,040/ while deciding the question No.1, it consequently deleted such addition under Section 115JB of the Act on the ground that this would not serve any purpose. The Tribunal decided the said issue as follows:
"94. We have considered the rival submissions and we find that similar issue was raised by Revenue as per ground No.3 above in respect of regular assessment of income and while deciding that ground, we have already upheld that disallowance of Rs.5 lakh in respect of administrative expenses will meet the ends of justice and no disallowance is called for in respect of interest expenditure. Hence, for the purpose of computing book profit u/s.115JB of the Act also, we hold accordingly and confirm the addition of Rs.5 lakh. This ground of Revenue's appeal is partly allowed."Page 22 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023
NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined As rightly held by both, the CIT (Appeals) and the Tribunal, this issue has a direct correlation with the first question. It was argued by the Revenue that while computing the book profit under Section 115JB of the Act, the disallowance of interest expenditure on exempt income was wrongly negatived by both the authorities on the ground that it was not the liability for expenses, but a liability relating to assets. We find no fault in the approach adopted by both the authorities. The addition under section 115JB of the Act of a sum of Rs.1,14,43,040/ when was made as an expenditure estimated on earning of dividend income under Section 14A of the Act, without reiterating the rationale of confirming deletion of such amount as has been elaborately done at the time of deciding question No.1, this deletion requires to be confirmed."
8. Taking into consideration the evidence on record and considering the decision of this court in the case of Commissioner of Income- taxI vs. Gujarat State Fertilizers & Chemicals Ltd. (supra), we are of the opinion that issue Nos.(iii) and (iv) required to be answered in favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of revenue is dismissed.
23. Similarly, Hon'ble Bombay High Court has formulated following question in the case of Bengal Finance & Investments P. Ltd. (supra) and replied as under:
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(b) Whether on the facts and in the circumstances of the case, and in law, the ITAT is justified in deleting the addition of Rs.78,84,387/ under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. Vs. CIT (2009) 32 SOT 101 (Del.), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case?"
......
4. So far as question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. Vs. DCIT in ITA No.3850/Mum/2010 to held that an amount disallowed under section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7 th August, 2014. In view of the above, question
(b) does not raise any substantial question of law.
24. Respectfully following the above decision, we hold that no addition in the book profit would be made on the basis of calculations worked out under section 14A of the Act. We allow this ground of appeal in both the years and delete the additions.
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23. We take notice of the fact that in context with the third proposed question, the ITAT placed reliance on the following decisions:
(1) CIT Vs. Alembic Ltd. (Tax Appeal No.1249/2014) (2) CITI Vs. Gujarat State Fertilizers & Chemicals Ltd. (2013) 358 ITR 323
24. The issue is squarely covered and in our opinion, no error could be said to have been committed by the ITAT in taking the view that no addition in the book profit can be made on the basis of the calculations worked out under section14A of the Act."
4.4 Question (E) is with regard to deduction under section80IA(4) of the Act and the same has been answered as below by the coordinate bench:
"25. The fourth question proposed by the revenue is with respect to the deduction under section- 80IA(4) of the Act at the rate on which the GEB supplied power to its customers ignoring the rate at which the power generating company supplied to the GEB. This issue is directly covered by the decision of this Court in the case of CIT Vs. Gujarat Alkalies and Chemicals Ltd.; 395 ITR 247. It is also covered by the decision of the Supreme Court in the case of M/s. Alembic Ltd. (Tax Appeal No.553 & 554 of 2017. It appears that Special Leave Petitions filed by the revenue are pending before the Supreme Court questioning the correctness of the view taken by this Court in the aforesaid two judgments. So far as the Gujarat Alkalies and Page 25 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined Chemicals Ltd, (supra) is concerned, it takes the view as under:
3. In both the tax appeals though slightly differently worded, the questions concerning the same assessee are identical and concern the issue of deduction under section 80IA of the Income Tax Act granted to the assessee by the Tribunal on captive power generation plant. The second question is with respect to recognising such claim on the basis of purchase price of power from GEB and substituting the rates of 2.47 per unit adopted by the Assessing Officer.
4. Since both the issues are covered by various judgments of this Court, we do not find it necessary to record facts at any length.
Division Bench of this Court by judgment dated 22.11.2011 in Tax Appeal No.2092/2010 in somewhat similar controversy observed as under:
3. With respect to Question [B], the issue pertains to sub Section (8) of Section 80IA of the Income Tax Act, 1961. The assessee had a CPP Unit generating electricity, which was supplying it to a general unit. The electricity generated is being supplied to other consumers also. The CPP unit charged Rs.5.40 ps. per unit from the general unit. The Assessing Officer applying subSection (8) of Section 80IA restricted the same to Rs.5.32 ps. per unit and, thereby, restricted the deductions claimed by the assessee under Section 80IA of the Act. This Page 26 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined restriction was primarily on the basis that the rate of Rs.5.40 ps. charged by Gujarat Electricity Board ( GEB for short) was inclusive of 8 paise per unit of electricity duty. This component of electricity duty the Assessing Officer discarded for the purposes of ascertaining market value of the electricity generated by the CPP Unit and supplied to its general unit.
4. CIT (Appeals) confirmed the view of the Assessing Officer on the same line of reasoning. The Tribunal, however, on further appeal by the assessee, reversed the orders passed by the Revenue authorities referring to and relying upon the decisions of other Tribunals. The Tribunal was of the opinion that the market value of the electricity supplied by the CPP Unit to the general unit would be the same being charged by GEB from the consumers.
5.Counsel for the Revenue contended that the component of 8 paise per unit was the electricity duty which GEB was not authorized to retain but had to pass on to the Government. In essence, GEB was only collecting 8 paise per unit as electricity duty for and on behalf of the Government. He submitted that the market value of the electricity should be reckoned on Rs.5.32 ps. per unit as was done by the Revenue authority.
6. Under subSection(8) of Section 80IA of the Act, if it is found that where any Page 27 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services.
It is in this context that the question of substituting the actual consideration by the market value comes into picture."
4.5 Similarly, in case of the last question (F), the coordinate bench has answered the same as below:
"26. The fifth question proposed by the revenue whether the income from the Carbon Credits is capital in nature. This issue is squarely covered by the following decisions:
(1) M/s. Alembic Ltd. Tax Appeal No.553 & 554 of 2017 (2) CIT Vs. My Home Power Ltd. [2014] 46 Taxmann.com 314 (3) Subhash Kabini Power Corporation Ltd. (KHC) [2016] 69 Taxmann.com 394
27. We quote the relevant observations made by Page 28 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023 NEUTRAL CITATION C/TAXAP/423/2023 ORDER DATED: 05/09/2023 undefined this Court in the Alembic Limited (supra) as under:
"6. The last surviving question pertains to the treatment that the assessee's income from trading of carbon credits should be given. The Tribunal held that receipts should be in the nature of capital receipts and therefore, would not invite tax. This issue has been examined by two High Courts. The Karnataka High Court in case of CIT v. Subhash Kabini Power Corporation Ltd. reported in (2016) 385 ITR 592 (Karn) and Andhra Pradesh High Court in case of Commissioner of Incometax v. My Home Power Limited reported in (2014) 365 ITR 82 (AP) have held that receipts of carbon credit are in nature of revenue receipts. Following the decision of said two High Courts, this question is also not considered."
5. Having considered the question of law and in light of the decision of the coordinate bench of this court which has been relied upon by the tribunal in the order under challenge, no substantial question of law arises for the consideration of this court. In view of the same, the appeal is dismissed.
(BIREN VAISHNAV, J) (BHARGAV D. KARIA, J) DIVYA Page 29 of 29 Downloaded on : Sat Sep 16 16:04:32 IST 2023