Gujarat High Court
Commissioner Of Income Tax - I vs Gujarat State Fertilizer & Chemicals ... on 18 February, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/18/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 18 of 2014
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COMMISSIONER OF INCOME TAX - I....Appellant(s)
Versus
GUJARAT STATE FERTILIZER & CHEMICALS LTD....Opponent(s)
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Appearance:
MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1
MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 18/02/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Leave to amend in terms of the draft amendment.
2. Revenue has challenged the judgment of the Income Tax Appellate Tribunal dated 21.6.2013 raising following questions for our consideration:-
"[1] Whether on the facts and circumstances of the case and law, the Hon'ble ITAT was justified in reducing the disallowance of interest made by the Assessing Officer under section 14A r.w.s. 36(1)(iii) of the Act even though the Hon'ble ITAT had itself upheld the said disallowance in principle?
[2] Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was justified in reducing the disallowance of Page 1 of 5 O/TAXAP/18/2014 ORDER interest made by the Assessing Officer under section 14A r.w.s. 36(1)(ii) of the Act, without appreciating that the assessee had failed to furnish evidence to substantiate the allowability of the entire interest expenditure in terms of provisions of section 36(1)(ii) of the Act?
[3.1] Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in upholding the decision of CIT(A) that deduction u/s. 80IA(4) is allowable to the assessee, without appreciating the fact that the deduction u/s.80IA(4) is not allowable to the assessee for generation of power for captive consumption?
[3.2] Without prejudice to the Revenue's stand that allowance of deduction u/s.80IA(4) by the CIT(A) ought not to have been upheld by the ITAT, whether on the facts and the circumstances of the case and in law, the ITAT was justified in allowing assessee's claim of deduction of Rs.49.78 crores u/s.80IA(4) of the Act, without appreciating the fact that the profits of eligible business of power generation plant have been inflated by the assessee by adopting excessive sale rate of Rs.5.42 per unit for power supplied to its own units for captive consumption as against the market rate of Rs.2.11 per unit at which power was supplied to the Gujarat Electricity Board, thereby debiting excessive expenditure of Rs.33.35 crores in its non 80IA Unit?"
3. In so far as Question [1] is concerned, the same pertains to disallowance under section 14A of the Income Tax Act, 1961 for the expenditure incurred in earning tax free income. Assessing Officer disallowed interest paid by the assessee on borrowing on the Page 2 of 5 O/TAXAP/18/2014 ORDER ground that such borrowing was invested for earning tax free income. CIT(Appeals) as well as Tribunal, however, deleted such addition on the ground that the assessee had sufficient tax free funds, many a times over the investment made in such funds earning tax free income. Relying on earlier orders in case of this very assessee, the Tribunal dealt with the issue in following manner:-
"18.... We have considered rival submissions and because of this fact that interest free own funds is many times more than tax free investment and in view of this fact that the A.O. could not establish any direct nexus between the interest bearing borrowed funds and tax free investment, no disallowance is justified out of interest free expenditure. Tribunal order in A.Y.2004-05 and 2005-06 is also on similar lines and under similar facts. In those two years, the Tribunal has confirmed the disallowance of 5 lacs in each year u/s.14A in respect of other expenses. Since no difference in facts could be pointed out by Ld.D.R. of the revenue, in the present year also, we confirm the disallowance of Rs.5 lacs u/s. 14A in respect of other expenses and decline to interfere in the order of Ld.CIT(A) on this issue regarding deletion of balance expenditure. This ground of revenue is partly allowed."
4. Counsel for the Revenue brought to our notice the decision of the Division Bench of this Court in the case of Commissioner of Income-tax vs. Gujarat State Fertilizers and Chemicals Ltd. reported in [2013]358 Page 3 of 5 O/TAXAP/18/2014 ORDER ITR 323(Guj) in which under similar circumstances, the Court dismissed the Revenue's appeal against this very assessee. This question is, therefore, not considered.
5. Regarding Question [2], we notice that the Tribunal upheld the view of CIT(Appeals) that the expenditure of Rs.38.12 lakhs was on account of revenue expenditure. The Tribunal made following observations:-
"22. From the above Para, we find that clear finding is given by Ld.CIT(A) that these expenses pertained to water proofing, overhauling and renovation expenses. This finding of Ld.CIT(A) could not be controverted by Ld.D.R of the revenue and hence, we find no infirmity in the order of Ld.CIT(A) on this issue. We, therefore, decline to interfere in the order of Ld. CIT(A) on this issue. This ground is rejected."
Looking to the evidence on record and the findings of CIT(Appeals) as well as the Tribunal, we see no error. This question is, therefore, not required to be considered.
6. Both the sides agree that the question of deduction under section 80IA(4) of the Act towards electricity generated and used for captive consumption by the assessee is being considered by the High Court. Page 4 of 5
O/TAXAP/18/2014 ORDER Under the circumstances, Tax Appeal is admitted for consideration of following substantial questions of law:-
"[3.1] Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in upholding the decision of CIT(A) that deduction u/s. 80IA(4) is allowable to the assessee for generation of power for captive consumption?
[3.2] Without prejudice to the Revenue's stand that allowance of deduction u/s.80IA(4) by the CIT(A) ought not to have been upheld by the ITAT, whether on the facts and the circumstances of the case and in law, the ITAT was justified in allowing assessee's claim of deduction of Rs.49.78 crores u/s.80IA(4) of the Act, since the assessee had adopted rate of such power of Rs.5.42 per unit for captive consumption as against the market rate of Rs.2.11 per unit being supplied by the Gujarat Electricity Board to is consumers?"
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) SUDHIR Page 5 of 5