Commissioner Of Income Tax v. Order

Sharayu Khot. IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 356 OF 2015 Commissioner of Income Tax …Appellant Versus Grasim Industries Ltd…Respondent ---------- Mr. Suresh Kumar, a/w Ms. Samiksha Kanani, for the Appellant. Mr. J.D. Mistri, Senior Counsel, a/w Mr. Madhur Agrawal, i/byMr. Atul Jasani, for the Respondent. ---------- CORAM :M.S. SANKLECHA &RIYAZ I. CHAGLA, JJ. DATE : 9 January 2018 ORDER : 1.This Appeal under Section 260A of the Income TaxAct, 1961 (“the Act” for short) challenges the order dated 9June 2014 passed by the Income Tax Appellate Tribunal 1/6 2-2-ITXA-356-15.doc (“Tribunal” for short). This Appeal relates to the assessmentyear 2006-07. 2.The Revenue has urged the following questions oflaw for our consideration:- 1.Whether on the facts and circumstances of thecase and in law, the Tribunal was right in holdingcase and in law, the Tribunal was right in holding that Rule 8D of the Income Tax Rules (“the Rules” for short) is not applicable while applying theprovisions of Section 14A of the Act in respect ofprovisions of Section 14A of the Act in respect of the expenses relating to earning of exemptincome?income? 2.Whether on the facts and in the circumstances of the case and in law, the Tribunal was right indeleting the disallowance of interest of Rs.43,76,918/- when the investment had gone upsubstantially in the course of the year?deleting the disallowance of interest of Rs.43,76,918/- when the investment had gone upsubstantially in the course of the year? 2/6 2-2-ITXA-356-15.doc 3.Whether on the facts and in the circumstances of the case and in law, the Tribunal was right inrestricting the disallowane of indirect expense torestricting the disallowane of indirect expense to 2% of exempt income when decision relating to huge investments involve the top managementand not a fews employees only? 3. Re. Question 1:- (a) It is an undisputed position before us that this Court in Godrej And Boyce Mfg.Co.Ltd. Vs. Deputy Commissioner ofIncome-Tax & Anr.[1] has held that Rule 8D of the Rules is notretrospective and would have no application in respect ofassessments prior to assessment year 2008-09. The assessmentyear in this Appeal is assessment year 2006-07. Thus Rule 8D ofthe Rules would have no application. Consequently, no fault canbe found with the impugned order dated 9 June 2014 of theTribunal on the above account. 1 [2010]328 ITR 81 (Bom.) 3/6 2-2-ITXA-356-15.doc (b)In view of the fact that the issue stands concluded bythe decision of this Court in Godrej And Boyce Mfg.Co.Ltd.(supra). Question No. 1 herein does not give rise to anysubstantial question of law. Thus, not entertained. 4. Re. Question 2:- (a)The impugned order of the Tribunal allowed theRespondent-Assessee's Appeal before it by deleting thedisallowance of interest expenditure aggregating Rs. 43.76Lakhs under Section 14A of the Act. This on a finding of factthat the Respondent-Assessee was possessed of its own interestfree funds sufficient to cover the investments made which gaverise to exempted income. This Court in CIT Vs. HDFC BankLtd.[2] has held in the context of Section 14A of the Act where theauthorities have found on facts that the Assessee's own funds(including non-interest bearing funds) are more than theinvestments which give rise to exempted income, it is to bepresumed that the investment have been made with the interest 2[2014] 366 ITR 505 (Bom.) 4/6 2-2-ITXA-356-15.doc free funds. Consequently, there can be no occasion to disallowinterest expenditure incurred by the Respondent. (b)Question No. 2 does not give rise to any substantialquestion of law, as it stands concluded in the decision of thisCourt in CIT Vs. HDFC Bank Ltd. (supra). Therefore, notentertained. 5. Re. Question 3:- 2[2014] 366 ITR 505 (Bom.) 4/6 2-2-ITXA-356-15.doc free funds. Consequently, there can be no occasion to disallowinterest expenditure incurred by the Respondent. (b)Question No. 2 does not give rise to any substantialquestion of law, as it stands concluded in the decision of thisCourt in CIT Vs. HDFC Bank Ltd. (supra). Therefore, notentertained. 5. Re. Question 3:- (a)The impugned order dated 9 June 2014 of theTribunal deleted the disallowance of Rs. 1.83 Lakhs on accountof indirect expenses made under Section 14A of the Act onapplication of Rule 8D of the Rules by the Assessing Officer andCIT(A). This for the reason that Rule 8D of the Rules is notapplicable for assessment year 2006-07, as held by this Court inGodrej And Boyce Mfg.Co.Ltd. (supra). Therefore, for theassessment year 2006-07 disallowance under Section 14A has tobe determined on a reasonable basis on account of indirect 5/6 2-2-ITXA-356-15.doc expenses incurred in earning exempt income under Section 14Aof the Act. (b)Thus, for the subject assessment year 2006-07 theTribunal in accordance with the decision of this Court in GodrejAnd Boyce Mfg.Co.Ltd. (supra) deleted the disallowance underSection 14A of the Act on a reasonable basis i.e. at two percentof exempted income. The Revenue is unable to show as to whythe two percent disallowance of the exempted income is not areasonable disallowance made on account of indirect expensesincurred to earn exempt income. (c)In above view, question 3 also does not give rise toany substantial question of law. Thus, not entertained. 6. Accordingly, Appeal dismissed. No order as to costs. [RIYAZ I. CHAGLA J.] [M.S. SANKLECHA, J.] 6/6