The Principal Commissioner Of Income Tax, Vadodara 1 v. Gujarat Industries Power Company Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 349 of 2022 ========================================================== THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA 1 Versus GUJARAT INDUSTRIES POWER COMPANY LTD. ========================================================== Appearance: MR.VARUN K.PATEL(3802) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 01/08/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. This appeal is preferred under section 260A of the Income TaxAct, 1961 [for short ‘the Act, 1961’] by the revenue feelingaggrieved by the order dated 28.02.2022 passed by the IncomeTax Appellate Tribunal, “D” Bench, Ahmedabad [for short‘the Tribunal’] in C.O. No. 117/Ahd/2009 for A.Y. 2006-07. 2. The Tribunal passed a common order dated 28.02.2022 forA.Ys. 2003-04, 2006-07, 2007-08 and 2008-09 in case of theassessee-Gujarat Industries Power Company Limited in appeals and cross-objections filed before it. So far as present appeal is concerned, the following substantial questions of laware proposed: “(a)Whether on the facts and in thecircumstances of the case and in law, the Hon’bleITAT is justified in deleting the addition of Rs.6,53,607/- being 10% of the exempt income of Rs.65,36,070/- made by the Assessing Officer as per theprovisions of Section 14A of the I.T.Act, ignoring thefact that the assessee has failed to prove that noexpenditure has been incurred to earn the exemptincome disclosed during the year under consideration? (b)Whether on the facts and in the circumstances ofthe case and in law, the Hon’ble ITAT is justified indeleting the addition of Rs. 3,13,108/- made on accountof disallowance of claim of depreciation on ManagingDirector’s residence, without appreciating the fact that asper the Income Tax Rules the buildings which are usedmainly for residential purpose except hotels and boardinghouses are eligible for depreciation @ 5% whereas theassessee has claimed depreciation @ 10% on theManaging Director’s residence?” 3. The issue pertains to disallowance under section 14A of the Act, 1961. The assessee disclosed the tax free income of Rs. 65,36,070/- for assessment year 2006-07 comprising of dividend income and interest on tax free bond. However, there was no administrative expenses incurred since the tax free income was essentially passive income requiring no effort onthe part of the assessee. The assessee also did not make aninvestment during the year in the assets yielding the tax freeincome. However, the Assessing Officer made ad-hocdisallowance of 10% on the exempt income under section 14Aof the Act, 1961 amounting to Rs. 6,53,607/-. 4. The assessee being aggrieved by the additions made by theAssessing Officer preferred appeal before the CIT (Appeals).The CIT(Appeals), however, dismissed the appeal directingthe Assessing Officer to adopt Rule 8D of the Income TaxRules, 1962 [for short ‘the Rules, 1962’].Assessing Officer preferred appeal before the CIT (Appeals).The CIT(Appeals), however, dismissed the appeal directingthe Assessing Officer to adopt Rule 8D of the Income TaxRules, 1962 [for short ‘the Rules, 1962’]. 5. The Revenue therefore preferred appeal before the Tribunalbeing I.T.A. No. 1534/Ahd/2009 challenging the direction ofthe CIT (Appeals) to adopt Rule 8D of the Rules, 1962. TheassesseethereforepreferredCrossObjectionNo. 117/AHD/2009 contending that since the assessment yearbeing I.T.A. No. 1534/Ahd/2009 challenging the direction ofthe CIT (Appeals) to adopt Rule 8D of the Rules, 1962. TheassesseethereforepreferredCrossObjectionNo. 117/AHD/2009 contending that since the assessment year 5. The Revenue therefore preferred appeal before the Tribunalbeing I.T.A. No. 1534/Ahd/2009 challenging the direction ofthe CIT (Appeals) to adopt Rule 8D of the Rules, 1962. TheassesseethereforepreferredCrossObjectionNo. 117/AHD/2009 contending that since the assessment yearbeing I.T.A. No. 1534/Ahd/2009 challenging the direction ofthe CIT (Appeals) to adopt Rule 8D of the Rules, 1962. TheassesseethereforepreferredCrossObjectionNo. 117/AHD/2009 contending that since the assessment year 2006-07 is prior to the introduction of Rule 8D and in absenceof any administrative expenses and there was no borrowedfunds for such investment, disallowance under section 14Awas unwarranted. 6. The Tribunal allowed the cross-objection filed by the assesseeby deleting the addition under section 14A of the Act,1961 asper the decision of the Hon’ble Supreme Court in case ofMaxopp Investment Limited vs. Commissioner of IncomeTax reported in [2018] 91 Taxman.com 154 (SC) wherein itis held that Rule 8D is prospective in nature and could nothave been made applicable in respect of the assessment yearprior to 2007 as the said rule was inserted w.e.f. March 24,2008 vide Income Tax (Fifth Amendment) Rules, 2008.by deleting the addition under section 14A of the Act,1961 asper the decision of the Hon’ble Supreme Court in case ofMaxopp Investment Limited vs. Commissioner of IncomeTax reported in [2018] 91 Taxman.com 154 (SC) wherein itis held that Rule 8D is prospective in nature and could nothave been made applicable in respect of the assessment yearprior to 2007 as the said rule was inserted w.e.f. March 24,2008 vide Income Tax (Fifth Amendment) Rules, 2008. 7. The Tribunal has also relied upon the decision of this Court incase of Commissioner of Income Tax-4 vs. SintexIndustries Ltd reported in [2017] 82 taxman.com 171(Gujarat) wherein also it is held by this Court that thecase of Commissioner of Income Tax-4 vs. SintexIndustries Ltd reported in [2017] 82 taxman.com 171(Gujarat) wherein also it is held by this Court that the expenditure incurred in relation to income not includible intotal income i.e. administrative expenses and where theassessee already had its own surplus funds against whichminor investment was made, there was no question of makingany disallowance of expenditure in respect of interest andadministrative expenses under section 14A of the Act, 1961. 8. The Tribunal also referred to the decision in case of Principal Commissioner of Income Tax vs. India Gelatine &Chemicals Ltd reported in [2015] 376 ITR 553 (Guj) whereinit is observed that when the assessee had sufficient interest-free funds out of which concerned investment had been made,disallowance under section 14A is not justified. Accordingly,the Tribunal considering the facts of the case arrived at afinding that the direction given by the CIT (Appeals) to applyRule 8D is not proper and there being the surplus fundsinvested by the assessee, no interest and administrativeexpenses can be disallowed under section 14A of the Act, 1961. The Tribunal accordingly deleted the addition made by the Assessing Officer under section 14A of the Act, 1961. 9. In view of the decisions of this Court in case of Sintex Industries Ltd (supra) and India Gelatine & Chemicals Ltd(supra)there is no illegal infirmity in the impugned orderpassed by the Tribunal while deleting the dis-allowance undersection 14A of the Act, 1961. We are therefore of the opinionthat no question of law much less any substantial question oflaw proposed or otherwise arises from the impugned order ofthe Tribunal. The Appeal accordingly stands dismissed. (N.V.ANJARIA, J) JYOTI V. JANI (BHARGAV D. KARIA, J)