Gujarat High Court
Gujarat State Fertilizers And ... vs Deputy Commissioner Of Income Tax, ... on 20 February, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/60/2024 ORDER DATED: 20/02/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 60 of 2024
With
R/TAX APPEAL NO. 82 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 578 of 2024
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GUJARAT STATE FERTILIZERS AND CHEMICALS LTD.
Versus
DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1)(1)
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Appearance:
MR MANISH J SHAH(1320) for the Appellant(s) No. 1
KARAN G SANGHANI(7945) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 20/02/2024
COMMON ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Tax Appeal No.60 of 2024 is filed by the
assessee under Section 260A of the Income Tax
Act, 1961 (for short 'the Act') arising out of
the order dated 24th March, 2023 passed by the
Income Tax Appellate Tribunal, Ahmedabad "A"
Bench, Ahmedabad (for short 'the Tribunal') in
ITA No.547/Ahd/2016 for Assessment Year 2011-12
raising the following proposed questions of law.
(i) Whether on the facts and
circumstances of the case, the
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Tribunal has materially erred in
remanding the matter back to the
Assessing Officer in respect of
disallowance to be made u/s.14A of
the Income Tax Act, 1961?
(ii) Whether on the facts and in
circumstances of the case, the
Tribunal erred in not following the
judgment of this Hon'ble Court and
the order of coordinate bench of
the Tribunal of preceding
assessment year i.e. Asst. Year
2010-11 rendered on identical
facts, while deciding the appeal
for Asst. Year 2011-12?
1.1 Tax Appeal No.82 of 2024 is filed by the
assessee under Section 260A of the Act arising
out of the order dated 24th March, 2023 passed by
the Tribunal in ITA No.624/Ahd/2016 for
Assessment Year 2011-12 raising the following
proposed questions of law.
(i) Whether on the facts and
circumstances of the case, the
Tribunal has materially erred in
remanding the matter back to the
Assessing Officer in respect of
disallowance to be made u/s.14A of
the Income Tax Act, 1961?
(ii) Whether on the facts and in
circumstances of the case, the
Tribunal erred in not following the
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judgment of this Hon'ble Court and
the order of coordinate bench of
the Tribunal of preceding
assessment year i.e. Asst. Year
2010-11 rendered on identical
facts, while deciding the appeal
for Asst. Year 2011-12?
1.2 Special Civil Application No.578 of 2024
is filed against the order passed by the Tribunal
in Miscellaneous Application Nos.55 to
57/Ahd/2023 dated 23rd August, 2023, whereby the
Miscellaneous Applications filed by the assessee
are dismissed arising out of the common order
dated 24th March, 2023 passed in ITA
No.547/And/2016, ITA No.624/Ahd/2016 with Cross
Objection No.58/Ahd/2016 in ITA No.247/Ahd/2016.
2. The facts in brief are as under.
2.1 For Assessment Year 2011-12 the assessee
filed return of income on 28th September, 2011
declaring total income of Rs.890,01,99,410/-.
During the course of regular assessment under
Section 143(3) of the Act, the Assessing Officer
while passing the assessment order dated 20th
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January, 2014 disallowed the interest expenses of
Rs.01,82,91,360/- and administrative expenses of
Rs.02,12,49,050/- invoking the provisions of
Section 14A by making total addition of
Rs.03,95,40,410/-.
2.2 Being aggrieved, the assessee preferred
appeal before the Commissioner of Income Tax
(Appeals) (for short 'CIT(A)') who disposed of
the appeal by order dated 31st December, 2015 to
partly allow the appeal of the assessee and
deleted the disallowance made in respect of the
interest expenses of Rs.01,82,91,360/- and
confirmed the disallowance on administrative
expenses of Rs.02,12,49,050/-, with a direction
that for the purpose of arriving at average value
of investment under Rule 8D of the Income Tax
Rules, 1962 (for short 'the Rules'), investment
made in TIFERT and National Savings Certificate
to be excluded.
2.3 Being aggrieved by the order of the
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CIT(A), Revenue preferred appeal being ITA
No.547/Ahd/2016 and the assessee preferred appeal
being ITA No.624/Ahd/2016 on various grounds of
appeal. Ground No.2 of the assessee appeal and
Ground No.1 of the Department's appeal were in
respect of partly deleting addition under Section
14A of the Act CIT(A).
3. The Tribunal, after considering the
submissions made by both the sides, passed common
order dealing with the issue of disallowance of
administrative expenses under Section 14A of the
Act, holding as under.
"7. The Ld. AR submitted that Ground no. 2
is related to disallowance of administrative
expenditure amounting to Rs.2,12,49,050/- to
arrive at average total asset for computing
disallowance as per formula prescribed by Rule
8D on the opening and closing of gross block of
fixed assets should be considered. The Ld. AR
further submitted that current liabilities and
provisions should not be reduced from the
opening and closing stock of current assets.
Ld. AR further submitted that if issue of
disallowance in respect of Section 14A of the
Income Tax Act, 1961 is held in Department's
favour the same should be considered. Ld. AR
further submitted that the assessee has huge
fund of its own and, therefore, the mechanical
application under Rule 8D was not proper and
justifiable.
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8. The Ld. DR submitted that the CIT(A) in
respect of invoking of Rule 8D related to
administrative expenses has applied 0.5%. The
Ld. DR relied upon the Assessment Order. The
Ld. DR submitted that the department has
challenged this issue in ITA No. 547/Ahd/2016
filed by the Revenue. The Ld. DR submitted that
it was upto the assessee to adduce evidence
that all the borrowing were used for the
purpose of the business and it is the
assessee's own surplus funds that were invested
in the shares earning exempt income.
9. We have heard both the parties and
perused all the relevant material available on
record. It is pertinent to note that there was
element of administrative expenses and CIT(A)
has taken cognisance of the same and directed
the Assessing Officer to take 0.5% thereby
invoking the said rule. But the submissions
made by the Ld. AR that current liabilities and
provisions should not be reduced from the
opening and closing stock of current assets
should have been taken into account by the
Assessing Officer. Therefore, we direct the
Assessing Officer to look into the said aspect
and verify the same to the extent of the
contentions of the revenue that the borrowings
were used for the purpose of the business as
well as the investment was from assessee's own
fund for earning exempt income. Thus, we remand
back this issue to the file of the Assessing
Officer for proper verification and the
adjudication and decide the same as per law.
Needless to say, the assessee be given
opportunity of hearing by following principles
of natural justice. Ground no.2 of the
assessee's appeal is partly allowed for
statistical purpose."
3.1 From the above, it appears that the
Tribunal has only relied upon the submissions
made by the authorised representative of the
assessee that current liabilities and provisions
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should not be reduced from the opening and
closing stock of the current assets and have been
taken into consideration by the Assessing
Officer. Accordingly, the Tribunal remanded the
matter back to the Assessing Officer for proper
verification and adjudication and decide the same
as per the law.
4. Learned advocate Mr.Manish J. Shah for
the appellant-petitioner submitted that the
petitioner had placed on record the orders of the
Tribunal for the previous Assessment Years being
2009-10 and 2010-11, wherein the Tribunal, in
similar facts of disallowance under Section 14A,
made addition of lump sum amount. It was also
pointed out before the Tribunal that the order of
the Tribunal was confirmed by this Court in Tax
Appeal No.2096 of 2010 and Tax Appeal No.868 of
2010.
4.1 Reliance was also placed on the decision
of the Bombay High Court in case of Reliance
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Utilities & Power Ltd. [(2009) 313 ITR 340
(Bom)]. As the Tribunal did not consider such
decisions and contentions of the assessee, the
assessee preferred Miscellaneous Applications in
both the Appeals as well as Cross Objections
being Miscellaneous Application Nos.55 to 57/Ahd/
2023. The Tribunal, however, by order dated 23rd
August, 2023 dismissed the Miscellaneous
Applications holding as under.
"4. We have heard both the parties and
perused all the relevant material
available 4. on record. The contention
of the assessee/Ld. AR that the
Assessing Officer has to confirm the
disallowance of administrative expenses
under Section 14A to the tune of Rs.
15,00,000/- and dismiss the appeal of
the Revenue thereby contending that in
earlier Assessment Year i.e. A.Y. 2010-
11 the Hon'ble High Court has deleted
the disallowance made by the Assessing
Officer under Section 14A thereby
observing that in a case where assessee
was having sufficient funds available
with it, more than amount invested for
earning the dividend, the disallowance
ain respect of interest expenditure
under Section 14A of the Act read with
Rule 8D of the Rules is not permissible.
From the perusal of paragraph no.9 of
the order dated 24.03.2023 the
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contentions of the Ld. AR that no
satisfaction was recorded has been taken
into account and after taking cognisance
of the same, the Tribunal has come to
the conclusion that the Assessing
Officer has looked into the aspect of
element of administrative expenses and
directed the Assessing Officer to take
0.5% thereby Invoking the said Rule i.e.
Rule 8D. The contentions of the Ld. AR
that current liabilities and provisions
should not be reduced from the opening
and closing stock of current assets
should have been taken into account by
the Assessing Officer. As an impact,
simplicitor directing the Assessing
Officer to confirm the disallowance and
administrative expenses under Section
14A to the tune of Rs.15 lakhs will not
be appropriate in the present Assessment
Year and, therefore, the Revenue's
appeal has been partly allowed for
statistical purpose with direction to
the Assessing Officer to take all the
element into account as well as
administrative expenses which has been
incurred by the assessee should be taken
into account while allowing the same in
the actual amount of administrative
expenses and not on the superficial
basis. At the time of hearing, the Ld.
AR relied upon the decision of Hon'ble
Apex Court in case of ACIT vs.
Saurashtra Kutch Stock Exchange Limited
[2008] 173 Taxman 322 (SC), but in the
present case the same it will not be
applicable as the earlier decisions of
Hon'ble High Court in Assessee's own
case has been considered and each
assessment year has to be looked
independently on factual aspects
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especially expenses and interest earned.
Therefore, there is no need to interfere
with the order dated 24.03.2023 and
there is no need to rectify the same."
4.2 The petitioner, therefore, preferred
Special Civil Application No.578 of 2024 with a
prayer to quash and set aside order dated 23rd
August, 2023 and to allow the Miscellaneous
Applications preferred by the petitioner by
directing the respondents to allow lump sum
disallowance so far as administrative expenses
are concerned and to confirm the deletion of
interest expenses as per the order of CIT(A).
4.3 Learned advocate Mr.Shah for the
petitioner-assessee submitted that a detailed
chart was placed on record during the course of
hearing of appeals before the Tribunal, however
the Tribunal did not consider the direct decision
of the coordinate Bench in assessee's own case
for the previous Assessment Year and also did not
consider the decision of this Court in assessee's
own case in previous Assessment Year dismissing
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the appeal of the Revenue on disallowance of
interest expenditure under Section 14A of the Act
and confirming action of restricting the
disallowance of administrative expenses to the
extent of Rs.10.00 lakhs and Rs.15.00 lakhs for
the Assessment Year 2009-10 and 2010-11. It was,
therefore, submitted that non-consideration of
the direct decision of the coordinate Bench of
the Tribunal as well as decision of this Court
was nothing but a mistake apparent on the record,
which requires to be rectified under Section
254(2) of the Act. It was also pointed out by
learned advocate for the petitioner that the
Tribunal did not dispose of Ground No.2 of the
assessee's appeal and Ground No.1 of the
Department's appeal and only Cross Objections of
the assessee was dismissed by remanding the
matter back to the Assessing Officer. It was,
therefore, submitted that both the Tax Appeals as
well as Special Civil Application are required to
be allowed by remanding the matter back to the
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Tribunal for de novo hearing on merits of the
matter.
5. On the other hand, learned senior
standing counsel Mr.Karan Sanghani appearing for
the Revenue submitted that the Tribunal has
rightly dismissed the Miscellaneous Applications
as there is no mistake apparent on the record as
the Tribunal has remanded the matter back to the
Assessing Officer as per the submissions made by
the authorised representative of the assessee to
the effect that current liabilities and
provisions should not be reduced from the opening
and closing stock of the current assets and the
same ought to have been taken into consideration
by the Assessing Officer to take 0.5% as per Rule
8D of the Rules and the Tribunal has taken into
consideration its submissions, has remanded the
matter back to the Assessing Officer for proper
verification and decide the same as per law. It
was also submitted that the Tribunal has
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accordingly decided the ground No.2 of the
assessee's appeal and Ground No.1 of the
Department's appeal along with Cross Objections
filed by the assessee and partly allowed the
appeals of the Revenue for statistical purpose
and there is no mistake apparent on the record as
rightly held by the Tribunal.
6. Having heard learned advocates for the
respective parties and considering the facts, it
is not in dispute nor it is controverted by
learned senior standing counsel for the
respondent that For the Assessment Years 2009-10
and 2010-11 the coordinate Bench of the Tribunal
has allowed the interest expenditure on the
assessee and also restricted the disallowance on
administrative expenses upto Rs.10.00 lakhs and
Rs.15.00 lakhs for the respective Assessment Year
for making disallowance under Section 14A of the
Act and such orders passed by the coordinate
Bench of the Tribunal are confirmed by this Court
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while dismissing the Tax Appeals of the Revenue
being Tax Appeal Nos.900-902 of 2018 and Tax
Appeal No.99 of 2019.
6.1 Admittedly, the Tribunal has not
considered such decisions and only referred to
and relied upon the submissions made by the
authorised representative of the assessee to
decide the issue for disallowance under Section
14A of the Act. In such circumstances, the
impugned order of the Tribunal so far as it
relates to Ground No.1 of the Department's appeal
and Ground No.2 of the assessee's appeal as well
as Ground No.2 of the Cross Objections is
required to be set aside and matter is required
to be remanded to the Tribunal to decide such
grounds afresh de novo.
7. The matter is accordingly remanded qua
only these grounds before the Tribunal to be
decided afresh. Special Civil Application as well
as both the Tax Appeals are accordingly disposed
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of.
8. It is clarified that we have not gone
into the merits of the matter and the Tribunal
shall hear the matter vis-a-vis disallowance
under Section 14A de novo after giving
opportunity to both the sides.
(BHARGAV D. KARIA, J)
(NIRAL R. MEHTA,J)
ANUP
