M/s. Arvind Limited, Ahmedabad V. The DCIT, Circle-1(1)(1), Ahmedabad

CO 11/AHD/2021

AI Insights

The case involves the Deputy Commissioner of Income Tax (DCIT) appealing against the order of the Commissioner of Income Tax (Appeals) which had deleted the disallowance made under Section 14A read with Rule 8D of the Income Tax Act, 1961, while computing the book profit under Section 115JB for the Assessment Year 2016-17. The primary contention was whether the disallowances made under Section 14A should be included in the computation of book profit under Section 115JB. The Tribunal examined the arguments, relevant legal provisions, and precedents before concluding that such disallowances should not be included in the book profit calculation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 114151 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-05-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 07-03-2021
• Other Referred Cases: PCIT Vs. Sintex Industries Ltd., PCIT Vs. GMM PFAULDER Ltd., PCIT Vs. Alembic Limited, CIT Vs. Suzlon Energy Ltd., ACIT Vs. Vireet Investment Pvt. Ltd., Maxopp Investment Limited Vs. CIT, Joint Investments Pvt. Ltd. v/s. Commissioner of Income Tax, PCIT VS Caraf Builders & Constructions (P.) Ltd, Torrent Cable Ltd Vs. ACIT, Adani Agro Limited Vs. ACIT, Vishal Export Overseas Ltd Vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest; Question of law; Rule 8D; Set aside
• Section: 12; 10; 11; 143(3); 14A; 115JB; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Shri Annapurna Gupta, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The DCIT, Circle-1(1)(1), Ahmedabad Vs M/s. Arvind Limited Naroda Road, Ahmedabad PAN: AABCA2398D M/s. Arvind Limited Naroda Road, Ahmedabad PAN: AABCA2398D (Appellant) Vs The DCIT, Circle-1(1)(1), Ahmedabad (Respondent) Assessee Represented: Shri Vartik Choksi, A.R. & Shri Biren Shah, A.R. Revenue Represented: Shri Sudhendu Das, CIT-DR Date of hearing : 03-05-2023 Date of pronouncement : 31-05-2023 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the Revenue as against the appellate order dated 09.07.2020 passed by the Commissioner of Income Tax(Appeals)-1, Ahmedabad, arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter ITA No. 473/Ahd/2020 & C.O. No. 11/Ahd/2021 Assessment Year 2016-17 I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 2 referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2016- 17. The Cross Objection is filed by the Assessee as against the above Revenue appeal. 2. The brief facts of the case is that the assessee is a company engaged in the business of Textiles and Shares. For the Assessment Year 2016-17, the assessee filed its Return of Income on 30.11.2017. Thereafter a revised Return of Income was filed on 29.03.2018 declaring total income of Rs. 302,91,27,610/- and book profit u/s. 115JB of Rs. 450,21,46582/-. 2.1. During the year under consideration, the assessee earned exempted dividend income of Rs. 1,21,28,448/- and assessee suo moto disallowed a sum of Rs. 28,78,876/- under section 14A of the Act. The return was taken up for scrutiny assessment, after calling for various details the Assessing Officer made disallowance u/s. 14A applying Rule 8D as follows: I Expenditure incurred as claimed by assessee (A) Amount of expenditure by way of interest debited in the P & L A/c. 2266605891 Opening Value Closing Value (B) Average investment on which tax free income is received or receivable 8370400000 10482400000 9426400000 (C ) Average value of total assets as appearing in the Balance Sheet 66524200000 70830400000 68677300000/ II (A)X(B)/(C) 31,11,06,199 III 0.5% of the average value of investment on which tax free income is received or receivable 4,71,32,000 TOTAL = I + II + III 358238199 Already disallowed by the assessee 2878876 I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 3 Net Disallowance 35,53,59,323 3. Aggrieved against the same, the assessee filed an appeal before Ld. Commissioner of Income Tax (Appeals) and submitted that the assessing officer having failed to record his satisfaction in respect of suo moto disallowance made by the assessee, hence adoption of Rule 8D in making disallowance is bad and violation of the provisions of law. No disallowance u/s. 14A r.w.r. 8D(ii) can be made, when there are sufficient interest free funds available to cover investment made by the assessee and relied upon Jurisdictional High Court judgment in the case of PCIT Vs. Sintex Industries Ltd. [2017] 82 taxmann.com 171 (Guj.), PCIT Vs. GMM PFAULDER Ltd. [Tax Appeal No. 506 of 2017], PCIT Vs. Alembic Limited [Tax Appeal Nos. 553 & 554 of 2017]. 3.1. The assessee contended that investment resulting to taxable income should be excluded and only the investment yielding exempt income shall be subject matter of disallowance u/s. 14A of the Act. The assessee company has total investment of Rs. 1048.24 crores as follows: Particulars Amount as on 31.03.2016 Amount as on 31.03.2015 7 year NSC 0.0059 0.0059 Investment in LLP 93.14 67.79 Investment in foreign Subsidiary 34.05 22.92 Investment in Joint Venture 78.19 55.98 Other Investments 14.93 9.93 Investment in subsidiaries other than foreign subsidiary 827.92 680.42 Total Investments 1048.24 837.04 Less: Provision for diminution in value 1.98 1.98 Total investment as per Balance Sheet 1046.26 835.06 I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 4 3.2. Thus the assessee submitted that investment in NSC and Foreign Subsidiary yield taxable income and can never generate exempt income, hence the same should be excluded from the total investment for the purpose of computing disallowance u/s. 14A of the Act. In this connection, the assessee relied upon Jurisdictional High Court judgment in the case of CIT Vs. Suzlon Energy Ltd. [2013] 33 taxmann.com 151 and Special Bench Delhi Tribunal decision in the case of ACIT Vs. Vireet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (Delhi – Trib.) Thus the assessee submitted the investments appearing in annual accounts which earned exempt income as follows: Particulars Balance as on 31.03.2016 Balance as on 31.03.2015 Total investments considered by AO 10,48,22,86,312 8,37,04,79,627 Investments from which exempt income is earned during F.Y.2015-16 Arya Omnitalk Radio Talking 6,00,50,000 6,00,50,000 Atul Limited 9,00,49,084 9,66,49,684 Amol Dicalite Ltd 5,77,500 5,77,500 Total 15,06,76,584 15,06,76,584 Average Value of Investments 15,06,76,584 3.3. Thus the assessee submitted the working u/s. 14A read with Rule 8D as follows: Particulars Considering Net Interest Expenditure as per Para 2.4 (as per the order of CIT(A) for AY2015-16 A Interest Expenses directly relating to exempt income under rule 8D(2)(i) 0 B Proportionate disallowance of interest expenses under rule 8D(2)(iii): (I II/III) 0 (I) Interest Expenses as discussed in Para 2.4 supra 3,91,63,787 Interest Income as per Para 2.5 59,65,68,413 Net Interest Expenditure 0 (II) Average value of investments actually earning exempt income 15,06,76,584 I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 5 as per para 2.7 a. Opening balance (as on 31.03.2015) 15,06,76,584 b. Closing Balance (as on 31.03.2016) 15,06,76,584 (III) Average value of Total Assets 68,67,73,00,000 a. Opening balance (as on 31.03.2015) 66,52,42,00,000 b. Closing Balance (as on 31.03.2016) 70,83,04,00,000 C 0.5% of Average value of investment under rule 8D(2)(ii) (0.5%) of II) 7,53,383 D Less: Suo Moto Disallowance 28,78,876 Total Disallowance u/s. 14A r.w.r. 8D of the Act (A+b+C) 0 3.4. The assessee claimed applying the working as per Rule 8D(2)(ii), the disallowance to be made in this cases as Rs.7,53,383/- only. However the assessee already made suo moto disallowance of Rs. 28,78,876/- which is more than the disallowance to be made under Rule 8D. Therefore requested not to make any further disallowance. 3.5. The assessee further submitted merely because of any disallowance made u/s. 14A, it cannot suo moto result into an addition while computing book profit u/s. 115JB of the Act. It is settled position of law that if the Balance Sheet and Profit and Loss Account have been prepared in accordance with Parts-II and III of Schedule-VI of the Companies Act, 1956, no adjustments can be made by the Ld. A.O. while computing Book Profit, except which may be permissible under the Explanation of section 115JB of the Act. As per Explanation 1 of section 115JB only those expenditure which are specifically relatable to income to which section 10 or section 11 or section 12 are applicable to be disallowed. No notional disallowance could have been made for the purpose of section 14A. Only those I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 6 direct expenditure which are relatable to earning of income u/s. 10 could have been adjusted. Thus the A.O. was not justified in making this adjustment. Further similar addition made by the A.O. was deleted in assessee’s own case by Ld. CIT(A) for the Assessment Year 2014-15. In support of the same, the assessee relied upon the Special Bench Judgment of ITAT in the case of ACIT Vs. Vireet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (SB). 4. The Ld. CIT(A) considered the above arguments in detail and confined the disallowance made u/s. 14A restricting the same to the extent of dividend income earned by the assessee after taking into account, the suo moto disallowance of Rs. 28,78,876/- made by the A.O. Thus the Ld. CIT(A) confirmed the disallowance u/s. 14A to Rs. 92,49,972/- by observing as follows: “....(ii) So far as disallowance of proportionate interest expenditure under Rule 8D(2)(ii), it is observed that AO has computed such disallowance based upon interest expenditure of Rs 222.66 crores. As held in preceding years, interest paid on borrowed funds for specific purpose cannot be considered for the purpose of disallowance u/s 14A of the Act. As per decisions referred in funds for specific purpose cannot be considered for the appellate order of earlier years, it is observed that interest expenditure in respect of general borrowing can only be considered for such disallowance The break up of such expenditure is as under: Particulars Amount (in Rs.) Interest on inter corporate deposits 2,86,86,446 Other interest 1,04,77,341 Total 3,91,63,787 It is observed that as against interest expenditure of Rs 3,91 crores, appellant has earned taxable interest income of Rs 59. 5 crores As held by Hon'ble Jurisdictional High Court in case of Nirma Credit & Capital (P.) Ltd. [2017] 85 taxmann.com 72 assessment years. as well as appellate order of earlier it is held that only net interest expenditure can be considered for making disallowance u/s 14A r.w.r 8D(ii) of the Act. In the present case, appellant has earned net interest income hence proportionate disallowance of interest expenditure under Rule 8D(2)(ii) is not justified, Further on perusal of balance Sheet, it is observed that the Appellant was having sufficient interest free funds to cover the investment and accordingly no I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 7 proportionate disallowance of interest expenditure is justified. Thus the case of the Appellant is squarely covered by the decision of Hon'ble Gujarat High Court in case of PCIT Vs. Sintex Industries Ltd [2017] 82 taxmann.com 171 (Gujarat). SLP filed by Department against the above decision is dismissed by Supreme Court on 23/03/2018. Thus considering the entirety of facts proportionate disallowance of interest expenditure of Rs.31,11,06,199/- u/s 14A r.w.r 8D(ii) of the Act is hereby deleted. (iii) So far as disallowance of administrative expenditure under Rule 8D(2)(iii) of the Act for Rs 4,71,32,000/-, it is observed that appellant has earned exempt income of Rs.1,21,28,448/-. It is observed that in appellant's own case for A.Y 2014-15 in Appeal No: CIT(A)-1/DCIT Circle - 1(1)(1)/423/2016- 17 vide order dated 27/02/2018 and A.Y 2013-14 in Appeal No : CIT(A)- 1/DCIT Circle 1(1)(1)/137/2016-17 dated 22/11/2017, my predecessor CIT(A) restricted the disallowance u/s 14A r.w.r 8D (iii) of the Act to the exempt dividend income. In A.Y 2015-16 the facts of the case before my predecessor CIT(A) were on different footing as the exempt income was more than the disallowance made under rule 8D(ii) and accordingly the same was restricted to 0.5% of Average Investment (other than the investment which yields taxable income). On Consideration of facts for the year under consideration the disallowance u/s 14A is restricted to the exempt dividend income earned during the year under consideration. Reliance is also placed on following decisions: (i) Hon'ble Supreme Court in the case of Maxopp Investment Limited [2018] 91 taxmann.com 154. (ii) Hon'ble Ahmedabad ITAT in case of Adani Port and Special Economic Zones in ITA No. 3481 and 3482/Ahd/2014 dated 12/02/2019. (iii) Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. v/s. Commissioner of Income Tax 372 ITR 694 (iv) Hon'ble Supreme court in the case of PCIT VS Caraf Builders & Constructions (P.) Ltd [2019] 112 taxmann.com 322 Thus following the decisions rendered by Hon'ble Supreme Court and Jurisdictional High Court which are binding in case of Appellant, the disallowance of administrative expenditure under the provisions of section 14A r.w.r 8D is restricted to exempt income of Rs.1,21,28,448/-. Further it is observed that the Appellant has while filing Return of Income made disallowance of Rs.28,78,876/- and accordingly disallowance u/s 14A is restricted to Rs.92,49,972/-. Thus, related grounds of appeal are partly allowed. I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 8 4.1. Similarly, on the addition of Rs. 35,53,59,323/- made u/s. 14A r.w. Rule 8D while computing the Book Profit u/s. 115JB of the Act, the Ld. CIT(A) deleted the same observing as follows: “.... During the course of Appellate Proceedings the Appellant argued that merely because disallowance is made u/s 14A rw.r 8D while assessing income as per normal provisions of the Act does not resulting to suo moto addition of such amount while computing Book Profit u/s 115.JB of the Act. It is observed that my predecessor CIT(A) has while passing Appellate order for A.Y 2015-16 vide order dated 29/08/2018 in Appeal No: CIT(A)- 1/DCIT/Circle- 1(1)(1)/10379/2017-18 has deleted disallowance made u/s 14A to the Book Profit u/s 115JB of the Act by following Appellate order in Appellant's own case in AY 2014-15 and 2013-14 as well as decision of Hon'ble Ahmedabad ITAT in case of Torrent Cable Ltd Vs. ACIT vide ITA No. 8178/Ahd/2011 dated 02/01/2017 and Adani Agro Limited in ITA No: 182/Ahd/2012 and Hon'ble Delhi Special bench in case of Vireet Investment Pvt Ltd 82 taxmann.com 415. While passing Appellate Order in A.Y 2015-16 my predecessor CIT(A) has observed as under: "The Assessing Officer has also made disallowance under Section 14A while computing book profit under Section 115JB of the Act. It is observed that the undersigned has relied on the decisions of Hon'ble Ahmedabad IT AT in case of Adani Agro Ltd Vs ACIT (ITA No 182/Ahd/2012) on 31. 03. 2017 and Torrent Cable Ltd Vs ACIT (ITA No 3178/Ahd/2011) and Hon'ble Delhi Special Bench in the Vireet Investment Limited 82 taxmann.com 415 while passing Appellate Order for A. Y. 2013-14 and 2014-15. It is pertinent to note that similar issue has been decided in favour of Appellant by Hon'ble Ahmedabad ITAT in the case of Appellant in AY 2006-07 in ITA No. 1816/Ahd./2011 and ITA 1904/Ahd/2011 vide order dated 8th March, 2018 as under. 6 We notice that issue is evolved and developed by certain judicial precedents. We find at the first instance that the identical issue came up for consideration before take Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra) where the substantial question of law on the point as to whether adjustment made on account of disallowance under section 14A of the can be similarly made for the purposes of computation of 'book profit under s.115JB of the Act was answered against the Revenue and in favour of the Assessee. We also take note of decision of the Special Bench rendered in ACIT vs. Vireet Investment Pvt. Ltd. & Anr. 165 ITD 27 (Delhi) [SB] where it was held that the AO was net entitled to tinker with book profits contemplated under s.115JB towards disallowance made under s 14A of the Act. We similarly find that judgment of Ho'ble Bombay High Court in CIT vs. Bengal Finance and Investments Pvt. Ltd. in ITA No 337 of 2013 order dated 10/02/2015 also complements the issue. Thus, seen on the anvil of the judicial flat available squarely on the issue, we are I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 9 disposed to assign merits to the contention on behalf of the Assessee. At this juncture, we pause to note the concern of revenue seeking to plead possible redundancy of clause (1) to Explanation to s 115JB, in the event of disagreement with the action of Assessing Officer. We are alive to such concerns. However, as noted, we are governed by the superior wisdom available in this regard. Hence, remedy to revenue, if any, perhaps lies elsewhere. Accordingly, respectfully following the decisions us governing the filed we direct the AO to delete the adjustments made on account of estimated disallowance determined under 14A of the Act while computing book profit u/s 115JB of the Act 7. In the result, appeal of the Assessee is allowed by the same token, the appeal of the Revenue integrated to same point requires to be decided in negative and against the Revenue. Respectfully following the said observation, the disallowance u/s 14A of the Act made while computing book profit u/s 115JB of the Act is deleted. Thus, this ground of appeal is partly allowed." Thus following the observation of my predecessor CIT(A) in A.Y 2015- 16 vide Appeal No: CIT(A) 1/DCIT/Circle - 1(1)(1)/10379/2017-18 dated 29/08/2018 and decisions of Jurisdictional ITAT in case of Adani Agro Ltd Vs ACIT (ITA No 182/Ahd/2012) on 31/03/2017 and Torrent Cable Ltd Vs ACIT (ITA No 3178/Ahd/2011), disallowance of Rs. 35,53,59,323/- made u/s 14A while calculating Book Profit u/s 115JB of the Act is deleted. Thus this ground of appeal of the Appeal is allowed. 5. Aggrieved against the Appellate Order, the Revenue is in appeal before us raising the following Grounds of Appeal: (1) The Id. CIT(A) has erred in law and on the facts in deleting the disallowance of interest expenditure of Rs.31.11.06.199 u/s. 14A r.w.r. 8D2(ii) of the Act. (2) The Id. CIT(A) has erred in deleting the section 14A disallowance under Rule 8D(2)(iii) to the extent of Rs.3,50,03,552/-. (3) The Id. CIT(A) has erred in law and facts in deleting the adjustment of Rs.35,53,59,.323/- u/s. 14A r.w.r 8D while computing book profit u/s. 115JB of the Act. (4) It is therefore, prayed that the order of Id. CIT(A) may be set aside and that of the Assessing Officer be restored. 6. Heard both parties extensively and perused the materials available on record carefully including the Paper Book and case laws filed by I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 10 the assessee. Regarding Ground no. 1 of the Revenue, disallowance of interest expenditure of Rs. 31,11,06,199/- u/s. 14A r.w. Rule 8D(2)(ii) of the Act. The Ld. Counsel for the Assessee Mr. Vartik Chokshi submitted that there were sufficient interest free funds of Rs. 3014.48 crores available as on 31.03.2016 with the assessee, which was utilized for making investment of Rs. 1048.23 crores and there are no borrowings utilized for making investments/earning of such exempt income. The Ld. Counsel submitted that the assessee had earned cash profit of Rs. 465.45 crores during the year and the new investment of Rs. 213.37 crores were made by the assessee from huge interest free funds available in the form of cash profit. Thus the interest expenditure incurred on borrowings were for specific business purpose and no disallowance of proportionate interest expenditure is justified. The Ld. Counsel further submitted that the interest on general borrowings was Rs. 3.91 crores as against which interest income earned by the assessee of Rs. 59.65 crores and accordingly no disallowance of interest expenditure is justified, as interest income earned during the year is more than interest paid on general borrowings. Thus the Ld. Counsel submitted this issue is squarely covered by the decision of the Jurisdictional High Court in the case of Sintex Energy Ltd. against which SLP filed by the Revenue also dismissed by Hon’ble Supreme Court on 23.03.2018. Therefore the deletion made by Ld. CIT(A) does not require any interference and the ground no. 1 raised by the Revenue is liable to be dismissed. 6.1. Per contra, the Ld. CIT-DR Shri Sudhendu Das appearing for the Revenue could not place any contrary facts or case laws before I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 11 us. In the absence of the same, we have no hesitation in confirming the order passed by the Ld. CIT(A) who deleted the addition of interest expenditure of Rs.31,11,06,199/- under Rule 8D(2)(ii) of the Act, thus the ground no. 1 filed by the Revenue is devoid of merits and the same is hereby dismissed. 7. Regarding ground no. 2, Administrative expenses under Rule 8D (2)(iii) of Rs. 3,50,03,552/-. The Ld. CIT(A) restricted this disallowance to the extent of exempt income earned by the assessee during the year, after taking into account suo-moto disallowance made by the assessee of Rs. 28,78,876/-. Thus Ld CIT[A] upheld the disallowance to the extent of Rs. 92,49,972/-. The Ld. Counsel for the assessee submitted the investments yielding exempt income shall only be subject matter of disallowance u/s. 14A and the investments resulting in taxable income should be excluded from computation of u/s. 14A. Thus the total investment made by the assessee during the year namely investments in NSC and Foreign subsidiary yield taxable income, therefore there is no exempt income, so the same are to be excluded as held by the Special Bench of the Delhi Tribunal in the case of Vireet Investment Pvt. Ltd. In doing so the disallowance is to be made under Rule 8D(2) (iii) will be Rs.7,53,383/- whereas the assessee already made disallowance of Rs.28,78,876/- which is more than the disallowance as per Rule 8D(2)(iii), therefore no further disallowance is required to be made. However the Ld. CIT(A) restricting the disallowance to the extent of dividend income received by the assessee is also against the provisions of section 14A r.w. Rule 8D of the Rules. I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 12 7.1. Per contra, the Ld. CIT-DR submitted that the relief granted by the Ld. CIT(A) is liable to be modified and the disallowance made by the A.O. is to be restored. 8. We have given our thoughtful consideration and perused the material available on record. Both the authorities below have not given finding as to whether the 0.5% of average investment is of those investments wherefrom the assessee has earned exempt income. In our considered view, as per the provision of Rule 8D, it is only the average of the value of the investments from which the income has been earned, which is not falling within the part of total income that is to be considered. Thus, it is not the total investments at the beginning of the year and at the end of year which is to be considered, but it is the average of the value of the investments which has given rise to the exempt income, which does not form part of total income is to be considered for computation of Rule 8D. 8.1. The Special Bench of the Delhi Tribunal in ACIT vs. Vireet Investment Pvt. Ltd. reported in [2017] 82 taxmann.com 415 (Delhi – Trib.) held as follows: “.....Only those investments are to be considered for computing average value of investment which yielded exempt income during the year. [Para 11.16] As far as argument relating to meaning to be ascribed to the phrase 'shall not' used in rule 8D(2)(iii) is concerned, the revenue's contention is that it refers to those investments which did not yield any exempt income during the year but if income would have been yielded, it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the computation of average value of investments for the purposes of rule 8D(2)(iii). The assessee's contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and cannot be accepted [Para 11.17] I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 13 In view of the above discussion, the matter is restored back to the file of Assessing officer for recomputing the disallowance under section 14A in terms of above observations. Thus, revenue's appeal is dismissed and assessee's cross-objection, on the issue in question, stand allowed for statistical purposes.” 8.2. The Hon’ble Gujarat High Court in the case of CIT vs. Suzlon Energy Ltd. reported in [2013] 33 taxmann.com 151 (Guj.) held as follows: "II. Section 14A of the Income-tax Act, 1961 Expenditure incurred in relation to income not includible in total income [Dividends] - Whether where investment was made by assessee in foreign subsidiaries, disallowance of interest expenditure under section 14A was not justified since dividend income from foreign subsidiaries, is taxable in India - Held, yes - Whether where assessee had own interest free funds many times over the investment made in Indian subsidiaries and further, there was no direct nexus between interest bearing borrowed funds and such investment, no disallowance of interest expenditure could be made under section 14A - Held, yes [Para 3.1] [In favour of assessee]" 8.3. Respectfully following the above Rulings, we are of the considered view the disallowance made under Rule 8D(2)(iii) at 0.5% of the average value of investments made by the assessee, which earned only exempt income is liable to be disallowed u/s. 14A after excluding the investments which earned taxable income. Thus the disallowance to be made under Rule 8D(2)(iii) works out to Rs.7,53,382/- only, however the assessee already disallowed a sum of Rs.28,78,876/-, therefore no further disallowance is to be made on this account. Thus the ground no.2 raised by the Revenue is devoid of merits and the same is hereby dismissed. 9. Regarding No. 3 disallowance u/s. 14A read with Rule 8D while computing book profit under section 115JB of the Act. The Ld. CIT(A) deleted the same following the decision of the Special Bench in the case of Vireet Investment Pvt. Ltd. and Ahmedabad ITAT I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 14 decision in the case of Torrent Cable Ltd. and Adani Agro Ltd. It is a well settled principle that the amounts disallowed under Section 14A r.w.r. 8D cannot be added to net profit while computing books profits under Section 115JB of the Act. Recently, the Supreme Court of India in the case of Atria Power Corporation Ltd. [2022] 142 taxmann.com 413 (SC) dismissed the SLP filed by the Department against High Court’s ruling that disallowance made under section 14A could not be added in assessee-company's income for purpose of computation of income under section 115JB of the Act. Further the Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. [2022] 139 taxmann.com 375 (Karnataka) held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd [2022] 143 taxmann.com 305 (Ahmedabad-Trib.) held that disallow ances made under section 14A read with rule 8D could not be applied to provision of section 115JB of the Act. In view of the settled position of law on this issue, we are hereby dismissing Department's appeal with respect to Ground No.3.” 10. In the result, the appeal filed by the Revenue is hereby dismissed. C.O. No. 11/Ahd/2021 for A.Y. 2016-17 11. The Assessee in the Cross Objection raised the following Grounds: 1. In law and in the facts and circumstances of the appellant's case, the Ld. CIT(A) has grossly erred in restricting the disallowance of 14A r.w.r. 8D of the Act to the extent of Rs.92,49,972/- instead of ordering the deletion of the entire disallowance made by the Assessing Officer. I.T.A No. 473/Ahd/2020 and C.O. No. 11/Ahd/2021 A.Y. 2016-17 Page No DCIT vs. M/s. Arvind Ltd. 15 2. In law and in the facts and circumstances of the appellant's case, the appellant is entitled for deduction of education cess and higher education cess paid while computing income from business and profession in view of the CBDT CIRCULAR F. No. 91/58/66-ITJ(19) DT 18th May, 1967, Hon'ble ITAT may direct for allowing deduction for education cess and higher education cess as allowable expenditure in view of binding CBDT circular and in view of decision of Hon’ble Rajasthan HC in the case of Income Tax Appeal No. 52/2018 Pr. Commissioner Of Income Tax Vs. M/s. Chambal Fertilizers And Chemicals Ltd. 3. The appellant craves leave to add, alter or amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal. 11.1 The Ld. Counsel for the assessee is not pressed ground no. 2 in the C.O. 11.2. Regarding ground no. 1, the same is answered by us in favour of the assessee in ITA No. 473/Ahd/2020 vide paragraphs 6 to 9 of this order. Thus the ground no.1 raised by the assessee is hereby allowed. 12. In the result, the C.O. filed by the Assessee is allowed. Order pronounced in the open court on 31-05-2023 Sd/- Sd/- (ANNAPURNA GUPTA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 31/05/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद