Gujarat State Financial Services Ltd., Ahmedabad V. The Dy.CIT.,Circle-2(1)(1), Ahmedabad

ITA 708/AHD/2016

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 8252 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 22-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Source of fund
• Section: 14A

Judgement Text

, CH CHCH CH IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD L LL LK KK KOZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;K F;D LNL; OZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;KF ;D LNL; OZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;KF ;D LNL; OZJH OLHE VGEN] YS[KK LNL; ,OA EK/KQFERK JKW;] U;KF ;D LNL; DS LE{KA DS LE{KA DS LE{KA DS LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ./ I.T.A. NO.708/AHD/2016 ( / ASSESSMENT YEAR : 2012-13) GUJARAT STATE FINANCIAL SERVICES LTD., WING B, 3 RD FLOOR, KHANJI BHAVAN, 132 FT RING ROAD, NEAR UNIVERSITY GROUND, VASTRAPUR, AHMEDABAD-380 052. / VS. DCIT, CIRCLE-2(1)(1) NAVJIVAN BUILDING, AHMEDABAD-380 014. ./ ./ PAN/GIR NO. : AAACG 5581 B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SANJAY R. SHAH, A.R. / RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. / DATE OF HEARING 18/07/2018 !'# / DATE OF PRONOUNCEMENT 03/10/2018 $% / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-7, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-7 /299/15-16 DATED 09.12.2015 ARISING IN THE MATTER OF ASSESSMENT ORDE R PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 04.12.2014 RELEVANT TO ASSESSMENT YEAR (AY) 2012-13. ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 2 - 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE A RE AS UNDER:- YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-7, AHMEDABAD, (HEREINAFTER REFERRED TO 'LEARNED CIT(A)'), PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJ UDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE LEARNED CIT(A) IS ERRONEOUS AND CONTRARY TO THE PROVISIONS OF LAW & FACTS OF THE CA SE AND THEREFORE NEEDS TO BE SUITABLY MODIFIED. IT IS SUBM ITTED THAT IT BE SO HELD NOW. 2. THE LEARNED C1T(A) ERRED IN LAW AND ON FACTS IN UPH OLDING THE ACTION OF THE A.O. IN APPLYING RULE 8D OF THE INCOM E TAX RULES, 1962 AND THEREBY CONFIRMING ADDITIONAL DISALLOWANCE OF RS. 65,26,522/- UNDER SECTION 14A OF THE ACT. IN THE FA CTS & CIRCUMSTANCES OF THE CASE IT IS SUBMITTED THAT NO D ISALLOWANCE U/S 14A IS REQUIRED TO BE MADE. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.1 THE LEARNED CIT(A) ERRED IN LAW IN CONFIRMING THE COMPUTATION OF DISALLOWANCE OF INTEREST OF RS. 61,50,642/- AND INDIRECT ADMINISTRATIVE EXPENDITURE OF RS.3,75,880/-' BY THE A.O. AS PER THE METHOD PRESCRIBED IN RULE 8D R.W.S. 14A(2) OF T HE ACT DESPITE THE FACT THAT THE A.O. HAD NOT RECORDED ANY SATISFA CTION AS REQUIRED BY SECTION 14A OF THE ACT, REGARDING CORRE CTNESS OF DISALLOWANCE WORKED BY THE APPELLANT IN THE RETURN OF INCOME. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.2 THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE A.O. HAS RECORDED SATISFACTION BY DISCUSSING THE ST ATUTORY AND LEGAL POSITION IN RESPECT OF THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. IT IS SUBMITTED THAT MERE DISCUSSING TH E STATUTORY AND LEGAL POSITION AND STATING THAT THE DISALLOWANCE CO MPUTED BY THE APPELLANT DOES NOT GIVE CORRECT PICTURE OF THE CLAI M OF EXPENSES INCURRED DOES NOT AMOUNT TO RECORDING OF SATISFACTI ON BY THE A.O. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.3 THE LEARNED CIT(A) ERRED IN LAW IN UPHOLDING THE ACTION OF THE A.O. BY APPLYING RULE 8D OF RULES READ WITH SECTION 14A OF THE ACT FOR COMPUTING DISALLOWANCE OF PROPORTIONATE INT EREST OF RS.61,50,642/- EVEN WHEN: I. THERE IS NO NET INTEREST OUT GO AND ON THE CONT RARY' THERE IS NET RECEIPT OF INTEREST INCOME. II. WITHOUT ESTABLISHING NEXUS BETWEEN THE BORROWE D FUNDS AND INVESTMENT IN EXEMPT INCOME EARNING SECURITIES COUP LED WITH THE ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 3 - FACT THAT APPELLANT HAD SUFFICIENT OWN FUNDS FOR MA KING SUCH INVESTMENT. III. WITHOUT APPRECIATING THE FACT THAT THE INTERE ST EXPENDITURE WAS INCURRED BY THE APPELLANT FOR THE BUSINESS OF FINAN CING CARRIED ON BY THE APPELLANT IN ACCORDANCE WITH THE MANDATE PRO VIDED BY THE GOVERNMENT OF GUJARAT, INCOME FROM WHICH WAS TAXABL E. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.4 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CI T(A) ERRED IN CONFIRMING THE ACTION OF THE A.O. DISALLOWING EXPEN DITURE UNDER SECTION 14A OF THE ACT WITHOUT CONSIDERING THE FACT THAT THE INVESTMENT MADE BY THE APPELLANT COMPANY IN ITS SUB SIDIARY COMPANY SHOULD BE EXCLUDED WHILE COMPUTING THE AMOU NT OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OW ING TO THE FACT THAT SUCH INVESTMENT HAS BEEN MADE ON ACCOUNT OF STRATEGIC CONSIDERATIONS AND BUSINESS EXPEDIENCY AND NOT FOR PURPOSE OF EARNING EXEMPT INCOME. IT IS SUBMITTED THAT IT BE S O HELD NOW. 2.5 THE A.O. ERRED IN MAKING SEPARATE DISALLOWANC E OF RS.2,19,585/- (BEING AMOUNT SUO-MOTO DISALLOWED BY THE APPELLANT) IN HIS COMPUTATION OF DISALLOWANCE UNDER SECTION 14A OF TH E ACT READ WITH RULE 8D OF THE RULES AND NOT-GRANTING SET-OFF OF THE SAME AGAINST THE DISALLOWANCE OF RS.3,75,880/- WORKED OU T BY HIM TOWARDS OTHER EXPENSES UNDER RULE 8D OF THE RULES. THE LEARNED CIT(A) ERRED IN CONFIRMING THE SAME. IT IS SUBMITTE D THAT IT BE SO HELD NOW. 2.6 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN NOT RESTRICTING THE AMOUNT OF DISALLOWANCE UNDER SECTIO N 14A OF THE ACT READ WITH RULE 8D OF THE RULES TO THE EXTENT OF THE EXEMPT INCOME AMOUNTING TO RS.42,23,519/- AS CLAIMED IN TH E RETURN OFINCOME.LT IS SUBMITTED THAT IT BE SO HELD NOW. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 4 - 3. THE GRIEVANCE OF THE ASSESSEE IN GROUND NO. 2 IS THAT LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A R.W.R. 8D FOR RS. 65,26,522/- ONLY. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF PROVIDING FINANCIAL ASSI STANCE TO THE ENTERPRISES OF GUJARAT GOVERNMENT. THE ASSESSEE IS ALSO REGISTERED AS NBFC WITH RBI. THE ASSESSEE DURING THE YEAR HAS EAR NED DIVIDEND INCOME OF RS. 42,23,519/- WHICH WAS CLAIMED AS EXEM PTED U/S 10(34)/10(35) OF THE ACT. THE ASSESSEE IN RESPECT O F SUCH INCOME HAS MADE DISALLOWANCE OF RS. 2,19,585/- ONLY. HOWEVER, THE AO WAS OF THE VIEW THAT THE DISALLOWANCE NEEDS TO BE MADE AS PER THE PROVISIONS OF SECTION 14A R.W.R. 8D OF INCOME TAX RULE 1963. ACCO RDINGLY, A SHOW- CAUSE NOTICE WAS ISSUED TO THE ASSESSEE FOR MAKING THE DISALLOWANCE AS PER THE PROVISION UNDER SECTION 14A R.W.R. 8D OF TH E INCOME TAX RULE. THE ASSESSEE IN COMPLIANCE THERETO INTER ALIA SUBMITTED THAT ITS OWN FUND EXCEEDS THE AMOUNT OF INVESTMENT. THEREFORE NO DISA LLOWANCE ON ACCOUNT OF INTEREST EXPENSES CAN BE MADE IN VIEW OF THE JUD GMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ANJANI SYNTHETICS LTD. IN TAX APPEAL NO.2096 OF 2010. THE ASSESSEE ALSO RELIED ON THE JU DGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF LUBI SUBMERSIBLES LTD. IN TAX APPEAL NO.868 OF 2010. SIMILARLY, THE ASSESSEE ALSO RELIED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD. REPORTED IN 313 ITR 340. ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 5 - 4.1 THE ASSESSEE IN SUPPORT OF HIS CONTENTION ALSO FURNISHED THE DETAIL OF ITS OWN CAPITAL VIS--VIS INVESTMENT MADE IN TAX FREE SECURITIES. THE NECESSARY DETAILS OF THE OWN FUND AND THE INVESTMEN T STANDS AS UNDER: PARTICULARS RS. (IN CRORES) SHARE CAPITAL AND FREE RESERVES 418.35 PROVISION AGAINST STANDARD ASSETS 16.50 TOTAL FUNDS AVAILABLE FOR MAKING INVESTMENT IN TAX FREE SECURITIES 434.85 3. FURTHER THE DETAILS OF INVESTMENT IN TAX FREE IN COME YIELDING SECURITIES AS ON 31/03/2012 ARE SUMMARIZED HEREUNDE R: PARTICULARS RS (IN CRORES) IN FULLY PAID EQUITY SHARES 1.63 IN SUBSIDIARY COMPANY 5.00 UNITS OF UTI BALANCED FUND 0.83 TOTAL INVESTMENT 7.46 4.2 THE ASSESSEE ABOUT THE ADMINISTRATION EXPENSES SUBMITTED THAT IT HAS NOT INCURRED ANY EXPENSES FOR THE EARNING OF SU CH DIVIDEND INCOME. HOWEVER, THE ASSESSEE SUO MOTO DISALLOWED 1% OF THE TOTAL OPERATING EXPENSES WHICH WORKS OUT AT RS. 2,19,585/- ONLY (1% OF 2,19,58,496/-). 4.3 IN VIEW OF ABOVE, THE ASSESSEE SUBMITTED THAT N O OTHER DISALLOWANCE CAN BE MADE U/S 14A R.W.R. 8D OF INCOM E TAX RULE. HOWEVER, THE AO DISREGARDED THE CONTENTION OF THE A SSESSEE AND INVOKED THE PROVISION OF SECTION 14A R.W.R. 8D OF THE INCOM E TAX RULE FOR THE PURPOSE OF DISALLOWANCE WHICH WORKS OUT AS UNDER: SR. NO. PARTICULARS AMOUNT ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 6 - 1. DIRECT EXPENSES 2,19,585 2. INTEREST EXPENSES 61,50,642 3. ADMINISTRATIVE EXPENSES 3,75,880 TOTAL AMOUNT ALREADY DISALLOWED 67,46,107 -2,19,585 NET AMOUNT TO BE DISALLOWED 65,26,522 IN VIEW OF ABOVE, THE AO MADE THE DISALLOWANCE OF R S.65,26,522/- UNDER THE PROVISIONS OF SECTION 14A R.W.R. 8D AND ADDED B ACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. C IT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT ITS O WN FUND EXCEEDS THE AMOUNT OF INVESTMENT THEREFORE NO DISALLOWANCE OF I NTEREST CAN BE MADE. 5.1 SIMILARLY, THE ASSESSEE SUBMITTED ABOUT THE ADM INISTRATION EXPENSES THAT IT HAS ALREADY DISALLOWED 1% OF TOTAL OPERATING EXPENSES IN VIEW OF THE ORDER OF ITAT PERTAINING TO THE A.Y. 20 01-02 IN ITS OWN CASE. HOWEVER, LD. CIT(A) DISREGARDED THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER: 5.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND TH E SUBMISSIONS MADE BY THE APPELLANT. THE A.O HAS HELD THAT THE AP PELLANT WAS NOT ABLE TO EXPLAIN THE NEXUS OF INTEREST FREE FUNDS WITH TH E INVESTMENT MADE BY IT. ON THE OTHER HAND, IT WAS SUBMITTED BY THE APPE LLANT THAT IT HAD SUFFICIENT FUNDS OF ITS OWN WHICH FAR EXCEEDED THE INVESTMENT IN TAX FREE INCOME AND HENCE IT COULD NOT BE SAID THAT BORROWED FUNDS HAD BEEN USED FOR PURPOSE OF MAKING THESE INVESTMENTS IT IS SEEN THAT THE APPELLANT'S CONTENTION THAT THE AO HAD NOT RECORDED HIS SATISFACTION ABOUT WHY HE WAS NOT ACCEPTING THE DISALLOWANCE AND CALCULATION MADE BY THE APPELLANT, IS MISPLACED. A PERUSAL OF THE AS SESSMENT ORDER SHOWS ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 7 - THAT THE AO HAS DISCUSSED THE STATUTORY AND LEGAL P OSITION IN THIS RESPECT IN DETAIL AND HAS THEN STATED THAT THE APPELLANT'S ARGUMENT ON THIS ISSUE IS NOT ACCEPTABLE, SINCE THE SAME DOES NOT GIVE A C ORRECT PICTURE OF THE CLAIM OF EXPENDITURE IN RESPECT OF EXPENSES RELATED TO EARNING EXEMPT INCOME. MOREOVER, IT IS NOT POSSIBLE THAT NO ADMINI STRATIVE AND OTHER EXPENSES WOULD HAVE BEEN INCURRED TO MANAGE THE INV ESTMENT PORTFOLIO. BESIDES, IT IS ALSO NOT POSSIBLE TO KEEP FUNDS SEGR EGATED AND SHOW WITH CERTAINTY THAT ONLY OWN FUNDS WERE USED FOR INVESTM ENT. IN ADDITION, IT IS SEEN THAT THE ADDITION U/S 14A R W RULE 8D HAS UNDER IDENTICAL CIRCUMSTANCES BEEN MADE IN THE APPELLANT' S CASE IN EARLIER YEARS AS WELL, AND MY LEARNED PREDECESSORS FOR AYS 2008-09, 2009-10, 10-11 AND 11-12, HAVE, AFTER DETAILED ANALYSIS AND DISCUSSION, CONFIRMED THE ADDITION MADE BY THE A.O ON THIS ACCO UNT. IN VIEW OF THE SAME, THE DLSALLOWANCE U/S.14A IS UPHELD. THIS GROU ND OF APPEAL IS DISMISSED. 5.2 BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSE SSEE IS IN SECOND APPEAL BEFORE US. 6. THE LD. AR BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1-103 AND REITERATED THE SUBMISSION AS MADE B EFORE THE LD. CIT(A). 6.1 THE LD AR FOR THE ASSESSEE IN RESPECT OF ADMINI STRATIVE EXPENSES FURTHER SUBMITTED THAT THE AO IN HIS ASSESSMENT ORD ER HAS DISALLOWED ADMINISTRATIVE EXPENSES FOR RS. 3,75,880/- ONLY. TH US, THE DISALLOWANCES CANNOT EXCEED MORE THAN THE SAID SUM. THE LD. AR FO R THE ASSESSEE FURTHER SUBMITTED THAT THE HONBLE ITAT CANNOT IMPR OVE THE CASE OF THE AO. ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 8 - 6.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR FOR THE ASSESSEE ALSO SUBMITTED THAT AT THE MOST THE DISALLOWANCE CAN BE MADE UP TO RS.3,75,880/- AS MADE BY THE AO IN HIS ASSESSMENT O RDER. 7. ON THE OTHER HAND, LD DR ABOUT THE INTEREST EXPE NSES RELIED ON THE ORDER OF LOWER AUTHORITIES. 7.1 THE LD DR IN RESPECT OF ADMINISTRATIVE EXPENSES SUBMITTED THAT THE HONBLE ITAT IN OWN CASE OF THE ASSESSEE IN ITA NO. 1478/AHD/2013 PERTAINING TO THE A.Y. 2009-10 HAS MADE THE DISALLO WANCE @10% OF ADMINISTRATIVE EXPENSES INCURRED IN RELATION TO SUC H INCOME. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 13. IN SO FAR AS THE ADMINISTRATIVE EXPENSES ARE C ONCERNED, THERE IS NO DISPUTE THAT CERTAIN ADMINISTRATIVE EXPENSES HAVE T O BE APPORTIONED TOWARDS EARNING OF TAX FREE INCOME. THE DISALLOWANC E OF RS.349242/- MADE BY THE ASSESSEE WILL NOT SUFFICE. WE FIND THAT THE TOTAL ADMINISTRATIVE EXPENSES CLAIMED IN THE STATEMENT OF TOTAL INCOME ARE AT RS.3.50 CRORES. IN OUR CONSIDERED OPINION, AT LEAST 10% OF SUCH EXPENDITURE SHOULD BE APPORTIONED TOWARDS EARNING O F EXEMPT INCOME. THEREFORE, A DISALLOWANCE OF RS. 35 LACS SHOULD MEE T THE ENDS OF JUSTICE. WE ACCORDINGLY DIRECT THE A.O. TO RESTRICT THE DISA LLOWANCE AT RS. 35 LACS. THIS GROUND ALONGWITH ALL ITS SUB GROUND AND THE ADDITIONAL GROUND ARE TREATED AS PARTLY ALLOWED. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AS REGARDS THE DISALLOWANCE O F INTEREST EXPENSES, WE FIND THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTMENT. THEREFORE NO DISALLOWANCE ON ACCOUNT OF INTEREST EX PENSES CAN BE MADE. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM T HE ORDER OF THIS TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1478/AHD/2013 ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 9 - WHERE THE ADDITION ON ACCOUNT OF INTEREST EXPENSES WAS DELETED BY HOLDING AS UNDER: 10. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO TH E ORDERS OF THE AUTHORITIES BELOW AND WITH THE ASSISTANCE OF THE LD . COUNSEL, WE HAVE CONSIDERED THE RELEVANT DOCUMENTARY EVIDENCES BROUG HT ON RECORD IN THE FORM OF A PAPER BOOK IN THE LIGHT OF RULE 18(6) OF THE 1TAT RULES. THERE IS NO DISPUTE THAT THE INVESTMENTS HAVE BEEN MADE IN EARLIER YEARS AND NOT DURING THE YEAR UNDER CONSIDERATION AS CAN BE SEEN FROM THE EXHIBITS 20 & 21 OF THE PAPER BOOK. IT IS ALSO TRUE THAT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS TO COVER UP D IE INVESTMENTS. IT IS EQUALLY TRUE THAT THE INTEREST INCOME OF THE ASSESS EE IS MORE THAN THE INTEREST EXPENDITURE. THE RATIO LAID DOWN BY THE HO N'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER L TD. 313 ITR 340 SQUARELY APPLY ON THE FACTS OF THE CASE IN HAND. TH E A.O. HAS NOT DEMONSTRATED ANY NEXUS BETWEEN THE BORROWED FUNDS A ND THE INVESTMENTS MADE BY THE ASSESSEE AND AS MENTIONED E LSEWHERE, ALL THE INVESTMENTS ARE BROUGHT FORWARD BALANCES FROM EARLI ER YEARS. 11. THE ASSESSEE IS A NON BANKING FINANCIAL COMPAN Y REGISTERED WITH RESERVE BANK OF INDIA AND IS 100% A GOVERNMENT OF G UJARAT COMPANY AND IS ENGAGED IN THE BUSINESS OF PROVIDING FINANCIAL ASSISTANCE TO GOVERNMENT OF GUJARAT ENTERPRISES. COMPANY 'S MAIN SOURCE OF FUNDS ARE IN THE FORM OF INTER CORPORATE DEPOSITS F ROM GOVERNMENT OF GUJARAT CONTROLLED ENTERPRISES. THE COMPANY ALSO PE RFORMS TREASURY MANAGEMENT OF SURPLUS FUNDS OF GOVERNMENT BOARD/COR PORATIONS AND OTHER INSTITUTIONS. 12. AS PER THE DIRECTIONS OF THE GOVERNMENT OF GUJA RAT, THE ASSESSEE HAS PARKED ITS SURPLUS FUNDS IN GOVERNMENT SECURITI ES AND BONDS IN EARLIER YEARS. WE FIND THAT THE A.O. HAS MECHANICAL LY COMPUTED THE DISALLOWANCE U/S. 14A AS PER RULE 8D WITHOUT ESTABL ISHING ANY NEXUS BETWEEN THE BORROWED FUNDS AND UTILIZATION THEREOF IN MAKING TAX EXEMPT INVESTMENT. IN OUR CONSIDERED OPINION, COMMO N EXPENSES WHICH ARC TO THE ALLOCATED IN TERMS OF THE FORMULA UNDER RULE 8D WILL BE ONLY SUCH INTEREST EXPENSES WHICH ARE DIRECTLY ATTRIBUTA BLE TO BORROWINGS SPECIFICALLY USED FOR TAX FREE INCOMES. MOREOVER, T HE INTEREST INCOME EARNED BY THE ASSESSEE IS FAR MORE IN EXCESS OF THE INTEREST EXPENDITURE AND THE INTEREST FREE FUNDS ARE SUFFICIENT TO COVER UP INVESTMENTS AND THE INVESTMENTS ARE BROUGHT FORWARD FROM EARLIER FINANC IAL YEARS. IN OUR ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 10 - CONSIDERED OPINION, FACTS OF THE CASE DO NOT WARRAN T FOR ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE. IN VIEW OF ABOVE, WE HOLD THAT THE DISALLOWANCE OF INTEREST EXPENSES IN THE GIVEN FACTS AND CIRCUMSTANCES ARE NOT WARRANTED . 9. COMING TO ADMINISTRATIVE EXPENSES, WE NOTE THAT THE AO IN HIS ASSESSMENT ORDER HAS MADE THE DISALLOWANCES OF RS. 3,75,880/- ONLY. THEREFORE, IN OUR CONSIDERED VIEW THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES CANNOT EXCEED THE SAID AMOU NT. IT IS BECAUSE, THE ITAT HAS NO POWER TO ENHANCE THE INCOME COMPUTED BY THE AO OR IMPROVE THE CASE OF THE AO. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN T HE CASE OF SANMAR SPECIALITY CHEMICALS LTD. VS. ITO REPORTED IN 93 TA XMANN.COM 330 WHEREIN IT WAS HELD AS UNDER: THE OPERATIVE PORTION OF THE JUDGMENT READS AS FOL LOWS: '6.IN THE CASE OF HUKUMCHAND MILLS LTD. V. CIT [196 7] 63 ITR 232 (SC) THIS COURT HAS HELD THAT UNDER S.33(4) OF THE IT A CT, 1922 [EQUIVALENT TO S.254(1) OF THE 1961 ACT]. THE TRIBU NAL WAS NOT AUTHORIZED TO TAKE BACK THE BENEFIT GRANTED TO THE ASSESSEE BY THE AO. THE TRIBUNAL HAS NO POWER TO ENHANCE THE ASSESSMENT . APPLYING THE RATIO OF THE SAID JUDGMENT TO THE PRESENT CASE, WE ARE OF THE VIEW THAT IN THIS CASE, THE AO HAD GRANTED DEPRECIATION IN RESPE CT OF 42,000 BOTTLES OUT OF THE TOTAL NUMBER OF BOTTLES (5,46,000), BY R EASON OF THE IMPUGNED JUDGMENT. THAT BENEFIT IS SOUGHT TO BE TAKEN AWAY B Y THE DEPARTMENT, WHICH IS NOT PERMISSIBLE IN LAW. THIS IS THE INFIRM ITY IN THE IMPUGNED JUDGMENT OF THE HIGH COURT AND THE TRIBUNAL.' 5. THE DECISION IN THE CASE OF MCORP GLOBAL (P) LTD., WAS FOLLOWED BY THE DIVISION BENCH OF THE HIGH COURT OF GUJARAT IN FIDELITY SHARES & SECURITIES LTD. V. DY. CIT [2017] 82 TAXMANN.COM 10 8/390 ITR 267 , WHEREIN IT WAS HELD THAT THE TRIBUNAL HAS NO POWER UNDER THE INCOME TAX ACT TO ENHANCE THE ASSESSMENT IN APPEAL IN VIEW OF THE STATUTORY ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 11 - PROVISIONS. FURTHER IT WAS HELD THAT THE BENEFIT, W HICH WAS SOUGHT TO BE TAKEN AWAY BY THE DEPARTMENT, WAS NOT PERMISSIBLE I N LAW AND THIS IS THE INFIRMITY IN THE JUDGMENT OF THE TRIBUNAL AS TH E TRIBUNAL HAS NO POWER TO ENHANCE THE ASSESSMENT IN APPEAL. 6. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CAS E, WE FIND THAT THERE IS NO ERROR IN THE ORDER PASSED BY THE TRIBUN AL IN REMANDING THE MATTER FOR FRESH CONSIDERATION TO THE ASSESSING OFF ICER. BUT, HOWEVER, THE LEARNED COUNSEL FOR THE APPELLANT POINTED OUT T HAT THE OBSERVATIONS AND DIRECTIONS ISSUED BY THE TRIBUNAL ARE INCORRECT . IN ANY EVENT, WE HAVE INDICATED IN THE PRECEDING PARAGRAPHS THAT THE TRIBUNAL HAS NO POWER UNDER THE INCOME TAX ACT TO ENHANCE THE ASSES SMENT IN AN APPEAL. EQUALLY, IT CANNOT BE DONE ON AN ORDER OF R EMAND BEING PASSED BY THE TRIBUNAL TO THE ASSESSING OFFICER. THEREFORE , WE OPINE THAT IT IS SUFFICIENT TO CLARIFY THE LEGAL POSITION AS HELD BY THE HON'BLE SUPREME COURT IN HUKUMCHAND MILLS LTD. CASE (SUPRA) AND IN MCORP GLOBAL (P) LTD. CASE (SUPRA) FOLLOWED BY THE HIGH COURT OF GUJARAT IN FIDELITY SHARES & SECURITY LTD.'S CASE (SUPRA). THE ASSESSIN G OFFICER, WHILE RECONSIDERING THE MATTER ON REMAND, SHOULD BEAR THE ABOVE LEGAL PRINCIPLE IN MIND AND THE ASSESSEE CANNOT BE DENIED WHATEVER BENEFIT HE HAS GRANTED IN THE ASSESSMENT ORDER DATED 28.02.200 3. 9.1 IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT HON BLE ITAT IN THE OWN CASE OF THE ASSESSEE AS DISCUSSED ABOVE HAS MAD E THE DISALLOWANCE @10% OF THE TOTAL ADMINISTRATIVE EXPENDITURE. ACCOR DINGLY, IT WAS ARGUED BY THE LD. DR THAT THE DISALLOWANCES SHOULD BE MADE IN THE YEAR UNDER CONSIDERATION @10% OF TOTAL ADMINISTRATIVE EX PENDITURE. HOWEVER, IN OUR VIEW, THE SAME BASIS CANNOT BE ADOPTED IN TH E YEAR UNDER CONSIDERATION. IF WE DO SO, IT WILL RESULT IN THE E NHANCEMENT OF THE DISALLOWANCE AS MADE BY THE AO FOR WHICH THE TRIBUN AL HAS NO POWER. IN THE CASE RELIED UPON BY THE LD DR, WE NOTE THAT THE TOTAL DISALLOWANCE WAS MADE BY THE AO AS PER RULE 8D FOR RS. 17.54 CRO RES. THUS, THE DISALLOWANCE CONFIRMED BY THE HONBLE ITAT @10% OF THE TOTAL ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 12 - ADMINISTRATIVE EXPENDITURE WAS WITHIN THE LIMIT OF THE DISALLOWANCE AS MADE BY THE AO IN HIS ASSESSMENT ORDER. THEREFORE, WE ARE RELUCTANT TO TAKE ANY GUIDANCE IN THE GIVEN FACTS AND CIRCUMSTAN CES FROM THE ORDER OF TRIBUNAL IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 1478/AHD/2013 PERTAINING TO THE ASSESSMENT YEAR 2009-10. IN VIEW OF ABOVE, WE CONFIRMED THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES AS PER RULE 8D AS WORKED OU T BY THE AO I.E. RS. 3,75,880/-. 9.2 WE ALSO NOTE THAT THE AO HAS TREATED THE SUM DI SALLOWED BY THE ASSESSEE FOR RS. 2,19,585.00 IN THE INCOME TAX RETU RN AS DIRECT EXPENSES INCURRED IN RELATION TO DIVIDEND INCOME UNDER RULE 8D(2)(I) OF INCOME TAX RULE. HOWEVER THE ACTION OF THE AO IS NOT BASED ON ANY MATERIAL SUGGESTING THAT THE AMOUNT OF RS. 2,19,585.00 IS TH E DIRECT EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION EXEMPTED INCOM E AS SPECIFIED UNDER RULE 8D(2)(I) OF INCOME TAX RULES. THUS WE DIRECT T O DELETE THE SAME. THUS, THE GROUND OF APPAL OF THE ASSESSEE IS PARTLY ALLOWED . 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 03/10/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LNL; YKS[KK LNL; YKS[KK LNL; YKS[KK LNL; (MADHUMITA ROY) (WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO.708/AHD/2016 GUJARAT STATE FINANCIAL SERVICES LTD. VS DCIT A.Y. 2012-13 - 13 - AHMEDABAD; DATED 03/10/2018 PRITI YADAV, SR.PS !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) () / THE CIT(A)-7, AHMEDABAD. 5. ,-. //'( , '(# , 12$&$ / DR, ITAT, AHMEDABAD. 6. .34 5 / GUARD FILE. % & / BY ORDER, , / //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD