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Case Number

Tax Appeals Nos. 276 and 277 of 2015

Advocates

MRS MAUNA M BHATT

Judges

M.R Shah
S.H Vora, JJ.

Acts

section 14A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") read with rule 8D of the Income-tax Rules, 1962 (hereinafter referred to as "the Rules")
section 40(a)(ia) of the Income-tax Act
section 36(1)(iii)

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Smart Summary

Summary of the Opinion — M.R. Shah, J.

Factual and Procedural Background

The assessee filed its return for assessment year 2009-10 declaring a total income of Rs. 14,19,79,940. The return was processed under section 143(1) and the case was selected for scrutiny. During assessment proceedings the Assessing Officer (AO) observed that the assessee held investments in shares and mutual funds amounting to Rs. 21,14,07,850 and had interest expenses of Rs. 40,10,861. The assessee had itself disallowed Rs. 2,00,000 in its computation under section 14A. The AO issued a show-cause notice and ultimately disallowed Rs. 14,06,934 under section 14A, which, after accounting for the assessee's self-disallowance, resulted in an effective disallowance of Rs. 12,06,934.

Separately, the AO disallowed Rs. 1,02,43,720 under section 40(a)(ia) for non-deduction of TDS on overseas freight.

The assessee appealed to the Commissioner of Income-tax (Appeals) (CIT(A)). The CIT(A) partly allowed the appeal: it deleted Rs. 5,84,706 of the section 14A disallowance but confirmed disallowance of administrative/calculation charges of Rs. 6,22,228 under section 14A, and deleted the AO's disallowance under section 40(a)(ia). Both the Revenue and the assessee filed appeals before the Income-tax Appellate Tribunal (Tribunal). The Tribunal, by a common judgment dated 10 October 2014, allowed the assessee's appeal (I.T.A. No. 611/Ahd/2013) and deleted the entire section 14A disallowance of Rs. 12,06,934, and dismissed the Revenue's appeal (I.T.A. No. 781/Ahd/2013), thereby confirming deletion of the section 40(a)(ia) disallowance.

The Revenue filed two tax appeals (Tax Appeal No. 276 of 2015 and Tax Appeal No. 277 of 2015) challenging the Tribunal's common judgment and order. The present opinion reviews those appeals.

Legal Issues Presented

"Whether, on facts and in the circumstances of the case, the Appellate Tribunal is right in deleting the disallowance made on account of interest expenditure under section 14A read with rule 8D though the assessee suo motu disallowed the amount on ad hoc basis?" (Proposed question in Tax Appeal No. 276 of 2015; repeated as question A in Tax Appeal No. 277 of 2015.)
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in deleting the disallowance made on account of interest expenditure under section 14A read with rule 8D though the assessee suo motu disallowed the amount on ad hoc basis?" (This is the same issue as above but was framed in both appeals; included here for completeness because it was raised in both appeals.)
"Whether the Appellate Tribunal has substantially erred in allowing the amount of Rs. 21,11,736 on account of disallowance made under section 40(a)(ia) of the Income-tax Act on account of non-deduction of TDS on overseas freight when the assessee has not submitted details of filing of return under section 172 of the Act by non-resident ship liner?" (Proposed question B in Tax Appeal No. 277 of 2015.)

Arguments of the Parties

Appellant (Revenue) — Principal Submissions

The Tribunal materially erred in deleting the disallowance of interest expenses under section 14A; rule 8D, which came into force with effect from March 2008, applies for the assessment year in question and requires disallowance where expenditures are of mixed character.
Reliance was placed on the Bombay High Court decision in Godrej and Boyce Mfg. Co. Ltd. ([2010] 328 ITR 81 (Bom)) to support the proposition that rule 8D is applicable from assessment year 2008-09 and that the expenditures in the present case are mixed and therefore fully disallowable.
The Tribunal materially erred in deleting the disallowance under section 40(a)(ia) for non-deduction of TDS on overseas freight because the recipient did not file returns as required under section 172, and thus the conditions for applying section 172 were not satisfied.
The Revenue contended that both the CIT(A) and the Tribunal did not properly appreciate the statutory provisions (especially section 172) and facts regarding filing of returns by the non-resident ship liner.

Respondent (Assessee) — Principal Submissions (as found in the record)

The assessee submitted that investments were made from interest-free funds and that borrowed funds were for vehicle loans and a captive power plant; thus, borrowed funds were not used for earning tax-free income and interest disallowance under section 14A was not called for.
The assessee relied on decisions of the Supreme Court (S.A. Builders Ltd. [2007] 288 ITR 1 (SC); Munjal Sales Corporation v. CIT [2008] 298 ITR 298 (SC)) and the Bombay High Court (CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom)) for the proposition that if interest-free funds are sufficient for making investments, no disallowance under section 14A is warranted.
The assessee produced material to show interest income earned from associated concerns (variously at rates between 9% and 12.5%), reflecting availability of interest-free funds; the assessee claimed interest income of approximately Rs. 50.74 lakhs during the year.
The assessee self-disallowed Rs. 2,00,000 in its computation and argued that the administrative expenses disallowed by the AO could not be sustained given the actual dividend income recorded (e.g., dividend income of Rs. 12,200 shown in account statements).
With respect to the overseas freight payments, it was not disputed that payments were made to a non-resident shipping company; the Tribunal (and ultimately the court) treated that factual position as relevant to the applicability of section 172.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Godrej and Boyce Mfg. Co. Ltd. [2010] 328 ITR 81 (Bom)	To support the proposition that rule 8D could be applicable from assessment year 2008-09 and that expenditures may be of mixed character requiring disallowance under rule 8D.	The Revenue relied on this decision, but the court held that Godrej (supra) would not assist the facts of the present case because the AO's disallowance was founded on the premise that investments were not made out of interest-free funds, whereas both the CIT(A) and Tribunal found that interest-free funds were available; therefore Godrej was not of assistance here.
S.A. Builders Ltd. [2007] 288 ITR 1 (SC)	Principle that if interest-free funds are sufficient for making investments, disallowance of interest under section 14A is not called for.	The assessee relied on this Supreme Court decision; the Tribunal and the court considered this principle in support of the finding that no section 14A disallowance should be made when interest-free funds are shown to be available.
Munjal Sales Corporation v. CIT [2008] 298 ITR 298 (SC)	Similar principle regarding availability of interest-free funds and the non-applicability of section 14A disallowance when interest-free funds suffice.	The decision was relied upon by the assessee and treated by the Tribunal and court as supporting the position that the assessee's interest-free funds obviated section 14A disallowance.
CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom)	Support for the proposition that where interest-free funds are sufficient, disallowance under section 14A may not be warranted.	The assessee relied on this Bombay High Court decision; the Tribunal and court considered it as supporting their conclusions on the facts that interest-free funds were available and therefore section 14A disallowance was not justified.
CIT v. Consolidated Photo and Finvest Ltd. [2012] 211 Taxman 184 (Delhi); [2013] 358 ITR 310 (Delhi)	Authority cited in relation to the question of disallowance of administrative expenses in the context of section 14A.	The Tribunal cited this Delhi High Court decision in support of its view that the disallowance of Rs. 6,22,228 for administrative expenses could not be sustained; the court agreed and found that this precedent supported deleting that part of the disallowance.

Court's Reasoning and Analysis

The court reviewed the assessment order, the CIT(A)'s order and the Tribunal's judgment and applied the following analytical steps:

Identification of AO's basis for disallowance: The AO disallowed interest expenses under section 14A because, in the AO's view, the assessee failed to justify that investments (Rs. 21,14,07,850) were made out of interest-free funds, and therefore a proportion of interest expenses (computed as Rs. 5,84,706) and other related disallowances were made leading to an effective disallowance of Rs. 12,06,934.
Examination of material relied upon by CIT(A) and Tribunal: Both the CIT(A) and the Tribunal examined the material on record and found that the assessee did have interest-free funds available and had in fact made advances/loans to associated concerns earning interest (rates from 9% to 12.5%), resulting in interest income of approximately Rs. 50.74 lakhs for the year. The assessee also explained that borrowings related to vehicles and a captive power plant and hence borrowed funds were not used for the investments in question.
Application of legal principles: The court noted precedents relied upon by the assessee (S.A. Builders, Munjal Sales, Reliance Utilities) establishing that when interest-free funds are sufficient for making investments, disallowance under section 14A is not warranted. It accepted the Tribunal's factual findings that interest-free funds were available and that the assessee's explanation was not successfully refuted by the Departmental Representative.
Administrative expenses disallowance: Regarding the administrative/calculation charges disallowance (Rs. 6,22,228), the Tribunal found that the AO and CIT(A) were unable to pinpoint any error in the assessee's computation or in its self-disallowance of Rs. 2,00,000 for tax-free dividend income. The Tribunal relied on the Delhi High Court decision in Consolidated Photo and Finvest Ltd. to support deletion of this disallowance. The court agreed with that reasoning.
Rule 8D argument: Although the Revenue argued that rule 8D, effective from March 2008, applied to the assessment year and could mandate disallowance of mixed expenditures, the court observed that the AO's disallowance was predicated on the factual finding of lack of interest-free funds. Because both the CIT(A) and Tribunal found that interest-free funds were in fact available, the court concluded that the Godrej decision relied upon by the Revenue did not assist on these facts and did not change the outcome.
Section 40(a)(ia) and section 172 issue (overseas freight): The court examined the statutory scheme and noted that payments to a non-resident shipping company are not covered by sections 194C or 194 and that section 172 governs such payments. It was not disputed that the payments were made to a non-resident shipping company. On this basis the Tribunal's deletion of the AO's disallowance under section 40(a)(ia) for non-deduction of TDS on overseas freight was found to be correct.
Conclusion on substantial questions of law: Having accepted the Tribunal's factual and legal conclusions — that interest-free funds were available, that administrative disallowance could not be sustained, and that section 172 applied to the overseas freight payments — the court found no error in the Tribunal's decision and held that no substantial question of law arose warranting interference.

Holding and Implications

Holding: The court endorsed the Tribunal's findings and concluded as follows:

Both tax appeals are dismissed.

Implications:

The Tribunal's deletion of the disallowance under section 14A (total Rs. 12,06,934) is confirmed because the Tribunal and CIT(A) found on the material that the assessee had sufficient interest-free funds and therefore no disallowance under section 14A was warranted on these facts.
The Tribunal's deletion of the disallowance under section 40(a)(ia) (relating to non-deduction of TDS on overseas freight) is confirmed because payments were made to a non-resident shipping company and section 172 (not sections 194/194C) governs such payments; consequently the disallowance was rightly deleted.
Direct effect: The AO's disallowances under section 14A and section 40(a)(ia) are set aside as per the Tribunal's orders; the Revenue's appeals fail and the assessee's position as accepted by the Tribunal stands.
No broader precedent was announced beyond the court's application of existing authorities to the facts; the court explicitly found that no substantial question of law arose. (The court did not indicate any new legal principle distinct from precedent application.)

This summary is based exclusively on the text of the provided opinion and does not add information beyond that opinion.

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Principal Commissioner Of Income-Tax v. India Gelatine And Chemicals Ltd.

JUDGMENT

M.R. Shah, J.

1. As common question of law and facts arise in both these tax appeals challenging the impugned common judgment and order passed by the learned Income-tax Appellate Tribunal, both these tax appeals are heard, decided and disposed of together by this common judgment and order. Feeling aggrieved and dissatisfied with the impugned judgment and order dated October 10, 2014, passed by the learned Income-tax Appellate Tribunal, "B" Bench, Ahmedabad (hereinafter referred to as "the Tribunal") in I.T.A. No. 611/Ahd/2013 for the assessment year 2009-10 by which the learned Tribunal has partly allowed the said appeal by deleting the disallowance of the interest expenses under section 14A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") read with rule 8D of the Income-tax Rules, 1962 (hereinafter referred to as "the Rules") in its entirety, the Revenue has preferred the present Tax Appeal No. 276 of 2015 with the following proposed question of law :

"Whether, on facts and in the circumstances of the case, the Appellate Tribunal is right in deleting the disallowance made on account of interest expenditure under section 14a read with rule 8d though the assessee suo motu disallowed the amount on ad hoc basis ?"

1.1 Feeling aggrieved and dissatisfied with the impugned judgment and order dated October 10, 2014, passed by the learned Income-tax Appellate Tribunal, "B" Bench, Ahmedabad (hereinafter referred to as "the Tribunal") in I.T.A. No. 781/Ahd/2013 for the assessment year 2009-10 by which the learned Tribunal has dismissed the said appeal preferred by the Revenue confirming the deletion of disallowance of interest expenses under section 14A of the Act read with rule 8d of the rules made by the learned Commissioner of Income-tax (Appeals) and deleting the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act for non-deduction of TDS on overseas freight, the Revenue has preferred the present Tax Appeal No. 277 of 2015 with the following proposed substantial questions of law.

"(A) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in deleting the disallowance made on account of interest expenditure under section 14a read with rule 8d though the assessee suo motu disallowed the amount on ad hoc basis?

(B) Whether the Appellate Tribunal has substantially erred in allowing the amount of Rs. 21,11,736 on account of disallowance made under section 40(a)(ia) of the Income-tax Act on account of non-deduction of TDS on overseas freight when the assessee has not submitted details of filing of return under section 172 of the Act by non-resident ship liner?"

2. Facts leading to the present tax appeals in a nut-shell are as under :

"2.1 That the assessee filed return of income for the assessment year 2009-10 declaring a total income of Rs. 14,19,79,940. The return of income was processed under section 143(1) of the Act. Subsequently, the case was selected for scrutiny and notices under section 143(2) were issued and duly served upon the assessee.

2.2 During the course of assessment proceedings, the Assessing Officer noticed that the assessee had made investment of Rs. 21,14,07,850 in shares and mutual funds. The assessee suo motu offered/disallowed the amount of Rs. 2 lakhs on account of section 14A of the Act. As the Assessing Officer observed that the assessee is not able to justify that the investment made in shares is from his own funds or from the funds on which no interest payment is made by the assessee and, therefore, the provisions of section 14A of the Act is applicable and since the assessee has not offered disallowance worked out under section 14A of the Act, a show-cause notice was issued and served upon the assessee and the assessee was called upon to show cause as to why the disallowance under section 14A of the Act should not be made. In response to the said show-cause notice the assessee submitted its reply and explanation. Having not satisfied with the explanation given by the assessee, the Assessing Officer disallowed Rs. 14,06,934 by observing that the assessee made investment in shares and mutual funds amounting to Rs. 21,14,07,850 and interest expenses of Rs. 40,10,861 and that the assessee is not able to justify that the investment was made out of the interest-free funds. As the assessee suo motu disallowed Rs. 2,00,000 in its computation of income, the effective disallowance was restricted to Rs. 12,06,934.

2.3 The Assessing Officer also disallowed an amount of Rs. 1,02,43,720 under section 40(a)(ia) of the Act for non-deduction of the TDS on overseas freight.

2.4 Feeling aggrieved and dissatisfied with the order of assessment passed by the Assessing Officer of disallowance of the interest expenses under section 14A of the Act read with rule 8d of the rules and also the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act for non-production of the TDS on overseas freight, the assessee preferred an appeal before the learned Commissioner of Income-tax (Appeals). That the learned Commissioner of Income-tax (Appeals) partly allowed the said appeal and deleted the disallowance of Rs. 5,84,706 out of the disallowance of Rs. 12,06,934 made by the Assessing Officer under section 14A of the Act of the amount of disallowance of interest and administrative expenses. Meaning thereby the learned Commissioner of Income-tax (Appeals) confirmed the disallowance of administration and calculation charges of Rs. 6,22,228 under section 14A of the Act. The learned Commissioner of Income-tax (Appeals) deleted the entire disallowance of Rs. 14,06,934 made by the Assessing Officer under section 40(a)(ia) of the Act for non-deduction of TDS on overseas freight.

2.5 Feeling aggrieved and dissatisfied with the order passed by the learned Commissioner of Income-tax (Appeals), both the assessee as well as the Revenue preferred tax appeal before the learned Tribunal. The assessee preferred an appeal being I.T.A. No. 611/Ahd/2013 challenging the order passed by the learned Commissioner of Income-tax (Appeals) in so far as confirming the disallowance of administration and calculation charges of Rs. 6,22,228 under section 14A of the Act. The Revenue preferred an appeal being I.T.A. No. 781/Ahd/2013 challenging the order passed by the learned Commissioner of Income-tax (Appeals) in so far as deleting the disallowance of Rs. 5,84,706 out of the total disallowance of Rs. 12,06,934 made by the Assessing Officer under section 14A of the Act as well as deleting the disallowance made by the Assessing Officer under section 14A of the Act for non-deduction of TDS on overseas freight. By the impugned common judgment and order the learned Tribunal has allowed the appeal preferred by the assessee being I.T.A. No. 611/Ahd/2013 and has deleted the disallowance made by the Assessing Officer under section 14A of the Act in its entirety, i.e., the entire amount of Rs. 12,06,934 disallowed by the Assessing Officer under section 14A of the Act and consequently dismissed the appeal preferred by the Revenue in so far as challenging the deletion of disallowance made by the learned Commissioner of Income-tax (Appeals) and also confirmed the order passed by the learned Commissioner of Income-tax (Appeals) in deleting the disallowance made under section 40(a)(ia) for non-deduction of TDS on overseas freight.

2.6 Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Tribunal, the Revenue has preferred the present two tax appeals with the aforesaid substantial questions of law."

3. Mrs. Bhatt, learned counsel appearing on behalf of the appellant-Revenue, has vehemently submitted that the learned Tribunal has materially erred in deleting the disallowance of interest expenses under section 14A of the Act in its entirety. It is submitted that the learned Tribunal has not property appreciated the fact that the dispute with respect to the assessment year 2009-10 and, therefore, rule 8d of the rules which had come into force with effect from March 2008, would be applicable. It is submitted that it is neither the learned Commissioner of Income-tax (Appeals) nor the learned Tribunal which disputed that there were mix kind of expenses and, therefore, in that view of the matter rule 8D would be applicable and, therefore, the entire expenditure was required to be disallowed under section 14A of the Act. Mrs. Bhatt, learned counsel appearing on behalf of the Revenue, has heavily relied upon the decision of the Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT reported in [2010] 328 ITR 81 (Bom) in support of her submission that rule 8D could be applicable from the assessment year 2008-09 and the expenditures are mix kind of expenditures. Mrs. Bhatt, learned counsel appearing on behalf of the Revenue, has further submitted that even the learned Tribunal has materially erred in confirming the order passed by the learned Commissioner of Income-tax (Appeals) deleting the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act. It is submitted that while deleting such disallowance the learned Tribunal has not properly appreciated the provisions of the Act more particularly section 172 of the Act. It is submitted that admittedly there was no return filed by the recipient as required under section 172 of the Act and, therefore, section 172 of the Act would not be applicable. It is submitted that, therefore, both the learned Commissioner of Income-tax (Appeals) as well as the learned Tribunal have materially erred in deleting the disallowance made under section 40(a)(ia) of the Act for non-deduction of TDS on overseas freight.

Making the above submissions and relying upon the above decision, it is requested to admit/allow the present tax appeals.

4. Heard Mrs. Bhatt, learned counsel appearing on behalf of the Revenue at length.

We have gone through and considered in detail the assessment order as well as the order passed by the learned Commissioner of Income-tax (Appeals) as well as the impugned judgment and order passed by the learned Tribunal.

4.1 Now, so far as the deletion of disallowance of interest expenses under section 14A of the Act by the learned Tribunal/Commissioner of Income-tax (Appeals) is concerned, it is required to be noted that the Assessing Officer made the disallowance under section 14A of the Act on the ground that the assessee was not able to justify that the investments made in the shares and mutual funds amounting to Rs. 21,14,07,850 was made out of the interest-free funds. However, it is required to be noted that both the learned Commissioner of Income-tax (Appeals) as well as the learned Tribunal have categorically found on the basis of the material on record that as such the assessee was having interest-free funds out of which the investment was made. Therefore, by observing in paragraphs 6 to 9 extracted hereinbelow, the learned Tribunal has deleted the entire disallowance of Rs. 12,06,934 made by the Assessing Officer under section 14A of the Act.

"6. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. The undisputed facts of the case are that the Assessing Officer observed that the assessee has made investment of Rs. 21,14,07,850 and the assessee has paid interest on borrowed funds of Rs. 40,10,861. He also observed that the assessee has not made disallowance of interest expenditure according to section 14a read with rule 8d of the Act. He, therefore, computed the proportionate disallowance of interest expenditure at Rs. 5,84,706 and disallowed the same. Before the Commissioner of Income-tax (Appeals), the assessee submitted that the assessee had borrowed funds for the purposes of vehicle and ok loan of Rs. 2,005 for captive power plant, and, therefore, no borrowed funds were used for non-business purposes. Further, the assessee relied upon the decision of the hon'ble Supreme Court in the case of S.A. Builders Ltd. [2007] 288 ITR 1 (SC) and Munjal Sales Corporation v. CIT [2008] 298 ITR 298 (SC) and the decision of the hon'ble Mumbai High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) where it was held that if the interest-free funds of the assessee were sufficient for making investments, no disallowance of interest expenditure was called for. The Commissioner of Income-tax (Appeals) held that the finding of the Assessing Officer was not correct that the assessee has not charged any interest-free loan to associate concerns. He held that the assessee in fact earned interest income at the rate varying from 9 per cent to 12.5 per cent from the associated concerns depending upon the availability of surplus funds and thereby earned interest income of approximately Rs. 50.74 lakhs during the year. He, therefore, held that the disallowance made by the Assessing Officer under section 36(1)(iii) was of Rs. 40,10,861 was not justified.

7. The Departmental representative has merely relied upon the order of the Assessing Officer. He has not pointed out any specific error in the order of the Commissioner of Income-tax (Appeals). He could not bring any material on record to show that the assessee could not have advanced interest-free loans or loans at lower rate of interest to the sister concerns out of its interest-free funds available with it. Therefore, we find no infirmity in the order of the Commissioner of Income-tax (Appeals) which is confirmed and ground No. 1 of appeal of the Revenue is dismissed.

8. Further, the Assessing Officer also made disallowance of Rs. 8,22,228 out of administrative expenses but had restricted the disallowance made to Rs. 6,22,228 as the assessee himself had made disallowance of Rs. 2,00,000 as expenses incurred for earning tax-free dividend income. The Commissioner of Income-tax (Appeals) observed that the said expenses must have been incurred by the assessee in making the investments and, therefore, confirmed the disallowance of Rs. 6,22,228 made by the Assessing Officer. The authorised representative of the assessee submitted that the assessee has earned dividend income of Rs. 12,200 as will be evidenced from the statement of accounts of the assessee at page 26 of the paper book for which disallowance of Rs. 6,22,228 cannot be made.

9. We find that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) could not pinpoint any error in the computation of disallowance made by the assessee of Rs. 2,00,000 in earning tax-free dividend income. In the circumstances, in our considered opinion, disallowance of Rs. 6,22,228 could not have been made by the Assessing Officer and confirmed by the Commissioner of Income-tax (Appeals). Our above view finds support from the decision of the hon'ble Delhi High Court in the case of CIT v. Consolidated Photo and Finvest Ltd. [2012] 211 Taxman 184 (Delhi); [2013] 358 ITR 310 (Delhi). Therefore, we set aside the orders of the lower authorities and delete the disallowance of Rs. 6,22,228. Thus, ground No. 1 of appeal of the assessee is allowed."

We are in complete agreement with the view taken by the learned Tribunal and the reasons given by the learned Tribunal while deleting the disallowance of interest expenses under section 14A of the Act.

4.2 Now, so far as the contention on behalf of the appellant with respect to the applicability of rule 8d of the rules with effect from March 31, 2006, is concerned, there cannot be any dispute about the same. However, it is required to be noted that the Assessing Officer made the disallowance under section 14A of the Act solely on the ground that the assessee failed to justify that the investment was made out of the interest-free funds. However, both the learned Commissioner of Income-tax (Appeals) as well as the learned Tribunal have found otherwise. Under the circumstances, the decision of the Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (supra) which has been relied upon by the learned counsel appearing on behalf of the Revenue would not be of any assistance to the facts of the case on hand.

Therefore, we confirm the impugned judgment and order passed by the learned Tribunal in so far as deleting the disallowance of interest expenses under section 14A of the Act in its entirety.

4.3 Now, so far as the second proposed question of law raised in Tax Appeal No. 277 of 2015 arising out of the judgment and order passed by the learned Tribunal in I.T.A. No. 781/Ahd/2013, i.e., deleting the disallowance under section 40(a)(ia) of the Act for non-deduction of TDS on overseas freight is concerned, it is required to be noted that as per section 172 of the Act, payment made to the non-resident shipping company would not be covered in section 194C or section 194 of the Act. At this stage, it is required to be noted that it is not in dispute that the amount in question was in fact paid to the non-resident shipping company. Under the circumstances, the learned Tribunal has rightly deleted the disallowance made by the Assessing Officer under section 40(a)(ia) of the Act.

In view of the above and for the reasons stated above, we find that there is no error committed by the learned Income-tax Appellate Tribunal, 'B' Bench, Ahmedabad, while passing the impugned judgment and order. No substantial question of law arise in the present tax appeals. Under the circumstances, both these tax appeals deserve to be dismissed and are, accordingly, dismissed.

Principal Commissioner Of Income-Tax v. India Gelatine And Chemicals Ltd.

Summary of the Opinion — M.R. Shah, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant (Revenue) — Principal Submissions

Respondent (Assessee) — Principal Submissions (as found in the record)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Principal Commissioner Of Income-Tax v. India Gelatine And Chemicals Ltd.

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