2013 (8) TMI 961 - AT - Income Tax

Addition under section 14A r/w Rule 8D - Held that - We do not find any whisper whatsoever which proves that the AO was not satisfied with the correctness of the claim of the Assessee in respect of expenditure which the Assessee claims to have incurred in relation to income which does not form part of total income having regard to the accounts of the Assessee. The AO straightaway went on applying Rule 8D while, in the first instance, the AO should have determined whether the claim of the Assessee that it has not incurred any expenditure with regard to the Dividend income is correct or not and such determination must have been made having regard to the accounts of the Assessee on objective basis. It is only when the AO is not satisfied with the claim of the Assessee, the Legislature has empowered the AO to follow the method for calculating the disallowance as may be prescribed i.e. Rule 8D. The AO instead of discharging his obligation, straightaway applied Rule 8D and made disallowance. He has put the cart before the horse which is not permissible under law. The case of the Assessee, in our opinion, is covered by our aforesaid decision in the case of Sesa Goa Ltd. vs. JCIT (2013 (9) TMI 233 - ITAT PANAJI). Addition deleted - Decided in favour of assessee Disallowance of expenditure incurred on renovation of the temple - Held that - It is not denied that transportation of the iron ore was not possible without the co-operation of the villagers as the movement of the trucks had to be through the village where the temple was located for which the Assessee has contributed the amount for renovation. The expenditure incurred for renovation of the temple is also not denied. For carrying on the business smoothly, it was necessary for Assessee to maintain cordial relation to ensure smooth movement of the trucks otherwise the Assessee would not have been able to transport the ore from the mines to the jetty for the purpose of the export. It would have affected the export earnings and income of the Assessee. The expenditure has been incurred, in our opinion, during the course of the business. Business expediency demands such expenditure to be incurred. The expenditure is neither a capital expenditure nor personal expenditure of the Assessee. Therefore, we do not find any illegality or infirmity in the order of CIT(A) while allowing this deduction.- Decided in favour of assessee Disallowance of expenditure incurred on construction of new bridge - Held that -It is a social obligation demanded by the local community which cannot be overlooked by the Assessee. No material or evidence was brought to our knowledge which may prove that the bridge belonged to the Assessee and it represents capital expenditure incurred by the Assessee. - Decided in favour of assessee

Issues Involved:
1. Disallowance of Rs. 12,50,643/- under Section 14A of the Income Tax Act, 1961 read with Rule 8D.
2. Allowance of expenditure of Rs. 10,70,000/- incurred on renovation of a temple.
3. Allowance of expenditure of Rs. 89,84,375/- incurred on the construction of a new bridge.

Detailed Analysis:

1. Disallowance of Rs. 12,50,643/- under Section 14A read with Rule 8D:
The Assessee received dividend income amounting to Rs. 67,41,460/- and claimed that no expenditure was incurred in relation to this income. The AO disagreed, citing that investments in mutual funds require analysis and time, thus invoking Section 14A and Rule 8D, disallowing Rs. 12,50,643/-. The CIT(A) upheld this disallowance.

The Assessee argued that the AO did not record any satisfaction regarding the incorrectness of the Assessee's claim as required under Section 14A(2). The Tribunal noted that the AO failed to record any satisfaction about the expenditure's relationship with the exempt income before applying Rule 8D. The Tribunal cited the decision in the case of Sesa Goa Ltd. vs. JCIT, emphasizing that the AO must first determine the correctness of the Assessee's claim regarding expenditure, and only if dissatisfied, apply Rule 8D. The Tribunal found that the AO did not follow this procedure and thus deleted the disallowance of Rs. 12,50,643/-.

2. Allowance of expenditure of Rs. 10,70,000/- incurred on renovation of a temple:
The Assessee incurred Rs. 10,70,000/- for temple renovation, claiming it was necessary to maintain cordial relations with villagers for smooth transportation of iron ore. The AO disallowed this expenditure, but the CIT(A) allowed it, stating it was essential for business operations.

The Tribunal upheld the CIT(A)'s decision, noting that the expenditure was necessary to maintain good relations with villagers, which was crucial for the Assessee's business. The Tribunal agreed that the expenditure was incurred wholly and exclusively for business purposes and was neither capital nor personal expenditure.

3. Allowance of expenditure of Rs. 89,84,375/- incurred on the construction of a new bridge:
The Assessee contributed Rs. 89,84,375/- for constructing a bridge used for transporting mineral ore, claiming it was essential for business operations. The AO disallowed this, stating the Assessee did not directly use the bridge and considered it a gratuitous payment or capital expenditure. The CIT(A) allowed the expenditure, referencing the Tribunal's decision in the case of Chowgule & Co. Ltd., where similar expenses were considered revenue expenditure.

The Tribunal upheld the CIT(A)'s decision, noting that the bridge was public property used by the Assessee for business purposes. The expenditure was deemed necessary for business operations and not a capital expenditure. The Tribunal found no contrary evidence or material to prove otherwise and thus confirmed the CIT(A)'s order.

Conclusion:
The Tribunal allowed the Assessee's appeal regarding the disallowance under Section 14A read with Rule 8D and upheld the CIT(A)'s decisions on the expenditures for temple renovation and bridge construction, dismissing the Revenue's appeal.

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