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2015 (4) TMI 367 - AT - Income TaxDisallowance u/s 14A read with rule 8D - Held that - Assessee has clearly proved, with reference to its accounts that the investment under reference (Rs. 30.15 lacs) was in fact made in the past. The assessee has, as at 31.3.2008, i.e., at the beginning of the relevant previous year, a capital base of ₹ 13,291.58 lacs, as against a miniscule investment portfolio of ₹ 30.15 lacs, and which continues for the current year as well. Even excluding the fixed assets thereat (Rs. 8508.51 lacs), i.e., net of that financed by term loans (Rs. 3,500 lacs), or ₹ 5008.51 lacs, would yet leave a surplus of ₹ 8,283.07 lacs (13291.58 - 5008.51). The Cash Flow Statement (PB pg. 8), forming part of the annual accounts, clearly depicts the movement of funds for the current year, indicating nothing adverse qua the sufficiency of the surplus capital, i.e., with reference to the investment, which in fact flow from an earlier year. Under these conditions of abundance of capital, i.e., even considering the deployment toward business assets, the presumption in law, as explained in the case of Reliance Utilities and Power Ltd 2009 (1) TMI 4 - HIGH COURT BOMBAY would only be of the investment as having been financed out of own funds, toward which we find valid basis on facts. Thus the investment in shares, etc., is funded by the assessee out of own capital. Consequently, no disallowance of interest cost u/s. 14A r/w rule 8D shall arise in the facts and circumstances of the case. Coming to the disallowance in respect of indirect, administrative expenditure, worked out at ₹ 15,075/- by following the prescription of rule 8D(2)(iii), i.e., at 0.5% of the average investment for the year, the assessee did not raise any argument before us nor do we find any such before the authorities below, i.e., towards non-application of the said estimate or at a lower sum. Thus no reason or any basis in law to interfere therewith. - Decided partly n favour of assessee. Disallowance under the MAT provisions - disallowance made under Sub section (2) and (3) of Section 14A added to the book profits computed under section 115JB - Held that - The deletion of the disallowance of interest component (at ₹ 1,43,865/-) of the total disallowance of ₹ 1,58,940/-, would consequently cause deletion of the corresponding adjustment under section 115JB r/w Explanation 1(f) below sub-sec. (2) thereof. As regards the balance disallowance of ₹ 15,075/-, i.e., toward adjustment qua the corresponding administrative expenditure, we have already clarified the assessee as having not made out any case at any stage, i.e. either in principle or on quantum, and which position continues before us as well. We accordingly decline to interfere with the corresponding adjustment for book profit purposes as well - Decided partly in favour of assessee. Reopening of assessment - assessee had claimed excess deduction u/s 80HHC - Held that - unable to agree with the ld. CIT(A) that the AO did not consider the said aspect of the deduction u/s. 80HHC. True, no query was put by the AO during the assessment with regard to excluding 90% of the processing charges, i.e., toward computing 'profits of the business'. However, it cannot be said that he overlooked the said matter, or had not applied his mind to it. In our view, he was in conscious agreement with the said exclusion by the assessee, which is patent from the detailed computation of deduction u/s. 80HHC, furnished twice, as noted above, during the course of the assessment proceedings. The processing charges were considered by him as a part of the assessee's operational income and, thus, a constituent of the turnover. There was, accordingly, no question of deduction of 90% thereof, which is only in respect of independent incomes, which had no relation with an assessee's turnover. Clearly, therefore, the AO regarded the processing charges as a part of the assessee's turnover, while the exclusion under Explanation (baa) to s. 80- HHC was only qua incomes which had no element of turnover We have held that the matter had been, as a matter of fact, considered by the AO in the original assessment. The question of the assessee therefore not disclosing fully and truly all the facts in relation to processing charges earned for the year, or of the manner in which the same had been considered by it in computing the deduction u/s. 80HHC, i.e., which constitutes the reason for reopening, which has been abundantly referred to hereinabove and, thus, of any improper disclosure by it, does not arise. The obligation of the assessee's extends to only disclosing the primary facts, and not in the manner in which the same is to be pursued or otherwise utilized in assessing the total income by the assessing authority. The reassessment proceedings are without jurisdiction, and the resulting assessment, therefore, void in law. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under section 14A read with Rule 8D for AY 2009-10. 2. Addition to Book Profits under section 115JB for AY 2009-10. 3. Reopening of assessment under section 143(3) for AY 2004-05. 4. Computation of deduction under section 80HHC for AY 2004-05. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D for AY 2009-10: The assessee contested the disallowance of Rs. 1,58,940 under section 14A read with Rule 8D, arguing that the investments were made much earlier and not in the current year, and that the dividend income was minimal and deposited directly into the bank. The Assessing Officer (AO) had added back Rs. 1,58,940, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The ITAT found that the investment was indeed made from the assessee's own funds, as evidenced by their accounts and cash flow statement, which showed a surplus of capital. Therefore, no disallowance of interest cost under section 14A read with Rule 8D was warranted. However, the disallowance of Rs. 15,075 for indirect administrative expenditure was upheld as the assessee did not contest this amount. Thus, Ground 1 was partly allowed. 2. Addition to Book Profits under Section 115JB for AY 2009-10: The deletion of the disallowance of the interest component (Rs. 1,43,865) also led to the deletion of the corresponding adjustment under section 115JB. However, the disallowance of Rs. 15,075 towards administrative expenditure was upheld, and the corresponding adjustment for book profit purposes was not interfered with. Thus, Ground 2 was partly allowed. 3. Reopening of Assessment under Section 143(3) for AY 2004-05: The assessee contested the reopening of the assessment completed under section 143(3), arguing that there was no new material suggesting income had escaped assessment due to failure on their part to disclose material facts. The AO had issued a notice under section 148, citing excess deduction claimed under section 80HHC. The ITAT found that the matter had been considered by the AO during the original assessment and that the assessee had disclosed all material facts. The reassessment notice was issued beyond four years from the end of the relevant assessment year, making it invalid as per the proviso to section 147. Thus, the reassessment proceedings were held to be without jurisdiction and void in law. Ground 1 was accepted, and the reassessment was declared bad in law. 4. Computation of Deduction under Section 80HHC for AY 2004-05: The AO had excluded 90% of the job work charges from the profits of the business while computing the deduction under section 80HHC, which was upheld by the CIT(A). The ITAT noted that the AO had considered processing charges as part of the assessee's turnover and had not excluded 90% thereof in computing the 'profits of the business.' The ITAT held that the AO's view was in conformity with the ruling of the jurisdictional High Court. However, the reassessment proceedings were declared void, and thus, the issue of computation of deduction under section 80HHC was not addressed further. Conclusion: - The appeal for AY 2009-10 was partly allowed, with partial relief granted on disallowance under section 14A and corresponding adjustments under section 115JB. - The appeal for AY 2004-05 was allowed, with the reassessment proceedings declared void and without jurisdiction.
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