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TMI Blog2012 (7) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of amount paid to SEBI for non compliance of certain regulations of SEBI on the ground as levy for infraction of statutory law - assessee contended that non-compliance do not result in any harm to investors, promoters or any other parties - Held that:- No material was placed to contradict the claim of the assessee. In light of decision in case of CIT vs. Prasad and Co (2012 (2) TMI 124 (HC)) amount paid to SEBI is allowable as deduction. - ITA No. 4088/Mum/2011 - - - Dated:- 30-5-2012 - Shri D. Manmohan, J. Appellant by: Mrs. Sonalee A. Godbole Respondent by: Shri Satbeer Singh O R D E R Per D. Manmohan, V.P. This appeal is directed against the order dated 23.03.2011 passed by the CIT(A)-22, Mumbai and it pertains A.Y. 2008-09. 2. The facts relevant for the purpose of disposal of the issues urged before the Tribunal are narrated in brief. During the previous year relevant to A.Y. 2008-09 the assessee company was engaged in the business of manufacturing of cranes and construction equipments like concrete batching and mixing plant, transit mixers, etc. The company is also engaged in erection and servicing of such equipments. As can be seen fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are mixed and the investment made in shares has to be treated as coming out of such mixed funds in which event it is not possible to hold that no expenditure on account of interest or other indirect expenditure was incurred in relation to earning of exempt income. He, therefore, worked out the amount disallowable under Rule 8D of the I.T. Rules. He admitted that there is no expenditure which is directly related to exempt income. However, he was of the opinion that the assessee incurred a sum of Rs.1,32,610/- towards interest in this year and Rule 8D(2)(ii) is attracted and by applying the formula he computed the impugned disallowance at Rs.9,031/-. Thereafter he applied Rule 8D(2)(iii) and computed 0.5% of the average value of investments as disallowable expenditure. This works out to Rs.1,15,475/-. Accordingly he disallowed Rs.1,24,506/-under section 14A read with Rule 8D. 6. Aggrieved, assessee contended before the CIT(A) that the investments in shares were to the tune of Rs.42,77,023/- and the company having not incurred any expenditure, which can be attributable to earning of dividend income, there is no case for invoking provisions of Rule 8D. It was also contended that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s money for investing in shares of Rs.5.25 crores and hence an obvious inference would be that borrowed funds must have been utilised. With regard to the claim of the assessee that the AO has not recorded satisfaction about correctness of the books, the learned CIT(A) observed that the AO discussed this issue in detail before invoking Rule 8D. Further the formula suggested by the assessee of disallowing a portion of the administrative expenses is not applicable for the year under consideration since Rule 8D provides for the method of arriving at the amount disallowable. He thus upheld the order of the AO. 9. Further aggrieved, assessee is in appeal before the Tribunal. The learned counsel adverted my attention to page No. 1 of the paper book to submit that though some loans were repayable as on 31.03.2007, in this year no fresh loans were borrowed and all the investments were made in the earlier years. Page No. 2 of the paper book is the P L Account for the year ended 31.03.2008 wherein assessee claimed deduction of interest payment of Rs.1,32,610/-. Page No. 5 and page No. 5(a) refers to Schedule 11. Interest paid to bank is Rs.8,159/- and interest paid to others is Rs.1,24,45 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO, in taking into consideration 0.5% of the average value of investment for disallowance, I am of the view that the same is in accordance with law. Assessee made huge investments in shares and since it is not possible to ascertain the ratio of expenditure which is relatable to exempt income. The Legislature, in its wisdom, introduced Section 14A of the Act and in compliance thereof rule making authority laid down the procedure under Rule 8D for working out the amount disallowable. In the case of Cheminvest Ltd. vs. ITO [2009] 121 ITD 318 (Del) (SB) the Bench observed that disallowance of expenditure is not linked with earning of income in a particular year. In otherwords, even if there is no income or there is less income disallowance has to be made by applying the formula. Merely because assessee has earned less dividend income the expenditure disallowed by the AO cannot be said to be excessive. Under these circumstances I hold that disallowance of Rs.1,15,475/-, instead of Rs.1,24,506/-, under section 14A read with Rule 8D of the Income Tax Rules is in accordance with law. The AO is directed accordingly. 13. Vide ground No. 2 assessee contends that the AO erred in disallowing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent year has to be allowed as deduction in that year, by applying matching principle. With regard to the expenditure incurred on foreign travel of wife of the Director, it was contended that the case law relied upon by the learned counsel for the assessee is distinguishable on facts. In the case of Vindhya Telelink Ltd. the Bench noticed that the company s Board of Directors have passed a resolution permitting the wife of the Managing Director to go on foreign tour for the purpose of enabling him to discharge his social-cum-business obligation. Similarly, the Hon'ble Kerala High Court had taken note of the fact that the Board approved the foreign travel of wife of the Managing Director on the ground that she was discharging socialcum- business obligations. However, in the instant case assessee company has not placed any material on record to show that it was a social-cumbusiness obligation. The AO as well as the CIT(A) have recorded a finding that no material was furnished to substantiate assessee s claim. He thus strongly relied upon the orders passed by the tax authorities. 17. I have carefully considered the rival submissions and perused the record. As rightly pointed out by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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