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TMI Blog2012 (9) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... e to furnish relevant details/particulars and accounts while making the disallowance in terms of provisions of sec. 14A . There is nothing in the assessment order or impugned order as to whether the assessee placed the relevant details & accounts before the AO or the ld. CIT(A) nor these authorities seems to have undertook any exercise to ascertain the details of expenditure incurred in managing and supervising the aforesaid huge investments in various funds & securities, objectively - set aside the order of the CIT(A) and restore the matter to the file of the AO for deciding the issue afresh. - ITA no.2022 /Del/2012 - - - Dated:- 27-7-2012 - SHRI RAJPAL YADAV SHRI A.N. PAHUJA, JJ. Assessee by Shri K.V.S.R. Kr ishna,AR Revenue by Smt . Venu Joshi, DR ORDER A.N.Pahuja:- This appeal filed on 01.05.2012 by the assessee against an order dated 06.03.2012 of the ld. CIT(A)-XV, New Delhi, raises the following grounds:- 1. The CIT(A) has erred on facts and in law in upholding the disallowance of ₹ 28,35,695/- u/s 14A read with Rule 8D. The disallowance is made mechanically, without appreciating the assessee s explanation. The disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also seen the facts and evidences on record. 7.1. In the instant case, AO has made a disallowance under Section 14A read with Rule 8D for Rs..28,35,695. This disallowance has been computed by invoking clause (iii) of Rule 8D(2) of the Income Tax Rules 1962 i.e. 0.5% of average investment. In this regard, contention of the appellant is that, AO has not recorded his satisfaction before making a disallowance under Section 14A read with Rule 8D. The appellant has relied upon the decisions of ITAT in the case of Wimco Seedlings Ltd. (supra) and, Jindal Photo Ltd. (supra) etc. As per the scheme of Section 14A as amended by Finance Act' 2006 provides as under: Expenditure incurred in relation to income not includible in total income. 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 be not made, as from assessment year 2008-09, this rule is mandatory in nature. With regard to above, the appellant simply stated during the appellate proceeding that their investments are being managed by portfolio manager and for which they have made payment of ₹ 8,00,997 to PMS and hence apart from this disallowance, no disallowance is warranted in their case, as no organized investment activity is being carried on by the company staff members, directors , hence no amount of disallowance is warranted under Rule 8D, as such determination is not feasible. 7.4. From the above submission, it is evident that, the appellant has not been able to support its claim from the books of accounts that no expenditure is incurred in relation to exempt income. 7.5. There is no dispute that appellant had earned exempt income of ₹ 2,91,52,498 during the year under consideration. Mere claim unsupported by any expenditure that no organized investment activity is being carried on by the company staff member ,directors does not lead to any inference that expenditure has not been incurred for earning exempt income. Accordingly, it is held that I am not satisfied with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pute the disallowance under section 14A Rule 8D at Rs..28,35,695. 7.7. Lastly, The appellant has also refer to the decision in the case of Wimco Seedlings Ltd. (supra) this decision has been set-aside by Hon'ble Delhi High Court vide judgment dated 12.12.2011 and therefore cannot be relied upon and the other decision relied upon by the appellant relates to the inclusion of interest expenditure in computing the disallowance u/s 14A, which is not involved in the facts of the appellant s case, hence those cases also have no application in the facts and circumstances of appellant s case. 7.8 Accordingly, in view of the above, I hold that disallowance under section 14A read with Rule 8D is called for to the extent of ₹ 28,35,695 being 0.5% of average investment. 4. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. AR on behalf of the assessee while carrying us through the details of investment (page 9 of the paper book) contended that no interest cost had been incurred by the assessee on any borrowings for the purpose of investment nor any interest was debited to P L account. The assessee suomotu added back ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the year under consideration or in the preceding years was placed before the AO or the ld. CIT(A). Apparently, the assessee did not furnish any details of expenditure incurred for management and supervision of aforesaid huge investments in the year under consideration even while admitting that its director Ms. Rosemary Sagar was handling the investments. In any case, no material was placed before the AO in order to enable him to record his satisfaction while the ld.CIT(A) specifically concluded that he was not satisfied with the correctness of claim of the assessee that no expenditure was incurred in relation to income which did not form part of total income. Accordingly, while observing that incidental administration expenses on collecting information, research etc. ,which helped in arriving at a particular investment decision, related to earning of income and was embedded in the indirect expenses, concluded that the investments made being conscious decisions and having deployment of the funds brought into picture expenditure by way of cost of funds invested . In view thereof, the ld. CIT(A) rejected the plea of the assessee that they had not incurred any expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in their decision in CIT vs. Hero Cycles Ltd. ,323 ITR 518 have observed that disallowance under sect ion 14A requires finding of incurring of expenditure and where it is found that for earning exempted income no expenditure has been incurred, disallowance under sect ion 14A cannot stand. 6.4 In Cheminvest Ltd. v. Income-tax Officer,317ITR(AT)86,Special Bench held that when the expenditure is incurred in relation to income which does not form part of total income, it has to suffer the disallowance irrespective of the fact whether any income is earned by the assessee or not and the provisions of sec. 14A of the Act do not envisage any such exception. 6.5 Hon ble jurisdictional High Court in a recent decision dated 18.11.2011 in Maxopp Investment Ltd. vs. CIT,[2011] 15 taxmann.com 390 (Delhi) held as under:] 41. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with such method as may be prescribed . Of course, this determination can only be undertaken if the Assessing Officer is not satisfie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. . 6.6. Hon ble Calcutta High Court in Dhanuka Sons vs. CIT,12 Taxmann.Com 227(Cal.) held that After heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment. 6.7 As already observed, in the instant case, the assessee denied incurring any expenditure for earning income, which does not form total income during the course of assessment proceedings even when huge investments were made by the assessee in mutual funds debentures . In terms of the aforesaid decision of the Hon ble jurisdictional High Court in Maxopp Investment Ltd.(supra), even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO is required to verify the correctness of such claim. In case, the AO is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the AO has to determine the amount of expenditure incurred in relation to income which does not form part of the total income unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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