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TMI Blog2014 (11) TMI 172X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of expenditures as per rule 8D – Decided in favour of revenue. - ITA No. 592/LKW/2012 - - - Dated:- 21-10-2014 - Shri Sunil Kumar Yadav And Shri. A. K. Garodia,JJ. For the Appellant : Shri. Alok Mitra, D.R. For the Respondent : Shri. S. K. Jain and Shri. Swaran Singh, CA ORDER Per Sunil Kumar Yadav: This appeal is preferred by the Revenue against the order of the ld. CIT(A) on a solitary ground that the ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 20,48,236/- made by the Assessing Officer under section 14A of the Income-tax Act, 1961 (hereinafter called in short the Act ) read with rule 8D of the Income-tax Rules, without considering the fact that the assessee-company had made investment in assets related to exempt income and provisions of Rule 8D(2)(ii) 8D(2)(iii) are applicable as income being dividend is exempt. 2. The facts in brief borne from the record are that from the perusal of the Schedule 8 relating to income from operations annexed to and forming part of profit and loss account, the Assessing Officer noticed that during the year the assessee-company has shown dividend income at ₹ 17,68,735/-. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... =Rs. 18,73,257/- Rule 8D(iii) The average investment of the assessee company as per Balance Sheet comes to ₹ 3,49,95,763/- (as on 31.03.2008 ₹ 4,78,96,132/- and as on 31.03.2009 ₹ 2,20,95,394/-/2) being investment in Shares/Mutual Funds / Partnership Firm. Since, the expenses related to dividend income cannot be distinguished apparently. Therefore, as per the provisions of Section 14A read with Rule 8D, half percent of the average of opening balance of investments and closing balance of investments which works out to ₹ 1,74,979/-, is being disallowed and added back to the income of the assessee company. Thus, the total disallowances u/s 14A comes to ₹ 20,66,467/- (Rs.18,91,488 + ₹ 1,74,979). Since, the assessee has furnished inaccurate particulars of its income on this issue, penalty proceedings u/s 271 (1)(c) of the Income Tax Act, 1961 are being initiated separately. 3. Aggrieved, assessee preferred an appeal before the ld. CIT(A) and reiterated its contentions. Being convinced with the explanations of the assessee, the ld. CIT(A) restricted the disallowance to ₹ 16,544/- shown by the assessee and deleted the disallowance excess of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be computed as per rule 8D of the Rules. Therefore, the order of the ld. CIT(A) deserves to be set aside and the order of the Assessing Officer be restored. 5. The ld. counsel for the assessee, on the other hand, has submitted that the assessee has made investment out of surplus funds, capital reserve, etc and the borrowings were not involved in the investment out of which assessee has earned dividend income. In support of this contention, our attention was invited to the fact that in earlier year, investment was made at ₹ 4,78,96,132/- and in this year, the investment was only at ₹ 2,20,95,394/-. Therefore, in this investment, borrowing funds were not utilized, as the assessee had sufficient surplus funds by way of capital reserve, etc. The assessee has, however, itself disallowed expenditure at ₹ 16,544/- relating to aforesaid exempted dividend income. Therefore, the ld. CIT(A) has properly appreciated the facts of the case and restricted the disallowance to ₹ 16,544/-. 6. We have carefully considered the arguments advanced by the respective parties and have also carefully examined the orders of the lower authorities and the relevant provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or before the 1st day of April, 2001. RULE 8D OF THE RULES: 8D. Method for determining amount of expenditure in relation to income not includible in total income.--(1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is not satisfied with-- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:-- (i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :-- B A X---C Where A = am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed by the assessee for earning the exempted income of ₹ 17,68,735/-. Therefore, we are of the view that the Assessing Officer has to re-compute the expenditures relating to the dividend income which does not form part of total income under this Act and for computing the expenditures, the Assessing Officer has no other option but to adopt the formula laid down under rule 8D of the Rules and he did the same. But from the calculation, we find that the Assessing Officer has not determined the amount of expenditures directly related to the income which does not form part of the total income of the assessee as per sub-rule (2) (i) of rule 8D. It is also not clear whether the Assessing Officer has made any verification with regard to the amount of expenditures directly relating to the investment made in earning dividend income. The other defect we find in the calculation is that as per definition (c) of rule 8D, the average of the total as appearing in the balance sheet of the assessee on the first day and the last day of the previous year is to be taken, but the Assessing Officer has taken the average of investment of the assessee-company as per balance sheet as on 31.3.2008 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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