9911796707
TMI Blog2014 (12) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... the rule." 3.1 Facts of the case, in brief, are that the assessee company is engaged in the business of trading of programmable logic controllers and parts thereof. During the course of assessment proceedings, the Assessing Officer noted that the assessee company has earned dividend income of Rs. 70,41,015/- which it claimed as exempt u/s.10(34) of the Income Tax Act. In the return of income the assessee company has added back Rs. 3,23,660/- as expenditure in relation to earning the above said income. The Assessing Officer therefore asked the assessee to explain the justification of such disallowance. Rejecting the various explanations given by the assessee and applying the provisions of Rule 8D the Assessing Officer determined such disallowance at Rs. 3,23,660/-. 4. Before the CIT(A) it was submitted that in the year ending 31-03-2008 the assessee invested Rs. 11,57,23,427 in mutual funds. The paid up share capital of the company as on 31-03-2007 was Rs. 49 lakhs and reserves and surplus at Rs. 56,39,78,345/-. It was argued that the assessee also earned net profit after tax of Rs. 23 crores during the year. It was submitted that no borrowed funds were used for the purpose of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s reliance on Hon'ble Delhi High Court's decision in the case of Maxopp Investment Ltd. & others Vs. CIT is also misplaced as A.Yrs in question were 1998-99 to 2005-06 for which Rule 8D was not held to be applicable. Therefore, I do not find any merit in the arguments advanced by the applicant. Accordingly, the ground is dismissed. 5.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 6. The Ld. Counsel for the assessee referring to the decision of the Pune Bench of the Tribunal in the case of M/s. Ferrocare Machines Pvt. Ltd. Vs. JCIT vide ITA No. 2497/PN/2013 order dated 11-02-2014 submitted that the Tribunal, following the decision of the Mumbai Bench of the Tribunal in the case of Raj Shipping Agency Ltd. Vs. Addl.CIT reported in 38 Taxmann.com 315, has deleted the disallowance made u/s.14A on the ground that the AO can invoke Rule 8D only when he records satisfaction in regard to the correctness of the claim of the assessee, having regard to the accounts of the assessee. The AO must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. He submitted that when no expenditure was inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee, we find no borrowed fund has been utilised towards investment in the mutual funds, the income of which has been claimed as exempt. We find the Assessing Officer disallowed an amount of Rs. 3,03,823/- being expenditure incurred for earning the dividend income u/s.14A r.w. Rule 8D which has been upheld by the CIT(A). While doing so, we find the Assessing Officer has not recorded any satisfaction with reference to accounts of assessee nor rejected the claim that no expenditure was incurred. It is the case of the Ld. Counsel for the assessee that the Assessing Officer has not recorded any satisfaction with reference to accounts of the assessee nor rejected the claim that no expenditure was incurred and therefore in view of the Mumbai Bench of the Tribunal in the case of Raj Shipping Agencies Ltd. (Supra) no disallowance is called for. We find merit in the above argument of the Ld. Counsel for the assessee. 7.1 We find the facts of the instant case are identical to the facts in the case of Raj Shipping Agencies Ltd. (Supra) where the assessee has declared dividend income from mutual funds amounting to Rs. 1,12,84,713/- which was claimed as exempt. The entire investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Company Ltd vs. DCIT (328 ITR 81). The relevant portions of the judgment of Hon'ble Delhi High Court are as under: 29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) and (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. 7. The Hon'ble P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is held by the Hon'ble Supreme Court in case of Commissioner of Income-tax v. Walfort Share and Stock Brokers P. Ltd. reported in 326 ITR 1 that for attracting the provisions of section 14 A, there should be proximate cause for disallowance which as relationship with the tax exempt income. 5.1 The expenditure incurred in relation to the income which does not form part of total income has to be disallowed. However, it should be proximate relationship between the expenditure and the income, which does not form part of total income. Once such proximity relationships exist, the disallowance is to be effected. In case the assessee had claimed that no expenditure has been incurred for earning the exempt income, it was for the assessing officer to determine as to whether the assessee had incurred any expenditure in relation to income which did not form part of total income and if so to quantify the extent of disallowance. Thus, in order to disallow the expenditure under section 14A, there must be a live nexus between the expenditure incurred and the income not forming part of total income. No notional expenditure can be apportioned for the purpose of earning exempt income unless ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated to the incomes earned in personal capacity that too on dividend, PPF interest and tax free interest on RBI bonds. In view of this, we are of the opinion that estimation of expenditure of Rs. 20,000/- out of business expenditure claimed in business activity cannot be considered for being incurred for this earning of tax free income of above nature. In view of this disallowance so made under section 14A of Rs. 20,000/- is deleted. Not only that the CIT(A) directed the A.O. to consider the allowance invoking Rule 8D. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT 328 ITR 81 has considered Rule 8D to be applicable prospective and since the assessment year involved is before the introduction of sub- section (2) & (3) of section 14A, there is no question of disallowing the amounts invoking Rule8D. Therefore, the CIT(A)'s direction on this is set aside and the additions so made by the A.O. in the computation of business income is deleted. Ground is considered allowed." 5.4 Similarly in case of Auchtel Products Ltd (supra), it was held by this Tribunal in Para 15 has under: "15. A bare perusal of the above provisions indicates that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of AO to re-compute disallowance, if any, in accordance with our above observations after duly examining the assessee's claim in this regard." 6. In view of the above discussion and facts and circumstances of the case, we are of the considered opinion that no disallowance under section 14A is called for when the assessee has not incurred and claimed any expenditure for earning the exempt income. 9. Similar views were also expressed by the Coordinate Benches in the case of Relaxo Footwears Ltd, vs. Addl. CIT (2012) 50 SOT 102 and Priya Exhibitors (P) Ltd vs. ACIT (2012) 54 SOT 356. In the case of Relaxo Footwears Ltd, it was held as under: "The Assessing Officer should have considered the claim of the assessee that no expenditure has been incurred in relation to earning the exempt income. If the claim was not found to be in consonance with the facts on record, it could have been rejected and disallowance could have been made as per rule 8D. However, it is found that the Assessing Officer has not considered the claim of the assessee at all and he has straightway embarked upon computing disallowance under rule 8D. The Commissioner (Appeals) made an assumption that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, disallowance under section 14A could not stand. Consequently, the disallowance was not permissible. 12. Alternate contention was that the disallowance need not be made on entire expenditure made as assessee's income from shipping related activity was assessed u/s 115VA on presumptive basis. Since assessee has offered income under the Tonnage Tax Scheme, applicability of section 14A was also discussed by the Coordinate Bench in the case of Varun Shipping Company Ltd vs. Addl. CIT in ITA No.5576/Mum/2011 wherein the Coordinate Bench has held as under: "7. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessee is mainly engaged in the business of operation of ships and its income from the said business was declared and assessed as per the special provisions contained in Chapter XIIG which lay down tonnage tax scheme. As per the provisions of section 115VA contained in Chapter XIIG, the income from the business of operating qualifying ships can be computed at the option of the assessee in accordance with the provisions of Chapter XIIG and once this option is exercised by the assessee, the income so computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that invocation of Rule 8D for disallowing the expenditure under section 14A on estimation/ presumptive basis does not arise. Accordingly, the grounds raised by assessee are allowed." 7.2 Since the facts of the case decided by the Tribunal cited above are identical to the facts of the impugned appeal, therefore, respectfully following the decision of the Mumbai Bench of the Tribunal in the case of Raj Shipping Agencies Ltd. (Supra) and in absence of any contrary material brought to our notice by the Ld. Departmental Representative we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The ground raised by the assessee is accordingly allowed." 8.1 Since facts of the instant case are identical to the case decided by the Tribunal cited (Supra), therefore, respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice by the Ld. Departmental Representative, we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the disallowance. Ground of appeal No.1 by the assessee is accordingly allowed. 9. Ground of appeal No2 by the assessee reads as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expression "said due date" as occurring in item (A) of proviso to section 40(a)(ia) of the Act cannot mean date on which TDS as per Chapter XVIIB should have been paid. It refers to due date of filing of return of income u/s.139(1). Therefore, when assessee deducted TDS in March 2007, i.e. last month of the previous year and deposited the same in April 2007, i.e., before the said due date on which return of income u/s.139(1) is to be filed, therefore, provisions of section 40(a)(ia) could not have been invoked. He accordingly submitted that since the assessee in the instant case has deposited the TDS in the month of April, 2008,. i.e. before the due date of filing of the return, therefore, no disallowance u/s.40(a)(ia) is called for. 11. The Ld. Departmental Representative on the other hand heavily relied on the order of the Assessing Officer. 12. After hearing both the sides, we find the assessee undisputedly has paid the TDS on 07-04-2008, a fact brought on record by the Assessing Officer himself at page 7 of the assessment order. We find the Hon'ble Delhi High Court in the case of CIT Vs. Naresh Kumar reported in 263 ITR 56 while deleting disallowance u/s.40(a)(ia) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the invoices were raised prior to March, 2008 however they were approved by the concerned departments in March, 2008 and were received by the accounts department in March, 2008 or credited/paid to the parties in March 2008. Tax has been correctly deducted and paid in April, 2008. However, the Assessing Officer was not satisfied with the explanation given by the assessee and made addition of Rs. 15,71,667/- u/s.40(a)(ia) of the I.T. Act. In appeal the Ld.CIT(A) upheld the addition for which the assessee is in appeal before us. 14. After hearing both the sides, we find the assessee in the instant case has undisputedly deposited the TDS on 07-04-2008, a fact brought on record by the Assessing Officer himself at page 7 of the assessment order. Since in the instant case the assessee had deposited the TDS in the month of April 2008, therefore, following the reasoning given in the preceding paragraphs while deciding ground of appeal No.2, we are of the considered opinion that no disallowance u/s.40(a)(ia) is called for. Accordingly, the order of the CIT(A) is set-aside and the ground raised by the assessee is allowed. 15. In the result, the appeal filed by the assessee is allowed. Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
