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TMI Blog2015 (9) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... AO for the purpose of computing book profit u/s 115JB of the Act is directed to be deleted - Decided in favour of assessee. Disallowance under section 14A - CIT(A) deleted the disallowance - Held that:- We find that the assessee has earned exempt income to the tune of ₹ 51,75,50,800/- and has suo motu disallowed ₹ 13.78 crores under section 14A of the Act. We find that the AO has invoked Rule 8D without spelling out the reason for not being satisfied with the computation made by the assessee in respect to expenditure incurred for earning the exempt income. Without recording the objective satisfaction as required under sub-section (2) to section 14A that he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in respect to exempt income, the AO cannot invoke Rule 8D to compute the disallowance under the said Rule. See CIT vs. Taikisha Engineering India Limited [2014 (12) TMI 482 - DELHI HIGH COURT ] - Decided in favour of assessee. - ITA No.424/Del./2013 - - - Dated:- 26-8-2015 - SHRI S.V. MEHROTRA AND SHRI A.T. VARKEY, JJ. For The Assessee : S/Shri Ved Jain, Ashish Goel and Pranjal Shrivastava, Advocates For The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies act also the department has already filed 2nd appeal before the Hon'ble ITAT on the same issue in earlier year. (C) The order of the Ld CIT(A) has not been found acceptable as A.O. has rightly applied Rule 8D which came into effect w.e.f. 01.04.2008. Further, on one hand the assessee has made huge investments for earning tax free dividends on other hand huge interest has been paid on loans. Hence the assessee has claimed expenditure on income not offered for taxation. (D) That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 5. Apropos Ground 1 is in respect of claim of provision for gratuity and other benefits which are not allowable, since they are contingent in nature while computing book profit u/s 115JB of the Act. The AO in this regard noted that the assessee while computing book profits did not consider the following provisions earmarked for addition while computing book profit u/s 115JB of the Act:- Sr. No. Description Amount 1 Provision for Gratuity 47,66,82,534/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertained' and the Profit Loss Account was prepared in accordance part II and III of Schedule-VI of the Companies Act. Therefore, the book profit declared as per the Profit and Loss account should have not been disturbed in view of decision of Hon'ble Apex Court in the case of ApolloTyres Ltd. vs. CIT (255 ITR 273). The reliance has also been placed on the decision of Hon'ble Supreme Court in the case of Bharat Earth Movers Limited vs. CIT (112 Taxman 61) and the decision of Hon'ble Mumbai High Court in the case of CIT vs. Echjay Forgings Pvt. Ltd. (116 Taxman 322) in support of contentions that when the liabilities were determined on the basis of actuarial calculations, the same represented ascertained liabilities. The identical issue was also involved in the case of appellant for A.Y.2008-09 and as per the detailed discussion vide para 6.1 of my order dated 02.01.2012 in appeal No.276/2010-11 after considering the provisions of law, legal position on this issue emanating from relied upon judicial rulings and the decision of Ld. CIT (Appeals) Faridabad vide order dated 29.04.2010 in appeal No.137/2009-10 for A.Y.2007-08, this issue was decided in favour of the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee replied the same vide submission dated 20.12.2011. The AO examined the reply submitted by the assessee and observed that as per schedule XIV of the Companies Act, 1956, no rate of depreciation has been prescribed for land. He also observed that the case of Apollo Tyres Ltd. vs CIT (2002) 255 ITR 273 (SC), relied upon by the assessee, did not apply to the case of assessee. He observed that the Apex Court judgement clearly says that book profit computed should be in accordance with the part II and III of Schedule VI to the Companies Act, 1956. He further observed that as far as Depreciation on land was concerned, it was neither prescribed in Income Tax Act, 1961 nor in Companies Act, 1956. Hence, accounts of the company are not in accordance with the provision of part II and III of Schedule VI of the Companies Act, 1956. Thus, he disallowed the claim being not in accordance with Companies Act to the extent of ₹ 1,80,79,857/- as this amount has been debited to P L account and accordingly, added back to the figure of book profit. 11. While allowing this issue in favour of the assessee, Ld. CIT (A) held as under :- 6.1. The ground No. 3 of appeal has been taken again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the ld. CIT (A) on this issue. 14. Apropos Ground 3 is regarding disallowance under section 14A of the Act. The AO noticed from the balance sheet that there were dividend bearing investments and the assessee earned dividend during the year on such investments as per following details :- Name of the Company Investment as on 31.03.2009 Rs. Crores Dividend Received in Rupees NHDC 1002.42 50,42,88,000 Power Trading Corp. 12.00 1,20,00,000/- Indian Overseas Bank 0.36 12,62,800/- National Power Exchange Ltd. 0.83 - Total 1015.61 51,75,50,800/- The AO observed from the aforesaid that the assessee had earned exempt income to the tune of ₹ 51,75,50,800/ - during the year which was not includible to the total income and hence was required to disallow expenses on account of such income as per the provisions of section 14A of the Act. The AO confront ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the sanction order of Govt. of India, Ministry of Power, vide DO No.22/3/2000/28.3.2002 and order No.34/1/2003/DO/NHPC dated 29.5.2003, out of budgetary support and equity capital invested by the Govt. to the extent of ₹ 772.42 crores. The balance investment of ₹ 230.00 crores has been made in the shares of subsidiary company out of funds raised from the issue of 'O' series bonds. The interest and bond issue expenses aggregating to ₹ 13.78 crores consisting of interest of ₹ 13.67 crores calculated at the rate of 7.7% applicable to bonds and bond issue / service charges of ₹ 10.27 lacs in respect of investment of ₹ 230.00 crores have already been disallowed by the assessee u/s 14A of the Act. The investment of ₹ 12.00 crores in the shares of PTC, ₹ 36.00 lacs in the shares of Indian Overseas Bank and ₹ 83.00 lacs in the shares of National Power Exchange has been stated to be out of internal accruals. The necessary details and submissions in this regard were filed by the assessee but the AO did not consider the suomoto disallowance made by the assessee as satisfactory and in accordance with Rule 8D of the Income Tax Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the AO, rightly invoked Rule 8D, to disallow expenditure as mandated by the Rule. So, he wants us to reverse the order of CIT(A) and restore the order of AO. On the other hand, Ld. AR for the assessee submitted that the assessee has suo motu disallowed an amount of ₹ 13.78 crores. He submitted that the AO made computation as per Rule 8D, which came to ₹ 29.75 crores and he made disallowance of ₹ 15.97 crores. Ld. AR submitted that this issue is covered in favour of assessee in assessee's own case for the AY 2008-09 in ITA No.1402/Del./2012 dated 17.10.2014. He further submitted that without prejudice to aforesaid decision of the Tribunal on this issue, the disallowance made by AO invoking the provisions of section 14A read with Rule 8D, rejecting the disallowance made by the assessee suo motu, without giving any reason why the amount disallowed by the assessee himself is not satisfactory. He submitted that it is a settled position that before invoking the provisions of Rule 8D, the AO has to record an objective satisfaction with regard to the disallowance made by assessee not being satisfactory, which has not been done in this case. He further submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making reference to the accounts, that he is entitled to adopt the method as prescribed i.e. Rule 8D of the Rules. Thus, Rule 8D is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 8D of the Rules. Where the disallowance or nil disallowance made by the assessee is found to be unsatisfactory on examination of accounts, the assessing officer is entitled and authorised to compute the deduction under Rule 8D of the Rules. This precondition and stipulation as noticed below is also mandated in sub Rule (1) to Rule 8D of the Rules. After going through the other cases also, relied upon by the ld. AR, we find that the AO has not recorded the satisfaction envisaged by the statute before invoking the computation provided for under Rule 8D, which vitiates the impugned order. We also find that in assessee s own case for the previous year also, the Tribunal has deleted the addition made by the AO on this account. Therefore, we uphold the order of the CIT (A) on this issue. This ground of revenue s appeal is dismissed. 18. In the result, the appeal of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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