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TMI Blog2015 (9) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... ities Pvt. Ltd. ) and a sum of 3,17,679/- (Soarma Vinimay Pvt. Ltd.) as claimed by the ld. AR which are pertaining to amalgamating companies and further amalgamation expenses of 8,58,617 (of Mayuka Investment Ltd.), capital increase expenses of 70,000/- (of Mayuka Investment Ltd.) are claimed by the ld. AR; and loss on sale of investment 11,695/- which have no nexus with the exempt income. Thus, according to ld. AR, the said amounts cannot be disallowed. The remaining expenditure according to AR is 93,477/- (Rs.15,74,156/- - 2,22,729/- + 3,17,679/- + 8,58,617/- + 70,000/- + 11,695 (Page 57 of PB) = 93,477/-). This sum of 93,477/-, according to ld. AR, includes audit fees of 16,545/- and filing fees 2,088/-, which are in the nature of routine business/statutory expenditure. In view of the aforesaid submission of the AR, we feel that if these expenditures are considered in the light of the suo motu expenditure of 50,000/- as claimed by the assessee for earning exempt income need to be reconsidered by the AO. Therefore, we set aside the impugned order and restore the matter back to the file of the AO for deciding the issue in view of the aforesaid submissions of ld. AR and thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Pvt. Ltd. With effect from 1st April, 2009, vide order passed by Hon'ble Delhi High Court dated 20th May, 2010. Accounts of the Assessee company and the transferor companies, for financial year 2009-10 relevant to assessment year 2010-11, were separately prepared, but final accounts of the Assessee Company was made by incorporating the accounts of two transferor companies. 2.2 For the financial year relevant to the assessment year under consideration, the assessee company has filed return on 23.09.2010, declaring total income of ₹ 36,701/-. The case was selected for scrutiny and assessment was completed under section 143 (3) of the Income-tax Act, 1961 (hereinafter 'the Act'). The Assessing officer passed assessment order dated 08.01.2013, wherein, an addition of ₹ 7,96,200/- was made under section 14A of Act, vis-a-vis suo motu disallowance of ₹ 50,000/- offered by the Assessee Company on ad-hoc basis. 2.3. The AO made disallowance u/s 14A to the tune of ₹ 7,59,498/-. Aggrieved by the order passed by the A.O. the assessee preferred appeal before C1T(A). The Assessee submitted before CIT (A) that the calculation made by the A.O. in respect of 14A di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 14A of the Income Tax Act, 1961 could have been made on the balance amount of ₹ 1,05,172/-. The Ld. Counsel for the Assessee submitted that dividend income of ₹ 5,59,20,318/- has been earned only on the investment held by Mayuka Investment Ltd., and disallowance if any, u/s 14A of the Income Tax Act, 1961 should be restricted to expenses incurred by the Mayuka Investment Ltd., pre-merger which can be only taken into account. 3.1 The Ld. Counsel for the Assessee submitted that there has been no fresh investment made by the Assessee and increase in the investment was due to the merger of Accounts of Soarma Vinimay Pvt. Ltd. and Kisen Securities Pvt. Ltd. Further it was shown that advances made by the Assessee were from the funds available with the assessee company and that interest bearing loans have been taken by Assessee during the relevant year. The Id. Counsel further demonstrated that the Assessee has added ₹ 9,35,394/- being amalgamation expenses. Further schedule 11, 12 of the P & L Account gives the bifurcation of the expenses which according to the assessee cannot be considered for disallowance u/s 14A of the Act. 3.2 The Ld. Counsel for the Assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gamation expenses of ₹ 11,69,242/- (incurred by all the three companies) and capital increase expenses of ₹ 70,000/- in Mayuka Investments Ltd. Out of these two expenses assessee had already added back in its computation of income capital increase expenses of ₹ 70,000/- and amalgamation expense of ₹ 9,35,394/-. 4.2 Salary of ₹ 2,59,835/- was incurred by the two amalgamating companies, whereas the break up of ₹ 15,74,196/- is given at page 59 of the paper book. It will kindly be seen that of the total expenditure of ₹ 15,74,196/-, ₹ 2,22,728/- was incurred by M/s Kiran Securities Pvt.Ltd. and ₹ 3,17,679/- was incurred by Soarma Vinimay Pvt.Ltd. There was no dividend earning in either of these two companies. Therefore, it was claimed that no part of expenses incurred by these two companies could be considered for disallowance u/s 14A of the Income Tax Act, 1961. 4.3 Expenditure of ₹ 10,33,789/- incurred in Mayuka Investments Ltd. before merger included ₹ 9,28,617/- amalgamation and capital increase expenses. Thus, the net expenditure incurred and claimed as deduction in Mayuka Investments Ltd., where dividend income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered by the assessee appellant on an ad-hoc basis. 8.2 It will also not be out of place to submit here that out of expenses ₹ 92,444/- statutory expenses such as audit fees, filing fees etc., which are necessarily required to be incurred by the appellant, whether any income is earned or not needs to be ignored. In that situation such disallowance will be still lower." The CIT (A), however, rejected the claim of the assessee and upheld the disallowance made by the AO. 6. In the above factual matrix, the fundamental aspect which clearly emerges is that AO has rejected the suo motu disallowance of ₹ 50,000/- by substituting a method which is not prescribed by the Act read with Rule 8D of the Income-tax Rules, 1962 (hereinafter 'the Rules'). Thus apparently, on this ground alone, computation as made is not in accordance as per Rules. However, the ld. Counsel has pointed out that if Rule 8D is applied then disallowance would work out at ₹ 37,08,098/- which is almost four times the actual expenditure claimed by the assessee. So, according to ld. AR, the disallowance has to be made, it should be confined to the actual expenditure incurred and claimed for earning ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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