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TMI Blog2015 (10) TMI 1766X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance under section 14A read with rule 8D(2)(ii) - CIT(A) noted that AO had not made any addition under rule 8D(2)(i) which shows that no expenditure had been considered as directly related to earning exempt income and that the Assessing Officer had disallowed part of the interest expenses under rule 8D(2)(ii) - Held that:- In the facts of the present case, as is apparent from the findings recorded by the Commissioner of Income Tax, the Assessing Officer had invoked the provisions of section 14A of the Act read with rule 8D of the rules. The assessee submitted that mutual fund investment was made out of IPO proceeds. Investment in mutual funds of ₹ 14.78 crores was made out of funds lying idle till deployment in business for short term proceeds of Public Issue. Such mutual fund investments were redeemed as and when required for business operation. Dividend income claimed exempt was of ₹ 64,30,214/- consisting of dividend received from various mutual fund schemes invested as above. No direct expenditure was incurred in relation to receive income of dividend, as these investments were made out of temporary idle IPO proceeds. The Assessing Officer after considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an order dated 26.12.2011 determining the total income at ₹ 4,34,81,062. The Commissioner of Income Tax subsequently, upon examining the record of the assessment proceedings, noticed that the assessee had wrongly claimed deduction of ₹ 61,21,968 under section 35D of the Act towards public issue expenses incurred after commencement of the business, as according to him, in terms of the provisions of section 35D(1)(ii) of the Act, for assessment year 2008-09 such deduction was available to the assessee for extension of an industrial undertaking and that while quantifying disallowance of expenditure under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 interest expenditure was considered by the Assessing Officer at ₹ 41,32,115 instead of ₹ 2,62,65,901. The Commissioner of Income Tax was, therefore, of the view that the order passed by the Assessing Officer was erroneous and prejudicial to the interest of the revenue. He, accordingly, issued notice dated 26.09.2013 to the assessee calling upon it to show cause as to why appropriate order under section 263 of the Act should not be passed. After considering the reply as well as submissions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was not entitled to the benefit under section 35D of the Act. It was submitted that subsequent amendment in the year 2009 deleting the word industrial from clause (ii) of subsection (1) of section 35D would not be applicable to the facts of the present case inasmuch as in the first year the assessee was not an industry and was not entitled to such benefit. It was submitted that, therefore, the Tribunal has erred in holding that the assessee was entitled to the benefit of amortisation under section 35D of the Act. 3.1 As regards disallowance under section 14A of the Act, it was submitted that the Tribunal has failed to appreciate the finding recorded by the Commissioner of Income Tax that the assessee had not maintained separate accounts for the purpose of investment and funds for business as well as investment activity fund used for common fund. Thus, the entire interest expenditure incurred by the assessee is attributable in some way or the other to earn exempt income. Therefore, while computing the quantum of disallowance of interest expenses under rule 8D(2)(ii), the figure of interest should be considered at ₹ 2,62,65,901 instead of ₹ 41,32,115. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore the assessee would be eligible for the benefit under clause (ii) of subsection (1) of section 35D of the Act. It was submitted that, therefore, the view adopted by the Assessing Officer is not a patently erroneous view and is a permissible view and hence, the Commissioner of Income Tax was not justified in resorting to the provisions of section 263 of the Act. Insofar as disallowance under section 14A of the Act is concerned, reliance was placed upon the findings recorded by the Tribunal to submit that there is no infirmity in the view adopted by the Tribunal. 5 This court has considered the submissions advanced by the learned counsel for the respective parties and perused the impugned order passed by the Tribunal as well as the order passed by the Commissioner of Income Tax under section 263 of the Act. From the facts, as noted hereinabove, it is evident that the Commissioner of Income Tax has invoked section 263 of the Act on the ground that the assessee had wrongly claimed the deduction under section 35D of the Act as it was not an industrial undertaking within the meaning of such expression as envisaged under section 35D of the Act. From the facts as narrated hereinab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the disallowance under section 14A of the Act read with rule 8D(2)(ii) of the rules, the Assessing Officer had considered interest expenditure at ₹ 41,32,115/- instead of the entire interest expense of ₹ 2,62,65,901/-. on behalf of the assessee before the Commissioner it was contended that the investment in mutual fund was made out of funds available from IPO and no direct expenditure was incurred in relation to earning exempt income from investments. The Commissioner of Income Tax noted that though the Assessing Officer had invoked the provisions of section 14A read with rule 8D, he had not made any addition under rule 8D(2)(i) which shows that no expenditure had been considered as directly related to earning exempt income and that the Assessing Officer had disallowed part of the interest expenses under rule 8D(2)(ii). According to the Commissioner of Income Tax, the assesee had not maintained separate accounts for the purpose of investment and the funds for business as well as investment activity had been used from a common pool. He was therefore, of the view that the entire interest expenditure incurred by the assessee is attributable in some way or the other to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on given by the assessee was not satisfied with regard to the accounts of the assessee in relation to earning income that does not form part of the total income of the assessee company. He, accordingly, computed the expenditure incurred in relation to earning dividend income as per the provisions of section 14A read with rule 8D of the rules and disallowed interest expenditure of ₹ 41,32,115/- under rule 8D(2)(ii) of the rules. 9 Thus, the Assessing Officer after examining the issue and calling for the explanation of the assessee was not satisfied with the explanation of the assessee and computed the interest expenditure in terms of section 14A of the Act read with rule 8D of the rules. The Commissioner of Income Tax is of the opinion that he would have assessed the interest expenditure at a higher figure. Therefore, merely because another view is possible is not sufficient to invoke powers under section 263 of the Act. The view adopted by the Assessing Officer, being a plausible view, it cannot be said that the assessment order is erroneous so as to warrant exercise of powers under section 263 of the Act. In light of the above discussion, this court does not find any i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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