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TMI Blog2016 (3) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... rges u/s 40A(2)(a) and 37(1) - Held that:- As submitted by the assessee company, Shri Ubhayakar was providing services to both the companies. The assessee company was debiting 90% of salary of Sh Ubhayakar till 30-04-2008 to M/s Pidilite Industries Ltd. i.e. prior to transfer of employees w.e.f. 01-05-2008 in pursuance of demerger of the manufacturing unit of the assessee company w.e.f 01-04-2007 which was approved by Hon’ble High Court w.e.f 18.01.2008. Shri Ubhayakar was transferred to M/s Pidilite Industries Ltd. w.e.f 01-05-2008 and M/s Pidilite Industries Ltd. started debiting 10% of the salary on which due services taxes have also been paid to the Government. From the facts and circumstances of the case emanating from the record, this practice was continuing earlier also and was accepted by the Revenue in the preceding assessment years also . The assessee company has placed on record the debit notes so raised for earlier year’s also which is placed in paper book page 20-26, which are accepted by the Revenue for earlier years. The principles of consistency has to be followed as laid down by Hon’ble Supreme Court in the case of Radhasoami Satsang (1991 (11) TMI 2 - SUPREME Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed dividend income of ₹ 18,86,490/- as exempt income u/s 10(35) of the Income Tax Act, 1961. The assessee company, further, suo-motu made disallowance u/s 14A of the Act amounting to ₹ 10,000/- which as per the AO is prima facie not as per Rule 8D of the Income Tax Rules, 1962. During the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee company was asked to furnish the details of expenses incurred for earning exempt income and also show cause as to why the expenses incurred and claimed in respect of exempt income should not be disallowed as per section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The assessee company submitted that it has not incurred any expenditure for earning exempt income and hence no disallowance be made. The A.O. held that disallowance of expenses which are attributable for earning exempt income is to be made and the same has to be computed as provided in Rule 8D of the Income Tax Rules,1962 which are applicable w.e.f. the assessment year 2008-09 as laid down by the Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd.(2010) 194 taxman 203( Bom.) and the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the above, the assessee company submitted that the action of the AO is unwarranted and uncalled for. The CIT(A) after considering the submissions as made by the assessee company held that the assessee company has claimed dividend income of ₹ 18,86,490/- as exempt u/s 10(35) of the Act. The assessee company has suo-moto made disallowance of ₹ 10,000/- u/s 14A of the Act. Prima facie, the disallowance made by the assessee company u/s 14A is not as per Rule 8-D of Income Tax Rules, 1962. In response to the specific query raised by the AO during the course of assessment proceedings on the above aspect, the assessee company stated that it has not incurred any expenditure for earning the exempt income. During the course of appellate proceedings it was stated by the assessee company that the dividend was automatically reinvested as per plan, direct purchases of units were effected only 11 times and redemption (RTGS) was effected 7 times and there was no expenditure incurred by the assessee company for earning exempt income. The CIT(A) referred to the decision of Hon ble Delhi High Court in the case of in Maxopp Investment Ltd. v. CIT (2012) 247 CTR 162(Delhi) (HC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not recorded any reason/basis on which he rejected the claim of the assessee company, hence, the assessee company submitted that the disallowance of ₹ 10,000/- offered by the assessee company should be upheld. 7. The ld. D.R., on the other hand, relied upon the orders of authorities below and submitted that the A.O. has rightly applied Rule 8D of Income Tax Rules ,1962 in the case of the assessee company to make disallowance u/s 14A of the Act. 8. We have considered the rival contention and also perused the material available on record. We have observed that Rule 8-D of the Income Tax Rules, 1962 is applicable from the assessment year 2008-09 as held by the Hon ble jurisdictional High Court in the case of Godrej Boyce Manufacturing Co. Ltd.(supra). Section 14A of the Act stipulates for disallowance of an expenditure incurred in relation to earning of an income which does not or shall not form part of total income. The Rule, 8D, however, provides for method of disallowance of an expenditure in respect of an income, which does not or shall not form part of total income. The assessee company has offered suo-motu voluntarily disallowance of expenditure of ₹ 10,000/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) and 37(1) of the Act. From the details, it was observed by the AO that the assessee company has made payment of ₹ 6,86,351/- towards service charges to M/s Pidilite industries Ltd., which is an associate entity of the assessee company. The assessee company was asked to file the relevant details with necessary supporting evidence with respect to the above service charges. The assessee company submitted as under:- In this connection we have to state that one Mr. A.D Ubhayakar, was over all incharge of imports/purchases and sales of raw material with the assessee company prior to A.Y.2010-11. During the year under consideration, Mr. A.D Ubhayakar was transferred to Pidilite Industries. He was also looking after the purchase/sale on behalf of the assessee company. During the year Pidilite Industries has paid total remuneration of ₹ 62,25,890/- to Shri. A.D Ubhayakar. Pidilite Industries recovered only ₹ 6,86,351/- being 10% of the salary from the assessee company for services rendered by Shri. Ubhayakar. This amount is quite reasonable and may be allowed as expenditure incurred for business purpose. From the above submissions, the A.O. found that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary during the accounting year 2009-10. The assessee company company only reimbursed ₹ 6,86,351/ - which is about 10% of the sum paid to him. In this regard, the photocopy of the debit note was enclosed. Finally, it was stated that the payment made to Pidilite Industries Limited has not given any tax benefit to the assessee company. The said service charges paid by the assessee company is nothing but to follow the principle of accounting so that the expenditure incurred by another person on behalf of the assessee company is given proper accounting treatment in the books of account. The CIT(A) after considering the submission of the assessee company held that the assessee company has made payment of ₹ 6,86,351/ - as service charges to M/s. Pidilite Industries Ltd., an associate entity. The assessee company has made substantial sales (86.3% of its total turnover) to the said entity (Pidilite Industries Ltd). The submission of the assessee company is that during the year Pidilite Industries has paid total remuneration of ₹ 62,25,890/- to Shri. A. D. Ubhayakar. Pidilite Industries recovered only ₹ 6,86,351/- being 10% of the salary from the assessee-company for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing unit of thee assessee company into M/s Pidilite Industries Ltd. and now M/s Pidilite Industries Ltd.. is raising debit note in favour of the assessee company with respect to 10% of the salary paid to Shri Ubhayakar, proof of which are placed in paper book page 12 to 19. The ld. Counsel submitted that Mr Ubhayakar is rendering services to the assessee company for purchase and marketing of products. The Ld. Counsel submitted that the service tax have been charged on these debit notes with respect to the services of Sh Ubhayakar being utilized by the assessee company and due Taxes have been paid to Government and he submitted that these expenditure should be allowed in the hands of the assessee company. 13. The ld. D.R., on the other hand, relied upon the order of the lower authorities and submitted that the ld. CIT(A) was right in confirming the order of A.O. 14. We have considered the rival contention and also perused the material available on record. We have observed that Shri Ubhayakar was working with the assessee company prior to demerger of manufacturing unit to M/s Pidilite Industries Ltd. The assessee company is marketing VAM and the assessee company has m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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