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TMI Blog2016 (4) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... h can demonstrate the disparity on the facts or about the nature of expenditure which deserves to be either included for allocation or excluded from allocation. Considering the detailed finding of the CIT(A) in Asstt.Year 2010-11, in the light of the Tribunal order in the Asstt.Years 2004-05 to 2008-09, we are of the view that the issue in dispute is squarely covered. The ld.First Appellate Authority has excluded the items, namely, general charges, misc. expenses, interest and financial charges, directors’ fees, rent and taxes, stationery and printing, charity and donations, salary and wages of corporate division, contribution to PF of corporate division, welfare expenses of cooperative division and rent. We do not find any error in the order of the ld.CIT(A) for exclusion of these items from allocation to the CPP units. Similarly, the ld.First Appellate Authority has upheld the inclusion of items for allocation viz. directors’ remuneration, directors’ travelling expenses, audit fees, computer maintenance expenses, security charges etc. and we do not find any error in the order of the ld.CIT(A) on this issue. Disallowance u/s 14A - Held that:- The investment made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of financial charges, keeping in view the investment in Bhaddi units. In other words, these are direct expenditure relatable to Bhaddi units. Therefore, the ld.CIT(A) has rightly deleted the allocation of interest/financial charges in the Bhaddi made on the basis of sales ratio. We do not find any infirmity in the order of the ld.CIT(A) on this issue. Expenditure for PMS Services - Held that:- No doubt, the expenses were incurred by the assessee towards consultancy charges for making investment. On sale of investment, capital gain would arise to the assessee, but the expenses incurred by the assessee are not directly linked to the purchase of investment. These are paid for consultancy. If the expenses are not to be capitalized in the investment, then how the assessee will get this set off. Therefore, the ld.CIT(A) has rightly observed that the expenses were not incurred towards purchase of investment, rather, these were incurred towards consultancy charges in order to keep track on the investment. Therefore, we do not see any error in the order of the ld.CIT(A). Addition on foreign exchange gains - Held that:- Though section 43A begins with a non obstante clause, it makes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re requires to be suitably modified. It is submitted that it be so held now. 2. The learned Commissioner of Income Tax (Appeals) has erred in confirming allocation of director's remuneration, directors' traveling expenses, audit fees, computer expense and security charges for calculating profit of Captive Power plant for deduction u/s. 80-IA of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2.1. Without prejudice to above, the learned Commissioner of Income Tax (Appeals) has erred in confirming allocation of salary of ₹ 117.44 lacs paid to Mr. S.B. Dangayach, Managing Director In-charge of Plastic Division and salary of ₹ 143.65 lacs paid to Mr. Rahul Patel, Managing Director who is looking after sales of Textile Division to Captive Power Plant for calculation of profit eligible for deduction u/s.80IA of the Act who are dedicatedly working on the respective divisions and have nothing to do with the operations of the CPP units. It is submitted to be held so now. 3. The learned Commissioner of Income Tax (Appeals) has erred is not deleting interest charged u/s 234B, 234C 234D. It is submitted that no interest u/s 234B, 234C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: ITA No.938/Ahd/2011 (Asstt.Year 2009-10) [1] The Ld. CIT(A)-XIV, Ahmedabad erred in law and on facts in restricting the disallowance u/s.80IA to ₹ 19.25 Lacs for the Captive Power- Plant (CPP) unit. [2]. The Ld. CIT[A] has erred and on facts in deleting the disallowance of ₹ 18,25,69,000/-made u/s. 80IC on Baddi Unit. [3]. The Ld. CIT[A]-XIV, Ahmedabad has erred and on facts in deleting the disallowance of ₹ 82,34,951/- made by the Assessing Officer u/s. 14A of the Act. [4]. The Ld. CIT[A]-XIV, Ahmedabad has erred and on facts in granting relief regarding the disallowance of ₹ 24,37,500/- made by the Assessing Officer treating the expenditure towards service charge fee paid to DSP Merill Lynch for purchase of units under Portfolio Management Scheme(PMS) as Capital in nature u/s. 37 of the Act. [5]. On the facts and in the circumstances of the case, the Id. Commissioner of lncome-tax[A]-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer. [6]. It is therefore, prayed that the order of the Id. Commissioner of Income-tax[A]-XIV, Ahmedabad may be setaside and that of the Assessing Officer be restore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion / general charges of ₹ 1026.86 Lacs while computing deduction u/s.80IA of the Act. 1.k). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in directing not to allocate Rent / general charges of ₹ 289 Lacs while computing deduction u/s.80IA of the Act. 2). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedabad has erred in law and on facts in directing the AO to allocate the interest expenses on the investment ratio for allowing deduction U/S.80IC of the Act, in respect of Baddi Unit. 3). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the allocation of common head office expenses to Baddi Unit for calculating profit eligible for deduction U/S.80IA of the Act. 4). The Ld. Commissioner of Income-Tax (Appeals)-XIV, Ahmedabad has erred in law and on facts in deleting the allocation of certain expenses claimed to be incurred specifically for plastic Division as well as common head office expenses for Baddi Unit while calculating profit eligible for deduction u/s.80lC of the IT. Act. 5). The Ld. Commissioner of Income-Tax (Appeals)-XlV, Ahmedaba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect and indirect, relatable to CPP as well as other units. There are common head office expenses . In the head office expenses , which according to the AO were required to be allocated in proportionate to the turnover of CPP vis- -vis other business of the assessee. On an analysis of the details of the account, the ld.AO recorded a finding that the turnover of CPP unit in comparison to the total turnover of the assessee-company worked out to 2.05% in the Asstt.Year 2009-10, and 1.53% in the Asstt.Year 2010-11. The ld.AO thereafter, tabulated various common head expenses. Out of which, expenses are required to be allocated to the CPP in ratio of turnover of CPP vis- -vis the total turnover. It read as under: Assessment Year 2009-10 Sr. No. Particulars Amount (Rs.in lakhs) 1 Directors' Remuneration 670.00 2 Directors' Traveling 46.00 4 Audit Fees 43.00 5 Computer Maintenance Expenses 165.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 Salaries Wages of Corporate Division 450.00 14 Contribution to PF of Corporate Division 154.00 15 Welfare Expenses of Corporate Division 1026.86 18 Rent 289.00 Total 13469.18 3.3 Therefore, on account of the above, 1.53% of 13468.18 lacs work out to ₹ 206.06 lacs. The same is required to be reduced from the assessee company's claim of total deduction u/s 80IA of ₹ 10,99,46,899/-. 5. Dissatisfied with the disallowance, the assessee carried the matter before the ld.CIT(A). The ld.CIT(A) has upheld the allocation of expenditure out of the following heads viz, Directors Remuneration, Directors Traveling Expenditure, Audit fees, computer expenditure, security expenditure, allocation of salary of Managing Directors, whereas, he deleted the allocation of the expenditure out of the rest of the items considered by the ld.AO. The assessee in both years impugning the action of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2 of his order, on assumption and presumption while determining the amount of disallowance hereunder. The learned Asst. CIT considered additional expenditure of ₹ 13,468.18 lacs and proportionate expenditure (1.53% of ₹ 13,468,18 lacs) arbitrarily and thereby reduced profit by ₹ 206.06 lacs. Without prejudice to anything else stated for the ground of appeal under consideration, it is respectfully submitted that there can never be allocation of the expenses which are actually related to other activities of the Appellant Company. There cannot be disregard of the fact that certain expenses which are incurred for other activities would never come under consideration at the time of computing income from CPP units under consideration. Further in this regard Appellant would like to state that the computation of profits eligible u/s 80IA have been duly verified and certified by Chartered Accountant in Form No. 10CCB and the same are attached herewith as Annexure-I. 1. In this regards the appellant respectfully submits as under Director's Remuneration - Please note that the total of Directors' remuneration is of ₹ 780 lacs-which in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given operation and Management contract to outside agency and the entire expenditure incurred thereon is treated as direct cost for CPP and therefore there is no justification in allocating any of the expenditure out of general charges. Without prejudice to above, it is respectfully submitted that there can never be allocation of the expenses which are actually related to other activities of the Appellant Company. It may please be appreciated that on identical facts the addition on account of general charges were deleted by the Hon'ble CIT(A). In view of this factual back ground appellant submits that on same facts for the year disallowance made should be deleted. vii) Interest Financial Charges (Rs.5,132 lacs). Stationary Printing expenses (Rs.1,021 lacs). Rates Taxes CRs.31 lacs) and Rent (Rs.289 lacs) These are finance costs pertaining to the company as a - whole and which has no relation with the operations of the CPP units. It is respectfully submitted here that these expenses which have been considered by learned AO are actually expenses incurred in relation to general company (as a whole) level which are administrative expenses in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating and unrelated expenses and hence no allocation is required to be made in this regard. Without prejudice to above, it is respectfully submitted that there can never be allocation of these expenses which are actually related to other activities of the Appellant Company. It may please be appreciated that on identical facts the addition on account of Director Fees, Charity Donation, Salary Wages of Corporate Divisions, Contribution to PF of Corporate Division, Welfare Expenses of Corporate Division Miscellaneous Expenditure were deleted by the Hon'ble CIT (A) for the Assessment Year -2009-10. In view of this factual back ground appellant submits that on same facts for the year disallowance made should be deleted. Please refer Annexure -2 for Copy of the CIT (A) order for the Assessment Year -2009-10 is submitting for your immediate reference. 2.3 Decision: I have carefully perused the assessment order and the submissions given by the appellant. The appellant has submitted that the allocation of expenses which are actually related to the other activities of the appellant company cannot be done. The A. O. has allocated the expenses to the eligible uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of earlier year, the allocation of general charges of ₹ 4359.15 lacs is directed to be deleted. 7. Misc. Expenditure The issue has been decided in favour of the appellant by my predecessor in para 5 of his order for A. Y. 2009-10. Respectfully following the decision of earlier year, the allocation of general charges of ₹ 17lacs is directed to be deleted. 8. Interest Financial charges The issue has been decided in favour of the appellant by my predecessor in para 5 of his order for A. Y. 2009-10. Respectfully following the decision of earlier year, the allocation of general charges of ₹ 5132 lacs is directed to be deleted. 9. Director Fees The issue has been decided in favour of the appellant by my predecessor in para 5 of his order for A. Y. 2009-10. Respectfully following the decision of earlier year, the allocation of general charges of ₹ 5 lacs is directed to be deleted. 10. Rates Taxes The issue has been decided in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. 8. With the assistance of the ld.representatives, we have gone through the record carefully. The ld.counsel for the assessee has placed on record a chart exhibiting each item of expenditures considered by the AO for allocation and how such item was considered upto the level of Tribunal starting from the Asstt.Year 2004-05 to 2008- 09. This chart has been supplied to the ld.DR on earlier occasions. Both the parties have agreed that all these issues have been considered by the Tribunal in the Asstt.Years 2004-05 to 2008-09. Copies of the Tribunal orders are being placed in the paper book, from page nos.318 to 386. The unanimous history in earlier years is that expenditure incurred under head directors remuneration, directors travelling expenses, audit fees, computer expenses, security expenses are to be considered for allocation in the ratio of turnover of CPP units vis- -vis total turnover. 9. It is pertinent to observe here that the assessee has been maintaining separate books of accounts for its units which are entitled for deduction under Chapter-VI of the Income Tax Act, viz. 80IA for CCP units and 80IC for the units engaged in manufacturing activities situated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on viz. directors remuneration, directors travelling expenses, audit fees, computer maintenance expenses, security charges etc. and we do not find any error in the order of the ld.CIT(A) on this issue. Therefore, these grounds of appeal are rejected. 10. Ground no.2 and ground no.4 in the Revenue s appeal for the Asstt.Year 2009-10, 2010-11 and ground no.3 in the assessee s appeal for the Asstt.Year 2010-11. 11. The common issue involved in these grounds relates to computation of deduction admissible to the assessee under section 80IC of the Income Tax Act. Though the facts are common in both the years, for the facility of reference, we mainly take up the facts from the assessment year 2009-10. 12. Brief facts of the case are that in the return of income, the assessee has submitted a computation for deduction under section 80IC. It has submitted Form No.10CCB in this regard. The assessee has claimed deduction of ₹ 83,94,80,246/- and ₹ 85,10,56,417/- under section 80IC in the Asstt.Years 2009-10 and 2010-11 respectively. The claim of the assessee is that it s one of the units is situated at Bhaddi (HP), which is entitled for deduction under section 80IC. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calculating the profit eligible for deduction u/s. 80IC of the IT. Act. The AO observed that the appellant has incurred-interest charge of ₹ 5456.88 lacs (other than textile division) against which the appellant has allocated interest expense of ₹ 120.56 lacs to Baddi Unit. The AO observed that appellant has a common pool of funds as well as common bank accounts for the entire business being carried out from head quarters. The C.C. Account with the bank and financial institutions and loans raised by them had been utilized as per requirement of running the entire business including Baddi Unit. The AO therefore allocated interest proportionately to this unit on the basis of ratio of sales of the undertaking which comes to ₹ 637.40 lacs. The AO has discussed this issue at para 4.2 of the Assessment Order. It was submitted by the AR of the appellant that the allocation made by the appellant was reasonable and ought not to have been disputed by the AO. The appellant had claimed that since no other specific loans were taken for establishment of the said unit, no interest cost should be allocated to the said unit. Alternatively, even if it has to be apportioned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 15.87% of total salary of ₹ 242686 lakhs. 20. On appeal, the assessee has contended that remuneration to the employees of ₹ 360.00 lakhs already been considered by the assessee for the purpose of Bhaddi Units. The ld.CIT(A) has directed the AO to give credit of this allocation against the salary required to be reduced worked out by him. In other words, the salary considered by the AO is lesser than this amount, therefore, in the Asstt.Year 2009-10, no disallowance would remain under this head. This is the reason, there is no ground taken by the assessee. However, in the Asstt.Year 2010-11, the remuneration allocated by the assessee are of ₹ 341.46 whereas worked out by the AO are of ₹ 385.14 lakhs. It is for this reason, the assessee has also taken the ground of appeal bearing no.3. 21. The ld.counsel for the assessee, at the very outset submitted that a similar issue has come up before the Tribunal in the Asstt.Year 2008- 09, whereby the Tribunal has observed that the salary of those employees who are working in plastic division could only be allocated. 22. With the assistance of the ld.representatives, we have gone through the record. It is pert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-11. He worked out total expenses at ₹ 209.17 lakhs. According to the ld.AO, the sale made by the assessee of the products produced from Bhaddi units is 13.85% and 15.87% of the total sales of the company in these two assessment years respectively. Thus, in his opinion, the assessee ought to have allocated the expenditure in the ratio of sales to these units. The 13.89% of total expenditure under the alleged common head office expenses amounting to ₹ 3535.09 lakhs in the Asstt.Year 2009-10 comes out to 491.02 lakhs. Similarly, in the Asstt.Year 2010-11, it comes out to ₹ 33.20 lakhs. The assessee has allocated expenditure of ₹ 235.56 lakhs in the Asstt.Year 2009-10 and ₹ 7.34 lakhs in the Asstt.Year 2010-11. Accordingly, the difference has been allocated by the AO for disallowance which will reduce the eligible profit for the purpose of deduction under section 80IC. The amount allocated by the AO is ₹ 255.46 lakhs (Rs.491.02 lakhs minus ₹ 235.56 lakhs) in the Asstt.Year 2009-10 and ₹ 25.86 lakhs in the Asstt.Year 2010-11 (Rs.33.20 lakhs minus ₹ 7.35 lakhs). 24. On appeal, the ld.CIT(A) has deleted this allocation made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate division. Under this head, the ld.AO found that the expenditure of ₹ 8106.37 lakhs and 7180.75 lakhs have been incurred by the assessee on rates and Taxes, printing and stationery, common expenses on sales, general charges and insurance. The assessee has allocated on expenditure of ₹ 521.70 lakhs and ₹ 424.18 lakhs. The ld.AO made disallowance of ₹ 604.27 lakhs and ₹ 714.64 lakhs in the Asstt.Year 2009-10 and 2010-11 respectively. 27. On appeal, the ld.CIT(A) has deleted these disallowances in both the years. 28. We have examined the details with the assistance of the ld.representatives. In our reasoning given while upholding the deletion out of certain common head expenses, we do not find any error in deleting the disallowance under these head. The basic reason is that the assessee has debited expenditure which has direct nexus with 80IC units. Such expenditure cannot be amplified by considering the sales ratio. The AO has nowhere highlighted, as to which particular facility was used by the assessee, generated out of common head expenses. He simply adopted the figure of sales and then proceeded to disallow the expenditure. In our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard, we would like to state that certain expenses incurred in relation to earning such income have already been disallowed of ₹ 0.52 lacs on suo moto basis by us in its Return of Income. We request your goodself to refer to Annexure 1 for details in this regard. 1.2. At the outset, we would like to mention that surplus funds available with the company are invested in Mutual Funds. The prime motive of investment in mutual funds is to gain by appreciation in the Net Asset Value of the funds. Your goodself would appreciate that all of the investments made by the Company are in 'Growth Option' of the Mutual Funds. It is important to mention here that in case of Growth Options, no dividends are declared by the Mutual Funds and the only income received by the investor is in form of Capital Gains. Capital Gains derived by the assesses on Mutual Funds are taxable and no exempt income is derived from such investments. Your goodself would observe that during the year under consideration, the assessee has earned profit of ₹ 8.23 crores on sale of such investments and the same has been appropriately offered to tax after categorizing the same in long term and shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure incurred for the purpose of earning such income has been disallowed appropriately. 1.9. Further, computation of such disallowance is also in consonance with the earlier year assessment orders up to AY 2008-09 and thus the amount of disallowance made by us u/s. 14A is appropriate and thus Rule 8D cannot be invoked. Further, during AY 2009-10 additions were made by applying Rule 8D in the case of the Assessee however learned CIT(A) vide his order dated 19th January 2011 deleted the addition made by AO in this regard. 1.10. It is important to note that Rule 8D would trigger only in cases where the Assessing Officer is not satisfied with the correctness of the claim of the Assessee and such dissatisfaction has been arrived at with regard to the accounts of the Assessee. Since the disallowance made by us is in. line with disallowance made by AO in earlier years, Rule 8D cannot be invoked. 1.11 For the purpose, we rely upon the decision of Punjab Haryana High Court in the case of CIT vs. Hero Cycles. Copy of the said judgement is attached as Annexure V. In the said case, the assessee earned dividend income on shares which was exempt from tax. The AO took the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 this Act. The Parliament is its wisdom had enacted section 14A with retrospective effect from 1-4-1962 in order to clarify the already existing position that only those expenses could be claimed which were relatable to the taxable income. In the past, it was seen that assessee's were pushing the expenses relating to exempt income which were not taxable towards taxable income and thereby reducing the taxable income wrongly. The intention of the Legislature is clearly evident from the Memorandum explaining the provisions contained in the Finance Bill wherein it was explained that only those expenses could be claimed as deduction which are incurred in relation to earning the taxable income. The use of the expression 'only to the extent' in the memorandum is clear indicator that only that part of expenses can be allowed as deduction which is related to the earning of taxable income. Accordingly, when the income is exempt and does not form part of the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gorizing the same in long term capital gains/short term capital gains. Similarly, the assessee had made investment in overseas subsidiaries, which also do not generate any exempt income. It was also disclosed that in certain mutual fund scheme, it has opted dividend option and also earned dividend income. But the investment in such type of scheme was of ₹ 60.36 crores as on 31.3.2008 which was liquidated during the Asstt.Year 2009-10 and on 31.3.2009, such investment was shown at NIL. The ld.AO was not satisfied with the explanation of the assessee. He has recorded a verbatim same finding as extracted by us in the Asstt.Year 2010-11. He made addition of ₹ 87,44,951/- in the Asstt.Year 2009-10 after giving credit of the amounts, the assessee itself disallowed. An addition of ₹ 82,34,951/- was made. 33. On appeal, the ld.CIT(A) have recorded a divergent finding in both the years. The ld.CIT(A) in the Asstt.Year 2009-10 has deleted the disallowance. However, in the Asstt.Year 2010-11, the ld.CIT(A) has confirmed the disallowance by observing as under: 7.3 Decision: I have carefully perused the assessment order and the submissions given by the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im of the appellant that no expenditure has been incurred. The facts of the case for the present year are therefore, different from the preceding year and accordingly the findings given by learned predecessor are not applicable on this issue for the present year. The appellant has also claimed that the disallowance by applying rule 8D is much more than the exempt income earned by the appellant and the disallowance should accordingly be restricted to the income earned. The appellant's claim cannot be accepted as it is not necessary that the expenditure should be limited by the income earned. The expenditure cannot be restricted to the income earned. The disallowance is to be made after considering the funds invested in tax exempt assets and the overall interest expenditure incurred by the appellant. Similarly, the administrative expenses in maintaining and investing such assets is also to be taken into account. The claim of the appellant is therefore not acceptable. In view of the above discussion the disallowance made by the AO under section 14A by applying the provisions of rule 8D is upheld and the ground of appeal is dismissed. 34. Before us, the ld.CIT-DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licability of Rule 8D is not disputed, but in the Asstt.Year 2005-06, the disallowance of ₹ 3,25,863/- was made under section 14A. When this issue travelled upto the Tribunal in ITA No.4352/Ahd/2007 and ITA No.4357/Ahd/2007, then the Tribunal has observed that since Rule 8D is not applicable in this year, therefore, no disallowance can be made. The Tribunal has deleted the disallowance by following its order in the case of ACIT Vs. Vepar Pvt. Ltd. in ITA No.1374/Ahd/2009. The Revenue was not satisfied with conclusions of the Tribunal and took the matter in the Hon ble High Court. The Hon ble High Court though dismissed the appeal on account of smallness of the amount involved in that year, but made an observation that even in the absence of Rule 8D, the expenditure can be disallowed on reasonable basis. She contended that even on estimate, this disallowance can be made. 36. We have duly considered rival contentions. As far as the proposition of the ld.CIT-DR that even in the absence of any mechanism for disallowance, the expenditure, which is attributable to earning of exempt income can be worked out on estimate basis or reasonableness basis after looking into the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in subsection (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 37. According to the Hon ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imply discussed the background for bringing section 14A as well Rule 8D on the statute book. He has specifically not worked out the amounts even on the basis of Rule 8D. He called for a working from the assessee and made a lumpsum addition in both the years. The ld.AO has not recorded any finding that amounts added back by the assessee are not commensurate with the administrative expenses which might be attributable to earning exempt income. Because, on interest expenses account, there cannot be any disallowance as the assessee has far more interest free fund than investment. We are of the view that the ld.CIT(A) has looked into all these aspects in the Asstt.Year 2009-10 before deleting the disallowance. We do not find any error in the order of the ld.CIT(A) on this issue in Asstt.Year 2009-10. Consequently, we allow the ground of appeal raised by the assessee in the Asstt.Year 2010-11 and delete the disallowance made by the AO. 38. Next grievance of the assessee in the Asstt.Year 2009-10 is that the ld.CIT(A) has erred in upholding the charging of interest under sections 234B, 234C and 234D of the Act. No arguments were advanced on this issue. Charging of interest is consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (SC), CIT Vs. Bengal Coal Co. Ltd., (1989) 47 Taxman 284 (Cal.), CIT Vs. Raigarh Jute Mills Ltd., (1989) 47 taxman 166 (Cal.), CIT Vs. Hindustan Times Ltd., (2000) 241 ITR 509 (Del) and CIT Vs. Patiala Flour Mills Co. P. Ltd., (1989) 180 ITR 75 (P H). In the case of Dalmia Jain and Co. Ltd. (supra) the issue relates to litigation expenses. The government was supposed to lease out land to the assessee, if it succeeded in a litigation against the third party. The assessee was impleaded as defendant along with the government, and hence, it incurred litigation expenses defending the suit filed against it. The litigation expense was allowed to the assessee on the ground that these expenses were incurred to protect the business and not with a view to safeguard its prospects of getting a new lease. Similarly, in the case of Raigarh Jute Mills Ltd. (supra) such expenditures were incurred for defending the persons for the company, who were defendants. This expenditure was allowed to the assesseecompany on the strength of this decision. He contended that expenses were incurred for the purpose of management of portfolio. 42. We have duly considered rival contentions and gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan was acquired by the assessee for financing the expenditure for expansion plan in existing business. 48. The ld.AO was not satisfied with the explanation of the assessee. He recorded a finding that the assessee was required to account for difference foreign exchange as gain or loss in its books of accounts. The gain or loss cannot be considered as a notional gain/loss. According to the AO, the assessee follows accrual system and gains has been duly accounted for in its audited books of accounts, therefore, there is no reason that such gain be excluded from taxation. He made addition of ₹ 39,48,81,350/-. 49. On appeal, the ld.CIT(A) has deleted this disallowance. The relevant observations of the ld.CIT(A) reads as under: . After considering the above details, it is noted that the money have been borrowed by the appellant in foreign exchange for the purpose of expanding its business and making investment. The purpose was, therefore, on capital account and any exchange, fluctuation resulting into profit or loss should be treated on capital account and adjusted from the cost of the asset but it cannot have any impact on the revenue account. Had the loan been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: 9. Section 43 A, before its substitution by a new section 43 A vide Finance Act, 2002, was inserted by Finance Act, 1967 with effect from 1-4-1967, after the devaluation of the rupee on 6-6-1966. It applied where as a result of change in the rate of exchange there was an increase or reduction in the liability of the assessee in terms of the Indian rupee to pay the price of any asset payable in foreign exchange or to repay moneys borrowed in foreign currency specifically for the purpose of acquiring an asset. The section has no application unless an asset was acquired and the liability existed, before change in the rate of exchange. When the assessee buys an asset at a price, its liability to pay the same arises simultaneously. This liability can increase on account of fluctuation in the rate of exchange. An assessee who becomes the owner of an asset (machinery) and starts using the same, it becomes entitled to depreciation allowance. To work out the amount of depreciation, one has to look to the cost of the asset in respect of which depreciation is claimed. Section 43A was introduced to mitigate hardships which were likely to be caused as a result of fluctuation in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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