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TMI Blog2016 (10) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... O to adopt the cost per transaction at ₹ 3.06 against ₹ 1.64 worked out by the AO - Held that:- Section 40A(2) of the Act is not applicable to co-operative society and thus, the additions made based on the premise that Section 40A(2) of the Act is applicable to co-operative society is not sustainable in law and hence is ordered to be deleted. Further, it is the say of the assessee that tax effect is neutral and there is no loss to the Revenue as the said subsidiary company SIL is also paying tax at the same rate and hence no prejudice is caused to the Revenue as the Revenue has got due taxes albeit paid by SIL who is subsidiary of the assessee on the charges received from assessee. See - CIT Versus MANJARA SHETKARI SAHAKARI SAKHAR KARKHANA LTD.[ 2007 (8) TMI 260 - BOMBAY HIGH COURT]. We order accordingly and this ground is decided against Revenue. Interest expenditure allowance - Nature of expenditure - revenue v/s capital - whether CIT(A) erred in not accepting the allocation of interest expenditure towards property construction made by the assessee itself out of the total interest paid on the entire borrowed funds ? - Held that:- There is no finding of fact recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing disallowance of interest expenditure and if the assessee’s own interest free funds are more than the investments in the securities capable of yielding exempt income, presumption will apply unless rebutted by the Revenue that the assessee has utilized its own interest-free funds for making investment in securities which are capable of yielding exempt income. We order accordingly. Levy of interest u/s. 234B and 234C - Held that:- Plea/contentions of the assessee that there was a sudden spurt in advances in the month of March 2010 while led to increase in advance tax liability which could not be anticipated while estimating advance tax liability as per provisions of the Act need verification by the AO and hence we are inclined to set aside and restore this issue to the file of the AO for de-novo adjudication of the issue on merits in accordance with law. - I.T.A. No. 8622/Mum/2010, I.T.A. No. 7738/Mum/2010, I.T.A. No. 1140/Mum/2012, I.T.A. No. 694/Mum/2012, I.T.A. No. 5627/Mum/2003, I.T.A. No. 1/Mum/2014 - - - Dated:- 31-10-2016 - C. N. Prasad (Judicial Member) And Ramit Kochar (Accountant Member) For the Revenue : Manjunath Swamy, CIT DR For the Assessee : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture has been incurred to earn the income which was not chargeable to tax, which is not considered by the AO and he simply proceeded to invoke Rule 8D of Income-tax Rules, 1962 without recording satisfaction which is against the decision of Hon ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited(supra). The learned CIT(A) held that reasonable disallowance should have been made by the AO keeping in view time, energy, effort and expenses incurred in retaining and maintenance of investment in shares as a prudent business man. It was observed by the learned CIT(A) that Rule 8D of Income-tax Rules, 1962 read with Section 14A of the Act provide reasonable disallowance of the expenses incurred in relation to earning of income which is exempt from tax. The learned CIT(A), however, directed that all investments which yield taxable income as well strategic investment of ₹ 10 crores made by the assessee in its subsidiary Saraswat Infotech Limited be excluded for computing disallowance u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962. The Revenue is aggrieved by the decision of learned CIT(A) in excluding strategic investment in subsidiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The next grievance of the Revenue is with respect of the decision of learned CIT(A) in restricting the disallowance made u/s. 40A(2)(b) of the Act in directing the AO to adopt the cost per transaction at ₹ 3.06 against ₹ 1.64 worked out by the AO. It was observed by the AO that the assessee has paid ₹ 13,44,73,913/- to its related enterprise Saraswat Infotech Limited (hereinafter called SIL ) for provision of services pertaining to software and data entry. The SIL as explained by the assessee would maintain and manage the entire IT infrastructure of the bank. Transactions are done by SIL and the assessee pays on per transaction basis to SIL. The assessee paid up-to September 2006 transaction charges @Rs.1.38 per transaction to SIL, while the same was re-worked based on current cost and the projected operational cost in future of SIL as well projected investment to ₹ 4 per transaction. The working is reproduced by the AO in the assessment order page 5/6 based on actual costs as well projected investments and costs of SIL. Keeping in the view that certain expenditure are to be excluded since SIL was occupying the premises belonging to the assessee and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, learned CIT(A) agreed with the assessee that if actual costs are available then in that case, the AO should have picked up the actual expenses figure rather than making estimation. The learned CIT(A) worked out cost per transaction based on actual cost figures at ₹ 3.06 per transaction on contrast to ₹ 4.49 per transaction actually paid by the assessee and directed the AO to base the disallowance on these figures. Aggrieved, Revenue is in appeal before the Tribunal. The learned DR relied on the decision of the AO. It was submitted that the decision of Hon ble Bombay High Court in the case of CIT v. Manjara Shetkari Sahakari Sakhar Karkhana Limited (2008) 301 ITR 191(Bom) is not applicable as the facts are distinguishable as in the said case payments were made by co-operative society to its member under State Advance Price fixed by the State Government over and above Statutory Minimum Price fixed by the Central Government, while in the instant appeal the payments are made by cooperative society to its subsidiary company and not to its members. It was submitted that in the definition of person as contained in Section 2(31) of the Act, co-operative society is not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act applies to the person specifically named therein and since co-operative society does not found mention in Section 40A(2)(b) of the Act, the said section would not apply to co-operative society. The co-operative societies are governed by principles of mutuality and deductions are provided u/s 80P of the Act on fulfilling of the prescribed conditions, while the association of person is not governed by principle of mutuality. The Hon ble Bombay High Court has in the case of CIT v. Manjara Shetkari Sahakari Sakhar Karkhana Limited(supra) has held that provisions of Section 40A(2) of the Act are not applicable to co-operative society. While deciding the afore-stated question, the Hon ble Court relied on the decision of Hon ble Bombay High Court in the case of CIT v. Shivamrut Doodh Utpadak Sahakari Sangh Maryadit in Tax Appeal No. 62 of 1999 filed by Revenue whereby Hon ble Bombay High Court confirmed the decision of the Tribunal and held that Section 40A(2) of the Act is not applicable to cooperative society. Thus, Respectfully following the decision of Hon ble Bombay High Court in afore-stated cases, we hold that Section 40A(2) of the Act is not applicable to co-operative society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO and to the extent interest was capitalized, were not allowed by the AO as revenue expenditure. The assessee reiterated its submissions before learned CIT(A) who allowed the appeal of the asseessee as the AO has not given any finding that the assessee has infact paid any interest towards the funds borrowed for construction of the building. It was observed by the learned CIT(A) that it is a notional interest which was capitalized by the assessee while there was actually no borrowed funds utilized by the assessee for the purposes of construction of building which could be capitalized to construction cost of the Building and hence learned CIT(A) allowed the entire interest claimed by the assessee as an allowable revenue expenditure and the additions made by the AO were consequently deleted. Aggrieved, Revenue is in appeal before the Tribunal. It is the say of learned DR that the AO has rightly disallowed interest expenditure as the same was capitalized by the assessee in its books of accounts towards the cost of construction of building. While learned counsel for the assessee relied on the orders of learned CIT(A). The learned counsel of the assessee would say that building fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d relevant is the allowability of these expenses as revenue expenses as per provisions of the Act. The judgment of Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 and Hon'ble Delhi High Court in the case of CIT v. Triveni Engg. Industries Ltd. (2009) 181 Taxman 5 (Delhi) support the contentions of the assessee in this regards . The taxes are to be collected by the authority of law which is mandate of Article 265 of the Constitution of India. Article 265 of the Constitution of India reads that No tax shall be levied or collected except by the authority of law. In terms of the Article 265 of the Constitution, tax can be levied only if it is authorized by law. The taxing authority cannot collect or retain tax that is not authorized. Any retention of tax collected, which is not otherwise payable, would be illegal and unconstitutional. The Hon'ble Bombay High Court in Balmukund Acharya's v.DCIT (2009) 310 ITR 310(Bom) held that Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconception or on not being properly instructed is over assessed, the authorities under the Act are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax-payer has given different treatment in its books of account by capitalizing the same in its books of account instead of debiting it to the Profit and Loss Account. This is the mandate of the Act which has to be followed as the taxes can only be collected by the authority of law. In our considered view based on our above discussions and reasoning as set out above, the addition made by the A.O. is not sustainable keeping in view factual matrix of the case and we do not find any infirmity in the orders of the learned CIT(A) which we affirm/sustain and Revenue appeal is dismissed on this ground. We order accordingly. 6. This disposes of the appeal of the Revenue in ITA no 8622/Mum/2010 for the assessment year 2007-08 which is partly allowed as indicated above. 7. Now we will take up the assessees appeal in ITA No. 7738/Mum/2010 for the assessment year 2007-08. 8. The first grievance of the assessee is with respect to the sustenance of disallowance u/s 14 A of the Act to the tune of ₹ 3,55,370/- by the learned CIT(A), the disallowance worked out with reference to Rule 8D of Income-tax Rules, 1962. The assessee s counsel has submitted that the assessee did not w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(va) of the Act is warranted in the instant case in view of the afore-stated decisions, as the assessee in the instant case paid the employees contribution towards PF within grace period as allowed by PF statute and in any case the employee contribution to PF was deposited with PF authorities before the due date prescribed u/s 139(1) of the Act for filing of the return of income with the Revenue. We order accordingly. 11. This disposes of appeal filed by the assessee in ITA no. 7738/Mum/2010 for assessment year 2007-08, which is partly allowed as indicated above. 12. We shall now take up appeal filed by the Revenue in ITA no 1140/Mum/2012 for the assessment year 2008-09. 13. The first grievance of the Revenue is with respect to the decision of the learned CIT(A) in restricting the disallowance made u/s 40A(2)(b) of the Act in directing the AO to adopt the cost per transaction at ₹ 3.60. We have already adjudicated this issue while deciding the cross appeals for the assessment year 2007-08 in preceding para s of this order and our decision for the assessment year 2007-08 shall apply mutatis mutandis to this issue in Revenue appeal for assessment year 2008-09. We or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. In the failure thereof the assessee to discharge primary onus, the AO shall record satisfaction and apply Rule 8D of Income-tax Rules, 1962 to compute disallowance u/s 14A of the Act of the expenditure incurred in relation to the earning of exempt income. We are also of the considered view, that strategic investment made by the assessee in its subsidiary Saraswat Infotech Limited as well in the other securities which are capable of yielding exempt income i.e. by way of dividend etc. which are exempt from tax shall be included while computing disallowance u/s 14A of the Act as per the scheme of the Act as contained in provisions of Section 14A of the Act as the statute does not grant any exemption to the strategic investments which are capable of yielding exempt income to be excluded while computing disallowance u/s 14A of the Act and hence the investment made by the assessee in subsidiary company M/s Saraswat Infotech Limited and all other securities which are capable of yielding exempt income by way of dividend etc shall be included for the purposes of disallowance of expenditure incurred in relation to the earning of exempt income, as stipulated u/s 14A of the Act. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 2008-09 in ITA No. 694/Mum/2012, our decisions in aforestated appeals shall apply mutatis mutandis to the Revenue s appeal for the assessment year 2009-10 in ITA no. 5627/Mum/2013. We made it clear that only investments which are capable of yielding tax-free income shall be included for disallowance u/s 14A of the Act and also strategic investments in securities which are capable of yielding tax-free income are to be included while computing disallowance u/s 14A of the Act, while the investments which are capable of yielding taxable income shall not be included in computing disallowance u/s 14A of the Act. Rule 8D of Income-tax Rules, 1962 is applicable w.e.f. 2008-09 as held by Hon ble Bombay High Court in Godrej and Boyce Manufacturing Company Limited(supra) which shall be applied by the AO only after disallowance of expenditure incurred in relation to earning of exempt income could not be worked out having regards to accounts of the assessee in accordance with Section 14A(2) of the Act and the onus is on the assessee to bring on record all details connected therewith. This disposes the grounds raised in Revenues appeal in ITA No.5627/Mum/2013 for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned DR submitted that these contentions of the assessee before the Tribunal need verification. After hearing both sides and on perusal of material on record, we are of the considered view that this plea/contentions of the assessee that there was a sudden spurt in advances in the month of March 2010 while led to increase in advance tax liability which could not be anticipated while estimating advance tax liability as per provisions of the Act need verification by the AO and hence we are inclined to set aside and restore this issue to the file of the AO for de-novo adjudication of the issue on merits in accordance with law. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. We order accordingly. 25. This disposes of the assessee s appeal in ITA no 1/Mum/2014 for the assessment year 2010-11 which is partly allowed as indicated above. 26. In the result all the six appeals i.e. Revenue appeal in ITA no. 8622/Mum/2010 for assessment year, Assessee s appeal in ITA no. 7738/Mum/2010 for assessment year 2007-08, Revenue appeal in ITA no. 1140/Mum/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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