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TMI Blog2012 (3) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... EHAR SINGH, ACCOUNTANT MEMBER Appellant By : Shri Akhilesh Gupta Respondent By: Shri Navdeep Sharma ORDER PER H.L.KARWA, VP These two appeals filed by the Revenue and assessee are directed against the order of CIT(A)-II, Ludhiana dated 9.11.2011 relating to assessment year 2008-09. 2. Firstly, we will take up Revenue s appeal i.e. ITA No.16/Chd/2012. Ground No.1 of the appeal reads as under:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A)-II Ludhiana has erred in allowing the expenses amounting to ₹ 33,895/- though relating to previous year but crystallized and paid during the year. 3. The facts relating to this issue are that during the year under consideration the assessee company had paid expenses of ₹ 33,01,275/- in its various units which were related to earlier years. Out of the said amount claimed, the Assessing Officer disallowed and added ₹ 33,895/- by rejecting the contention of the assessee company. The Assessing Officer discussed this issue at pages 2 of 4 in para 1 of the assessment order. 4. On appeal, the CIT(A) deleted the addition for the reasons stated in para 3 of the impugned order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses which was crystallized and paid during the year, though related to earlier year. In view of the order of the Tribunal, we uphold the order of CIT(A) reproduced hereinabove. The ground No.1 is dismissed. 6. Ground No.2 of the appeal reads as under:- 2. On the facts and in the circumstances of the case, the Ld. CIT(A)-II, Ludhiana has erred in deleting the addition of ₹ 4,75,471/- on account of articles distributed among business associates on various occasions for want of detail of persons to whom the gifts were distributed. 7. While framing the assessment, the Assessing Officer disallowed ₹ 4,75,471/- on account of articles distributed amongst business associates on various occasions including Diwali for want of the detail of persons whom gifts were distributed. 8. On appeal, the CIT(A) allowed the claim of the assessee following his own order passed in assessee s case for assessment year 2007-08. 9. After hearing the Ld. representatives of both the parties, we find that the issue is squarely covered in favour of the assessee and against the Revenue by the order of the Tribunal dated 27.12.2011 in ITA No.1349/Chd/2011 in assessee s case relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. 10. Respectfully following the order of the Tribunal passed in assessee s case referred to above, we dismiss the ground raised by the Revenue. 11. Ground No 3 of the appeal reads as under:- 3. On the facts and in the circumstances of the case, the Ld. CIT(A)-II Ludhiana has erred in deleting addition of ₹ 35,000/- made out of total expenditure of ₹ 91,032/- incurred on guest house. 12. After hearing the Ld. representatives of both the parties, we find that the issue is squarely covered in favour of the assessee and against the Revenue by the decision of this Bench of the Tribunal dated 27.12.2011 in assessee s case in ITA No.1349/Chd/2011 relating to assessment year 2007-08. The relevant findings of the Tribunal reads as under:- 9. In Ground No.4, the Revenue challenged the deletion of addition of ₹ 35,000/- made out of total expenditure of ₹ 1,21,404/- incurred on Guest House. Ld. 'AR' placed reliance on CO No. 61/Chd/2004 for the assessment year 1999-2000 in the case of Nahar Industrial Enterprises. Before CIT(A), it was contended by the assessee that the impugned addition was made on surmises and conjectures and without b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to ESI department being additional amount charged by ESI department for delay in depositing ESI payment. 18. During the year under consideration, the assessee claimed ₹ 4,04,791/- paid to Employees State Insurance department, Chandigarh being the additional amount charged by ESI department for delay in deposing ESI payment. The Assessing Officer did not allow the claim of the assessee on the ground that the said amount was nothing but the penalty levied by ESI department. 19. On appeal, the CIT(A) allowed the claim of the assessee for the reasons stated in para 12 of the impugned order. 20. We have heard the rival submissions and have also perused the materials available on record. It is apparent from the record that the assessee company paid an amount of ₹ 4,04,791/- to ESI department on account of additional amount levied by ESI department, Chandigarh for delay in depositing ESI payment. The assessee claimed the said expenditure as Revenue in nature. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Prakash Cotton Mills P. Ltd v CIT (1993) 201 ITR 684. Shri Neeraj Sharma, Ld. Counsel for the assessee also relied upon an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make disallowance u/s 14A by disallowing some administrative expenses on proportionate basis which works out at ₹ 23,560/- as submitted by the humble appellant during the assessment proceedings on the basis of ITAT decision in earlier years. 24. The Assessing Officer has discussed this issue in para 5 of the assessment order which reads as under:- 5. Disallowance u/s 14A The company has made investment in shares from year to year. The total investment as on 31/3/2008 as shown in the balance sheet is at ₹ 13.39 Crore. The assessee has earned dividend income of ₹ 1893345/- on the said investment. The assessee was asked to compute the expenses incurred to earn the dividend income which has been claimed to be exempt u/s 10(34) of the Income Tax Act. The assessee was also asked to explain as to why the disallowance u/s 14A should not be made as per Rule 8D of the Income Tax Rules. In reply to the query the assessee filed its written reply dated 17/8/2010 which is reproduced as under : During the year under consideration the assessee company has earned exempt income u/s 10(34) 10(38) comprising of dividend income of ₹ 1893345/- and Long term Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66,410 3.Auditors remuneration 5,37,369 4. Directors Meeting fee 1,00,000 5. Postage, Telegram Telephone 60,77,101 6.Printing Stationery 33,68,670 2,90,74,550 After going through the submissions it is found that the assessee has computed the disallowance on the basis of earlier year disallowance made in accordance with the order of the Income Tax appellate Tribunal in the case of group company M/s Nahar Industrial Enterprises Ltd. However, since the rule 8D has come into existence and is applicable in the year under consideration, therefore the disallowance under rule 8D is computed at ₹ 1030043/- which is as under: Disallowance u/s 14A as per rule 8-D 1. Expenses directly relatable to income which does not form part of total income NIL 2. Income where assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08-09) - order dated 29.7.2011 iii) DCIT v Jindal Photo Ltd (ITA No. 814/Del/2011, AY : 2008-09) -order dated 23.9.2011 27. In view of the above decisions, Shri Naveep Sharma, Ld. Counsel for the assessee submitted that the order of CIT(A) on this issue may be set aside and the issue may be remanded to the Assessing Officer for fresh consideration. 28. Shri Akhilesh Gupta, Ld. DR strongly supported the orders of the lower authorities and submitted that the decisions relied upon by Shri Navdeep Sharma, Ld. Counsel for the assessee are not applicable to the facts of the present case. 29. We have heard the rival submissions and have also perused the materials available on record. The decision relied upon by the Ld. Counsel for the assessee were duly considered. 30. In the case of Multi Commodity Exchange of India ltd v DCIT (supra), the ITAT Mumbai Bench held as under:- 9. We have heard the submissions of the Id. counsel for the assessee, who submitted that the AO was not justified in applying Rule 8D of the Income Tax Rules. In this regard the Id. counsel for the assessee drew our attention to the provisions of section 14A(2) of the Act and submitted that assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard 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. (3) The provisions of subsection (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154 for any assessment year beginning on or before the 1st day of April, 2001. (The proviso was inserted earlier by the Finance Act of 2002 with retrospective effect from 11.5.2001) Under subsection (2), the Assessing Officer is required to determine the amount of expenditure incurred by an assessee in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed. The method, having regard to the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under Section 26. The circumstances in which the provisions of sub sections (2) and (3) were introduced by an amendment have been adverted to in a circular of the CBDT dated 28 December 2006. (Circular 14 of 2006) The circular notes that in the existing provisions of Section 14A no method for computing the expenditure incurred in relation to income which does not form part of the total income had been provided. As a result there was a considerable dispute between tax payers and the Revenue on the method of determining such expenditure. In this background, sub section (2) was inserted so as to make it mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with the method that may be prescribed. The circular, however, reiterates that the Assessing Officer has to follow the prescribed method if he is not satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee.' (underlining b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer proceeded to apply Rule 8-D without giving any findings with regard to the correctness of the claim made by the assessee regarding disallowance made u/s 14A of the Act. The CIT(A) has also proceeded on the same basis. 32. In the case of Balarampur Chini Mills Ltd v DCIT (supra), ITAT Kolkata Bench of the Tribunal held as under:- .From r. 8D of the Rules, it is clear that the AO can invoke this rule in case he is not satisfied with regard to the account of assessee that the claim of expenditure made by assessee is not correct and. the claim made by assessee that no expenditure has been made in relation to income which does not form part of total income under the Act, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of r. 8D(2) of the Rules. Even the provisions of s. 14A(2) clearly state that the AO shall determine the amount of expenditure incurred in relation to such income which does not form part of total income under this Act in accordance with such method as prescribed (under r. 8D of the Rules), if the AO having regard to the account of the assessee is not satisfied with the correctness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes. 36. Ground No. 2 of the appeal reads as under:- 2. That the Ld. CIT(A)-II erred in law and on facts in upholding the decision of Ld. Assessing Officer for capitalizing interest of ₹ 178549/- paid on term loan for its existing business and not for extension of business. Directions may be given not to treat the said interest as capital expenditure and further to allow the said amount of interest of ₹ 178549/- as revenue expenditure. 37. At the time of hearing of the appeal, Shri Navdeep Sharma, Ld. Counsel for the assessee did not press for this ground of appeal and accordingly we dismiss the same as not pressed. 38. In the result, Revenue s appeal i.e. ITA No. 16/Chd/2012 is dismissed while assessee s appeal i.e ITA No. 53/Chd/2012 is allowed partly for statistical purposes. Order Pronounced in the Open Court on this 6th day of March, 2012 JINDAL Tribunal ORDER 13. The Tribunal (supra), for assessment year 2007-08, had held as follows:- 17. We have heard the parties on this issue and have perused the material on record. During the year, the assessee had earned exempt dividend income of ₹ 17,97,010/- in respect of investment m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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