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TMI Blog2017 (8) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Income tax, Central Circle- 34, (hereinafter referred to as the Assessing Officer) in disallowing a sum of Rs. 1,83,70,327/- under section 14A while computing the total income of the appellant under normal provisions as well as book profit under section 115JB. (b) Without prejudice to what is stated above, the appellant submits that the Assessing Officer was not justified in considering interest expenses for the purpose of calculations under Rule 8D(ii) as the entire interest paid was for the purpose of its business and for working capital requirements of the appellant and no borrowed funds were utilized for the purpose of investments. (c) Without prejudice to what is stated above, the appellant submits that the disallowance worked out by applying Rule 8D works out to 16% of the dividend income earned, which is highly unreasonable. 2. The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in disallowing reimbursement of expenses amounting to Rs. 53,66,026/- to an institution for running the school situated at village Mankahari, Satna. 3. (a) The learned Commissioner of Income-tax (Appeals) erred in upholding the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used by the Assessing Officer with respect to disallowance under section 14A of the Act, the assessee made written submissions dated 09/12/2010, copy of which has been placed in the Paper Book at pages 64 to 65. The assessee contended that there are no borrowed funds during the year and thus, no interest expenditure could be attributable to the earning of the exempt income. Secondly, assessee pointed out that there was no direct expenditure incurred on earning of the dividend income and in any case, on account of incurrence of indirect expenditure a sum of Rs. 70,276/-, being 6% of the remuneration paid to employees looking after the day- to-day activity of mutual fund investments, was identified and it was suo-motu disallowed in the return of income as per section 14A of the Act. The Assessing Officer however, rejected the explanation furnished by the assessee and instead applied Rule 8D of the Income Tax Rules, 1962( in short 'the Rules') to compute the disallowance under section 14A of the Act at Rs. 1,75,28,793/-. In terms of Rule 8D(2)(ii) of the Rules, the Assessing Officer disallowed a sum of Rs. 99,57,793/-, being interest attributable to the exempt income and in terms of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een found to be incorrect. The Ld. Representative for the assessee pointed out that the Assessing Officer has not recorded the satisfaction contemplated under section 14A(2) of the Act before proceeding to apply the provisions of Rule 8D of the Rules for the purposes of computing the disallowance. In the context of such plea, our attention was invited to the relevant discussion contained in para-5 of the assessment order. 5.3 On the other hand, the Ld. Departmental Representative has not controverted the factual matrix brought out by the assessee , but relied upon the orders of the authorities below to support the case of the Revenue. 5.4 We have carefully considered the rival submissions. In our considered opinion, the action of the Assessing Officer of disallowing interest expenditure under section 14A of the Act by applying Rule 8D(2)(ii) of the Rules is wholly misplaced. The factual matrix clearly brings out that the interest expenditure debited in the Profit & Loss Account has no nexus with the investments which have yielded exempt income. A copy of the Balance Sheet of the assessee company, which is placed in the Paper Book at pages 1 to 55, clearly points out that there ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in section 14A(2) has to be "objectively arrived at" by the Assessing Officer, on the basis of the accounts of the assessee and the relevant facts and circumstances. In this background, what is required to be examined in the present case is as to whether the Assessing Officer has recorded a satisfaction about incorrectness of assessee's claim that the amount of Rs. 70,276/- was an expenditure relatable to the earning of the impugned exempt income, before proceeding to apply Rule 8D of the Rules. Having perused the entire discussion in para - 5 of the assessment order, the satisfaction contemplated under section 14A(2) of the Act is not discernible. In fact, the Assessing Officer has proceeded to apply Rule 8D of the Rules in an automatic manner without recording a satisfaction that the claim of the assessee was incorrect, having regard to the accounts of the assessee and the relevant facts and circumstances of the case. In fact, the following para in the judgment of Hon'ble Bombay High Court brings out that recording of the satisfaction contemplated under section 14A(2) of the Act is a safeguard provided by the Parliament, and thus the same is required to be adhered to:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required for collecting such dividend. The assessee has also explained the basis of arriving at the aforesaid expenditure, being a percentage of remuneration paid to the employees looking after the activity of the Mutual Fund investments. Considering the entirety of facts and circumstances, especially the fact that the explanation furnished by the assessee has been completely brushedaside, we find no reason to uphold the action of the Assessing Officer in applying Rule 8D(2)(iii) of the Rules in order to compute the disallowance envisaged under section 14A of the Act. Therefore, we set-aside the order of the CIT(A) on this aspect also and direct the Assessing Officer to retain the suo-motu disallowance of Rs. 70,276/- made by the assessee and delete the balance. 5.7 In the result, as far as Ground of appeal No.1 of the assessee is concerned, the same is allowed. 6. In so far as Ground of appeal No.2 is concerned, the same relates to the claim of the assessee for depreciation in respect of Badminton court amounting to Rs. 12,657/-. In this context, it was a common point between the parties that in the earlier years, similar issue has been decided by the Tribunal in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the assessee for depreciation on UPS @ 60%. Thus, assessee succeeds on this aspect. 9. In so far as assessment year 2008-09 is concerned, assessee has raised an Additional Ground of appeal, which was hitherto not raised before the lower authorities, which reads as under:- "(a) The appellant submits that a sum of Rs. 49,59,49,871/- received by the appellant in form of Sales tax /VAT subsidy from Government of Madhya Pradesh ought to be regarded as capital in nature not exigible to tax and accordingly to be reduced in computing the taxable income of the appellant." 9.1 On this aspect, the Ld. Representative for the assessee pointed out that in assessment year 2005-06(supra) also, assessee had raised a similar claim before the Tribunal by way of an Additional Ground of appeal, which was admitted and, thereafter, the matter was restored back to the file of Assessing Officer to be decided in accordance with law. On the basis of the aforesaid precedent, it is canvassed that in the instant year too, the Ground be admitted and the matter be restored back to the file of Assessing Officer to be decided as per law. 9.2 The Ld. Departmental Representative has not controverte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed as revenue expenditure. Before the CIT(A), assessee contended that the loan in foreign currency was raised for the purposes of meeting the working capital requirements and, therefore, the loss on account of exchange rate fluctuation was allowable as a revenue expenditure. The CIT(A) considered the plea of the assessee and noted that in assessment year 2006-07 similar plea of the assessee had been upheld by his predecessor CIT(A). Furthermore, the CIT(A) noted the judgment of the Hon'ble Supreme Court in the case of CIT v. Woodward Governor India P. Ltd.,179 Taxman 326(SC), wherein the issue has been decided in favour of the assessee. In this background, the CIT(A) allowed the claim of the assessee. 11.2 Before us, it was a common point between the parties that the decision of the CIT(A) for assessment year 2006-07 has since been affirmed by the Tribunal vide its order in ITA No.3859/Mum/2010 dated 16/05/2016(supra). The relevant discussion in the order of the Tribunal dated 16/05/2016(supra) reveals that the issue has been decided in favour of the assessee following the decision of the Hon'ble Supreme Court in the case of Woodward Governor India P. Ltd.(supra). In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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