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TMI Blog2017 (11) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... ee and also nature of expenditure debited, held that employee who is looking after the investment must have incurred transport, telephone and other administrative expenses and, therefore, he justified application of Rule 8D. Section 14A(2) read with Rule 8D(1)(a) requires that the Assessing Officer before invoking the provision of Rule 8D having regard to the account of the assessee about correctness of the claim of expenditure made by the assessee has to record his satisfaction that such a claim made by the assessee is not correct and such a satisfaction can only be discernible once he has examined the nature of accounts and expenditure debited qua earning of exempt income. If the Assessing Officer does not apply with the mandatory requirement of section 14A(2) and Rule 8D(1), then disallowance under section 14A cannot be triggered and thereby proceed with disallowance in accordance with formula laid down in Rule 8D(2). The mandatory requirement of proceedings under section 8D(2) has to rout through provisions enshrined in rule 8D(1) and section 14A(2). Once that is not so, then he cannot proceed with the disallowance. Accordingly, the ground raised by the assessee is allowed. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Reliance Telecom Ltd. for a total value of ₹ 10,65,03,936/-. As per the said purchase order, timely delivery was the essence of the purchase order and as per the agreement, there was a specific clause (clause No.18) wherein it was mentioned that if the seller (assessee-company) fails to deliver within the stipulated period i.e. 5/11/2007, the purchaser shall be entitled to recover from the assessee-company a sum equivalent to one percent of the basic value of invoice for any delayed portion for each week of delay or part thereof subject to a maximum of 10% for the delayed period. It was in terms of this clause that the assessee had made a provision for late delivery charges amounting to ₹ 25 lakhs during the previous year. It was also brought on record that the actual expenditure incurred thereof on account of late delivery was ₹ 19,46,519/- and in support of which copy of sale invoice and consignment notes, in respect of which late delivery charges, were paid were also furnished along with copy of ledger account of Reliance Telecom Ltd. It was also stated that the balance amount of the provision made amounting to ₹ 5,53,481/- (Rs.25 lakhs (-) ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned liability, provision for the same cannot be allowed. 7. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as the material referred to before us. The issue before us is, whether provision of ₹ 25 lakhs made by the assessee under the head late delivery charges is allowable in this year or not? The assessee had entered into an agreement for sale of certain electronic equipments with Reliance Telecom Ltd. vide purchase order dated 23/8/2007. The said purchase order contained a clause under the head Penalties which stipulates that in case of late delivery, a sum equivalent to 1% of the basic value of delayed portion for each week of delay or part thereof subject to a maximum of 10% for the undelivered portion shall be paid. This has given in clause 18 which, for the sake of ready reference, is reproduced hereunder:- 18. Penalties: (a) delivery time as mentioned above is the essence of this order. However a grace period of one week shall be given to the SELLER for the purpose of Late Delivery. If the SELLER fails to effect deliveries within the stipulated period, the OWNER shall be entitled to recover from the SEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is not proper and it is some kind of unascertained liability. In any case, actual event happening in the subsequent year that assessee did incur expenditure of approximately ₹ 19.47 lakhs and also offered the income of excess provision of ₹ 5.54 lakhs, such disallowance of provision is uncalled for. Accordingly, the ground raised by the assessee is allowed. 9. Regarding disallowance under section 14A of ₹ 1,57,566/-, the brief facts are that the assessee has earned dividend income of ₹ 30,66,500/- and for earning of such dividend income, assessee had apportioned ₹ 50,000/- of expenses under the head indirect expenditure which according to the assessee was reasonable attributable expenditure for earning of such dividend income. This attribution of ₹ 50,000/- was based on employee cost looking after the investment made during the year. It was further submitted that only three investments were made during the year and, therefore, not much activity has been done in this year. The Assessing Officer held that it is not possible for assessee to maintain these investments without incurring expenditure under other heads like, transport, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned orders as well as the material referred to before us. From the perusal of assessment order, it is seen that once assessee had offered disallowance of ₹ 50,000/- and also given basis on which it has offered the disallowance which was proportionate employee cost looking after the investment and also explained that only three investments were made during the year and thus such allocation of expenditure was quite reasonable. The Assessing Officer, without examining the accounts maintained by the assessee and also nature of expenditure debited, held that employee who is looking after the investment must have incurred transport, telephone and other administrative expenses and, therefore, he justified application of Rule 8D. Here the only dispute is with regard to the indirect expenditure under Rule 8D(2)(iii). Section 14A(2) read with Rule 8D(1)(a) requires that the Assessing Officer before invoking the provision of Rule 8D having regard to the account of the assessee about correctness of the claim of expenditure made by the assessee has to record his satisfaction that such a claim made by the assessee is not correct and such a satisfaction can only be discernible once he has e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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