TMI Blog2017 (12) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D is bad in law. Disallowance under rule 8D(2)(ii) and 8D(2)(iii) in respect of exempted agricultural income - Held that:- The assessee engaged in cultivation of agriculture for which it maintains separate set of books of accounts.The said books are duly audited by Chartered Accountants. The gross receipts from agriculture was 4,09,95,906/-. The expenses incurred in this division was 3,19,13,917/- and depreciation was 2,41,902/-. Accordingly thenet agricultural income was computed at 88,40,897/- by the assessee which was claimed as exempt under the Act. It is therefore evidently clear that the assessee has already disallowed the expenses incurred in relation to earning of agricultural income. That is, all expenses, interest and depreciation pertaining to the agricultural income were already disallowed by the assessee and only the "net" amount was claimed as exempt under the Act, therefore, considering the factual position explained above, no further disallowance is required. We note that the AO has not rejected the books of accounts, he has also not pointed out any infirmity or defect in the separate divisional accounts maintained by the assessee. The separate divisional acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed u/s.143(1) on 05.10.2009. The assessee's case was selected for scrutiny u/s 143(2) of the Act, and AO had completed the assessment by making addition u/s 14A r.w.r 8D of the I.T Act. The assessee company was engaged in the business of cultivation of sugar cane, manufacturing of sugar and trading in fans and other electrical appliances during the previous year. The Assessing officer noted that during the assessment year under consideration, the assessee earned dividend income of ₹ 33,62,011/-which is exempt from tax u/s.10(34). In the return of income the assessee had offered a disallowance u/s.14A amounting to ₹ 7,74,043/- in respect of expenditure incurred in relation to such dividend income. The quantum of exemption was claimed to have been determined by applying rule 8D of the I.T. Rules. On scrutiny of the computation of disallowance made by the assessee u/s. 14A, the AO found that the average value of investment as well as the average value of total assets has not been correctly taken. Having regard to the accounts of the assessee and also in view of the assessee's own admission of incurring expenses disallowable u/s. 14A, the correct amount of such dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) noted that the assessee had invoked Rule 8D and disallowed a sum of ₹ 7,74,703/- under Section 14A ofthe Act. The AO however disagreed with the calculation of the assessee and computed a further disallowance of ₹ 25,51,838/- under Section 14A of the Act. The assessee had objected to the manner of invocation of Rule 8D and the further disallowance made by the AO both on legal as well as factual grounds. The assessee's case was that without specifying reasons for his dissatisfaction, the AO's application of Rule 8D was unjustified. After perusing the details furnished by the assessee and the impugned order, the CIT(A) noted that no cogent reasons were recorded by the AO for disregarding or rejecting the calculation of the assessee. Although the AO has heldt hat Rule 8D is applicable in the relevant AY 2008-09, but he has not recorded any satisfaction nor has pointed out specific infirmity in the claim of the assessee. The CIT(A) noted that the assessee had computed disallowance of interest under Rule 8D(2)(ii) with reference to interest which was not relatable to any specific source of income. Theinterest which was directly attributable to agriculture & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee has defended the order of the ld. CTI(A). The ld. Counsel also relied on the submissions which he made during the appellate proceedings before the ld. CTI(A). 5.4 We have given a careful consideration to the rival submissions. We are of the view that the AO has not recorded any reasons for rejecting the calculation of the assessee. Although the AO has held that Rule 8D is applicable in the relevant assessment year 2008-09, but he has not recorded any satisfaction nor has pointed out any specific infirmity in the claim of the assessee. The interest which was directly attributable to agriculture & sugar division was excluded and disallowance was computed with reference to the remaining amount of interest and we note that interest pertains to Agricultural Division and Sugar Division should not be considered for disallowance under Rule 8D. The AO has neither pointed out any defect in the aforesaid calculation of the assessee nor in the separate divisional books of accounts maintained by the assessee. This view of the assessee is supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse, the assessee, submitted before the AO that they were computing the agricultural income as per the Audited divisional accounts and had not claimed gross agricultural receipts but had deducted the expenditure in relation to the agricultural income and accordingly the agricultural income had been taken to be exempt under the provisions of law. The assessee submitted that he had computed income with the figure of net profit as per audited profit and loss account, which includes the net profit before tax of all the divisions, as given below: Amount (i) Corporate Office : 9,06,975/- (iil Sugar Division (-) :(-) 5,94,93,867/- (iii) Agricultural Division : 88,40,807/- (iv) Marketing Division : 4,24,17,170/- Total : 78,24,364/- As per audited Divisional P & L A/c. forming part of the record, the net profit of the Agricultural Division ofRs.88,40,807/- is after deducting the total expenses of ₹ 3,19,13,917/- from the gross receipts of ₹ 4,09,95,906/- of the said Division. While computing the income from business, the said net profit from the Agricultural Division has been deducted from the net profit as per Profit & Loss A/c. Thus, the gross receipts of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books are duly audited by M/s Chaturvedi & Co., Chartered Accountants. The gross receipts from agriculture was ₹ 4,09,95,906/-. The expenses incurred in this division was ₹ 3,19,13,917/- and depreciation was ₹ 2,41,902/-. Accordingly the net agricultural income was computed at ₹ 88,40,897/- by the assessee which was claimed as exempt under the Act. The CIT(A) observed that the assessee has already disallowed the expenses incurred in relation to earning of agricultural income. That is, all expenses interest and depreciation pertaining to the agricultural income were already disallowed by the assessee and only the "net" amount was claimed as exempt under the Act and therefore agricultural income. This way, ld CIT(A) held that no further disallowance should be made. Therefore, the further disallowance of ₹ 4,43,02,551/- in substance amounted to double disallowance by theAO. The CIT(A) also held that AO had not rejected the books of accounts and also not pointed out any infirmity or defect in the separate divisional accounts maintained by the assessee. The separate divisional accounts were duly audited by a firm of Chartered Accountants. All the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses were not taken by the assessee, as allowed, as a deduction while computation of income. We are of the view that the assessee engaged in cultivation of agriculture for which it maintains separate set of books of accounts.The said books are duly audited by Chartered Accountants. The gross receipts from agriculture was ₹ 4,09,95,906/-. The expenses incurred in this division was ₹ 3,19,13,917/- and depreciation was ₹ 2,41,902/-. Accordingly thenet agricultural income was computed at ₹ 88,40,897/- by the assessee which was claimed as exempt under the Act. lt is therefore evidently clear that the assessee has already disallowed the expenses incurred in relation to earning of agricultural income. That is, all expenses, interest and depreciation pertaining to the agricultural income were already disallowed by the assessee and only the "net" amount was claimed as exempt under the Act, therefore, considering the factual position explained above, no further disallowance is required. We note that the AO has not rejected the books of accounts, he has also not pointed out any infirmity or defect in the separate divisional accounts maintained by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|