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TMI Blog2018 (1) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... income as income assessable under the head ‘business income’ instead of assessable under the head ‘income from house property’. Disallowance u/s 14A - Held that:- AO has wrongly applied the formula given in Rule 8 of the I.T. Rules. The arguments made by the ld. AR that the investments were old investments except the shares of MTCPL which were revived as part of rehabilitation scheme duly approved by BIFR and on which no dividend income was earned during the year. The assessee having incurred demat charges amounting to ₹ 2,18,304/- which, in fact, relates to earning of dividend income and to that extent, the CIT(A) has rightly disallowed and allowed the balance relief of ₹ 36,95,625/-. - Revenue appeal dismissed. - ITA No. 105/DEL/2014 - - - Dated:- 10-11-2017 - SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI B.P. JAIN, ACCOUNTANT MEMBER For The Assessee : Shri Rohit Jain Ms. Tejasvi Jain, Advocates For The Revenue : Shri Atiq Ahmed, Sr. DR ORDER PER B.P. JAIN, ACCOUNTANT MEMBER, This appeal of the Revenue arises from the order dated 04.10.2013 of ld. CIT(A)- V, New Delhi for A.Y 2008-09. 2. The Grounds of appeal raised by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee s business and as has been noted, the assessee company has also started production in the subsequent F.Yrs, though the same may not have any bearing to the expenses claimed during the year. 6.3 Since the fact that the assessee is a corporate entity in business, maintaining certain amount of expenses under the above heads is necessary. Observing so the issue after discussion with the ARs of the company is felt that the interest of natural justice as well as the interest of revenue has to be taken into a balanced consideration so that the justice and revenue par takes its share wit in the ambit of law. Accordingly, it is held, that in order to maintain such principal of natural justice and revenue orientation, it is estimated that expenses to the extent as discussed below out of the claim of expenses under the above heads are allowable to the assessee company. 6.4 Accordingly, the remaining of the expense is disallowed and added back to the income of the assessee. Head Claimed Amount Claimed Extent Disallowed Amount Disallowed Conveyance Expenses-staff Rs.16,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, we do not find any infirmity in the order of the ld. CIT(A) who has relied upon the following decisions: a) CIT Vs. Malayalam Plantations Ltd 53 ITR 140 (SC) b) CIT V Birla Cotton Spinning Weaving Mills Ltd 82 ITR 166 [SC] c) Madhav Prasad Jatia Vs. CIT 118 ITR 200 [SC] 8. Reliance was also placed by the ld. counsel for the assessee on the decision of the Hon'ble Supreme Court in the case of J.J. Enterprises Vs. CIT reported at 254 ITR 216 [SC] where, as per the Head Notes , it has been held as under: In its principal order, the Tribunal had concluded that the addition was unsustainable because it had been made on the basis of pure guess work . The Revenue moved the High Court under Section 256(2) of the Income-tax Act, 1961, and the High Court called for a reference on the basis that the question was a question of law. We are unable to agree with the High Court. In the first place, the Tribunal has held that the addition had been made on the basis of pure guess work and this is a matter of fact in respect of which the Tribunal's conclusion is final. In the second place, there was no question of remanding the matter to the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) observed that u/s 22 of the Act, the value of business assets which are used as part of business by an assessee is not subjected to tax as income from house property and the same is assessable as part of the business income . The assessee has suspended business which was revised as part of implementation of the revival scheme passed by BIFR. He further observed that the assessee had rental income which was derived during the intervening period while business was suspended from commercial exploitation of the business assets in the form of employees quarters, office premises, etc. Accordingly, the CIT(A) held that the same is assessable as business income and he relied upon the decisions of various courts of law, mentioned at page 9 of his order. 12. On the other hand, the ld. DR, at the very outset, relied upon the order of the AO whereas the ld. AR relied upon the order of the CIT(A) apart from relying upon the decisions of various courts of law, which will be discussed hereinbelow. 13. We have heard the rival submissions and have carefully perused the relevant material on record. On a bare reading of section 22 of the Act, it is evident that, only the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Department under section 10 of the Income Tax Act under the head Profits and gains of business . But in the subsequent assessment years, the Income Tax officer held that income from the lease rent was liable to be assessed under the head Income from other sources under section 12 of the Act. The assessee company filed an appeal against the order of the Income Tax officer. The Commissioner upheld the order of the Income Tax officer. The assessee took the matter to the Income Tax Tribunal. The Tribunal directed the Income Tax officer to treat the income arising out of the letting out of the assets as 'business income'. The matter then went to the High Court. The High Court held that the income derived by the assessee company by way of the lease rent from the letting out of the assets during the years ending 31st December, 1959, 31st December, 1960, 31st December, 1961 and 31st December, 1962, is assessable to tax under the head profits and gains of business . Aggrieved by the decision of the High Court, the revenue appealed to this Court. HELD: Whether a particular income received by the assessee as a result of the activities carried on by the assessee is bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing items of iron and steel and heavy castings. The assessee continued its business from December 1968 to May 1970 and thereafter, factory building and machinery were leased out from time to time for about six years. Income received from such lease has been held as business income for the period of temporary suspension. Accordingly, under such facts and circumstances of the case, and in view of the above findings and decisions relied upon various courts of law, we find no infirmity in the order of the CIT(A). Thus, ground No. 2 raised by the Revenue is dismissed. 17. The brief facts pertaining to Ground No. 3, as noted by the Assessing Officer in para 8 of the assessment are reproduced hereinebelow for ready reference: On a perusal of the P L account, it is seen that the assessee has earned dividend of ₹ 33,54,00,000/- which it has claimed as exempt income. It was asked as to why proportionate disallowance of expenses may not be made u/s 14A of the Act. In its reply the ld. counsel for the assessee submitted that the aforesaid dividend income has been earned on the following investments: Name of the company Year in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onwards. Accordingly, disallowance as per Rule-8D is being calculated as under: Rs. Rs. [in lacs] Rule 8D(2)(i) Demat Charges 2,18,304 Rule 8D(2)(ii) ( A x Bye A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year 7,391.25 C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the , previous year; - Rule 8D(20(iii) 0.5% of average investment 3695625 Expenditure allowed as per Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. On a bare reading of the said section, it is amply clear that only the actual expenditure incurred for the purpose of disallowance has to be incurred and not any notional disallowance can be made by the AO. Sub-sections (2) and (3) of the aforesaid section empowers the AO to apply the formula given in Rule 8D of the I.T. Rules subject to his recording of satisfaction that the claim of the assessee in respect of expenditure in relation to exempt income is incorrect, which has not been done in the present case. Reliance was placed on the decision of the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT reported in 328 ITR 81 wherein it has been held as under: ..... In order to determine the quantum of the disallowance, there must be a proximate relationship between the expenditure and the income which does not form part of the total income. Once such a proximate relationship exists, the disallowance has to be effected. All expenditure incurred in the earning of income which does not form part of the total income has to be disallowed subject to compliance with the test adopted by the Supreme Court in Walfort and it would not be permissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of Section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure as the case may be in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. 24. Accordingly, in view of the decisions referred to hereinabove, the AO has wrongly applied the formula g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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