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TMI Blog2018 (6) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... med by ITO Ward-1(4), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 10.03.2014 for assessment year 2011-12. The grounds raised by the assessee per its appeal are as under:- "1. For that under the facts & circumstances of the case the ld. Commissioner of Income Tax Appeals erred, both in law as well as on facts in confirming the total disallowance of ₹ 1,46,78,485/- u/s. 14A of the Act as computed by the ld. A.O wrongfully applying rule 8D of the IT Rules, 1962, even without considering the fact that the appellant company earned taxable income also besides earning exempt income. 2. For that under the facts and circumstances of the case, the ld. CIT(A) erred both is law and on facts in confirming the computation of Book Profit U/s 115JB of the Act by the AO at ₹ 6,23,61,520/- in place of ₹ 4,83,61,590/- computed by the appellant company by wrongfully adding back to the Net Profit, the entire disallowance of expenses u/s. 14A of ₹ 1,46,78,485/- without segregating the expenses relatable to earning of Long Term Capital Gain which were not to be so added in terms of clause (i) below second proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the disallowance to the tune of ₹ 1,46,78,485.00 only. As the assessee has already made the disallowance of ₹ 66,99,516.00, thus the AO disallowed the remaining expenses of ₹ 7,78,969.00 (Rs.1,46,78,485.00 - 66,99,516.00) and added to the total income of the assessee. 5. Aggrieved assessee preferred an appeal before the Learned. CIT(A). The assessee before the ld. CIT-A submitted that the AO without any cogent reason rejected the working of the disallowance made by the it for ₹ 66,99,516.00. The AO has made the disallowance even for the amount of depreciation claimed by it for ₹ 84,333.00 only which is not permissible as per the provision of law. The assessee has also offered the taxable Income from derivative for ₹ 1,72,41,220.00 therefore the entire expenses cannot be disallowed as part of the expenses are certainly related to taxable income. The AO has made the disallowance taking into consideration all the investment whereas as per the precedents only those investments should have been considered which have yielded dividend income during the year. However, the ld. CIT(A) disregarded the contention of the assessee and accordingly partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO can make the disallowances of the expenses incurred in relation to exempt income in pursuance to the provisions as specified u/s. 14A of the Act. On perusal of the facts of the present case, we note that the assessee has claimed indirect/administrative expenses during the year to the tune of ₹ 1,72,372/- only which was inclusive of audit fees and legal & professional charges for ₹ 15,000.00 and 1,51,349.00 only. The details of the legal & professional expenses are placed on page 10 of the compilation filed by the assessee. These expenses in our considered view do not attract the provisions of section 14 of the Act. Thus, it is undoubtedly clear that actual expenses claimed by the assessee are much less then the expenses disallowed under Rule 8d(2)(iii) of the I.T rules by the AO. In the backdrop of the present case we are of the view that the expenses to be disallowed under Rule 8D(20(iii) cannot exceed the actual expenses incurred by the assessee. However, the AO has made the disallowance of the expenses under rule 8D(iii) exceeding the actual expenses. 9. The act of making the disallowance by the AO under rule 8D(iii) shows that no reference has been made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 100 66,99,516/- The assessee also submitted that expenses in relation to long term capital gain were claimed as per the provisions of section 115JB of the Act. However, the learned CIT-A rejected the claim of the assessee and confirmed the order of AO by observing as under:- "In this ground, the appellant has contended that the A.O has erred in taking reduction of expenditure relatable to exempt long term capital gain for the actual expense to book profit u/s. 115JB. It was claimed that the amounts allowable as deduction from capital gains have relevance for computation of profit u/s.48 of the Act and have nothing to do the book profit u/s. 115JB, which is altogether a different scheme for computation and the items to be reduced for book profit are specifically described u/s. 115JB. The appellant's AR has also stated that specific exclusion of section 10(38) no explanation u/s. 115eJB signifies its long term capital gain is the only exempt income than no adjustment in computing book profit means neither any taken is allowable long term capital gain nor any expenses relatable to such long term capital would be add back for computing book profit and that the A.O may be direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of his claim has relied on the order of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT in civil appeal no. 104-109 of 2015 vide order dated 12th February 2018. On the other hand the learned DR vehemently supported the order of authorities below. 13. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the addition of the expenditure attributable to long term capital gain. The argument of the learned AR is that the expenditure which are directly incurred in connection with the transfer of capital asset only those expenditure should be considered for the purpose of determining the capital gain income therefore the expenses which have been disallowed under section 14A of the Act cannot be attributed to such on germ capital gain income. However, we note that in similar facts and circumstances the Hon'ble Supreme Court in the case of M/s Maxopp Investment Limited (supra) has decided the issue in favaour of assessee. The relevant extract of the order is reproduced below: "34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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