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TMI Blog2018 (6) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... g deduction of 20% thereof under Section 36(1)(viii) - Held that:- Section 36(1)(viii) of the Act talks of "profits and gains of business or profession" before making any deduction under this Clause and therefore, the amortization and depreciation in SLR investments already deducted from the profit earned by the assessee for the said year cannot be added back for the limited purpose of computing profits and gains of business or profession for the purpose of Section 36(1)(viii) so as to claim a higher deduction of 20% under the said provisions. The artificial increase of the profits by adding back amortization and depreciation in SLR investments by the assessee as done by it before the assessing authority was not justified and therefore, the authorities below appear to be justified in reducing the said deduction, ignoring the said adding back of the amortization and depreciation in SLR investments. The said deduction has to be restricted to 20% of profits of banking business as computed by the assessing authority. Therefore, the contention raised by the assessee in this regard in the present appeals before us is not sustainable. - ITA Nos. 100001 and 100002/2018 - - - Dated:- 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no expenditure has been incurred towards earning the said exempt income. The assessee was asked to explain why disallowance as per Section 14A read with rule 8D should not be made. The assessee has worked out the disallowance to be made as per Section 14A read with Section 8D at ₹ 2,48,85,000/- which is as under. Rule 8D: Method for determining amount of expenditure in relation to income not includible in total income. 2. The expenditure in relation to income which does not form part of the total income shall be aggregate of the following amounts in (i), (ii) and (iii). 2(i) The amount of expenditure directly relating to income which does not form part of total income. NIL 2(ii) where there is expenditure by way of interest not directly attributable to any particular income or receipt, an amount calculated in accordance with the following formula. A x B/C = where A, B and C are as per definition given below.. A x B/C = ₹ 313.73 crores x ₹ 44.22 crores/Rs. 6124.94 crores = ₹ 2.265 crores. 2(iii) Half percent of the average value of the investment, the income from which does not form part of the total income, as appearing in the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to earn the exempted income in the form of Dividend was really not incurred by the Bank during the year but the said computation of expenses of ₹ 2,48,85,000/- was made as per the direction of Assessing Authority in terms of Rule 8D of the Rules with a clear submission made by the assessee that no expenditure deserves to be disallowed in the hands of assessee Bank under Section 14A of the Act r/w Rule 8D of the Rules but ignoring such factual submissions as well as the provisions of law, the assessing authority has disallowed the said sum and unfortunately the Appellate Authorities have also casually upheld the said findings. 7. On the other hand, Sri Y.V. Raviraj learned counsel for the Revenue urged before the Court that though the disallowance in excess of the dividend income earned by the assessee to the extent of ₹ 1,80,30,965/- may not be justified, but the assessee himself has computed the said figure of ₹ 2,48,85,000/- in terms of Rule 8D of the Rules and had supplied the same to the assessing authority and therefore the assessing authority was justified in disallowing the same. 8. We are not impressed with the said contention raised by the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the 1st day of April, 2001 . Rule 8D: Method for determining amount of expenditure in relation to income not includible in total income. 8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with - (a) the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities to earn such exempted Dividend income. The disallowance under Section 14A cannot be a wild guesswork bereft of ground realities. It has to have a reasonable and close nexus with the factually incurred expenses. It is not deemed disallowance under Section 14A of the Act but an enabling provision for assessing authority to compute the same on the given facts and figures in the regularly maintained Books of Accounts. The assessing authority also could not have called upon the Assessee himself to undertake the exercise of computing the disallowance under Section 8D of the Rules. Such abdication of duty in not permissible in law. Since no such exercise has been undertaken by the assessing authority, the case calls for a remand. 15. In this view of the matter, the findings of all the three authorities below for Section 14A of the Act are set aside and the matter is remanded back to the Assessing Authority for re-computing the disallowance of expenditure, if any, under Section 14A of the Act, in accordance with law. Disallowance under Section 36(1)(viii) of the Act: 16. The second issue involved in the present case pertains to Section 36(1)(viii) of the Act, which arises o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or profession before making any deduction under this Clause and therefore, the amortization and depreciation in SLR investments already deducted from the profit earned by the assessee for the said year cannot be added back for the limited purpose of computing profits and gains of business or profession for the purpose of Section 36(1)(viii) of the Act so as to claim a higher deduction of 20% under the said provisions. 19. We find considerable force in the said submission made by the counsel for the Revenue and there is no adequate rebuttal of the same by the learned counsel for the assessee. 20. The profits and gains of business or profession for the purpose of claiming deduction of 20% thereof under Section 36(1)(viii) of the Act does not envisage any such artificial raising of the profits by adding back the amortization and depreciation in the SLR investments, as has been done by the assessee Bank in the present case. The profits and gains of business, as simply computed as per the accounting practices followed by the assessee in normal course of business under Section 28 of the Act has to be the basis for computing 20% deduction. The artificial increase of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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