9911796707
TMI Blog2018 (10) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The order passed by the learned CIT(A) is erroneous and contrary to the provisions of law & facts of the case and therefore needs to be suitably modified. It is submitted that it be so held now. 2. The learned C1T(A) erred in law and on facts in upholding the action of the A.O. in applying Rule 8D of the Income Tax Rules, 1962 and thereby confirming additional disallowance of Rs. 65,26,522/- under section 14A of the Act. In the facts & circumstances of the case it is submitted that no disallowance u/s 14A is required to be made. It is submitted that it be so held now. 2.1 The learned CIT(A) erred in law in confirming the computation of disallowance of interest of Rs. 61,50,642/- and indirect administrative expenditure of Rs. 3,75,880/-" by the A.O. as per the method prescribed in Rule 8D r.w.s. 14A(2) of the Act despite the fact that the A.O. had not recorded any satisfaction as required by Section 14A of the Act, regarding correctness of disallowance worked by the appellant in the return of income. It is submitted that it be so held now. 2.2 The learned CIT(A) erred on facts and in law in holding that the A.O. has recorded satisfaction by discussing the statutory and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xempt income amounting to Rs. 42,23,519/- as claimed in the return of income.lt is submitted that it be so held now. Your appellant prays for leave to add, alter and/or amend all or any of the grounds before the final hearing of appeal." 3. The grievance of the assessee in ground no. 2 is that Ld CIT(A) erred in confirming the disallowance made by the AO u/s 14A r.w.r. 8D for Rs. 65,26,522/- only. 4. Briefly stated facts are that the assessee is a limited company and engaged in the business of providing financial assistance to the enterprises of Gujarat Government. The assessee is also registered as NBFC with RBI. The assessee during the year has earned dividend income of Rs. 42,23,519/- which was claimed as exempted u/s 10(34)/10(35) of the Act. The assessee in respect of such income has made disallowance of Rs. 2,19,585/- only. However, the AO was of the view that the disallowance needs to be made as per the provisions of Section 14A r.w.r. 8D of Income Tax Rule 1963. Accordingly, a showcause notice was issued to the assessee for making the disallowance as per the provision under section 14A r.w.r. 8D of the Income Tax Rule. The assessee in compliance thereto inter alia sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of investment therefore no disallowance of interest can be made. 5.1 Similarly, the assessee submitted about the administration expenses that it has already disallowed 1% of total operating expenses in view of the order of ITAT pertaining to the A.Y. 2001-02 in its own case. However, Ld. CIT(A) disregarded the contentions of the assessee and confirmed the order of AO by observing as under: "5.2 I have considered the assessment order and the submissions made by the appellant. The A.O has held that the appellant was not able to explain the nexus of interest free funds with the investment made by it. On the other hand, it was submitted by the appellant that it had sufficient funds of its own which far exceeded the investment in tax free income and hence it could not be said that borrowed funds had been used for purpose of making these investments It is seen that the appellant's contention that the AO had not recorded his satisfaction about why he was not accepting the disallowance and calculation made by the appellant, is misplaced. A perusal of the assessment order shows that the AO has discussed the statutory and legal position in this respect in detail and has then sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of total income are at Rs. 3.50 crores. In our considered opinion, at least 10% of such expenditure should be apportioned towards earning of exempt income. Therefore, a disallowance of Rs. 35 lacs should meet the ends of justice. We accordingly direct the A.O. to restrict the disallowance at Rs. 35 lacs. This ground alongwith all its sub ground and the additional ground are treated as partly allowed." 8. We have heard the rival contentions and perused the materials available on record. As regards the disallowance of interest expenses, we find that the own fund of the assessee exceeds the amount of investment. Therefore no disallowance on account of interest expenses can be made. In this regard, we find support and guidance from the order of this Tribunal in the own case of the assessee in ITA No.1478/Ahd/2013 where the addition on account of interest expenses was deleted by holding as under: "10. We have given a thoughtful consideration to the orders of the authorities below and with the assistance of the ld. counsel, we have considered the relevant documentary evidences brought on record in the form of a paper book in the light of Rule 18(6) of the 1TAT Rules. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowances of Rs. 3,75,880/- only. Therefore, in our considered view the disallowance on account of administrative expenses cannot exceed the said amount. It is because, the ITAT has no power to enhance the income computed by the AO or improve the case of the AO. In this regard, we find support and guidance from the judgment of Hon'ble Madras High Court in the case of Sanmar Speciality Chemicals Ltd. Vs. ITO reported in 93 taxmann.com 330 wherein it was held as under: "The operative portion of the judgment reads as follows: "6.In the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC) this Court has held that under s.33(4) of the IT Act, 1922 [equivalent to s.254(1) of the 1961 Act]. The Tribunal was not authorized to take back the benefit granted to the assessee by the AO. The Tribunal has no power to enhance the assessment. Applying the ratio of the said judgment to the present case, we are of the view that in this case, the AO had granted depreciation in respect of 42,000 bottles out of the total number of bottles (5,46,000), by reason of the impugned judgment. That benefit is sought to be taken away by the Department, which is not permissible in law. This is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made by the AO as per Rule 8D for Rs. 17.54 crores. Thus, the disallowance confirmed by the Hon'ble ITAT @10% of the total administrative expenditure was within the limit of the disallowance as made by the AO in his assessment order. Therefore, we are reluctant to take any guidance in the given facts and circumstances from the order of Tribunal in the own case of the assessee in ITA No.1478/Ahd/2013 pertaining to the assessment year 2009-10. In view of above, we confirmed the disallowance on account of administrative expenses as per Rule 8D as worked out by the AO i.e. Rs. 3,75,880/-. 9.2 We also note that the AO has treated the sum disallowed by the assessee for Rs. 2,19,585.00 in the income tax return as direct expenses incurred in relation to dividend income under rule 8D(2)(i) of Income Tax Rule. However the action of the AO is not based on any material suggesting that the amount of Rs. 2,19,585.00 is the direct expenditure incurred by the assessee in relation exempted income as specified under rule 8D(2)(i) of Income Tax Rules. Thus we direct to delete the same. Thus, the ground of appal of the assessee is partly allowed. 10. In the result the appeal of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
