9911796707
TMI Blog2019 (4) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome filed with the Revenue was accepted by the tribunal, while the factual matrix in assessee’s case is entirely different as we have discussed in details in preceding para’s of this order. Based on our detailed discussions in the preceding para’s of this order, we are restoring the issue back to the file of the AO for fresh adjudication of disallowance of expenditure incurred in relation to the earning of an income which does not form part of the total income having regard to the accounts of the assessee. The assessee is directed to produce before the AO for verification its working of computing disallowance of expenses u/s 14A being incurred in relation to earning of an exempt income having regard to accounts of the assessee. The assessee is also directed to produce before the AO complete details as to how its investments portfolio in securities is managed and handled. AO shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. The evidences/explanations submitted by the assessee shall be admitted by the AO and shall be adjudicated on merits in accordance with law. This disposes of ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing disallowance under section 14A of the Act read with Rule 8D, investments which have not yielded exempt income during the year ought to be excluded. 6. Without prejudice to the above, while computing disallowance under section 14A of the Act read with Rule 8D, strategic investments of ₹ 9.57 crores should be excluded from the computation of total investments. 7. Without prejudice to the above, disallowance under section 14A if any, should be restricted to reasonable percentage of dividend income towards administrative expenses not exceeding 3% of the dividend income. The above grounds of appeal are distinct and separate and without prejudice to each other. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 3. This appeal is filed late by 1 day beyond the limitation period as is provided u/s 253(3) of the 1961 Act. The learned counsel for the assessee submitted before the Bench that the appeal of the assessee is delayed by 1 day beyond the time stipulated for limitation of appeal u/s 253(3) of the 1961 Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material on record, we are of the considered view that delay of one day in filing this appeal with tribunal late beyond the time stipulated u/s 253(3) of the 1961 Act need to be condoned in the interest of justice. The delay on part of the asssessee is not intentional and sufficient reasons have been shown by the assessee in its affidavit explaining delay of one day. When technicalities are pitted against substantial justice, the Courts will lean towards substantial justice unless malafide or gross negligence on the part of litigant is shown. At best by admitting this appeal, the issue will be decided on merit in accordance with law instead of shutting the doors of justice to the litigant at threshold by dismissing the appeal on short ground of being filed with tribunal beyond the time prescribed u/s 253(3) of the 1961 Act, which will be contrary to cannon's of justice and equity. Thus, in the interest of substantial justice and in exercise of our powers as are provided u/s 253(5) of the 1961 Act, we condone delay of one day in filing this appeal late by the assessee beyond the time stipulated u/s 253(3) of the 1961 Act and admit this appeal to be decided on merits in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed u/s 14A of the 1961 Act. The AO observed that the assessee has an average investment of ₹ 9,386.55 lacs as on 31.03.2013 from which an exempt income by way of dividend is earned. It was also observed by the AO that the assessee has also made fresh investments during the year. The AO observed that these investments cannot be managed unless several expenses are incurred for managing these investments for which analysis and expertise is required. The AO observed that substantial time and costs are required towards salary, conveyance, travelling, telephone/mobile bills, stationary etc. and it is difficult to ascertain these expenses on quantitative basis, while approximation has to be done for computing disallowance The AO also observed that the assessee would be in receipt of various daily reports , fortnightly reports and monthly reports at regular intervals so that the assessee can take informed decision regarding deployment/redemption of its investments. The AO also observed that since AY 2008-09 onwards, Rule 8D of the Income-tax Rules, 1962 is applicable as held by Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited (2010) 328 ITR 81 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(ii) of the 1962 Rules read with Section 14A of the 1961 Act, while administrative expenses were disallowed to the tune of ₹ 46,93,278/- by applying Rule 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act. It was submitted that the assessee had given complete details of the expenses incurred by it toward earning of an exempt income which were to the tune of ₹ 26,83,723/-, while the disallowance was made u/s. 14A of the 1961 Act by applying Rule 8D2(iii) of the 1962 Rules @0.5% of the average investments, which led to disallowance to the tune of ₹ 46,93,278/-. It was submitted by learned counsel for the assessee , without prejudice , that even if Rule 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act is to be invoked, then only those investments are to be taken into account while computing average investments which actually yielded an exempt income in view of decision of Special Bench of ITAT, Delhi in the case of ACIT v. Vireet Investment Private Limited (2017) 165 ITD 27(Del. SB-trib.). It was conceded by learned counsel for the assessee that in view of decision of Hon'ble Supreme Court in the case of Maxopp Investment Limited v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO as is required u/s 14A(2) in the instant case before us. Reliance is placed on the decision of Hon'ble Supreme Court in the case of Godrej & Boyce Manufacturing Co. Ltd.(supra) , and it was submitted that in case no independent satisfaction is recorded by the AO , addition as were made u/s 14A cannot be sustained. It was submitted that the assessee make investment on the direction of the Tata Mutual Fund. It was submitted by learned counsel for the assessee that AO did not ask any question with respect to submissions made by the assessee regarding breakup of the expenses claimed to be incurred for earning of an exempt income. It was submitted that there was no rebuttable by Revenue with respect to suo moto disallowance made by the assessee. Our attention was also drawn to para 6.3 and 6.5 of the appellate order passed by the Ld. CIT(A). It was submitted by learned counsel for the assessee that tribunal orders for AY 2008-09 to 2010-11 were misread by both AO as well by Ld. CIT(A). The learned counsel for the assessee submitted that learned CIT(A) referred to non submission of calculation of disallowance based on scientific method for working of disallowance of the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the assessee submitted before the Bench details of the investments on which it is claimed that exempt income by way of dividend income was earned during the year, which is placed in file. 7.5 it was submitted by learned counsel for the assessee that assessee had discharged its onus in the course of proceedings before the authorities below and disallowance u/s 14A be restricted to ₹ 26,83,723/-. It was claimed that the AO as well learned CIT(A) misread the appellate order passed by tribunal in assessee's own case for AY 2008-09 to 2010-11. 8. The Ld. DR on the other hand submitted that Rule 8D is to be applied as the assessee has not adopted any scientific basis/method for computing disallowance of expenses incurred in relation to earning of an exempt income u/s. 14A of the 1961 Act, having regards to the accounts of the assessee. The learned DR also relied upon appellate order passed by Ld. CIT(A).The learned DR submitted that matter can be restored to the file of the AO for verification of the computation of disallowances claimed to be submitted by the assessee now before the Bench. The learned DR also submitted that the tribunal for all the years i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below were of the view that the assessee has not adopted scientific method/basis for making disallowance of expenses incurred in relation to earning of an exempt income u/s 14A having regards to accounts of the assessee. The authorities below observed that the assessee earned exempt income by way of dividend of ₹ 10.97 crores. The assessee has an average investment of ₹ 9,386.55 lacs as on 31.03.2013 from which an exempt income by way of dividend is earned. The assessee has also made fresh investments during the year. The authorities below observed that these investments cannot be managed unless several expenses are incurred for managing these investments for which analysis and expertise is required. The authorities below had observed that substantial time and costs are required towards salary, conveyance, travelling, telephone/mobile bills, stationary etc. and it is difficult to ascertain these expenses on quantitative basis, while approximation has to be done for computing disallowance The authorities below had observed that the assessee would be in receipt of various daily reports , fortnightly reports and monthly reports at regular intervals so that the assessee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for the year under consideration then the disallowance has to be computed as per the formula provided in Rule 8D. 10. We have considered the rival submissions as well as relevant material on records. As regards, the disallowance of expenditure u/s 14A, the assessee has claimed that no borrowed fund was used for investment in mutual funds on which the dividend income has earned by the assessee. .................... As regards the administrative expenses, there is no denial that certain expenses are bound to be incurred for managing such huge investment by the assessee. Even the assessee itself has disallowed a sum of ₹ 10.17 lakhs on this account. The assessee claimed that the suo moto disallowance made by the assessee is sufficient considering the nature and volume of the transactions. It is to be noted that Rule 8D is applicable for the year under consideration therefore, the disallowance of administrative expenses has to be computed as per the formula provided in Rule 8D. However, the disallowance work out under Rule 8D cannot exceed the total expenditure claimed by the assessee which can be apportioned to the exempt income. Thus we set aside this issue to the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e raised and all the materials that may be produced by the assessee. 7. In the result, appeal filed by the assessee is treated as allowed for statistical purposes." The assessee has during the course of hearing before us has submitted a chart wherein it is claimed that it represents detailed working of disallowance of expenditure incurred in relation to earning of an exempt income u/s 14A of the 1961 Act having regard to the accounts of the assessee and claim is made that this represent scientific basis/method for computing disallowance u/s 14A of the 1961 Act. The said working as submitted by the assessee is reproduced by us in preceding para's of this order. This claim of the assessee requires verification by the authorities below and we are inclined to set aside and restore the issue back to the file of the AO for fresh adjudication to work out disallowance of expenditure incurred in relation to earning of an exempt income having regards to accounts of the assessee u/s 14A of the 1961 Act. We would like to clarify that in case the AO after going through the workings as are now submitted by the assessee and which are claimed to be an expenditure incurred in relation to earnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which one of us being Accountant Member was part of the DB pronouncing the said order. This case was decided on its own facts as in this case, the tax-payer has debited only ₹ 15.03 lacs to Profit and Loss Account, out of which the taxpayer has voluntarily disallowed ₹ 4.13 lacs expenses which were never claimed as an expenses from the income computed within provisions of the 1961 Act . Out of the remaining expenses of ₹ 10.90 lacs, the tax-payer further voluntarily disallowed an amount of ₹ 5.45 lacs as an expenditure incurred in relation to earning of an exempt income within contemplation of Section 14A of the 1961 Act, which was 50% of the expenses claimed by the tax-payer. The Revenue went ahead and disallowed ₹ 2.41 crores u/s 14A albeit the tax-payer never claimed expenses of that magnitude. The AO did not recorded any satisfaction as to what is basis of disallowing expensed to the tune of ₹ 2.41 crores u/s 14A of the 1961 Act , while the total expenses debited to Profit and Loss Account (net of voluntary disallowance of ₹ 4.13 lacs) was only ₹ 10.90 lacs. Based on peculiar factual matrix of the case, the said appeal was decided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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