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TMI Blog2019 (12) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. For this assessee has raised the following ground: - "1. On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in confirming the disallowance under section 14A of the Income-tax Act ('the Act') to the extent of Rs.3,34,685/-." 3. Briefly stated facts relating to AY 2007-08, are that the assessee has earned tax free interest bonds amounting to Rs.5,20,918/- and claiming the same as exempt income under section 10(15) of the Act. The assessee has made suo moto disallowance of expenses relatable to exempt income amounting to Rs.60,913/-. The AO disallowed the interest amounting to Rs.71,21,033/- and administrative expenses at Rs.9.30,863/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) restricted the disallowance on account of interest at Rs.2,95,995/-. Aggrieved, assessee came in appeal before Tribunal on this issue. 4. Before us, the assessee contended that the investments in tax free bonds of UTI is made at Rs.77.39 lacs as against the assessee's share capital of Rs.864.29 lacs and reserve and surplus fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission agents namely Nischal Corporate Securities Limited, the assessee vide letter dated 31.03.2009 stated that it is not possible for assessee to provide documentary evidences to substantiate the transaction of commission paid to Nischal Corporate Securities Limited. The assessee in the revise return of income filed on 31.03.2009, suo moto disclosed the commission expenses as income amounting to Rs.1,56,29,741/-. Subsequently, during the course of scrutiny assessment proceedings assessee was asked to filed complete details of commission payment and also justification providing name and addresses of the parties, the assessee vide letter dated 29.12.2009 decided to forego of its claim of commission expenses amounting to Rs.8,26,90,631/-. The AO as well as CIT(A) has reproduced the relevant letter dated 29.12.2009, wherein the disclosure was made only with a condition that no panel proceedings will be initiated. The assessee also filed revised return of income on 19.12.2009. The AO has not honour the commitment made to the assessee and hence, the assessee challenged the disallowance of commission expenses before Commissioner of Income Tax (Appeals). Before CIT(A) assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed." Aggrieved, now assessee is in appeal before Tribunal. 8. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the revised return filed on 19.12.2009 was invalid return filed belatedly and hence, no cognizance can be taken of the same. We noted that the assessee has now contested by filing all the evidences before CIT(A) but CIT(A) has not gone into the details and confirmed the disallowance of commission expenses simplicitor. Hence, we are of the view that this issue needs detailed verification at the level of AO afresh. Hence, we set aside the orders of the lower authorities i.e. the order of CIT(A) and that of the AO and remand the matter back to his file for fresh adjudication. The assessee committed before us that he will file all the required details to prove the commission expenses before the AO and incase assessee fails to explain the same, the AO can repeat the addition. Hence, this issue is set aside to the file of the AO. 9. The next raised by assessee in ITA No 3892/Mum/2011 for AY 2007-08 in its additional ground is as regards to the claim of deduction in respect of education cess. For this assessee has ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 and 138 in Chapter I headed "finance" provided for levy and collection of certain succession duties, stamp duties, terminal tax, taxes on fares and freights, and taxes on income, respectively. In the proviso to section 137 the federal legislature was empowered to increase at any time any of the duties or taxes leviable under that section by a surcharge for federal purposes and the whole proceeds of any such surcharge were to form part of the revenues of the federation. Sub-section (3) of section 138 which dealt with taxes on income related to imposition of a surcharge. Under the Government of India Act, 1935, the surcharge was levied for the first time by the Indian Finance No. 2 Act, 1940. Section 3(1) of that Act read: "Subject to the provisions of this section, the rates of income-tax and rates of super-tax . . . imposed by sub-section (1) of section 7 of the Indian Finance Act, 1940, shall, in respect of the year beginning on the first day of April, 1940, be increased by a surcharge for the purposes of the Central Government ..." Similar phraseology was employed in respect of surcharge on super-tax. The provisions relating to surcharge were omitted in the Finance Acts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that only the rates of income-tax and super-tax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958, the language used showed that income-tax which was to be charged was to be increased by a surcharge for the purposes of the Union. The word "surcharge" has thus been used to either increase the rates of income-tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term "income-tax" as used in section 2 includes surcharge. According to article 271, notwithstanding anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for the purposes of the Union and the whole proceeds of any such surcharge shall form part of the consolidated fund of India. Article 270 provides for taxes levied and collected by the Union and distributed between the Union and the States. Clause (1) says that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2). A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to section 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax were to be charged in four different ways or at four different rates which may be described as : (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge ; (iii) special surcharge ; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. It is possible to argue, and that argument has been commended on behalf of the revenue, that the word "surcharge" has been used in article 271 for the purpose of separating it from the basic charge of a tax or duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union." Taking the same analogy and respectfully following Hon'ble Supreme Court, we are of the view that education-cess is part of the Income tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst time in AY 2005-06 which is initially assessment year in term of the section. The CIT(A) following the decision of Hon'ble Madrass High court in the case of Velayuthasamy Spinning Mills (P) Ltd., Vs ACIT (2010) 231 CTR 368 allowed the claim of the assessee by observing in para 5 as under: - "5. I have carefully considered the above submissions of the Ld. Counsel of the appellant and the facts of the case. Section 80IA has bene amended by the Finance Act, 1999 w.e.f 1/4/2000. Prior to its amendment, for the purpose of this section, "initial assessment year" was defined as "in the case of an industrial undertaking or ..means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things....." However, post the amendment of section 80IA vide finance Act 1999, the term "initial assessment year" has not been defined in the Act. In the judicial precedent relied on by the appellant, the Hon'ble High court has held that the first assessment year in which the taxpayer opts to claim the deduction would be the 'the initial Assessment Year' from when the eligible business would be treated as the only source of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sufficient and no further disallowance was called for. 1.3 The CIT(A) failed to appreciate that the provisions of sub section (2) and (3) of section 14A as well as Rule 8D would apply only if the AO is not satisfied with the disallowance made by the Appellant. 1.4 The CIT(A) has erred in ignoring the contention of the appellant that even if disallowance is to be made as per Rule 8D, the same ought to be computed only on those investments which have yielded exempt income during the relevant previous year." The Revenue has raised the following grounds: - "2(A) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to exclude interest on Buyers credit, discounting charges and interest on vehicle loan from total interest payment for calculating disallowance under Rule 8D as not related to earning of tax exempt income, when Rule 8D is a formula, which does not allow any such exclusions. (B) on the facts and in the circumstances of the case and in law, the Ld. CIT(A) in remitting the file to the AO to examine the claim of the assessee on account of interest on Buyers credit, Discounting charges and interest on vehicle loan und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest expenditure under Rule 8D(2)(ii) being an amount of Rs.88,34,233/- computed by the Assessing Officer. The learned Counsel for the assessee stated that the assessee's own funds as on 31.03.2008 is amounting to Rs.174.78 crores on account of reserve and surplus and share capital whereas, investment capable of yielding tax free income amounting to Rs.22.3 crores and hence, presumption is that the entire investment has been made out of own funds and not out of borrowing. The learned Counsel for the assessee relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). The facts and circumstance are exactly identical what to AY 2007-08, hence this interest disallowance cannot be sustained and we delete the same. 19. Coming to disallowance under Rule 8D(2)(iii), being administrative expenses, the AO computed disallowed at Rs.11,15,571/- as against suo moto disallowance computed by the assessee at Rs.1,86,718/-. The learned Counsel for the assessee stated that during the year the assessee has received tax free income only from UTI bonds and other investment having no tax free income and hence, disallowance ought to have compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be the only source of revenue. This condition further stipulates that it is also applicable for the previous year relevant to the initial assessment year for which the deduction is to be made." 24. We noted that the issue is squarely covered in favour of assessee hence, consistently following the earlier year order for AY 2007-08 decided above, we confirm the order of CIT(A) and dismiss this issue of Revenue's appeal. 25. The next issue in this appeal of Revenue ITA No. 3811/Mum/2011 for AY 2008-09 is as regards to the charging of interest under section 234B of the Act. For this Revenue has raised the following ground No. 4: - "4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to recalculate the interest under section 234B by reducing interest paid as part of self-assessment tax under section 140A, ignoring the provisions of law that interest under section 234B should be calculated on the amount that falls short of assessed tax." 26. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the assessee has paid self-assessment tax on 30.05.2008 and 29.10.2010 under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld in the case of Hind Rectifiers Limited vs. Deputy Commissioner of Income-tax. The correct working of interest under section 234B is as shown below: Amount Rs. Period No. of Months Interest Rs. From To 81,426,757 Apr 08 May 08 2 1,628,535 36,265,347 May 08 Jan 10 20 7,253,069 11,961,348 Jan 10 Dec 10 11 1,315,748 10,197,353 The amount of Rs.36,265,347 is calculated as under: Particulars Amount Rs. Amount Rs. A) Shortfall in assessed tax A) Self-assessment tax paid on 30 May 2008 Less: Interest as per return Under section 234B for 2 months 1,359,600 Under section 234C 5,478,990 D: B-C 52,000,000 6,838,590 81,426,757 45,161,410 Balance payable (A-D) 36,265,347 The amount of Rs.11,961,348 is calculated as under: Particulars Amount Rs. Amount Rs. A) Balance payable as calculated above 36,265,3471 B) Self Assessment Tax paid on 28th March 2008 Less: C) Interest under section 234B D:B-C 27,500,000 3,196,001 24,3030,999 Balance Payable (A-D) 11,961,348 27. We noted that the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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