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TMI Blog2019 (7) TMI 1567X X X X Extracts X X X X X X X X Extracts X X X X ..... ue for applicability of Rule 8D(2)(iii) where the specification of the nature of the expenditure is available and such expenditure can be reasonably identified toward revenue from taxable operations and revenue from income which is exempt. We however find substance in the plea of the assessee partially. ₹ 61,565/- on account of insurance expenses has not apparent connection with the investment giving rise to tax free income. Thus, such expenses cannot find part of disallowance u/s 14A - The claim of personnel expenses disputed by the assessee to be attributable to collection of rent only is however without any cogent evidence. The assessee is engaged in the multiple business viz. trading of commodities, deriving rent income and also generating exempt income. Having regard to the various stream of income generated by the assessee, the personnel expenses, to our mind, can be fairly estimated to be 1/3rd of the total costs. The assessee thus gets relief of ₹ 11,33,744/- on this score. The total relief thus works out to ₹ 11,95,309/- against the disallowance of ₹ 19,49,768/- confirmed by the CIT(A). Adjustment made under clause (f) to Section 115JB shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration [ 2014 (1) TMI 502 - GUJARAT HIGH COURT] . We thus see no merit in Ground No.3 of the cross objection raised on behalf of the assessee. Disallowance of legal expenditure treated as capital expenditure - HELD THAT:- - I.T.A. No. 2006/Ahd/2016 WITH CROSS OBJECTION No. 136/Ahd/2016 - - - Dated:- 4-7-2019 - SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER For the Appellant : Shri L. P. Jain, Sr. D.R. For the Respondent : Shri P. M. Mehta, A.R. ORDER PER PRADIP KUMAR KEDIA - AM: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-1, Ahmedabad ( CIT(A) in short), dated 24.05.2016 arising in the assessment order dated 18.03.2015 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2012-13. 2. The assessee has also filed cross objection in the Revenue s appeal as captioned above. 3. The grounds of appeal raised by the Revenue read as under:- (1) That the ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 3,28,28,574/- made on account of disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) deleted the disallowance made towards interest expenditure under Rule 8D(2)(ii) of the IT Rules and restricted the disallowance on administrative expenditure of ₹ 19,49,768/-. The relevant operative part of the order of the CIT(A) is reproduced hereunder for ready reference: 3.4 I have carefully considered the Assessment Order and the submission filed by the Appellant The Assessing Officer has observed that Appellant has earned dividend income of ₹ 2.52 crores and has made huge investment in shares/mutual funds which result into tax-free income. For making such investment and earning dividend, Appellant is required to incur various expenditure hence expenditure attributable to earning of such exempt income is required to be disallowed hence he applied provisions of Rule 8D and made aggregate disallowance of ₹ 3,47,78,342/- after giving relief of interest disallowance made in Return of Income for ₹ 51,20,208/-. On the other hand, Appellant has argued that Assessing Officer has made disallowance on closing investments of ₹ 258.87 crores. It is argued that during the year under consideration it has made fresh investments of ₹ 28.92 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n used for making repayment of such loan hence both the investments at year end are out of interest-free funds available with Appellant, this fact is further substantiated from Audited Annual Accounts that interest bearing loan at the yearend pertains to Mahasukh Adani Family Trust for ₹ 26.08 crores and such loan is received on 8th June, 2011 which is much earlier to repayment of loan and same was used for giving advance. As Appellant has used borrowed funds for part period, it has already made disallowance of proportionate interest at ₹ 51,20,208/- in Return of Income hence such investment cannot be considered for making proportionate disallowance of interest under Rule 8D(2)(ii). (iii) The closing investments of ₹ 4.61 crores and opening investments of ₹ 0.96 lacs is in growth scheme of mutual fund which is not capable of earning any exempt income hence no proportionate disallowance of interest can be made on such investment. (iv) So far as balance closing investment of ₹ 225.32 crores is concerned, it is in the shares of Adani Enterprises Limited which were made in earlier Assessment Years wherein Appellant has no interest-bearing fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77 under Rule 8D(2)(ii). Since no interest expenditure was incurred by the Appellant on monies borrowed, disallowance of the said sum is not sustainable. It is deleted. The second component of the disallowance is of ₹ 57,69,0377- under Rule 8D(2)(iii). As seen from the break-up of the expenditure debited to Profit Loss Account furnished by the Ld. AR, most of the expenditure incurred was not in connection with earning the exempt income. On a perusal of the various items of the expenditure, it is seen that the following expenditure was not for any specific purpose. Sr. No. Particulars Amount (Rs.) 1 Insurance 44,456 2 Auditor 27,575 3 Others 47,556 4 Personal expenses 6,01,358 Total 7,20,945 Therefore, it is considered reasonable to restrict the disallowance under Rule 8D(2)(iii) to ₹ 7,20,945. Balance expenditure incurred cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) Auditor 30,337 Paid on rented properties. Considered by C/T(A) in AY 2011-12 30,337 (vi) Legal Professional Fees 2,327,737 Professional relates to ROC filing expenses. legal charges and others. (The Assessing Officer has already made disallowance of ₹ 23,08,469 separately in assessment order) (vii) Security Expenses 126,599 Paid for properties (viii)Loss on Non current investments 38,000 Already disallowed in Return of Income (viii) Others 294,018 Related to business of renting properties. Considered by CIT(A) in AY 2011-12 2,94,018 2 Personnel Expenses 1,700,616 For timely collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of administrative expenditure, the AO has computed the disallowance at ₹ 1,21,69,984/- under Rule 8D(2)(iii) as noted above. The CIT(A) has analysed the nature of expenditure and restricted the same to ₹ 19,49,768/- as per the tabulation reproduced in the CIT(A) s order. Both Revenue and assessee are aggrieved by the aforesaid action of the CIT(A). The Revenue seeks disallowance of the amount as computed under Rule 8D(2)(iii) whereas the assessee has disputed the analysis of the CIT(A). It is the case of the assessee that itemized expenditure can be demonstrably relatable to various segment of taxable income. For instance, the disallowance of ₹ 61,565/- made by the CIT(A) on account of insurance expenses incurred was paid for rented properties and thus has no relation to the exempt income. Likewise, the personnel expenses of ₹ 17,00,616/- is also claimed by the assessee to be towards timely collection of rent expenses. The assessee has urged for deletion of the aforesaid two items out of the disallowance made by the CIT(A) amounting to ₹ 19,49,768/-. 11. We do not find merit in the plea of the Revenue for applicability of Rule 8D(2)(iii) where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legal assistance. He therefore held that as the payments were made as reimbursement of fees for search report for acquisition of Delhi Golf Link properties Pvt. Ltd. it was in the nature of capital expense and by no stretch of imagination can be said to be revenue expenditure. On the other hand, Appellant has argued that payment of ₹ 21,98,169/- made to Economic Law Practice is for retainer fee and for services provided during the year hence it is allowable as revenue expenditure. Further, payment of ₹ 1,10,300/- made to ELP for obtaining search report for acquisition of Delhi Golf Link Properties Pvt. Limited, it is submitted that investment was made for expansion of existing business hence such expenditure is allowable revenue expenditure. On careful consideration of entire facts, it is observed that payment of ₹ 1,10,300/- made to ELP for obtaining search report for acquisition of shares is towards new capital investment and which cannot give Appellant any benefit of revenue in nature. By making such investment, Appellant is not going to earn any revenue receipt hence such expenditure is capital expenditure and addition made by Assessing Officer to that ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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