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TMI Blog2020 (10) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... count of interest expenditure following the decision of Reliance Utilities And Power Ltd [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] . Accordingly, we find no infirmity in the order so far as the disallowance on account of interest expenditure is deleted. Administrative expenditure disallowance applying the ratio of administrative expenditure with respect to the dividend income to the total receipt of the assessee and thereafter making a proportionate disallowance is unwarranted. As in absence of proper rule for computation of disallowance, which came into effect only for assessment year 2008 09, the above method cannot be upheld. Therefore looking to the past assessment records wherein for assessment year 2004 05 the disallowance was restricted to ₹ 2 lakhs and for assessment year 2006 07 the disallowances restricted to ₹ 10 lakhs, we further direct the learned assessing officer to restrict the disallowance of expenditure to ₹ 10 lakhs only for this year too. Addition on account of interest on bonds disallowed u/s 43B - interest on PP bonds payable to unit trust of India - CIT(A) had held that the Assessment cannot be expected to comply with the law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee for the impugned assessment year. Further provisions of Section 234C does not apply to any shortfall in the payment of the tax due on the returned income of such thoughtful is on account of under is to of the amount of capital gain. Disallowance u/s 14A - non recoding of satisfaction by AO - HELD THAT:- Before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. In the present case, we do not find any such satisfaction recorded by the assessing officer with respect to the disallowance made by assessee on its own. In view of this, we hold that no disallowance u/s 14 A can be made in absence of proper satisfaction. Computing the book profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on grounds, therefore, those are heard together and disposed of by this common order. ITA number 3207/del/2011 (by AO) And ITA number 3443/del/2011 (by assessee) Assessment year 2005 06. 01. Above two appeals are cross appeals filed by the assessee in ITA number 3443/del/2011 and ITA number 3207/del/2011 filed by the assessee for assessment year 2005 06 against the order of the Commissioner of income tax (appeals) , New Delhi dated 6 April 2011 wherein appeal filed by the assessee against the order of the Deputy Commissioner of income tax, Circle 11 (1), New Delhi passed on 27th of December 2007 u/s 143 (3) of the income tax act 1961 was partly allowed. Therefore, both the parties are in appeal before us. 02. Assessee has preferred following grounds of appeal 1) That the Commissioner of income tax (appeals) erred on facts and in law in upholding the action of the assessing officer in not allowing depreciation amounting to ₹ 73,130,008/ claimed by the appellant in respect of the assessee given on lease. 2) That the Commissioner of income tax (appeals) erred on facts and in law in simply following the order for assessment year 2004 05, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward business loss of ₹ 852,935,720. Assessee revised its return of income on 30 March 2007 showing the total income at ₹ 1,249,647. Subsequently the return of income was picked up for scrutiny and the assessment u/s 143 (3) of The Income Tax Act 1961 was passed by the learned assessing officer on 27 December 2007 wherein gross total income of the assessee was determined at ₹ 110,82,38,936/ . This amount was set off against the brought forward business losses and taxable business income was determined at Rs. nil. 06. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT A who passed an order partly allowing the appeal of the assessee. Therefore, for the reason that certain disallowances have been deleted, assessing officer is in appeal and for the addition/disallowance is confirmed by the CIT A, assessee is in appeal. 07. We first take up the appeal of the learned assessing officer. This appeal in ITA number 3207/del/2011 as the first ground of appeal that the learned Commissioner of income tax (appeals) has erred in restricting the addition of ₹ 8,577,000 on account of disallowance u/s 14 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see further stated that it has not borrowed any new sum during the year and all these investments are old. Assessee relied upon the decision of the honourable Bombay High Court in case of CIT versus Reliance Utilities And Power Ltd (2009) 313 ITR 340 wherein it is laid down that the if there were sufficient funds available both interest free and interest-bearing funds, then a presumption would arise that investment would be out of interest free funds available with the assessee company. With respect to the administrative expenditure, it was submitted that for assessment year 2006 07 the learned Commissioner of income tax appeal has restricted the disallowance to ₹ 10 lakhs, therefore, the above addition on account of administrative expenses cannot be made. 10. The learned CIT A, he deleted the disallowance on account of interest expenditure however sustained the disallowance of administrative expenditure of ₹ 8,577,000. Therefore, both the parties are in appeal before us. 11. The learned authorised representative submitted as Under a. The shares were held by Appellant Assessee as stock-in-trade and as such no disallowance under section 14A of the IT Act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartmental representative vehemently supported the order of the learned AO. He submitted that as the assessee has not given any details that it has not incurred any expenditure, the disallowance is mandatory u/s 14 A of the act. He further submitted that assessee has also not given any nexus of the borrowed funds or an interest free fund that has been utilized for the purposes of making an acquisition in the tax-free income earning instruments. He submitted that in absence of any such detail, the disallowance of interest has rightly been made by the learned assessing officer. With respect to the administrative expenditure, he submitted that assessee did not give any information about any expenditure incurred for earning such securities for earning dividend. He submitted that it is not possible for the assessee to earn such huge dividend without incurring any expenditure for earning that dividend. He therefore submitted that the learned assessing officer has rightly disallowed the proportionate sum. He further stated that the ratio adopted by the learned assessing officer is also not disputed by the assessee. He further stated that in past assessment year as well as in the subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above method cannot be upheld. Therefore looking to the past assessment records wherein for assessment year 2004 05 the disallowance was restricted to ₹ 2 lakhs and for assessment year 2006 07 the disallowances restricted to ₹ 10 lakhs, we further direct the learned assessing officer to restrict the disallowance of expenditure to ₹ 10 lakhs only for this year too. The ground number 1 of the appeal of the learned assessing officer is dismissed and ground number 3 of the appeal of the assessee is partly allowed. 15. Ground number 2 of the appeal of AO is against the deletion of addition of ₹ 72,317,718 on account of interest on bonds disallowed u/s 43B of the act. The learned assessing officer observed that assessee has claimed deduction u/s 43B of the act to the extent of ₹ 263,479,074/ the assessee was asked to justify the claim of deduction. The assessee furnished details from which it was observed that a sum of ₹ 72,317,718 is the amount of interest on PP bonds payable to unit trust of India. This amount has been adjusted on reconciliation in the month of September 2005. AO found that assessee has not made any payment in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, the Assessee had adjusted the amount in September 2005. The Assessing Officer disallowed the amount stating that the amount had not been paid but only adjusted. He invoked the Explanation 3C to Section 43B which was inserted by Finance Act 2006 with retrospect effect from 1.4.1989. However, the CIT(A) had held that the Assessment cannot be expected to comply with the law and the return had been filed as per the law prevailing at that time and hence the deduction of interest was allowable. We find that when there is a retrospective law applicable which says that deduction of any sum, being interest payable Under clause (d) of Section 43B, shall be allowed, if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid. Therefore, the provision of the law amended retrospectively clearly provides that when such interest not actually paid but is converted into loan or borrowing it cannot be considered as actually paid for the purpose of its allowablity u/s 43B of the act. Even otherwise the issue is squarely covered against the assessee by the decision of the hono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 9,545,767,245. The AO observed that assessee has not added back the provisions of doubtful debts and the set off unabsorbed depreciation or business loss has not been claimed as per the companies act. On questioned, the assessee submitted that provisions for doubtful debts are to be reduced from sundry debtors while preparing the accounts as per the companies act and such provisions are required to be made in accordance with schedule VI of the companies act. Assessee relied upon the decision of the honourable Supreme Court in case of Apollo tyres Ltd versus Commissioner of income tax 255 ITR 273 stating that the AO has only the power of examining whether the books of accounts certified by the authorities Under the Companies act and having been properly maintained in accordance with the companies act. Therefore, assessee submitted that AO does not have any authority to adjust the book profit on this account. The learned assessing officer rejected the contentions of the assessee and held that the provision for doubtful debts and advances is nothing but the reserve required to be created Under the Companies act. He held that as per clause (b) of explanation to subsection (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned lower authorities. 32. We have carefully considered the rival contentions and find that assessee has made a provision for bad and doubtful and has not added back same to the book profit for working out book profit for minimum alternative tax u/s 115JB of the income tax act. Even otherwise, in view of the retrospective amendment by The Finance Number 2 Act, 2009, with retrospective effect from 1 April 2001, any amount or amount set aside as a provision for diminution in the value of any asset is required to be added back to the book profit as per explanation (1) of Section 115JB of The Income Tax Act. The amount of provision for bad and doubtful debts is definitely a diminution in the value of the asset i.e. book debts, therefore, it is also required to be added back to the book profit. It may also be a reserve created by making a provision out of bad and doubtful debts for the future losses that may arise out of debts. In view of this, we dismiss ground number 4 of the appeal of the assessee. 33. Accordingly, ITA number 3443/del/2011 filed by the assessee for assessment year 2005 06 is partly allowed. 34. Accordingly, for assessment year 2005 06 appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal of the assessee for assessment year 99 2000 and 2000 2001. They submitted that their arguments also remain the same. 40. On careful consideration of the rival contentions, perusal of the orders of the lower authorities, the issue argued by both the parties in appeal of the assessee for assessment year 99 2000 and 2000 2001, which has been decided by us by the order of even date in ITA number 1200 and 1201/del/2005, wherein we have held that assessee is an owner of the leased assets and is entitled to the depreciation thereon. For reasons given by us in that appeal, we dismiss ground number 1 of the appeal of the AO. 41. Ground number 2 of the appeal of the assessing officer is similar to ground number 1 of the appeal in assessment year 2005 06. Both the parties submitted that facts are similar except the change in the amount of exempt income. They also submitted that their arguments are also the same, therefore, as we upheld the addition out of the administrative expenses of only ₹ 10 lakhs, the learned departmental representative could not show us any reason why we should deviate from the same, we uphold the order of the learned CIT A, who deleted the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Commissioner of income tax appeals directed the learned assessing officer to delete the charging of the interest of ₹ 49,544,909/ u/s 234C of the act , therefore the learned assessing officer is in appeal. 46. The first ground of appeal is with respect to the depreciation on the leased assets. This issue identical to the facts decided by us in case of the assessee for assessment year 99 2000 and 2000 2001 wherein we have held that assessee is an owner of the asset, which are leased out, and therefore is entitled to depreciation. For similar reasons, because of the identical facts of the case agreed by both the parties, we dismiss ground number 1 of the appeal of the AO. 47. Ground number 2 is against the disallowance deleted u/s 14 A of the act. The fact shows that assessee has earned dividend income of ₹ 256,316,814. It has also earned interest income from tax-free bonds of ₹ 140,33,171/ . The assessee was questioned by the AO for disallowance u/s 14 A, which assessee submitted that in earlier years the learned Commissioner of income tax appeals has restricted the disallowance for assessment year 98 99 only two ₹ 2 lakhs out of administrativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (Manner Of Increasing In Maintaining Public Shareholding In Recognized Stock Exchange) Regulations on 13 November 2006 putting a bar on the percentage of shareholding in a recognized stock exchanges. Further in the case of the existing shareholders the shareholding was required to be reduced to the maximum allowable limit within the specified stipulated time. Assessee, which was holding 56 lakhs equity shares of the National stock exchange of India constituting 12.14% of its equity, signed an agreement on 10 January 2007 to offload 7% equity. Approval for foreign investment promotion Board was obtained on 5 March 2007 and approval of SEBI and RBI were granted on 23rd March and 29th of March 2007 respectively. According to the share purchase agreement all the agreements conditions were required to be fulfilled by 26th of March 2007. Due to non-availability of requisite approvals the documentation could not have been possible by 15th of March 2007 which was the last date for payment of fourth installment of advance tax. Due to this whatever profit assessee has earned, it short paid the advance tax.. In the case of the assessee the sale proceeds of the sale of shares was received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts as per mercantile system of accounting i.e on accrual basis. It is submitted that the income in question on which interest is sought to be levied for non-payment of advance tax has not yet been accrued in the books of the respondent assessee and hence no advance tax is payable on the same. Accordingly, the question of interest being levied on the non-payment of the same does not arise. 5. Further, the respondent assessee submits that the business of the respondent assessee was unexpectedly high in the last quarter and due to nonreceipt of requisite approvals from SEBI and RBI with respect to transfer of shares, the documentation could not have been possible by 15th March 2007 (deadline for payment of advance tax as stipulated in section 234C of the IT Act). The documentation with respect to transfer of shares was completed on 31/03/2007 and thereafter, the respondent assessee made up for the deficiency in payments on 31st March 2007. 6. It is submitted that action of Ld. AO, rightly deleted by CIT(A), of penalizing the respondent assessee by charging interest for non-payment of advance tax is bad in law. 7. It is a settled position of law that interpretation or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,65,389/ made on account of disallowance of depreciation on plant and machinery lease to various authorities 02 on the facts and circumstances of the case and in law, the learned and CIT (A) has erred in restricting the addition of ₹ 110,831,000/ to the extent of ₹ 4.40 crores made u/s 14 A read with rule 8D of the income tax rules, 1962 03 on the facts and circumstances of the case and in law, the learned CIT (A) has erred in deleting the addition of ₹ 110,831,000 made by the invoking rule 8D read with Section 14 A for the purpose of computation of book profits u/s 115JB of the income tax act 04 on the facts and circumstances of the case and in law, the learned CIT A has erred in allowing the deduction of ₹ 7,999,069/ being the fringe benefit tax in competition of book profits u/s 115JB of the act 60. Assessee has raised following grounds of appeal 01 that the Commissioner of income tax (appeals) erred on facts and in law in upholding the disallowance to the extent of ₹ 4.40 crores u/s 14 A read with rule 8D for expenditure incurred in relation to exempt income 02 That on the facts and circumstances of the case the learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h respect to the adjustment of the book profit by disallowance u/s 14 A, he deleted the same. He also deleted the adjustment of the book profit of the fringe benefit tax of ₹ 7,999,069 following the decision of the coordinate bench in assessee‟s own case for assessment year 1999 2000. Therefore, assessee is in appeal with respect to the disallowance of ₹ 4.4 crores upheld by the learned CIT A u/s 14 A of the income tax act and the learned assessing officer is in appeal with respect to the other disallowance deleted including partial disallowance u/s 14 A of the act. 63. We firstly with the appeal of the learned assessing officer. 64. Coming to the first ground of appeal with respect to the disallowance of depreciation on plant and machinery leased to various authorities, both the parties confirmed that identical issue has been decided in case of the assessee for assessment year 1999 2000 and 2000 2001. Their arguments are same as the facts of the case are also similar. On careful consideration of the rival submissions and the facts on record, in absence of any change in those facts compared to the facts of the case for assessment year 1999 2000 2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Respondent Revenue for invocation of section 14A(2) read with Rule 8D(1). a. One of the essential requirements for invoking section 14A of IT Act read with Rule 8D of the Income-tax Rules,1962 ( Rules )is that the Assessing Officer is required to record its satisfaction having reference to the accounts of the assessee, that the disallowance made by the assessee was unreasonable or unsatisfactory. Reference in this regard can be made to the decision of Supreme Court in the case of Godrej Boyce Manufacturing Company Ltd. [2017] 81 taxmann.com 111 (SC) in which it was held that only after recording of satisfaction by assessing officer, the provisions of section 14A(2) and rule 8D would become applicable. Same conclusion was also reached in the decision of High Court of Delhi in the case of CIT vs. Taikisha Engineering India Ltd [2015] 54 taxmann.com 109 (Delhi). However, in the assessment order no such satisfaction having reference to accounts of the Appellant Assessee was recorded by the Respondent Revenue for rejecting suo-moto disallowance of ₹ 10,00,000 made by the Appellant Assessee. b. Reference in this regard can also be made to the decision of the decision of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend income is claimed exempt. Further, relying upon its earlier decision in the case of Maxopp Investment Ltd. (supra) and CIT vs. Taikisha Engineering India Limited (supra), the Hon‟ble Court dismissed the appeal by holding that assessing officer had failed to comply with the mandatory requirement of law with regard to recording of satisfaction as to why disallowance made by assessee was unreasonable. b. Also, the reasons as given by the Respondent Revenue with regard to double benefit on account of loss on sale of shares/bonds being exempt due to the transaction of dividend stripping (reduction in redemption value due to declaration of dividend) was wrong in the light of the decision of Apex Court in the case of CIT vs Walfort Share Stock Brokers (P.) Ltd. [2010] 192 Taxman 211 (SC), the loss on saleof units in a dividend stripping transaction, cannot be considered as an expenditure‟ for disallowance under section 14A of the IT Act. Further, it is submitted that there was no loss on sale of shares/bonds which was claimed as exempt during the year under consideration and no contrary finding to that effect was given by the Respondent Revenue. Further, income/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of the assessment order at paragraph number 4 we find that the learned assessing officer noted that assessee has earned dividend income and tax-free income from boards. Looking at these, he asked the assessee to justify the non-disallowance of expenditure u/s 14 A of the act. He rejected the contention of the assessee with some general statements and thereafter reproduces the provisions of Section 14 A of the income tax act and computed disallowance as per rule 8D. Therefore, it is apparent that, the learned assessing officer has not recorded his own satisfaction / finding that how the disallowance shown by the assessee on its own of ₹ 2 lakhs is incorrect. The satisfaction of the assessing officer is mandatory in terms of the provisions of Section 14 A (2) of the income tax act. The satisfaction of the Commissioner of income tax appeals cannot be replaced for substituted for the satisfaction of the learned assessing officer. The honourable Supreme Court in Maxoop investments Ltd versus CIT [ 2018] 91 taxmann.com 154 (SC)/[2018] 254 Taxman 325 (SC)/[2018] 402 ITR 640 (SC)/[2018] 301 CTR 489 (SC) has held that having regard to the language of section 14A(2), read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned assessing officer deleted by him following the decision of the coordinate bench in assessee‟s own case for assessment year 1999 2000 dated 31st of October 2008 in ITA number 870/del/2004. Therefore, we do not find any infirmity in the order of the learned Commissioner of income tax appeals to that extent. Accordingly, ground number 4 is dismissed. 71. In the result, appeal of the learned assessing officer is partly allowed. 72. Now we come to the appeal of the assessee which is only against the disallowance u/s 14 A of the income tax act. While deciding ground number 2 of the appeal of the AO we have held that assessing officer has not recorded proper satisfaction in terms of provisions of subsection (2) of the act of Section 14 A of the act and therefore the disallowance under that Section cannot be made. In view of our that finding, the ground number 1 2 of the appeal of the assessee in ITA number 1984/Del/2012 are allowed. 73. Accordingly ITA number 1984/del/2012 filed by the assessee is allowed. 74. In the result ITA number 2062/del/2012 filed by the learned assessing officer is partly allowed and appeal of the assessee in ITA number 1984/d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owner of the lease assets and is entitled to depreciation thereon. Therefore, following the same reasons given there under, we hold that assessee is entitled to the depreciation on lease assets. Accordingly, ground number two of the appeal of the assessee is allowed. 79. Ground number 3 is with respect to the disallowance u/s 14 A of the income tax act. Briefly stated the facts shows that during the year the assessee has earned act free dividend income of ₹ 267,255,687 and has earned interest income from tax-free wants of ₹ 20.87 crores. Undisputedly both these income have been shown as an exempt income. In the competition of the total income assessee has disallowed a sum of ₹ 10 lakhs u/s 14 A of the income tax act. The learned assessing officer questioned the assessee with respect to the disallowance u/s 14 A of the act. Assessee submitted its reply on 25th /11/ 2010 giving the brief history of such disallowances upheld by the learned CIT A. The learned assessing officer rejected the contentions of the assessee, reproduced the provisions of Section 14 A of the act and thereafter proceeded to compute the disallowance u/s 14 A with respect to the adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 2012 for assessment year 2009 10 wherein assessee has contested it that the learned CIT A as erred in not allowing the correct interest due u/s 244A by holding that the delay is attributable to the appellant. 85. For assessment year 2009 10 on the return of income filed as described above an intimation u/s 143 (1) of the income tax act was passed on 29 July 2011. 86. The grievance of the assessee is that at the time of passing that intimation, Short interest was paid u/s 244A of the income tax act. The assessee‟s claim is that it filed its return of income claiming refund of Rs., nil which was subsequently revised claiming refund of ₹ 706,149,685. The revised return was processed u/s 143 (1) on 29th of July 2011 wherein the refund was determined of the above sum and interest u/s 244A of ₹ 139,00,935/- . While calculating the interest the learned assessing officer allowed the interest for the period 1 April 2011 to July 31, 2011. The claim of the assessee is that the amount of refund and its interest should have been granted at the rate of 0.5% for a month from first day of April of assessment year to the date of actual refund. 87. The learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant: a. In CIT v. Periyar District Co-operative Mik Producers Union Ltd (2004) 266 ITR 705 , it was held as follows: vi. 7. A bare perusal of the aforesaid two provisions, more particularly the provision contained in section 139(3), makes it clear that a return of loss filed under section 139(3) may be filed within the time allowed under section 139(1). Once such a return is filed, all the provisions of the Income-tax Act shall apply as if such return has been filed under section 139(1). This position is clear from the expression . . . all the provisions of this Act shall apply as if it were a return under sub-section (1) . In other words, a return filed under section 139(3) is deemed to be a return filed under section 139(1). The provision contained in section 139(3) makes it clear that all the provisions of this Act shall apply to such a return as if it were a return under section 139(1). In view of such a specific provision, there is no reason to exclude the applicability of section 139(5) to a return filed under section 139(3). vii. Based on the above submission the Appellant assessee humbly submits that the Ld. CIT(A) erred in holding that AO has rightly calculate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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