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TMI Blog2021 (7) TMI 1073X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Act, 1961 (the Act) in respect of expenses incurred for earning exempt income. (b) On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in upholding the action of the Assessing Officer in invoking the provisions of Rule 8D of the Income-tax Rules, 1962 for computing disallowance under section 14A. (c) On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in rejecting the working of disallowance under section 14A of the Act made by the appellant on a reasonable basis. (d) On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in rejecting the contention of the appellant that even if disallowance is to be made per Rule 8D, the same ought to be computed only on those investments which have yielded exempt income during the relevant previous year. (e) On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in ignoring the contention of the appellant that in case disallowance is computed as per Rule 8D of the Income-tax Rules, 1962, then the deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Ld.AR and Ld.DR, the three additional grounds of appeal are admitted . 2. The Brief facts of the case are that, the assessee company is engaged in the business of wind farm & strategic investments. The assessee has electronically filed the return of income for A.Y.2008-09 on 30.09.2008 with the total income of Rs. 60,93,23,943/- and under MAT book profits u/s 115JB, Rs. 60,85,04,005/-. The return of income was processed u/sec143 (1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143 (2) and 142 (1) of the Act along with questionnaire are issued. In compliance the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. It was also brought to the knowledge of the Assessing Officer that, the Hon'ble Bombay High Court vide order dt 18.12.2007 passed the order demerging M/s Bajaj Auto Ltd. (BAL) w.e.f. closing hours of 31.03.2007. As per the scheme of demerger, the manufacturing undertaking was demerged into M/s Bajaj Holding & Investments Ltd. (Bajaj Auto Ltd.) and the strategic business undertaking (including financial services & wind mills) was demerged into M/s Bajaj Finserv Ltd (the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 2.3.7 of the order as under:- "2.3.7 In view of the aforesaid reasons, I am of the opinion that the Assessing Officer was correct in working out the disallowance u/s 14A by the method prescribed in Rule 8D(2)(iii). However, the expenditure of Rs. 5 lakhs disallowed by the assessee itself cannot be considered as direct expenditure for the reason that direct nexus between this expenditure and the income which does not form part of the total income has not been established. The disallowance of this expenditure of Rs. 5 lakhs is, therefore, directed to be deleted. The contention of the assessee that even if disallowance is made as per Rule 8D, the same should be computed only on those investments which have yielded exempt income during the previous year relevant to the A.Y. 2008-09, i.e., shares of Bajaj Auto Finance Ltd. cannot be accepted since Rule 8D(2) provides that the average investment would include average value of investment, income from which does not or shall not form part of the total income as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year. In view of the clear position of law, the contention of the assessee th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also emphasized that the provisions of Rule 8D(2) of IT Rules shall not apply for this assessment year and no disallowance is warranted. The Ld. AR relied substantiated his arguments relying on the judicial decisions and factual paper book. 5(ii).On the second dispute issue, in the event of disallowance by the A.O. u/sec 14A r.w.r. 8D. The LD.AR submitted that the assessee company should be allowed to claim the deduction of Sec 14A disallowance in computing the revised profits in the calculation of deduction u/s 80IA of the Act. 5(iii).The third issue on the findings of the A.O. that, unabsorbed depreciation and accumulated losses of earlier years should be adjusted first, even if the assessee starts claiming deduction u/sec80IA of the Act in subsequent years. The Ld.AR contentions are that no such adjustment is required and submitted that decision of Honble Madras High court has attained the finality. 5(iv). The Ld. AR argued on the short granting of interest u/sec244A of the Act and submitted that the assessee is entitled for refund as per intimation processed u/s 143 (1) of the Act on 17-07-2009.The assessee is entitled for interest U/sec 244A of the Act till the date of issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for preparation of refund order. On the three additional grounds of appeal ,the Ld. DR submitted that these grounds of appeal are raised first time before the Hon'ble Tribunal and prayed for restoring to the file of the assessing officer for examination and verification of facts and supported the assessing officer order. 7. We heard the rival submissions and perused the material on record. The Ld AR submitted that the CIT(A) has erred in accepting the method of calculation in respect of disallowance u/s 14A r.w.r 8D(2)(iii) of the IT Rules. The assessee company has received the dividend income from the sister/group companies and has claimed exempted. The assessee made suo-motto disallowance of expenses of Rs. 5lakhs. Whereas, the A.O. has applied the rule 8D(2)(iii) of the IT rules and made substantial higher amount of disallowance. We find the Ld.AR supported his arguments relying on voluminous information in the paper book and explained the pattern of the shareholdings and investments made in the concerns. The Ld. AR submitted that the assessee has not incurred any expenses for earning the exempted income and referred to computation of total income at page 21 of the paper boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the assessee company are more than the investments made in shares and mutual funds being 17.02% of total assets. We are of the opinion that, the submissions of the Ld.AR that no expenses are incurred for earning the exempted income cannot be accepted. The assessee has made substantial investments in the companies which need to be periodically checked and verified. Therefore, we are of the considered view that the A.O has applied the formula of disallowance without considering the facts of investment pattern, income and total expenses. The A.O. has to determine and calculate administrative over heads and compute the total income including exempt income. The A.O. has to calculate the percentage of allocating administrative overheads based on total income and exempted dividend income.Further if the disallowance u/sec14A of the Act is worked out, the A.O. has to apply the ratio of special bench decision in the case of ACIT Vs. M/s. Vireet Investments Pvt Ltd. New Delhi (165 ITD 27). Where the Coordinate Bench has made a distinctive observations on the investments and only dividend yielding investments has to be considered for the purpose of Average value of investments for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndence in the department to issue refund order with interest and is accepted practice. The Ld. AR relied on the Jurisdictional High Court decision of CIT Vs Pfizer Ltd (191 ITR 626) and the coordinate Bench of Honble tribunal decision in the case of M/s Jay Bros Investment & Trading Co. (P) Ltd. Vs DCIT [ 2002] 74 TTJ 748 (Mum).We consider the overall aspects and the ratio of decisions in respect of interest calculation. The assessee should not be deprived of its legitimate right for any further interest, due to the lapses on the part of the income tax department. Accordingly, we direct the assessing officer to grant the interest on refund to the date of refund order and allow this ground of appeal 10. On the first additional ground with respect to receipts in connection with the Voluntary Emission Reduction (VER) credits are in the nature of capital receipts. The Ld.AR submits that the receipts are arising out of sale of carbon credit and supported his arguments relying on the judicial decisions as under:- (i) the decision of the Bombay High Court in the case of PCIT vs. Dodson Lindblom Hydro Power Pvt Ltd (ITA No. 1820, 1821 and 1840 of 2016) (Bombay HC). (ii) the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Education cess and Higher Education cess are liable for deduction in computing income chargeable under head of profits and gains of business or profession. We considering the ratio of decision discussed above, direct the assessing officer to allow the deduction of cess and allow the ground of appeal of the assessee. Accordingly, the assessee appeal is partly allowed for statistical purpose. ITA No 4955/Mum/2013.A.Y.2009-10. 13.The Assessee has raised grounds of appeal 1 to 14 in respect of disallowance u/sec14A of the Act and the ground of appeal no 12 in respect of grant of deduction u/sec80IA of the Act. The assessee raised(i) additional ground with respect to receipts in connection with the Voluntary Emission Reduction (VER) credits are in the nature of capital receipts.(ii) The second additional ground of appeal raised by the assessee to allow deduction of education cess on income tax paid during the year. We have dealt on these identical and similar disputed issues in ITAno.4223/Mum/2012 A.Y.2008-09 in the above paragraphs. The decision on these disputed issues shall apply mutatis and mutandis to this appeal also. Therefore in respect of disputed issue of disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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