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TMI Blog2021 (8) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... remuneration, travelling expenditure of 501.33 lacs and other administrative and miscellaneous expenditure of 3219.29 lacs which required disallowance to the amount of 30,88,115/-. With the assistance of ld. representatives, we have also perused the decision in CIT Ahmedabad vs. S. R. Tele Holding Pvt. Ltd.[ 2017 (5) TMI 1160 - GUJARAT HIGH COURT] wherein it is held that rule 8D is prospective in operation and cannot be applied to any assessment year prior to assessment year 2008-09. After taking into consideration the decision of Hon ble Supreme Court as referred above and findings of ld. CIT(A) as elaborated above, we do not find any infirmity in the finding of ld. CIT(A), therefore, the appeal of the revenue is dismissed. Disallowance u/s. 80IC - HELD THAT:- After considering the decision of Co-ordinate Bench of the ITAT Ahmedabad in the case of the assessee itself pertaining to the assessment year 2010-11 and 2011-12 on identical issue and facts, we do not find any infirmity in the decision of ld. CIT(A) on allocating common interest and financial charges on the basis of investment and deleting the addition of common head expenses and administrative/corporate division expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual Position, we remit the matter back to the file of the A 0 for fresh decision after considering both the aforesaid decisions i.e. Hon'ble Kerala High Court and Hon'ble Bombay High Court. The AO should pass necessary order as per law and as per the above discussion after providing adequate opportunity of being heard to the assessee. Thus, the ground of appeal of the assessee and the ground raised by the Revenue are allowed for statistical purpose." During the course of set aside assessment, the Assessing Officer has stated that the Hon'ble Kerala High Court in the case of the Catholic Syrian Bank 273 ITR 164 held that disallowance u/s. 14A can be made even prior to introduction of sub-section (2) and sub-section (3) u/s. 14A of the Act. The Assessing Officer has further stated that Hon'ble Bombay High Court in the case of Godrej Boyce Manufacturing Co. Ltd. vs. DCIT 328 ITR 81 held that the even prior to assessment year 2008-09 the Assessing Officer has to enforce the provision of sub-section (1) of section 14A. Therefore, the Assessing Officer has computed the disallowance u/s. 14A to the amount of ₹ 1,92,13,175/- and added to the total income of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement Ltd. , it was clearly brought out and held by Hon'ble ITAT that in respect of computation of expenditure relatable to exempt income U/s 14A of the Act, both direct as well as indirect expenses has to be considered. This principle was prescribed by legislature while promulgating Rule 8D in this regard. Otherwise also, in a composite and complex business of an appellant where no separate books of account are maintained of various business carried on by appellant, it cannot be stated that it is only direct expenses which are relatable to one type of income. The entire work force, machinery in the form of office building & over head expenses are also have an element of expenditure in the form of opportunity cost relatable to that income. D. Considering the above decision, I am inclined with the contention of appellant that disallowances made by A.O. following Rule 8D are neither justified nor sustainable since for the impunged assessment year, Rule 8D is not applicable and computing disallowances out of interest payment is exceeding the jurisdiction as granted by Hon'ble ITAT direction. But, I am inclined with the A.O. that disallowances has to be made both for direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative expenditure of ₹ 1817.59 lacs. During the course of assessment, the ld. CIT(A) has held that in view of the ratio of various case laws in set aside proceedings with specific directions, the Assessing Officer cannot exceed the disallowance and addition made in the original assessment order as reduced by the ld. CIT(A) which was subject matter before the ITAT. The ld. CIT(A) has also referred the decision of ITAT Bombay Special Bench in the case of Daga Capital and Management Ltd. that the applicability of rule 8D is prospective w.e.f. 1st April, 2008 and for earlier years the disallowance has to be made reasonably on fact of the case. Taking into consideration, the aforesaid facts and judicial finding, the ld. CIT(A) has stated that in the original order, the Assessing Officer has adopted a reasonable view on the basis of proportion of dividend income to total sales i.e. 0.83 lacs, director's remuneration, travelling expenditure of ₹ 501.33 lacs and other administrative and miscellaneous expenditure of ₹ 3219.29 lacs which required disallowance to the amount of ₹ 30,88,115/-. With the assistance of ld. representatives, we have also perused the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses including director's remuneration, director's contribution to P & F and welfare expenses of ₹ 2883.29 lacs, the assessee has allocated salary expenses of ₹ 442.85 lacs to the account of Nalagardh unit. However, the Assessing Officer has made further allocation on the basis of ratio on sales of salary expenses at ₹ 178.46 lacs in the case of Nalagarh unit for working out eligible income reduction u/s. 80IC. In respect of common head expenses, the Assessing Officer stated that as per the detail submitted by the assessee it has allocated common head expenses of ₹ 4.52 lacs only to the Nalagarh unit. However, the Assessing Officer on the basis of ratio of turnover allocated further ₹ 7.47 lacs on common head office expenses for determining claim of deduction u/s. 80IC of the act to the Nalagarh unit. The Assessing Officer has further observed that assessee has allocated plastic division expenses to the amount of ₹ 412.24 lacs to the Nalagarh unit. However, the Assessing Officer has recomputed such expenses on the basis of ratio of turnover to the amount of ₹ 5.0843/- lacs accordingly made further disallowance of ₹ 96.11 lacs for com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed. 11. During the course of appellate proceedings before us, the ld. counsel has contended that identical issue on similar facts has been adjudicated by the ITAT Ahmedabad itself in assessment year 2011-12 vide ITA No. 2786/Ahd/2014 order dated 08-04-2021. He has supported the order of ld. CIT(A). The ld. Departmental Representative could not controvert this undisputed fact that the issue is covered in favour of the assessee as per the decision of the ITAT referred above in the case of the assessee itself. With the assistance of ld. representatives we have gone through the decision of Hon'ble ITAT in the case of assessee itself for assessment year 2010-11 vide ITA No. 1548/Ahd/2012 dated 18-03-2016 and vide ITA No. 2786/Ahd/2014 dated 08-04-2021. It is observed that similar issue on identical facts has been adjudicated in favour of the assessee. The relevant part of the decision of the ITAT for assessment year 2011-12 is reproduced as under:- "7. With the assistance of representatives, we have gone though the decision of Co-ordinate Bench of the ITAT vide ITA No. 1548/Ahd/2012 in the case of the assessee itself on identical facts/similar issue and noticed that allocation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reveal that the assessee has been maintaining separate accounts for these units. It has debited expenditure on actual basis. The AO did not find any error in that attribution. He simply jumped to make allocation on the basis of sales made by these units vis-a-vis the total sales. That is not a scientific 'criteria for making disallowance. The Id.CIT(A) has accepted the contention of the assessee, it has considered all these expenditure, and where there is a direct nexus with the activity of 80IC units, vis-a-vis this expenditure, it has already made disallowance. Let us take an example. As far as security charges are concerned, the assessee already accounted the security charges relevant for the purpose of 80IC units. Why allocation out of the expenditure incurred at head office ought to be made to this unit. Similarly, it has allocated out of computer maintenance. This expenditure would relate to the computers which are directly involved in 80IC units. After considering the orders of the Id.CIT(A) on this issue, we do not find any error in the orders, and accordingly, the orders of the-CIT(A) in both the years are upheld on this issue. The Id.CIT(A) has rightly deleted the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t find any merit in this ground of appeal of the revenue and the same stands dismissed. Ground No. 2 (Deleting disallowance made by Assessing Officer u/s. 14A of the Act of ₹ 24,36,72,136/- ) 12. During the course of assessment, the Assessing Officer noticed that assessee has exempt income by way of dividend to the amount of ₹ 92.37 lacs. However, the assessee has disallowed only ₹ 2.48 lacs for earning exempt income. The assessee explained that it had made investment in Mutual Funds out of surplus internal accrual and no borrowed funds were used, therefore, no expenditure was incurred to earn exempt income. The Assessing Officer has rejected the submission of the assessee that no expenditure has been incurred for earning exempt income and computed the disallowance u/s. 14A as per rule 8D at ₹ 24,36,72,137/- and added to the total income. 13. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition after following the decision of ITAT Ahmedabad in assessee's own case for assessment year 2009-10 and 2011- 12 and after considering the fact that assessee was having surplus fund which was invested in Mutual Funds. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find any error in the order of the Id.CIT(A) on tin's issue in Assit. Year 2009-10. Consequently, we allow the ground of appeal raised by the assesses in the Asstt. Year 2010-1! and delete the disallowance made by the AO." Hon'ble ITAT has dealt with the issue in detail and has decided to delete the disallowance made by him for the reasons mentioned in the order. In view of Hon'ble ITAT's decision and other judicial pronouncements quoted by the appellant, the AO is directed to delete the disallowance made u/s.l4A on the basis of working under Rule 8D and to accept the computation and disallowance of ₹ 2.48 lacs made by the appellant himself in its computation. Accordingly, Ground No.6 is allowed." 14. During the course of appellate proceedings before us, the ld. Departmental Representative has relied on the order of Assessing Officer. On the other hand, the ld. counsel has submitted that the issue is covered in favour of the assessee by the decision of ITAT Ahmedabad for assessment year 2011-12 vide ITA No. 2786/Ahd/2014 order dated 08-04-2021 and further stated that decision of Co-ordinate Bench of the ITAT for assessment year 2010-11 has been conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition 'precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-sect/on (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee on mutual fund are taxable and not an exempt income derived from such investment. In the Asstt.Year 2009-10, the assessee has offered a sum of ₹ 19.22 crores on sale of such investment for taxation as short/long term capital gain. Similarly, in the Asstt.year 2010-11, a sum of ₹ 8.23 crores has been offered. The investment made by the assessee was not out of interest bearing fund. It has its own surplus fund out of which investment has been made. The assessee has demonstrated that it had own funds of ₹ 1981.55 crores in the Asstt.Year 2009-10 and investment in the mutual fund was only ₹ 144.51 crores. The assessee has also submitted that its investment in earning exempt income has been reduced during the year from 78.45 crores to ₹ 18.09 crores. The assessee has submitted these details in its submissions reproduced by the AO. Similarly, in the Asstt.Year 2010-11, it has reserve fund of ₹ 2319.17 crores and made investment of ₹ 111.09 crores. The Id.AO has not given any heed to these submissions or figures submitted by the assessee. The assessee has further made disallowance of ₹ 5.12 lacs in the Asstt.Year 2009-10. This w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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