9911796707
TMI Blog2021 (10) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... ves leave to add, alter, delete or modify all or any the above grounds at the time of hearing. 2. Briefly stated, the assessee company which is engaged in the business of manufacturing of plastic molded articles and related activities had e-filed its return of income for A.Y 2016-17 on 30.11.2016, declaring a total income of Rs. 165,97,42,800/-. The return of income filed by the assessee company was processed as such u/s 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that though the assessee company during the year under consideration had received exempt dividend income of Rs. 98,10,000/-, however, it had not offered any suo motto disallowance u/s 14A of the Act. On being queried as to why the interest expenditure incurred by it may not be disallowed u/s 14A of the Act, it was submitted by the assessee that as it had sufficient non-interest bearing funds available with it throughout the year which were far much higher than the investments made in the exempt income yielding securities, therefore, no part of the interest expenditure c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejecting the assessee"s claim that no expenditure could be attributed to earning of the aforesaid exempt dividend income, the A.O after referring to certain judicial pronouncements worked out the disallowance u/s 14A as per the mechanism provided in Rule 8D at an amount of Rs. 12,79,310/-. After, inter alia, making the disallowance u/s 14A r.w Rule 8D the A.O vide his order passed u/s 143(3), dated 25.12.2018 assessed the income of the assessee company at Rs. 167,03,54,630/- under the normal provisions while for its "book profit" u/s 115JB was determined at Rs. 156,29,08,721/-. 4. Aggrieved, the assessee assailed the order passed by the A.O u/s 143(3), dated 25.12.2018 before the CIT(A). Observing, that the A.O while completing the assessment had worked out the disallowance in accordance with sub-clause (iii) of Rule 8D, the CIT(A) finding the same to be fair and reasonable upheld the disallowance made by the A.O. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. It was submitted by the ld. Authorized Representative (for short "A.R") that the assessee during the year under consideration was only in receipt of dividend income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echanical manner dislodged the same and worked out the disallowance u/s 14A r.w. Rule 8D at Rs. 12,79,310/-. On a careful perusal of the assessment order, we find, that the A.O on the basis of his general observations had dislodged the claim of the assessee that no expenditure was incurred for earning of the exempt dividend income and had worked out the disallowance u/s 14A r.w. Rule 8D, observing as under: "4.2 The submission of the assessee has been considered but found not to be acceptable. As regards the component of direct cost attributable to the earning of dividend income, it is prudent fact that I would not be possible to earn such dividend income or to make investment without incurring some indirect expenditure. Though there is no specific employee or department carrying on the activity of earning dividend income, some expenditure would certainly have been incurred for earning such exempt income. 4.3 It is difficult to accept the hypothesis that one can earn substantial dividend income without incurring any expenses, whatsoever, including management or administrative expenses. By the same logic, it is equally difficult to accept that the only expenses involved in earni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avji 183 ITR 1(SC). Further reliance is placed on the decision of Apex Court in the cases CIT Vs Sun Engg. Works 198 ITR 297(SC) and Distributors (Baroda) Pvt. Ltd Vs. CIT reported in S3 ITR 377(SC). When the meaning of words in the provision is clear and unambiguous, the Court has to give effect to it whatever be the consequences, as the Court has not jurisdiction of mitigate harsh consequences, if any. This was held by Hon'ble Karnataka High Court in the case of Patil Vijay Kumar vs Union of India & Anr 151 ITR 48(Kar). The Hon'ble Supreme Court in the case of IPCA Laboratories vs DCIT 266 ITR 521 (SC) held that when no ambiguity is present in the provisions of the statute, the provisions cannot be interpreted to confer benefit on the assessee. Moreover, the decision of jurisdictional High Court in the case of Godrej & Boyce Mfg Co Ltd vs DCIT (234 CTR 1), is clearly applicable to the case of the assessee. Further reliance is placed on the decision in the case of Daga Capital Mgmt Pvt. Ltd. vs DCIT (2009) 312 ITR I (Spl. Bench) wherein the constitutional validity of subsection (2) and (3) of section 14A has been upheld. 4.7. In view of the above, the submission of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 38. In the present case, we do not find any mention of the reasons which had prevailed upon the Assessing Officer, while dealing with the Assessment Year 2002-2003, to hold that the claims of the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Rule 8D of Income Tax Rules, 1963 for computing the disallowance u/s 14A of the Act, we find that the Hon'ble High Court of Bombay in its recent order in the case of CIT Vs. Sociedade De Fomento Industrial Pvt. Ltd. (2020) 429 ITR 358 (Bom), had observed, that the A.O must give a clear finding with reference to the assessee"s accounts as to how the other expenditure claimed by it in respect of its non-exempt income is related to its exempt income. It was observed by the Hon"ble High Court that the onus was on the revenue to establish that there is a proximate relationship between the expenditure and the exempt income. It was therein observed that the application of Sec. 14A and Rule 8D is not automatic in each and every case where there is income not forming part of the assessee"s total income. Also, it was categorically observed by the Hon"ble High Court that the A.O is obligated to give a clear finding as to how the expenditure incurred by the assessee during the relevant year related to the income not forming part of its total income and, the same cannot be justified merely on the basis of surmises or conjectures. The observations of the Hon"ble High Court qua the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the accounts of the assessee, is not satisfied 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 this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. 13. Rule 8D of the Income Tax Rules provides the methods for determining the amount of expenditure in relation to income not includible in the total income. But this Rule comes into play once an expenditure falls within the mischief of section 14A of the IT Act. We need not elaborate on that Rule. 14. In Kanga & Palkhiwala: Law & Practice of Income Tax, (Lexis Nexis, New Delhi, 11 ed. Online edition) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the assessment year, income from such sources stood exempted under section 10(35) of the IT Act. The only issue was whether the respondent incurred any expenditure while earning that exempted income and whether it included that expenditure in the common indirect expenditure of its own. First, the appellant noted, rather guessed, that the respondent borrowed funds to invest and that there ought to be an interest element. But the respondent asserted that it utilised its surplus funds. This Court, then, found that there was no material for the appellant to conclude that the respondent borrowed the funds. Second, given the volume of investment, the respondent is said to have received charge-free services from the managers of the banks and other financial institutions with whom they have invested. So there is said to be no expenditure. 18. This Court rejected the appellant's contentions and affirmed the Tribunal's findings. Here, too, we face an identical problem, similar assertions and counter assertions, and the same result: the Tribunal reversed CIT(A)'s findings. Can our response be different here? 19. Here, on facts, the Tribunal noted that the AO only discusse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that investment decisions are very complex in nature and require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time etc., had dislodged the claim of the assessee that no part of the expenses claimed by it in respect of its other non-exempt income could be attributed to earning of the exempt dividend income. The failure on the part of the A.O to strictly comply with the aforesaid statutory obligation that was cast upon him, can safely be gathered from the fact that there is no clear finding by him with reference to the assessee"s accounts, as to how to the other expenditure claimed by the assessee in respect of its non-exempt income were related to the exempt income. As observed by us hereinabove, a simpliciter rejection by the A.O of the aforesaid claim of the assessee which is only backed by his general observations, surmises and conjectures can by no means justify the validity of the jurisdiction assumed by him for computing the disallowance u/s 14A r.w. Rule 8D(2)(iii) in the hands of the assessee. We, thus, not finding favor with the view taken by the CIT(A) who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
