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TMI Blog2018 (8) TMI 2133X X X X Extracts X X X X X X X X Extracts X X X X ..... hancing the scope of appeal whereas the issue before us concerns only disallowance u/s. 14A - respectfully following the order of the Tribunal [ 2018 (5) TMI 255 - ITAT KOLKATA ] for AY 2008-09, we direct the AO to delete the disallowance of proportionate interest made u/s. 14A of the Act read with Rule 8D(2)(ii) of the Rules. Addition made u/r 8D(2)(iii) - Tribunal in assessee s own case for AY 2008-09 [ 2018 (5) TMI 255 - ITAT KOLKATA ] following the decision of REI Agro Ltd. [ 2013 (9) TMI 156 - ITAT KOLKATA ] held that only dividend bearing investment in shares are to be considered for making disallowance u/s. 14A of the Act. Following the same, we remand this issue back to the file of the AO with a direction to consider only investment in shares and units held on the opening and closing date of the previous year which yielded dividend income for the purpose of computing the disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) Computation of deduction u/s. 10B and 80IA - allocation of 7.39% of directors remuneration and auditor s remuneration to be considered as deduction in arriving at the profits of the undertakings eligible for deduction u/s. 10B and 80IA - HELD THAT:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest demand was raised by the payee only in the relevant year, the Ld. CIT(A) rightly held that the liability for such expenses arose and crystalised in this year only. As regards other items of expenses, CIT(A) observed that the bills for certain expenses for the FY 2007-08 were received by the assessee only in the next year i.e. the relevant FY 2008-09. Although the assessee had provided for the expenses on estimate basis in the earlier year but there was certain difference between the provisions estimated and the actual billed amount and it was this differential amount which was charged to the P L Account for the relevant year. CIT(A) correctly observed that since the bills were received after the end of the FY 2007-08 and in FY 2008-09, the differential amount had crystalised in the relevant year itself and, therefore, allowed the same. - Decided against revenue. CIT(A) in restricting the allocation of expenses on legal and professional and travelling and conveyance to the eligible undertaking u/s. 80IA and 10B - HELD THAT:- From perusal of the schedule of expenses forming part of the audited accounts, we find that legal and profession expenses as well as travelling and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 23,44,12,765/- in the following manner: Rule 8D(2)(i) Direct expenses Nil Rule 8D(2)(ii) Interest Rs. 21,36,61,350/- Rule 8D(2)(iii) Administrative expenses Rs. 2,07,51,415/- Rs. 23,44,12,765/- Aggrieved by the disallowance computed by the AO, the assessee preferred an appeal before the Ld. CIT(A), who in principle confirmed the addition made by the AO u/s. 14A of the Act to the total income but rectified the errors which had crept into the computation of disallowance in terms of Rule 8D of the Rules made by the AO and hence, confirmed the addition u/s. 14A of the Act to the extent of Rs. 19,81,76,000/- which, inter-alia, included a sum of Rs. 17,99,25,000/- under Rule 8D(2)(ii) and Rs. 182.51 lacs under Rule 8D(2)(iii) of the Rules. Aggrieved against the order of Ld. CIT(A), assessee is before us. 4. We have heard rival submissions and gone through the facts and circumstances of the case. With regard to the disallowance of proportionate interest of Rs. 17,99,25,000/- confirmed by the Ld. CIT(A) u/s. 14A read with Rule 8D(2)(ii) of the Rules the Ld. AR of the assessee contended that investments were made by the assessee company out of its own funds which was suffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query Ld. Sr.DR could not controvert that the assessee has made in investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at Rs 365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT(A) on the common issue……..' We find that this case has yielded concurrent finding of facts regarding expenditure incurred by the assessee for the purpose of earning the exempt income, by the Appellate Authority and the Tribunal. As such there is no scope for interference with such concurrent findings of facts. We, therefore, are not satisfied that the case involves any substantial question of law. The application and appeal are thus dismissed." We find that the own funds of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance u/s. 14A of the Act. At the time of hearing, the Ld. DR, however, made an alternative argument that the assessee besides investing in shares and units, yielding dividend income, investment were made in debentures, bonds and granted interest free loans to subsidiaries which totalls far more than the assessee's own funds in the form of capital and reserves as reflected in the audited accounts. The Ld. DR, therefore, contended that it was a clear case that the assessee's borrowed funds were infact utilized for non-business purposes and, therefore, disallowance out of interest paid made by the AO and confirmed by the Ld. CIT(A) should be upheld. 8. We however, are not persuaded to agree with the Ld. DR's contention before us relating to disallowance u/s. 14A of the Act which can only be made if the expenditure is incurred in relation to earning of any tax free income. Admittedly, investments in bonds and debentures and advance to subsidiaries could not have produced tax free income and for that reason sec. 14A of the Act was not applicable to it. Furthermore, even the lower authorities have not made out any case that the borrowed funds were relatable to investment in bonds and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and professional. According to AO, these expenses were common and, therefore, these expenses should have been allocated on pro-rata basis between the eligible units and other units on the basis of their respective turnover. Thereafter, the AO worked out the pro-rata percentage of turnover of the eligible units to the company as a whole at 7.39% and accordingly, apportioned these expenses to respective eligible units. On appeal, the Ld. CIT(A) deleted the adjustment qua the expenditure on account of travelling & conveyance and legal & professional. The Ld. CIT(A), however, confirmed the adjustment qua the Director's remuneration and Auditor's fee. Aggrieved by the action of the Ld. CIT(A), the assessee is in appeal before us. 12. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Director's remuneration of Rs. 1955.66 lacs was paid to the Directors in accordance with sec. 198, 348 and 349 of the Companies Act, 1956 which, inter-alia, included Directors sitting fees and commission totaling to Rs. 1459.74 lacs to non-executive directors of Rs. 495.92 lacs as remuneration to the Managing Director. The Ld. AR submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts Ltd. 142 Taxman 104 (Del.ITAT) iii) RRB Consultants & Engg. Pvt. Ltd. 112 TTJ 794 (ITAT Del.) iv) National Fertilizers Ltd. in Re 142 Taxman 5 (AAR New Del.) 14. In view of the above, let us now examine whether the items of expenses in question viz. Directors remuneration and Auditor's remuneration have any first degree nexus or connection with the profits deriving from eligible undertakings. . On perusal of the separate audited accounts of the eligible undertakings, we note that no expenses have been debited in respect of the audit conducted on these segmental accounts and in that view of the matter, we hold that the auditor's remuneration debited in P&L Account, inter-alia, comprised of the fees paid to auditors for auditing the separate accounts of the eligible undertakings. In absence of the break-up of fees paid to auditors, we find no infirmity in the order of the lower authorities in allocating the auditor's remuneration to the eligible undertaking on pro-rata basis and hence, the order of the lower authorities to that extent is confirmed. 15. Now coming to the Director's remuneration, we find that the same can be bifurcated into remuneration and sitting fees of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer in the assessment order and submissions of the appellant. The appellant has paid an amount of Rs. 79,81,509/- for delayed payment of priority to the Deputy Director (Mines) and the demand for the same was raised during the period relevant to assessment year 2009-10 as per the letter NO.60428/Mines dated 29.08.2008 of the Office of Deputy Director (Mines) Joda to Dist: Keonjhar, Orissa. The matter was under dispute and the demand crystallised during this period. Since the demand has been crystallised during the year and it was under dispute that no interest payment is to be given but ultimately the payment has to pay the interest and claim the same in the year of payment. Therefore, it is held that the appellant is entitled for the claim of Rs. 79,81 ,509/- being the statutory dues of the Govt. of India even otherwise as per the provision of section 438 of the Income-tax Act, 1961. The same is to be allowed as deduction in the year of payment 37. The appellant has filed the details of Rs. 89,78,073/- as follows: 19. Aggrieved by the aforesaid decision of the Ld. CIT(A), the revenue is in appeal before us. 20. We have heard rival submissions and gone through the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out the pro-rata percentage of turnover of the eligible undertaking to the company as a whole as 7.39% and accordingly, apportioned these expenses to respective eligible units. On appeal, the Ld. CIT(A) found that in Form 10CCB, the auditors had already identified and allocated the amount of Rs. 30,99,000/- and Rs. 5,63,000/- out of legal and professional fee and travelling and conveyance pertained to the eligible undertakings. According to the Ld. CIT(A), when the details had already been authenticated by the auditors, no further allocation out of these items of expenses were required. Aggrieved by the action of the Ld. CIT(A), the revenue is before us. 23. We have heard the rival submissions and carefully perused the material available on record. In the paper book filed the assessee has enclosed separate audited P&L Account of the eligible undertakings. From perusal of the schedule of expenses forming part of the audited accounts, we find that legal and profession expenses as well as travelling and conveyance expenses incurred by these undertakings were debited to the stand alone account of these eligible undertakings and hence, no further allocation on account of these items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) of the Rules. In view of our foregoing conclusion the grounds raised by the revenue becomes academic only. 27. Coming next to ground no. 5 of assessee's appeal and ground nos. 2 and 3 of revenue's appeal relate to the allocation of 'common expenses' comprising of Director's remuneration, Auditor's remuneration, conveyance and travelling expenses and legal and professional expenses in working out the profits of the eligible undertakings u/s. 80IA and 10B of the Act. After considering the rival submissions it is observed that the issue involved in these grounds are similar to the ground nos. 4 and 5 of assessee's appeal and ground no. 4 of revenue's appeal in AY 2009-10. Following the conclusion drawn in AY 2009-10, we hold that the Managing Director's remuneration and auditor's remuneration of Rs. 5,12,23,000/- and Rs. 4,23,000/- respectively had nexus with the functioning of the eligible undertakings and accordingly, confirm the orders of the lower authorities for making allocation out of these expenses against the income to be considered for the purpose of computing deduction u/s. 80IA and 10B of the Act. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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