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TMI Blog2024 (6) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... ation cess - Scope of amendment made to Sec.40(a)(ii) by the Finance Act, 2022 retrospectively - assessee, submitted that the assessee has been visited with additions on the ground that though the claim of the assessee was legitimate at the time of the filing of the return of income, however, because of the retrospective introduction of the Explanation (3) to the Act, the same becomes an inadmissible expenditure and the provisions of Section 155(18) which came to be introduced with effect from 01.04.2022 provided that where the assessee is desirous of withdrawing the claim, he can do so subject to the payment of taxes - HELD THAT:- Where the application in Form No.69 has been made in the prescribed format and within the prescribed period, the claim would not be deemed to be under-reported income for the purpose of Section 270(A)(3) of the Act. Copy of the acknowledgement of receipt of the IT Form No.69 was furnished by the assessee before ld. CIT(A) so as to ascertain this fact as mentioned in the order of the ld. CIT(A); however, no orders have been passed by the AO regarding the application made by the assessee and the ld. CIT(A) has also not addressed this issue. Thus, the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom paragraph Nos. 3 5 of the assessment order, thereby rejected the contention of the assessee. Further, the ld. CIT(A) held that the Assessing Officer applied new Rule 8D while computing the disallowance u/s 14A, which requires 1% of average investment as expenditure incurred for earning exempt income and new Rule 8D is applicable from Assessment Year 2017-18 which does not provide any bifurcation between proportionate interest disallowance and other expenditure as was the case involved in old Rule 8D. He, accordingly, confirmed the addition made by the Assessing Officer and dismissed the appeal filed by the assessee. 5. Aggrieved against the appellate order passed by the ld. CIT(A), the assessee is now in appeal before us challenging the disallowance made by the Assessing Officer u/s 14A r.w.r. 8D of the Income-Tax Rules, 1962. 6. The ld. Counsel Shri Aseem L. Thakkar, appearing for the assessee, drawn our attention to the assessment order, wherein the Assessing Officer has not recorded his dissatisfaction while computing the disallowance u/s 14A r.w.r. 8D. When the Assessing Officer did not record his satisfaction as per Section 14A(2) of the Act, then he could not invoke Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished in point no. 11 of the reply dated 26.05.2020, Further, it is also submitted that even presuming the investments in mutual funds amounting to Rs. 284,18,82,951/- are capable of generating exempt income the assessee company is enjoying share capital and reserves surplus to the extent of Rs. 357,54,77,072/-. Such interest free funds are far in excess of the investments which are capable of generating exempt income not forming part of total income. It is a settled proposition of law that where such funds are in excess of the eligible investments, disallowance u/s. 14A of the Act cannot be made. Therefore, it is respectfully submitted that once the interest free funds available with the assessee company are far in excess of the investments capable of generating exempt income disallowance u/s 14A r.w.r. 8D of the I.T. Rules 1962 cannot be made. It is also further submitted that the perusal of the Profit Loss account would reveal that there is no finance cost incurred by the assessee company and therefore any direct expenses associated with the disallowance u/s 14A of the Act does not arise. The details of other direct/indirect expenses incurred for earning exempt income on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod as may be prescribed, if the Assessing Officer, having regard 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. 10.1 As per sub-section (2) of Section 14A of the Act, if the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim made by the assessee, in respect of such expenditure, in relation to income which does not form part of the total income under the Act, he has to record his satisfacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has followed the decision in the case of Shreno Limited (supra) dealing with the same issue and also an identical argument taken by the department. 18. The language of section 14A of the Act is plain and clear Before invoking rule 8D, the Assessing Officer is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. To put it in other words, the condition precedent of recording the requisite satisfaction which is a safeguard provided in section 14A should not be overlooked before going to rule 8D. In such circumstances we are not impressed by the submission canvassed on behalf of the Revenue that once there are mixed funds, rule 8D would be attracted automatically. 9. The Tribunal has arrived at finding of fact that as the Assessing Officer did not record any satisfaction under section 14A(2) of the Act-1961 prior to invoking rule 8D, he could not have made any disallowance by applying rule 8D of the Rules-1962. 11.1 In the case of Gujarat Flurochemicals Ltd (supra), the Hon ble Guja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be justified. This issue does not arise in the present case. However, it is true that while disposing of bunch of appeals by the said judgment the Supreme Court also considered the correctness of the view of the Punjab Haryana High Court in case of Avon Cycles Ltd. It was the case in which the Assessing Officer had invoked Section 14A read with Rule 8D and apportion the expenditure between investments made for earning tax free income and the rest. The CIT (Appeals) had deleted the entire disallowance upon which in the appeal filed by the Revenue the Tribunal restored portion of the disallowance observing that the funds utilized by the assessee being mixed funds, the disallowance is confirmed in view of the provisions under Rule 8D(2) of the Rules. This decision of the Tribunal was challenged before the High Court. The Court held that the funds utilized by the assessee were mixed funds and the interest paid by the assessee is also an interest on the investments made, was the finding of fact and therefore, no substantial question of law arises. This judgment was carried in appeal by the assessee. The Supreme Court dismissed the appeal confirming the decision of the High Court. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the same issue and also an identical argument taken by the department. 18. The language of Section 14A of the Act is plain and clear. Before invoking Rule 8D, the Assessing Officer is obliged to indicate that having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to the income which does not form part of the total income under the Act. To put it in other words, the condition precedent of recording the requisite satisfaction which is a safeguard provided in Section 14A should not be overlooked before going to Rule 8. In such circumstances we are not impressed by the submission canvassed on behalf of the Revenue that once there are mixed funds, Rule 8 would be attracted automatically. 18. We are of the view that the ITAT rightly relied on the decision of the Bombay High Court in the case of CIT v. Reliance Utilities Power Ltd. [2009] 313 ITR 340/178 Taxman 135 (Bom.). 11.1 It is seen that the assessee made investments of Rs. 12,50,000/- in Kalupur Commercial Co-operative Bank Ltd. and the dividend received on such shares is taxable in nature and does not generate any exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate order passed by the ld. CIT(A), the assessee is now in appeal before us raising the grounds as stated above. 18. The ld. Counsel Shri Aseem L. Thakkar, appearing for the assessee, submitted that the assessee has been visited with additions on the ground that though the claim of the assessee was legitimate at the time of the filing of the return of income, however, because of the retrospective introduction of the Explanation (3) to the Act, the same becomes an inadmissible expenditure. However, the provisions of Section 155(18) which came to be introduced with effect from 01.04.2022 provided that where the assessee is desirous of withdrawing the claim, he can do so subject to the payment of taxes. Further, as per Rule 132, the assessee is liable to file application in Form No.69 on or before 31.03.2023; however, Form No.69 has come to be notified with effect from 01.10.2022, i.e. subsequent to the date of passing of the assessment order i.e. 02.09.2022. But, the assessee company filed Form No.69 electronically on 02.12.2022 i.e. before the due date of 31.03.2023. Therefore, the assessee has duly complied with the provisions of the Act and no communication has been rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in Form No. 69 on or before the 31st day of March, 2023. (2) Form No. 69 shall be furnished electronically to the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) or the person authorized by the Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems). (3) Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems) shall lay down the procedures and standards for furnishing and verification of Form No. 69 and to forward the application received in Form No. 69 to the Assessing Officer. (4) The Assessing Officer shall, on receipt of the application in Form No. 69, recompute the total income by amending the relevant order and issue notice under section 156 specifying the time period within which amount of tax payable, if any, is to be paid. (i) for the assessment year relevant to the previous year referred to in sub-rule (1); and (ii) for the assessment year's subsequent to the assessment your referred to in clause 10. if the order for such assessment year results in variation in carry forward of loss or allowance for unabsorbed depreciation or cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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