9911796707
TMI Blog2014 (8) TMI 1249X X X X Extracts X X X X X X X X Extracts X X X X ..... tory for him to invoke the method of calculation prescribed by Rule 8D(2) of the Rules and is free to make the disallowance on any reasonable basis. The plea of the assessee that applying the Rule 8D blindly by the AO will lead to absurd results, in our view, is without any basis because while examining the claim of the assessee regarding expenditure incurred in earning the exempt income including a claim that no expenses were incurred, the AO is bound to take note of such absurdities and refrain from invoking the method of disallowance of expenses as prescribed by Rule 8D(2) of the Rules. In other words, it is only when no reasonable and proper parameters for making disallowance can be arrived at, that resort to Rule 8D(2) can be had by the AO. Rule 8D(2) will thus be a last resort when it becomes impossible to arrive at a just conclusion on the amount of expenses that has to be disallowed as attributable or incurred in earning exempt income. Here on the other hand, it is a disallowance under rule 8D(2)(ii) and not 8D(2)(iii). Assessee has raised no grievance on the disallowance under rule 8D(2)(iii), either before CIT(A) or us. Hence, this case in our opinion, will not be of help ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Hon'ble P H High Court in Abhishek Industries Ltd [ 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT] this was followed by the very same High Court, while confirming a similar disallowance in the case of Munilal Sales Corpn [ 2006 (10) TMI 89 - PUNJAB AND HARYANA HIGH COURT] Hon'ble Apex Court reversed the latter [ 2008 (2) TMI 19 - SUPREME COURT] and hence judgment in Abhishek Industries Ltd., will not further revenue's case any way. On the other hand, assessee is well supported by the decision of Reliance Utilities Power Ltd [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] as well as Hon'ble Gujarat High Court in the case of Raghuvir Synthetics Ltd [ 2013 (7) TMI 806 - GUJARAT HIGH COURT] We thus, do not find any reason to interfere with the order of the CIT(A) in this regard. In the result, ground 4 of the revenue is dismissed. - Rajpal Yadav, J.M And Abraham P. George, A.M For the Revenue : Shri C.H Sundar Rao, CIT-I. For the Assessee : Shri V. Srinivasan, CA. ORDER SHRI ABRAHAM P GEORGE, A.M: These are appeal and cross objections filed by the revenue and assessee respectively, against an order dated 26-07-2012 of CIT(A)-I, Bangalore. 2. Revenue in its appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resents the investment of surplus funds in the company where the company is not involved in the day to day management of these companies or business. Therefore, there is no expenditure pertaining to the above investment including expenditure towards interest. Therefore, no addition is required to be made u/s 14A read with Rule 8D. However, agreeing without conceding, if a disallowance of interest on borrowings specifically for the purpose of soft drink business and windmill installations need to be excluded. A statement containing the complete breakup of the loan account wise interest is attached. In this items 1, 2, 3, 9, 10, 11 12 pertains to soft drink and windmill business. Therefore, the proportionate interest disallowance, if done, should be considered as only Rs. 5,30,39,669/-. However, the AO was not impressed. He sticked to the proposed disallowance of Rs. 88,19,819/- and made an addition accordingly. 7. In its appeal before the CIT(A), submission, made by the assessee could be summarized as under; i) AO before applying Rule 8D had not reached a satisfaction that claim of the assessee of having incurred no expenditure vis- -vis the exempt income was incorrect. ii) Even oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 11,76,01,718/- interest paid thereon had to be considered for working out such disallowance. Further, according to him only the interest which was directly attributable to the business purpose of the assessee could be excluded when applying Rule 8D. 10. Per contra and in support of assessee's cross objection, learned AR submitted that AO had failed to record the dissatisfaction regarding assessee's claim of no expenditure against earning of tax free income. According to him this was a sine-qua-non for applying Rule 8D. Relying on a decision of a co-ordinate bench in the case of Bhartiya Reserve Bank Note Mudran Pvt. Ltd. v. DCIT (MP No. 43(B)/2013 in ITA No. 650(B)/2011 dated 31-05-2013) Learned AR submitted that Rule 8D cannot be straightway applied disregarding the claim of the assessee. Further, according to him tax exempt investment of Rs. 18,69,42,569/- as on 31-03-2008 and Rs. 15,37,40,084/- as on 31-03-2009 were more than covered by own funds of Rs. 15,56,75,30,78/- and Rs. 1,64,44,19,727/- respectively as on these dates. In any case according to him compartmentalization of expenditure was required before applying Rule 8D since, direct expenditure relatable to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would find that the AO is required to determine the amount of such expenditure only if the AO, 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 the said Act. In other words, the requirement of the AO embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the AO 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 AO entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the AO must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-s. (3) is nothing but an offshoot of sub-s. (2) of s. 14A. Sub-s. (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-s. (2) deals with cases where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Return of Income for AY 08-09 on 29.9.2008 The assessment was ultimately completed on 23.12.2010 The provisions of section 14A as originally introduced and as amended from time to time as well as the insertion of Rule 8D was subject-matter of several decisions rendered by various Benches of the ITAT as well as the Hon'ble High Courts. The Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. v. Commissioner Of Income-Tax, New Delhi (supra) and the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra) have taken a view that Rule 8D of the I.T Rules will apply only for A. Ys. 2008-09 and subsequent assessment years. It has also been laid down that the assessee has to make a claim (including a claim that no expenditure was incurred) with regard to expenditure incurred for earning income which is not chargeable to tax. Such a claim has to be examined by the AO and only if on an objective satisfaction arrived at by the AO that the claim made by the assessee, can the AO proceed to apply the computation mode as specified in Rule 8D(2) of the Rules. 12. In the present case, the assessee, in so far it relates to common expenses [falling within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to Rule 8D(2) can be had by the AO. Rule 8D(2) will thus be a last resort when it becomes impossible to arrive at a just conclusion on the amount of expenses that has to be disallowed as attributable or incurred in earning exempt income. Here on the other hand, it is a disallowance under rule 8D(2)(ii) and not 8D(2)(iii). Assessee has raised no grievance on the disallowance under rule 8D(2)(iii), either before CIT(A) or us. Hence, this case in our opinion, will not be of help to the assessee. 13. Coming to the next contention that interest free own funds were there to cover the investments. Para 4.5 of assessee's submission before the CIT(A), which is reproduced hereunder; 4.5 That leaves for consideration only the interest paid on certain working capital loan availed at Bangalore, which are mentioned in Sl. No. 4 to 8 of the Table above. The total interest paid on the said loans comes to Rs. 11,76,01,718/-. It is submitted that even this interest has not been used for any tax exempt investment in a major way during the year under consideration. Thus, it can be safely contended that there is absolutely no jurisdiction for making any computation of interest disallowance in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year; (iii) an amount equal to one half per cent of the average of the 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. Clearly interest expenditure not attributable to any particular income or receipt can be considered for apportionment under rule 8D(2)(ii). Nevertheless, the assessee had given submissions supporting its claim that part of interest was on term loans working capital directly relatable to its business only before CIT(A). Neither learned CIT(A) nor AO had verified the work out furnished by the assessee. Therefore, the aspect of quantification of disallowance required to be made under 8D(2)(ii) does require a fresh look by the learned AO. Hence we set aside the orders of the lower authorities for the limited aspect of the quantification of disallowance required under rule 8D(2)(ii) and remit it back to the AO, for working it out afresh after hearing the assessee. 15. In the result ground 2 3 of the revenue as well as ground 2 of the cross objections of the assessee are allowed for statistical purposes. 16. This lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him the judgment of Hon'ble P H High Court in the case of Abhishek Industries (supra) stood reversed by Hon'ble Apex Court in the case of Munilal Sales Corpn. v. CIT, 298 ITR 298. Reliance was also placed on the decision of Hon'ble Mumbai High Court in the case of Reliance Utilities Power Ltd., (supra) and that of the Hon'ble Gujarat High Court in the case of CIT v. Raghuvir Synthetics Ltd., 354 ITR 222. 22. We have perused the orders and heard the rival contentions. Balance sheet of the assessee placed at PB page-53, show its share capital, reserves surplus as under; As on 31-03-2008 As on 31-03-2009 Increase Share capital 24,53,000 24,53,000 Nil Reserves surplus 1,55,43,00,078 1,64,19,66,727 87666649 Total 1,55,67,53,078 1,64,44,19,727 87666649 There cannot be any dispute that at least share capital and reserves are own funds of the assessee. The position of the loans and advances as on 31-03-2008 and 31-03-2009 were as under; 31-03-2008 31-03-2009 Increase/decrease Rs. Rs. Rs. Loans/advances to Directors sister concern 26,17,61,903 19,26,50,342 (6,91,11,561) Thus not only had assessee own funds, well covering the loans and advances, but in the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
