TaxTMI 
TaxTMI 
2012 (7) TMI 311
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....tions to consider only those investments on which the appellant has earned exempt income, in computing disallowance u/s 14A as per Rule 8D. 2. That on the facts and in the circumstances of the case, the CIT(A) was not justified and grossly erred in confirming the disallowance of donation of Rs.4,30,000/- made for the purpose of the business. 3. That on the facts and in the circumstances of the case, the CIT(A) was not justified and grossly erred in denying the claim of allowability of leave encashment on provision basis, amounting to Rs.16,09,215/-, as claimed by the appellant. 4. That on the facts and in the circumstances of the case, the CIT(A) was not justified and grossly erred in not directing the Assessing Officer for allowing TDS credit of Rs.1,35,31,105/-, as claimed by the appellant. 5. That on the facts and in the circumstances of the case, on disposal of the appeal, material adjustments would be required in computing total income and tax (including interest, if any, payable by and/or to the appellant) for the assessment year under reference and accordingly necessary directions may please be given. 6. That the appellant craves leave to add, to amend, modify....
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...., holding as under:- "4.1 During the appellant proceedings, the AR of the appellant has relied on Punjab & Haryana High Court decision in the case of Hero Cycles reported in 323 ITR 518 (2010) (P&H). However, the AO had distinguished this case in the assessment order itself and had stated clearly that the various cases quoted by the; appellant including the Punjab & Haryana decision relates to disallowance of expenditure incurred for interest payments while in the case of the appellant the issue is Rule 80(1)(iii) which relates to investments and not Rule 8D(1)(ii) which relates to interest expenses. Further, the AO had relied on the decision of Hon'ble Mumbai high Court in the case of Godrej and Boyce Mfg. Ltd. reported in 328 ITR 81 2010 Bom) which in turn is based on the Hon'ble Supreme Court's decision in the case of CIT vs. Walfort Shares & Stock Brokers reported in 326 ITR 1 (2010) (SC). The Hon'ble Bombay H1gh Court in the case of Godrej and Boyce Mfg. co. Ltd. has held as under: "The following principles would emerge from section 14A and the decision in CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC): (a) the mandate of section 14A is to....
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....ng upon decision in Relaxo Footwears Ltd. Vs. ACIT in I.T.A. no.4645/Del./2011; M/s Moral Trading & Investment Ltd. Vs. Income-tax Officer in I.T.A. No.3047/Del./2011; Technopack Advisors Private Limited Vs. Addl.CIT in I.T.A. no.4875/Del./2011; Maxopp Investment Ltd. vs.CIT, I.T.A. No.687/2009 and M/s Balrampur Chini Mills Ltd. vs.DCIT,140 TTJ73(Kol.), the ld. AR argued that in absence of any nexus between borrowed funds and impugned investments, disallowance u/s 14A could not be made. Since the AO did not record any findings that he was not satisfied with the method followed by the assessee, Rule 8D did not come into play, the ld. AR added. 5. On the other hand, the ld. DR supported the findings of the ld. CIT(A) while contending that in the decisions relied upon by the ld. AR in Relaxo Footwears Ltd (supra).Moral Trading & Investment Ltd.(supra) & Technopack Advisors Private Limited(supra), matter had been restored back to the file of AO for re-computation of disallowance u/s 14A of the Act read with Rule 8D of the IT Rules,1962. The ld. DR added that in terms of provisions of section 14A of the Act, disallowance has to be worked out in terms of Rule 8D of the I.T. Rules, 196....
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....penditure is incurred in relation to income which does not form part of total income, it has to suffer the disallowance irrespective of the fact whether any income is earned by the assessee or not and the provisions of sec. 14A of the Act do not envisage any such exception. 6.5 Hon'ble jurisdictional High Court in a recent decision dated 18.11.2011 in Maxopp Investment Ltd. vs. CIT,[2011] 15 taxmann.com 390 (Delhi) held as under: "41. Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income "in accordance with such method as may be prescribed". Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate p....
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....he assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment." 6.6 As already observed, in the instant case, the assessee denied incurring any expenditure for earning income, which does not form total income during the course of assessment proceedings even when huge investments of Rs.114,72,12,000/- were made by the assessee in shares and securities.. In terms of the aforesaid decision of the Hon'ble jurisdictional High Court, even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO is required to verify the corr....
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.... To a query by the AO, the assessee submitted only details of donation given to M/s SREI Foundation. No explanation was given as to the nexus of the said donation with the business of the assessee nor established as to how the said expenditure was incurred wholly and exclusively for the purpose of business. Accordingly, the AO disallowed the claim. 8. On appeal, the ld. CIT(A) upheld the findings of the AO in the following terms:-: ""5. Ground NO.3 relates to the disallowance of donation of Rs 4,30,000/-. According to the appellant this donation was made for the purpose of business. The AO, as per the assessment order, had requested the appellant vide order sheet entry dated 27.12.2010 to explain as to how this expenditure is allowable as being incurred for the purpose of their business. Since no explanation was furnished, the AO disallowed this expense towards donation to its sister/parent concern. Even during the appellate proceedings, the appellant had not furnished any explanation as to how these donation paid to its sister/parent concern is an allowable deduction. Section 37(1) of the Act clearly states that 'any expenditure laid out or expended wholly and exclusively fo....
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.... expenditure is related to the business of the assessee nor the activities of the SREI Foundation were narrated before us. Since the ld. AR failed to establish the nexus of the aforesaid amount with the business of the assessee, apparently the claim is not admissible. The ld. AR relied on decisions in Hindustan Petroleum Corporation Ltd.(supra) & Rajasthan Spinning & Weaving Mills Ltd.(supra).In both these decisions, it was concluded that expenditure was incurred for promoting the business of the assessee. However, in the instant case before us ,the assessee did not produce any evidence before the lower authorities and even before us, evidencing that expenditure was incurred wholly & exclusively for the purpose of business of the assessee or was towards advertisement. In the absence of any basis, ground no.2 in the appeal is dismissed. 12.. Ground no.3 in the appeal relates to disallowance of Rs.16,09,215/- provision for leave encashment. Since the assessee did not place any evidence before the AO that an amount of Rs.16,09,215/- on account of provision for leave encashment was actually paid, the AO showcaused the assessee as to why the amount be not disallowed in terms of provi....
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.... same time it would be entitled to make a claim in its returns." Therefore, my predecessor's decision in the case of its sister concern M/s Quippo Telecom Infrastructure Ltd. to allow Leave encashment on provision basis is not in conformity with the above Supreme Court's decision. Since the Supreme Court has held that M/s Exide Industries Ltd. is to pay tax as if Section 43B (f) is on the Statute Book, I also decide the issue against the appellant following the above Supreme Court's decision. However, the appellant can move a rectification petition, if the final decision in the Supreme Court is in favour of M/s Exide Industries Ltd. Therefore, this ground of appeal also stands rejected." 14. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. AR on behalf of the assessee while referring to decision in Exide Industries Ltd. Vs. Union of India (2007) 292 ITR 470 (Cal); Universal Cables Ltd. vs. DCIT in ITA no.954/Kol./2010;DCIT Vs. Indraprastha Gas Ltd. in ITA nos 2213 & 5875/Del./2011contended that claim is admissible, decision of co-ordinate Bench being binding. 15. On the other hand, the ld. DR while inviting our attention to t....