TaxTMI 
TaxTMI 
TaxTMI 
2012 (10) TMI 900
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....he following were also added back to the income returned: i) Disallowance u/s 14A ...Rs.3,87,95,027/- ii) Disallowance of payment of license fee u/s 40A(2) ...Rs.45,00,000/- 3. Let us first take up the issue relating to disallowance u/s 14A. While framing the assessment u/s 143(3) of the Act, the AO noticed that the assessee's total income comprised of income in the nature of interest income and non-taxable income in the nature of dividend income. It was also seen from the financial statements submitted that no expense had been disallowed u/s 14A which was incurred for earning the exempt income. The assessee was asked to show cause as to why no expense has been disallowed u/s 14A of the Act. The assessee submitted that sec.14A was inserted by the Finance Act,2006 w.e.f. 1-4-2007 and hence they have not considered sec.14A for the current year. During the course of assessment proceedings, the assessee also submitted that as it is in the business of investments, the main intention was to trade in investments and earning of dividend was only incidental. However, the AO was of the view that the assessee's income from portfolio management is nothing but interest income from fixed de....
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.... 8, the A.O. has to record a satisfaction that the claim is incorrect as per the books of the assessee vide section 14A(2) of I.T. Act. If no such expenditure has been claimed, the AO can apply Rule 8D straightway vide section 14A(3) of I.T.Act. In other words, it is not required to show any nexus between the disallowance quantified under Rule 8D and the exempted income because that would be against the legislative presumption, of introducing these amendments, that no income can be earned without spending something for earning such income. Therefore, no burden of proof lies on revenue to establish any relationship between the disallowance made Ujs.l4A of I.T. Act for the exempted income claimed by the assessee. However, if no amount is claimed as exempted income by the assessee, if Rule 8 D is not made applicable holding its prospective operation, then the best principle is to apply the proportionate theory to make the disallowance which has been adopted here to confirm addition to the extent of RS.3,54,24,592/- and thus giving relief of RS.33,70,435/-." 3.2. The assessee is still aggrieved and is on appeal before us with the following grounds of appeal: "1. The learned Commissio....
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....y confirming addition to the extent of Rs.3,54,24,592/- stating that this expenditure is proportionate to the exempt income. 10. The learned Commissioner of Income Tax (Appeals) erred in determining a disallowance on proportionate basis, ignoring the fact that after having confirmed that the provisions of Rule 80 are applicable, the law does not allow any estimation on proportionate basis. 11. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that no expenditure incurred was for the purpose of earning the dividend income and the dividend income was only incidental to the business carried on and therefore no proportionate disallowance could have been made. 12. The learned Commissioner of Income Tax (Appeals) erred in confirming a proportionate disallowance ignoring the fact that the items of expenditure claimed are specific and cannot be attributed to the exempt income. 13. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the position of law which was in existence prior to the introduction of provisions of section 14A(2) & (3) of the Act did not contemplate any proportionate disallowance, but only disallowance to the extent the....
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....r 2006-07 wherein similar issue was considered by the Tribunal by order dated 4-5-2012 in ITA Nos.1345 & 1361/Bang/2010. One of us viz., the Vice President is a party to that order. In that order, the Tribunal set aside the issue to the file of the assessing authority to reconsider the same in accordance with guidelines laid down by the Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Co. Ltd., reported in 328 ITR 81. Following the above decision in the case of the same assessee, we are remitting this issue back to the file of the AO with a similar direction. Thus, this issue is allowed for statistical purposes. 4. Let us now turn to the next issue relating to disallowance u/s 40A(2) of the Act. The brief facts, as gathered from the assessment order, are that while framing the assessment u/s 143(3) of the Act the AO noticed that the assessee-company had, during the year, paid an amount of Rs.45 lakhs to M/s.Vectra Holdings (P) Ltd., [hereinafter referred to as VHPL] which is its holding company. On further queries by the AO, the assessee submitted that this was consultancy fees paid to holding company for liasoning with the statutory and Government authoriti....
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....5,00,000/- u/s 40A(2) of Act, being payment of license fee to the Director of the assessee company, without appreciating the facts and circumstances of the case under which the addition was made by the Assessing Officer. ii) The learned CIT(A) has erred in deleting the addition without appreciating that the above payment was excessive and unreasonable as the assessee has not gained any benefit to its business by such a transaction with a related party. 4.3 At the time of hearing, learned Departmental Representative supported the order of the AO and pleaded that the order of the CIT(A) be reversed and that of the AO restored. Rajeev Chandrashekar is a director in both the assessee-company and its holding company and in the normal course, the assessee company is not barred from using the name of the director of the company and there is no need for any special agreement for such usage. This payment is made to a related party. The AO was right in disallowing by invoking provisions of sec.40A(2) of the Act. 4.4. Per contra, learned counsel for the assessee reiterated the contents of his submissions before the CIT(A) (extracted elsewhere of this order) and pleaded that the CIT(A) was ....