TaxTMI 
TaxTMI 
2013 (8) TMI 825
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....: "On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in restricting the addition made u/s 14A r.w. Rule-8D(2)(ii) of the Act to 1% of gross dividend at Rs. 3,01,838/- as against Rs. 1,93,74,441/- made by the AO, following Hon'ble ITAT decision in the case of HDFC Bank Ltd in ITA No.4529/M/2005 dated 30.1.2012 wherein it is held that if the assessee's own funds and non-interest bearing funds are more than the investment in tax free securities there can be no basis for deeming that the assessee has used borrowed funds for making investment in tax free securities, without appreciating the fact that as per the provisions of Rule-8D once the AO is not satisfied with the correctness of the claim of the assessee in respect of expenditure claimed, he has no option but to disallow such expenditure in accordance with method prescribed under Rule-8D(2)(ii), the application of which is mandatory." 3. Briefly stated relevant facts are that the assessee, a Bank, filed its return declaring income of Rs. 178.66 Crs (rounded of) and the assessment was completed u/s 143(3) of the Act determining the assessed income at Rs. 192,84,89,690/-. During the assessment ....
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....ross dividend as discussed above. Further, AO discussed the assessee's responsibility / discharging of the onus in matter of quantifying of the disallowable expenditure in the light of various decisions namely the judgment of Hon'ble Punjab & Haryana High Court in the case of Haryana Land Reclamation & Development Corporation vs. CIT (302 ITR 218), wherein, it was held that "once the assessee has not been able to substantiate before the authorities about the extent of expenditure incurred for earning of exempt income, AO becomes dissatisfied with the correctness of the claim of the assessee, thus, leading to making of disallowance u/s 14A in accordance with Rule-8D of the Income Tax Rules, 1962". He further mentioned that apportioning of expenses is permitted under the judgmental law and in this regard, he relied on the Coordinate Bench decision of ITAT in the case of M/s. Gherzi Eastern Limited vide ITA No.6562/Bom/94, dated 23rd September, 2002 wherein the Tribunal held that "it cannot be denied that some administrative expenditure was definitely attributable towards earning of this dividend income and that had to be deducted while allowing deduction under section 80M". Further, ....
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....judgment of the Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corporation vs. CIT (242 ITR 450). Assessee further argued that for invoking the provisions of section 14A, there should a positive relationship between the expenditure under the consideration and the earning of nontaxable income. Assessee also relied on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd (313 ITR 340) for the proposition that if the assessee possesses interest free funds of its own, then no part of interest on borrowings can be disallowed in view of presumption mentioned it the said judgment. Relying on the judgment of Punjab & Haryana High Court in the case of CIT vs. Hero Cycles (323 ITR 518) Ld Counsel argued that when there is no expenditure is incurred, no disallowance is required to be made u/s 14A. Without prejudice assessee mentioned that making disallowance on ad-hoc basis @ 1% gross divided received amounting to Rs. 3,01,838/- can be considered as amount disallowable u/s 14A of the Act under the administrative expenses attributable to the exempt income. On considering the above submissions of the assessee, CIT (A) disallowed on....
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.... explanation given by the assessee. Further, Ld DR mentioned that onus is on the assessee to demonstrate the nexus of assessee with exempt as well as taxable units. The onus is on the assessee to demonstrate the correct quantification of the expenses allocable to the units failing which AO can adopt the correct / reasonable method for making disallowance. On the onus related argument, Ld DR relied on judgment of the Hon'ble Kerala High Court in the case of Commissioner of Income- tax Vs Smt. Leena Ramachandran (Ker) 339 ITR 296. Further, speaking generally, Ld DR reasoned that the borrowed fund is always costlier vis-à-vis the dividend yield by such investments and therefore, expenditure should be linked to the cost of investment and exempt income and not the dividend amount. 7. On the other hand, Ms. Arati Vissanji, Ld Counsel for the assessee essentially reiterated the arguments narrated above and the written submissions made by the assessee before the lower authorities. She also mentioned that the decisions relied on by the Ld DR are distinguishable and they are relating to assessment years prior to the amendment to section 14A and insertion of Rule-8D. She reiterated ....
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....ision of applying the said Rule 8D. Thus, it is the case where the assessee disallows the cost of investment applying the rate of 0.5% of the average cost of the investment in accordance with the Rule 8D(2)(iii) of the Income tax Rules 1962 but not out of the administrative expenditure as per the provisions of clause (i) and (ii) of the said Rule 8D(2). AO argues that a portion of the said administrative expenditure includes direct and other expenditure incurred for earning of the exempt income. 9. Regarding the legal propositions on the issue, we find that it is a case of claim of exempt income and the provisions of section 14A(2)of the Act suggests for making disallowance of such relatable expenditure even if no expenditure is claimed to have been incurred by the assessee and of course after having regard to the accounts of the assessee and when the AO is not satisfied with the correctness of the claim of the assessee. In the cases like the present where the accounts for exempt and taxable income are maintained commonly, it cannot be denied that some administrative expenditure was definitely attributable towards the earning of the dividend income. Although the decision of the ....