AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 616
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..../ss. 10(34) & 10(35). The assessee, on being called upon to furnish the disallowance u/s.14A r/w rule 8D, worked the same at Rs. 4,17,18,434/- (PB pg. 11), though maintained that the disallowance as effected by it suo motu (i.e., at Rs. 92.44 lacs/PB pg.23) was the correct amount disallowable u/s.14A. The reasons cited were as under (refer PB pgs.18-19): a) it had made an investment of only Rs. 15 crores in the shares of Investsmart Financial Services Ltd. (IFSL), a group company, during the relevant year, the balance investment of Rs. 433.99 lacs being brought forward from the preceding year/s (PB pg. 21); b) that though the investment in shares during the current year also included another investment of Rs. 125 crs. in shares in IFSL, the same is only by way of conversion of Optional Fully Convertible Debentures (OFCD) held in that company prior to the current year (PB pg. 21); c) the investment of Rs. 15 crs. supra was financed to the extent of Rs. 5 crs. by way of over draft account, on which interest suffered was at Rs. 3,97,260/-, i.e., for the period 07.08.2008 to 05.09.2008, being discharged on the latter date (PB pgs. 20, 22, 23). This explains the inclusion of Rs. 4 la....
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....f course would have to be capped at the total amount of expenditure incurred), rather than expense based. His order is therefore clearly self-contradictory and, thus, infirm. 3.2 We next proceed to discuss the validity or otherwise of the assessee's method; the issue before us being the correct quantification of the disallowance u/s 14A in the facts and circumstances of the case, with both the opposing sides claiming their respective method to be legally firm. The first issue, therefore, is whether the law in the matter is ambivalent or provides for adoption of more than one method. In our clear view, the law does not circumscribe the estimation of the expenditure incurred by the assessee in relation to - implying a proximate nexus therewith, income not forming part of the total income, to any particular or one method or formulae. The Revenue wrongly presumes it as so. When it is said that rule 8D is mandatory (i.e., AY 2008-09 onwards), all that is meant is where the said expenditure cannot be reasonably ascertained with reference to the assessee's accounts, toward which the AO is to issue his satisfaction or, as the case may be, dissatisfaction, he has no discretion in c....
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.... is premised on 10% of the total administrative cost (other than excluded costs), including the employee cost and depreciation, as being toward investment activity, i.e., of the organizational resources being focussed or engaged in the said activity to the extent of 1/10 by volume/quantum. The same seems impressive, particularly considering that it generates a sum which is far in excess of the quantum of income arising for the year that is not subject to tax. The two, however, are not correlated, or at least linearly, i.e., the organizational input, which is being sought to be measured or assessed, and the organizational output. Reference in this context be made to the decisions, as in the case of Cheminvest Ltd. vs. ITO [2009] 121 ITD 318 (Del)(SB) (317 ITR (AT) 86); D. H. Securities (P.) Ltd. vs. Dy. CIT [2014] 146 ITD 1 (Mum) (TM); and Dy. CIT vs. Damani Estates & Finance (P.) Ltd. [2013] 25 ITR 683 (Mum)(Trib). This is more so where, as in the instant case, the income, which is by way of dividend and/or gain on sale of shares, is almost wholly outside the control of the investor company/entity. Why, in a particular case, the sale of shares may result in a loss, while the expend....
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....t may not be in the public domain and, besides, to a 'better' information, i.e., both quantitatively and qualitatively, enabling better decision making. What value then its claim of the shares being in subsidiary companies? True, there is merit in the contention that the investment being in (or primarily so) shares in subsidiary companies, the administrative cost may be lower, i.e., than that would normally obtain in case of investment in non-related companies. But then the question is not as to whether it is lower (or not so) in relation to another situation/scenario, but of what that expenditure is, and whether the claim as made is supported by its accounts, or even on any other objective basis. Incurring of expenditure is, after all, a matter of fact. If it is not in the accounts, where the expenditure incurred is reflected, where it is? In fact, all these arguments/contentions are of little moment and get subsumed in the assessee's claim of 10% of its (relevant) organizational costs being dedicated to this activity. The claim, valid in principle, though would require being established as a fact before its acceptance, cannot be a matter of presumption. The pre....
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.... the bulk of its' resources. In fact, we find the assessee reporting dividend from, and profit on sale of, long term investments, both tax-exempt, as its' income from operations continuously from f.y. 2007-08 onwards (up to f.y. 2012-13, up to which year the material is on record), with the same constituting a significant proportion of the total operational income for some years, i.e., over 50% for A.Ys. 2012- 13 & 2013-14, increasing to as high as ~70% for one year (A.Y. 2012-13) (refer PB page 1-5, PB-3/pages 4, 8, 12, 16, 20). So much for the assessee's claim of the investments being not held for the purposes of income! This would also meet the assessee's reliance on the decision in the case of Garware Wall Ropes Limited vs. ACIT (in ITA Nos. 4957 & 5408/Mum(G)/2012 dated 15.01.2014) and J. M. Financial Ltd. vs. ACIT (in ITA No. 4521/Mum(J)/2012 dated 26.03.2014). The matter at hand is not without precedent. The proposition qua non-application of r. 8D(2)(iii) came up before, and stood discountenanced by the tribunal in D. H. Securities (P.) Ltd. (supra) and Damani Estates & Finance (P.) Ltd. (supra), with reference to the decisions in the case of Godrej & Boyce....
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....itch from a company share to units of a Mutual Fund (HDFC Liquid Fund). Our discussion is, however, only toward the nominality and purport of the charge, and does not in any manner imply of it being confined only to shares held as investment. This is as even though purchased with a short term perspective, the shares are purchased only with profit objective, i.e., as representing a good investment opportunity, so that it is perceived as under- priced, and its market price would appreciate in time, yielding 'good' return and, rather, in a shorter period of time. That is, the investment component or element is inbuilt in any purchase and toward which the allocation of indirect expenditure is prescribed per r. 8D(2)(iii). The fact that trading shares also yield dividend income, which is not taxable, i.e., besides share trading income, is itself relevant and sufficient for attracting the provision of s.14A(1). In fact, an argument to this effect, i.e., r. 8D(2)(iii) as being not applicable to shares held as stock-in-trade, was specifically assumed in the case of Daga Capital (supra). The tribunal rejected the argument, made with reference to the language of r.8D, clarifying that....
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....ecisions by the tribunal following the same. The Revenue, on the other hand, contends that in the absence of any direct nexus between the funds and the investment, the proportionate formula of r. 8D(2) shall apply. We find the claim of either party as partly correct. The assessee has in restricting the disallowance to Rs. 4 lacs, i.e., the interest on borrowed capital availed to fund its investments made during the year, confused between the interest cost directly relatable to such investment, which is a subject matter of rule 8D(2)(i), and that indirectly relatable to such investment, estimation of which is governed by rule 8D(2)(ii). To the extent, however, the Revenue fails to make this distinction by not reducing the direct interest cost (Rs.3,97,260/-) as well as that not claimed by the assessee per its return of income (Rs.19,68,427/-/PB pgs.7-9), in working the interest cost indirectly attributable to the investments, it has also faltered. We may, however, discuss the assessee's claim on surplus funds, made with reference to the decision in Reliance Utilities & Power Ltd. (supra), so that there was, in its view, no need to apply the proportionate method advocated by ru....
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.... the decisions by the tribunal cited before us consider the decision by the hon'ble jurisdictional high court in Godrej & Boyce Mfg. Co. Ltd. (supra), which is specific on this aspect, elucidating the law in the matter and, accordingly merits reading. Reference in this context be also made to the decision in the case of Dhanuka & Sons vs. CIT [2011] 339 ITR 319 (Cal), rendered following Godrej & Boyce Mfg. Co. Ltd. (supra). The tribunal has also explained and applied the principle in a number of cases, as for example in the case of Hercules Hoists Ltd. vs. Asst. CIT [2013] 22 ITR (Trib.) 527 (Mum); AFL P. Ltd. (supra); and Kunal Corporation vs. Asst. CIT [2013] 28 ITR (Trib) 277 (Mum). The decisions by the hon'ble jurisdictional high court in DIT vs. BNP Paribas SA [2013] 214 Taxmann 548 (Bom) and CIT vs. K. Raheja Corporation P. Ltd. (in ITA No. 1260 of 2009 dated 08.08.2011), as their reading would show, are distinguishable on facts. In BNP Paribas SA (supra), the tribunal recorded a finding of fact that the investment in shares was out of the assessee's own funds. The hon'ble high court, in view of this finding by the tribunal, which was in fact not challenged by....
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....o identify a particular activity/asset with a particular source of capital. The assessee may also prove its case in other manner it deems fit and proper - the matter being principally factual, the onus though being on it. The disallowance of Rs. 3,97,260/-, as well as the exclusion of the interest cost not claimed (Rs.19.68 lacs) is though confirmed, so that what is an issue is the balance interest cost. Further, though the assessee has tax free dividend income on shares held as stock-in-trade as well, 20% of the qualifying interest on which has been held by the tribunal in D. H. Securities (P.) Ltd. (supra) and Damani Estates & Finance (P.) Ltd. (supra) to be subject to disallowance u/s.14A(1), the Revenue having not made any disallowance qua the same, we do not consider it proper to issue any direction in its respect. We decide accordingly. The assessee has also earned interest income at Rs. 2962.63 lacs. The said income is on long term investments and on loans forming part of current assets. The entire interest income is offered as, and admittedly, business income. As such, the fact of earning of interest income would in our view be by itself of little consequence. There is no ....
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....enue's appeal. 4. The second issue raised by the assessee is for the adjustment of the amount disallowed u/s.14A in computing the book profit u/s.115JB. While the assessee's stand is that the disallowance u/s.14A is toward computing the income under the regular provisions of the Act, no corresponding addition could be made while computing the book profit, the Revenue argues with reference to the specific provision of Explanation 1(f) to section 115JB(2). 5. We have heard the parties, and perused the material on record. 5.1 Explanation 1(f) reads as under: 'Special provision for payment of tax by certain companies. 115JB. (1) ............. (2) ............... Explanation 1- For the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (2), as increased by- (f) the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply; or (g) ............. if any amount referred to in clauses (a) to (i) is debited to the profit and loss account, -' 5.2 Wi....
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....t in computing the book profit there-under for the disallowance made u/s.14A. Our decision, which is in line with the several by the tribunal, is however not on the incorporation of the provision of section 14A (or any other provision for that matter) in Explanation 1(f) to section 115JB, nor is the decision based on the principle of incorporation. The expenditure disallowed u/s.14A is only that incurred and claimed by the assessee in respect of dividend income, exempt u/s.10. It is only on this basis, and this basis alone, that we have found Explanation 1(f) to section 115JB (s.115JA) to be providing a clear legal basis to the adjustment qua expenditure relatable to dividend income. That the amount disallowed u/s.14A provides a ready basis for determining the amount of such expenditure is another matter. It would be a complete fallacy and a travesty of facts, being without basis and wholly presumptuous to state or consider that the disallowance (u/s.14A) is qua notional expenditure and not against that actually claimed by the assessee and, further, per its books of account. Or does it mean to suggest that the expenditure claimed is outside the books of account? We say so as withou....
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.... the treasury. The same is again revenue neutral; the assessee paying the service tax realized (on output) to the Government. The asset or receivable account thus only represents the recovery anticipated by the assessee through the receipt of the service tax in future on services provided, and which explains its' accounting treatment. As the assessee-company discontinued its broking business, which was the principal source of recovery of service tax, it wrote off Rs. 50 lacs of the total outstanding of the balance Rs. 75.90 lacs outstanding in the receivable account as on 31.03.2008, claiming the same as an expense (or loss). Even the income from syndication, merchant banking and other services, the other major source of generation of service tax, also stood to decline. The basis of the Revenue's non-acceptance is that though the assessee may have discontinued its broking services, it was continuing its other business segments yielding service tax. Credit would therefore be available to it on those services. Further, there is no time limit over which the input credit could be availed of, i.e., by way of set off. The same is also not a trade debt, satisfying the condition o....
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.... time (refer PB 3, pg. 1). There had been no adjustment of input tax during the months October, 2007 to March, 2008. No doubt, there is an input credit of Rs. 130.77 lacs in October, 2008, but the same, as explained, is on account of an one off transaction of purchase of trade mark, which could not be anticipated at the time of finalizing the balance-sheet for the relevant year end in April, 2008. Also, the same stands capitalized in December, 2008 to the extent of Rs. 75 lacs under the trade mark (TM) account (PB-2/pg. 51, PB-3/pg.22). In fact, inspite the TM transaction, there was still an unadjustment balance of Rs. 4.03 lacs in the service tax receivable account as on 31.03.2009. Under the circumstances, we are unable to see as to how the same (write off) does not represent a honest assessment by the management of the amount being no longer receivable, so that the write off would qualify for deduction on the ground of prudence. It may well be that circumstances may arise in future making available the credit of input available to the assessee; there being no time bar for the claim of the same. If and when claimed, the same would stand to be brought to tax as income for the rele....