TaxTMI 
TaxTMI 
2015 (5) TMI 392
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....f Rs. 2,42,543/- written off in the Books of Account in respect of which amount there was not even a ground before her as the deduction had been allowed by the Assessing Officer himself. 3.1 That the CIT(A) also failed to appreciate the legal and factual position in respect of disallowance made by the Assessing Officer of Rs. 63,74,000/- under clause (iii) of Rule 80(2) of the Income Tax Rules on account of administrative expenses @ 0.5% of average investment of Rs. 127.48 crores in the partnership firm and upholding the disallowance to the extent of full amount of Rs. 63,74,000/-, which amount was in excess of actual expenses debited to Profit & Loss Account on account of administrative activities. 3.2 That the CIT(A) also failed to appreciate that total expenses debited to Profit & Loss Account on account of personal cost and administrative expenses were only Rs. 17,99,167/- and a. amount of Rs. 12,60,194/- being the ex-gratia debited as personal cost had been already' disallowed by the Assessing Officer and disallowance has also been separately upheld by CIT(A); b. amount of Rs. 3,25,315/- was debited on account of bad debt written off which in any case cannot be....
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....itted a copy of the letter dated 15.11.2011 and also submitted that the assessee company had paid ex-gratia payment to Mr. Chetan Madan and Ms. Christen D'Mello amounting to Rs. 12,59,591/- and Rs. 603/- was the contribution to the provident fund and other funds and the said amount is related to deduction made out of amount paid to Mr. Chetan Madan. Ld. counsel further pointed out that the assessee company filed copies of appointment letters of these employees vide written submission dated 28.11.2011 before the AO but the same were not considered properly. Ld. counsel also pointed out PB. Pages 33 to 36 and submitted that Ms. Christen D'Mello was appointed as Secretary w.e.f. 6.10.1999 and on her death ex-gratia payment was made to her legal heir/successor Mr. Trevor D'Mello amounting to Rs. 5,28,427/- by way of Cheque dated 23.07.2008. 4. Ld. counsel further pointed out PB. Pages 37 to 40 and submitted that Mr. Chetan Madan was appointed as marketing executive to be posted at Ratlam, Madhya Pradesh w.e.f. 01.4.1997 and a payment of ex-gratia was made to him of Rs. 7,02,832/- which cannot be doubted in any manner. Ld. counsel also pointed out that the Assessing Officer disallowe....
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....manner as indicated above and after affording due opportunity of hearing to the assessee and without being prejudice with the earlier assessment order and observation in the impugned order. Accordingly, Ground No.1 of the assessee is deemed to be allowed for statistical purposes. Ground Nos. 2 & 4 7. Apropos Ground Nos. 2 &4, Ld. counsel for the assessee submitted that the Assessing Officer was not justified in disallowing the amount of Rs. 82,772/- debited to the P&L account as irrecoverable dues from Government department cannot be ascertained unrecoverable. Ld. counsel pointed out that assessee company deposited Rs. 10,000/- each with four government department and Rs. 5000/- each with two Government departments aggregating to Rs. 50,000/- and interest thereon accrued of Rs. 32,722/- could not be recovered due to bad mechanism of working of the relevant government departments. Accordingly, deduction for the same is allowable either as bad debts or as business loss. Ld. counsel further pointed out that the Assessing Officer in Para 5 of the assessment order has noted past dues to their employees amounting to Rs. 2,42,543/- but the same was not disallowed and not added to the t....
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....details and evidence have been filed in this regard without providing any opportunity of being heard for the assessee. Therefore, this issue was not properly adjudicated by the Revenue authorities below and the disallowance and addition has been made in a casual manner. We may point out that if the Assessing Officer has raised same issue it has not made any addition then the CIT(A) cannot picked up this issue making further disallowance and enhancement without adopting due opportunity of hearing of the assessee by simply holding that no details or evidence have been filed. In this situation, we have no alternate to restore to the file of the AO for proper examination and verification and affording due opportunity of hearing for the assessee and without being prejudice by the earlier assessment order or impugned order. Accordingly, Ground No.2 of the assessee is deemed to be allowed for statistical purposes as indicated above. 10. In respect to disallowance of Rs. 82,722/-, ld. counsel for the assessee has placed reliance on the decision of ITAT Chennai 'C' Bench in the case of Quintegra Solutions (P) Ltd. Vs. ITO reported in (2012) 75 DTR (Chennai) (Trib.) 302 and submitted that....
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.... explanation from the assessee to show that the claim amount of deposit and interest is due from which department, from which date and what efforts have been made by the assessee company to recover this amount. Even the details of departments and the dates of deposit and interest accrued thereon has not been given, therefore, we again find it appropriate, just and proper to restore this issue to the file of the AO for proper verification and examination in the light of observation made by the coordinate Bench of the Tribunal in the case of Quintegra Solutions (P) Ltd. (supra). Accordingly Ground No.4 of the assessee is deemed to be allowed for statistical purposes as indicated above. Ground No.3 13. Apropos this ground, Ld. counsel for the assessee drawn our attention to PB. Page 79, the P&L account for the year ended on 31.03.2009, and submitted that the assessee has claimed personal cost of Rs. 12,60,194/- being ex-gratia debited as personal cost and amount of Rs. 3,25,315/- on account of bad debt written off and after excluding amount of ex-gratia payment and bad debts written off there was only an amount of Rs. 2,13,668/- debited to P&L account, on account of legal complianc....
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....ervation and conclusion:- "5.2 I have carefully considered the assessment order and the submissions filed by the appellant. The facts of the case as per assessment order are that the assessee Company has invested interest bearing funds borrowed from M/s. Ranbaxy Laboratories Ltd. in its partnership firm M/s. Solrex Pharmaceuticals Company from which it has earned exempt income. The Assessing Officer computed a disallowance of Rs. 49,249/- under clause (i) and Rs. 63,74,000/- under clause (iii). The appellant has mainly submitted that the amount of disallowance under clause (iii) are more than the total expenses debited by it to the Profit & Loss Account. Perusal of the assessment order shows that the Assessing Officer has expressed his satisfaction before taking recourse to rule 8D. On careful examination of the matter, I find that any income, whether exempt or not, can only be earned after incurring some expenditure. However, usually such expenditure is not segregated in the accounts of the assessee and remains clubbed with overall administrative financial and other expenses of the business as a whole. If any income is exempt from tax because it is not included in the total ....
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....rescribed by insertion of rule 80 of the LT. Rules, 1962 w.e.f. 24.03.2008. Sub-section (3) of section 14A mandates that the above provisions of sub-section (2) shall also apply to a case where an assessee claims that no expenditure has been incurred by him in relation to exempt income. The constitutional validity of section 14A read with sub-sections (1), (2) and (3) thereof has since been upheld by the Hon'ble Bombay High Court vide its order dated 12.08.2010 in the case of Godrej & Boyee Mfg. Co. Ltd. vs. DCIT in ITA No. 626 of 2010 and writ petition no. 758 of 2010 after dwelling on the above issue in great details and considering decisions of various Courts and Tribunals on the matter including that of Hon'ble ITAT, Mumbai (Special Bench) in the case of ITO vs. Oaga Capital Management Pvt. Ltd. (2009) 117 ITO 169. The Hon'ble High Court has also upheld the validity of Rule 80, w.e.f. AY 2008-09. The relevant portion of the aforesaid order of the Hon'ble High Court is reproduced hereunder: 74. Our conclusions in this judgment are as follows: i. Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 196....
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.... year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment." The claim of the appellant that the amount of disallowance under clause (iii) is more than the total expense claimed by it is not accepted as section 14A is a overriding section and rule 80 does not provide a limit to the amount of disallowance to be computed after applying the formula specified in the said rule. Considering the above, the impugned addition of Rs. 64,23,249/- made by the AO by applying rule 80 read with section 14A of the Act is confirmed. This ground of appeal is dismissed." 17. In view of above, we observed that the CIT(A) has rejected the contention of the assessee that the disallowance u/s 14A of the Act r.w.r. 8D of the IT Rules cannot exceed the am....