TaxTMI 
TaxTMI 
2015 (7) TMI 49
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....cer made a disallowance of C9,53,58,713/- u/s. 14A r.w. Rule 8D for the assessment year 2010-2011. The assessee earned exempt income of C23,82,25,782. The assessee incurred total expenditure in the year of C46,37,20,957/-. The exempt income formed part of 27.75% of total receipts of the assessee. According to the Assessing Officer, the expenditure relating to exempt income has to be considered for disallowance in view of provision 14A r.w. Rule 8D of the Act. Accordingly, the Assessing Officer computed disallowance u/s14A as per method prescribed in Rule 8D which is as under:- According to clause (i) of Rule 8D No direct expenditure According to clause (ii) of Rule 8D 8,63,34,000 X 670,98,30,500 &nbs....
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....xempted income as per the provisions of Rule 8D red with section 14A. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). 4. On appeal , the Commissioner of Income Tax (Appeals) observed that the assessee was not able to controvert the findings of the Assessing Officer with sufficient evidence giving the reasons for not making disallowance. The ld. Authorised Representative for assessee could not dispute the fact of incurring expenditure towards establishment and administration, which was also consciously involved in making investments. The assessee was earning income from both exempted category of income and non exempted category of income. The exempted category of income consists of 27.75% of the total receipts of the assessee. The gross receipts accounted by the assessee during the period under consideration was C85,81,74,000/- which consists of dividend on shares of C23,93,40,000/- other income C42,96,02,000/-, artistic copy and fees received C1,89,232/- . Out of the gross income, dividend received was C23,93,40,000/- On the other hand the expenses claimed in the accounts was C46,37,22,000/- which consists of interest and finance char....
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....gure quoted in balance sheet, we feel that the assessee has the responsibility of explaining the interest expenditure of 4,09,99,104/- 4.1 The Commissioner of Income Tax (Appeals) observed that in the instant case, the assessee could not furnish satisfactory explanation with respect to claim of expenditure of C8,63,34,000/- in the P&L Account particularly when the quantum of the exempted income i.e. dividend income declared was C23,82,25,000/-. The ratio of the exempt income i.e. dividend income. to the gross receipts of the assessee was 27.75%. Non earning of exempt income for the particular investment giving rise to exempt income in future years is also not relevant for making computation of expense under the provisions of sec. 14A of the IT Act. In the instant case, the Assessing Officer was not satisfied with the claim of the assessee that no expenditure was incurred for earning exempt income. Regarding legal position, the CIT(A) relied on the order of the Tribunal, Chennai Bench in the case of Siva Industries & Holding, Ltd. vs. ACIT reported in 54 SOT 49 Chennai(2012), held that even in a year, where no exempt income was earned or received by the assessee, the disallowance....
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....disallowance under section 14A, the provisions of Section 14A(2), read with rule BD cannot be invoked unless the Assessing Officer is satisfied about incorrectness of the disallowance so offered, but when assessee does not offer any disallowance under section 14 A on his own, the provisions of section 14A(2) read with rule 8D can be invoked without there being any need to express satisfaction about incorrectness of such a claim. The facts of the present case are stronger and loaded in favour of revenue. The Hon'ble ITAT,: Mumbai Bench (Special Bench) in the case of ITO v. Daga Management (P) Ltd. [117 ITD 169] held that what is relevant is to work out expenditure in relation to exempt income and not to examine the expenditure incurred by the assessee which has resulted in exempt income or taxable income. 4.3 Regarding the legislative intent with respect of disallowance of expenditure u/s 14A, the Commissioner of Income Tax (Appeals) placed reliance on the judgement of Supreme Court in C.I.T. vs. Walfort Share and Stock Private Limited, reported in 41 DTR 233, wherein Supreme Court explained the reason for the insertion of Section 14A as follows: "The insertion of Se....
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....essee was engaged in the business of investments and the entire investments were held as stock in trade in the books of accounts. The income on sale of equity, if any, in future years would be taxable under the head capital gains and not under the head business income. No consolidated accounts of the group companyies were maintained to prove that business of the assessee is only business of promotion of investment. Even otherwise, the claim of the assessee that provisions of sec.14A would not be applicable in the case of the assessee carrying the business of, investments is not legally tenable. The ratio of the decision rendered by Tribunal (Special Bench) in the case of ITO v. Daga Management (P) Ltd. [117 ITO 169] (Mumbai) further held that the provisions of section 14A would be applicable with respect to dividend income earned by the assessee engaged in business of dealing in shares and securities, on shares held as stock-in-trade when earning of the such dividend income was incidental to trading in shares. The ratio of the decision rendered by Tribunal Mumbai Special Bench in the case of ITO v. Daga Management (P) Ltd. [117 ITD 169] squarely applies to the facts of the case. Th....
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.... 2005-06 in ITA No. 638/Mds/2012, we uphold the disallowance and it is confirmed 4.6 According to Commissioner of Income Tax (Appeals) from the above legal proposition laid by the Tribunal in the assessee's own case in the earlier years, it is clear that Tribunal had in principle upheld the disallowance of expenditure u/s.14A of the I.T. Act. Regarding the applicability of the provision of sec.14A with respect to claim of management expenses for the assessment year 2001-02, the jurisdictional High Court in Tax case(appeal) No.2621 of 2006 dated 15.10.2012 in the case of M/s Simpson and Co. Ltd. upheld that disallowance of expenditure on estimation basis at 2% of the gross total income. Prior to A.Y. 2008-09, the disallowance u/s.14A was not required to be computed under Rule 8D of the I.T. Rules but reasonable estimation of expense for the purpose of disallowance was required to be done. However, from the A.Y. 2008-09 and onwards, the computation of disallowance under Rule 8D is mandatory as the said Rule 8D was notified in the month of March 2008. This view was taken by Bombay High Court in the case of of M/s Godrej & Boyce. Mfg. Co. Ltd. vs CIT reported in 328 ITR 81. The purp....
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....mercial Co. Ltd, High Court of Bombay in the case of M/s. Godrej & Boyce. Mfg. Co. Ltd. vs CIT reported in 328 ITR 81, Tribunal Mumbai (Special Bench) in the case of in the case of ITO v. Daga Management (P) Ltd. [117 ITD 169], Supreme Court in the case of C.I.T. vs. Walfort Share and Stock Private Limited, reported in 41 DTR 233, Madras High Court in the cases of M/s. Simpson & Co. Ltd., (supra) M/s. Beach Minerals Company Ltd. cited (supra), he confirmed the order of the Assessing Officer in making the disallowance of C9,53,58,713/- u/s. 14A of the IT Act. Against this, the assessee is in appeal before us. 5. We have heard both the parties. The ld. Authorised Representative for assessee submitted that a similar issue was considered by this Tribunal in the case of Shriram Capital Limited in ITA Nos. 638 to 640/Mds/2012 for the assessment years 2005-06 to 2008-09 vide order dated 4th February, 2013 held as under:- ...''2.4. We find that this issue of disallowance of interest to the extent of 1,72,02,624/- is covered by the above said order of the Tribunal passed in assessee's own case. It is to be seen that the business of the assessee is investment in shares. It is in the co....
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....ssessee. It is the case of the assessee that the disallowance made by the assessing authority works out to 2 lakhs per dividend warrant received by the assessee company. It is also the case of the assessee that the disallowance works out to 2% of the total dividend of 11,49,37,339/- earned by the assessee. It is the case of the assessee that it has not incurred any expenditure on this income, as it was received by cheques and no other work was necessary for obtaining the said income. 2.8. We considered this issue. We are not on the question whether the income was earned without incurring any mechanical expenditure like clearance charges, collection charges etc. or not. We are concerned about the expenditure by way of remuneration paid to top management and executives. The top management and executives of the assessee company would be required to decide about the investments, whether to continue or liquidate etc. Investment is a very important part of the assets of the assessee company. Therefore, even though there is no direct mechanical expenditure in realizing the dividend income, definitely some management expenditure has to be attributed towards earning of tax-free dividend ....
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....ave considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case, the only dispute is regarding determination of disallowance of expenditure for earning tax free dividend income of Rs. 18,17,68,458/- the assessee disallowed on its own Rs. 16.50 lakhs u/s 14A. Despite being asked by the AO to furnish the disallowance under rule 8D, the assessee did not furnish the details. The provisions of rule 8D inserted by the IT (Fifth Amendment) Rules 2008 with effect from 24.3.2008 are applicable for A.Y. 2008-09 and onwards. Therefore, the revenue authorities are bound to follow the mandatory provisions for calculation of disallowance u/s 14A. Therefore, we do not find any infirmity in the order of the CIT(A) upholding the action of the AO for disallowing the deduction u/s 14A read with rule 8D. The contention of the assessee that the AO without satisfaction being reached invoked the provisions of Rule 8D, in our opinion, does not hold good especially in absence of non-furnishing of details for the purposes of calculation of ....
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....ly expenses incurred in respect of earning taxable income are allowed; (c) The principle of apportionment of expenses is widened by section 14A to include even the apportionment of expenditure between taxable and non taxable income of an indivisible business; (d) The basic principle of taxation is to tax net income. This principle applies even for the purpose of section 14A and expenses towards non-taxable income must be excluded; (e) Once a proximate cause for disallowance is established - which is the relationship of the expenditure with income which does not form part of the total income - a disallowance has to be effected. All expenditure under the provisions of the Act has to be disallowed under section 14A Income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation." 9. After considering these principles as emerged from the decision of Hon'ble Supreme Court in the case of Walfort Share and Stock Brokers P. Ltd. (supra), Hon'ble Jurisdictional High Court has held in para 32 and 33 as under:- "32. Sub-section (2) and (3) to section 14A were inserted by an amendment brought about by the Finance Act of 2....
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....m made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must-be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to....
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....sessee has incurred any expenditure in relation to the income which does not form part of the total income. Section 14A has within it implicit the notion of apportionment in the cases where the expenditure is incurred for composite/indivisible activities in which taxable and non taxable income is received but when no expenditure has been incurred in relation to the exempt income then principle of apportionment embedded in section 14A has no application. The object of section 14A is not allowing to reduce tax payable on the non exempt income by deducting the expenditure incurred to earn the exempt income. In the case in hand it is not the case of the revenue that the assessee has incurred any direct expenditure or any interest expenditure for earning the exempt income or keeping the investment in question. If there is expenditure directly or indirectly incurred in relation to exempt income the same cannot be claimed against the income which is taxable. For attracting the provisions of section 14A- "there should be proximate cause for disallowance which has relationship with the tax exempt income as held by the Hon'ble Supreme Court in case of CIT Vs. Walfort Share and Stock Brokers ....
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....rmed as expense/ interest incurred for earning exempted income. Under the circumstances, Ld. Commissioner of Income Tax (Appeals) is correct in holding that disallowance of a further sum Rs. 40,556/- calculated@2%ofthedividend earned is sufficient. Under the circumstances, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals), hence we uphold the same." 13. In view of the above discussion and facts and circumstances of the case we agree with the view taken by this Tribunal in the above stated cases and accordingly hold that the assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies, therefore, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the AO is not justified, accordingly the same is deleted. 7. In the case of Interglobe Enterprises Ltd for the assessment year 2008-09 & 2009-10 in ITA No.1362 & 1032/Del/2013, the Tribunal vide order dated 04.04.2014 held as under:- 7. We have heard the rival submissions of both the parties and have gone through the material ava....
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....axopp In vestments. The Hon'ble Delhi High Court had held as under:- "24. We do not agree with the submission of the learned counsel appearing on behalf of the assessees that a narrow meaning ought to be ascribed to the expression "in relation to" appearing in section 14A of the said act. The context does not suggest that a narrow meaning ought to be given to the said expression. It is pertinent to note that the provision was inserted by virtue of the Finance Act, 2001 with retrospective effect from 01/04/1962. In other words, it was the intention of Parliament that it should appear in the statute book, from its inception, that expenditure incurred in connection with income which does not form part of total income ought not to be allowed as a deduction. The factum of making the said provision retrospective makes it clear that Parliament wanted that it should be understood by all that from the very beginning, such expenditure was not allowable as a deduction. Of course, by introducing the proviso it made it clear that there was no intention to reopen finalized assessments prior to the assessment year beginning on 01/04/2001. Furthermore, as observed by the Supreme Court in Wa....
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....the test adopted by Supreme Court in Walfort and it would not be permissible to restrict the provision of section 14A by an artificial method of interpretation." However, we find that the calculation of disallowance under Rule 8D(iii) made by the Assessing Officer and upheld by Ld CIT(A) is not correct In view of the fact that Assessing Officer had included the value of total investments for calculation of disallowance whereas in our opinion the value of those investments should have been included which were made for the purpose of earning exempt income. The assessee had made significant investments in the shares of subsidiary companies which are definitely not for the purpose of earning exempt income. The Hon'ble Tribunal in I.T.A. No.3349/Del/2011 in the case of Promain Ltd., after relying upon a Kolkatta judgment of Tribunal in I.T.A. No.1331 has held that strategic investment has to be excluded for the purpose of arriving at disallowance under Rule 8D(iii). The Tribunal had relied upon the findings of Kolkatta Tribunal in the case of Rei Agro Ltd. v. DCIT in I.T.A. No./ 1331/Del/2011 dated 29.7.2011. The relevant portion of Tribunal findings as contained in the Kolkatta ....
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....ioneer Radio Training Services Pvt. Ltd for the assessment year 2009-2010 in ITA No. 4448/Del/2013 and C.O.No.11/Del/2014, the Tribunal vide order dated 19.01.2015 observed as under:- 9. We have heard both the counsel and perused the records. We have also gone through the orders of the lower authorities, Synopsis, Paper Book filed by the assessee and the case laws relied upon by the assessee. We find that Ld. CIT(A) has adjudicated the issue as under:- "3. Ground No. 1 & 2 are against the disallowance of Rs. 17,77,733/- u/s 14A and ground No. 2 specifically states that the disallowance made is excessive. As per assessment order, the AO had made this disallowance on the presumption that the appellant had incurred expenses on management and on meeting of the board of directors etc. which can be attributed to the appellant's exempt income. The appellant's AR's submission during the appellate proceedings is that no expenses was incurred as remuneration to the directors or as meeting fee paid to the directors. As per the P&L A/c, the expenditure incurred is basically under four heads of expenses only. The preliminary expense written off was already added back by ....
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....nce of Rs. 50,OOO/- by holding that "the only expenses which can be attributed to exempt income likely to beearned in future are the auditor's remuneration and legal & professional charges". The auditor's remuneration and legal & professional charges incurred for maintenance of statutory books and its audit etc. were required to be incurred irrespective of whether the Company had any income or not and hence, there was absolutely no basis for considering a part of such expenditure towards earning of exempt income. In this connection, reliance is placed on Gujarat High Court judgment in the case of CIT vs. Suzion Energy Ltd. 354 ITR 630, in which the Court confirmed the deleting of disallowance u/s 14A in respect of interest expenses incurred for investments in subsidiaries and administrative expense such as staff salary of corporate office, audit fees, building rent and communication expenses. In view of the above, the cross objection filed by the assessee deserve to be allowed. 9.2 We also find that the case law cited by the Ld. Counsel of the assessee i.e. Hon'ble Jurisdictional Delhi High Court judgment dated 5.9.2014 in the case of Commissioner of Income Tax-IV vs. Ho....
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....lves. He referred to the FIPB approval vide letter dated 30.03.2005 granted by Government of India, Ministry of Finance permitting them to make investment in Ambuja Cement Ltd. by acquiring majority stake from the earlier shareholders. Thereupon, the respondent-assessee had purchased shares in the said company of Rs. 1850.91 Crores. Reference was then made to the expenditure as per the financial statement. Section 3 of the Act was elucidated upon to observe that business would be established when the assessee was ready to commence. Revenue expenditure incurred after setting up business should be allowed under Section 37 of the Act but expenditure incurred prior to setting up of business cannot be allowed. The CIT (A) accordingly held:- "5.6 In view of the above discussions, I hold that the appellant is engaged in the business of holding of investment is entitled to claim expenditure provided there is a direct connection between expenditure incurred and business of the assessee company. In the instant case. the expenditure incurred is on salaries of employees of the assessee company and other operating expenses of the company. The appellant has also admitted that the said expendi....
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....s referred to the contentions of the assessee that they had not earned dividend income and therefore, Section 14A of the Act was not applicable. The CIT(A) did not agree that as no exempt income was "claimed", no disallowance under Section 14A was warranted. The CIT(A) relied on the decision of Special Bench of the Tribunal (Delhi) in the case of Cheminvest Ltd. Vs. ITO., [2009] 317 ITR (A.T.) 86. Reference was made to Maxopp Investment Ltd. Vs. CIT, [2012] 347 ITR 272 to observe that Rule 8D of the Income Tax Rules, 1962 was not applicable in the assessment year 2007-08. Judgment of the Bombay High Court in Godrej and Boyce Manufacturing Co. Ltd.Vs. DCIT, [2010] 328 ITR 81 was also quoted. As per Maxopp Investment Ltd. (supra), the correctness of the claim of the assessee in respect of expenditure incurred in relation to the income which did not form part of total income had to be first ascertained and in case, the assessee claimed that no expenditure was incurred, the Assessing Officer should verify the correctness of the claim. Where the Assessing Officer was satisfied that no expenditure was incurred, no disallowance should be made under Section 14A. In other cases, the Assessi....
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.... contained in Section 14A and despite the fact that there is no exempt income that expenditure incurred was for holding and maintaining Investment. 5.15 Therefore, by applying the above judicial decision to the facts of the instant case, I find admittedly and indisputable, entire expenditure incurred to the tune of Rs. 8,75,35,452/- has been incurred for investment and hence in the light of the above factual position, the entire expenditure is not allowable in view of Section 14A of the Act. Thus, disallowance made by the Assessing Officer is confirmed though on a different ground and as such, the appeal preferred by the appellant is dismissed". 11. The CIT(A) did not refer to the factual matrix in his order for the assessment year 2008-09 but applied his earlier order dated 02.08.2012 for the Assessment Year 2007-08. We may note that for the Assessment Year 2008-09, Rule 8D as per the decision in the case of Maxopp Investment Ltd. (supra) is applicable. The said Rule was not invoked. The reasoning given by the CIT(A) reads thus: "4....While deciding the appeal for A.Y. 2007-08, vide my order dated 01.08.2012, I have given the finding that AO was not correct in disallowing....
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....nue. Thus, we had asked Sr.Standing Counsel for the Revenue, to state in his own words, their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to make the said addition. Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondentassessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A. 14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue ITA and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing I....
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....uled out and is not an improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. 16. What is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A). 17. In these circumstances, we do not find any merit in the present appeals. The same are dismissed in limine." 10. In the background of the aforesaid discussions and precedents, we find tha....
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....arty, it has been held that if no expenditure was incurred for earning tax free income no disallowance should be made. It is said that fact of each case are different so, without highlighting the facts of that case no addition should be made on the basis of general presumption. The FAA in the present case, had held that the every assessee would keep watch over the market to maximise its profit but he had missed one important aspect that the assessee was holding the shares of group concerns for strategic purposes and for selling and buying and selling them frequently. In absence of the finding as to how much was the sum incurred by the assessee under the head administrative expenses ,it is not possible for us to uphold the order of the FAA for the year under consideration. We further find that the FAA had not brought on record as to how the facts of earlier two AY.s. were different from the facts of the year consideration. In the case of Aroni Commerci - als Ltd.(362ITR403)the Hon'ble Bombay High Court has held as under: Though the principle of res judicata is not applicable to tax matters as each year is separate and distinct ,nevertheless where facts are identical from year ....
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....f Shriram Retail Holdings Pvt. Ltd, Shriram Credit company Limited, Shriram Holdings (Madras) Pvt. Ltd and Shriram Life Insurance company limited, for the purpose of earning tax free dividend income. On the other hand, the assessee invested to have a controlling internal in these companies and strengthen the capital base and liquidity base of these companies. Thus in the group companies, the assessee company have controlling interest in Shriram City Union Finance Ltd, a public limited company whose equity shares are listed in stock exchange. Shriram Credit Company Ltd has controlling interest in M/s.Shriram Insight Share Brokers Ltd. These facts were not contradicted by the Department and finally these facts will definitely enhance the profitability of the assessee company as well as market share of the assessee's business by this investment. Being so, in our opinion disallowance made by the Assessing Officer at C9,53,58,713/- for the assessment year 2010-2011 and 11,56,55,300/- for the assessment year 2011-12 is at very high side. Thus considering the earlier order of the Tribunal on this issue for the assessment year 2008-09 in assessee own case, we are of the opinion that the ab....
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....nbsp; 25,00,00,000/- --------------------------- It was pleaded by the assessee before AO that the payment being made by assessee to access the branch network and agency force of Shriram Chits. Shriram Chits is not required to provide or render any services or to do any other act free of cost for the consideration received, other than to keep its branch network in act and ready for use, whenever requested for by assessee or its nominees. 12.1 Further, it was submitted by the ass....
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....Payment made in the course of and for the purpose of carrying on business or in the field of trading activity it is to be treated as revenue expenditure even though the payment is of a large amount and may not have to be made periodically. For the above reasons, it was submitted by the assessee that the expenditure is allowable as business expenditure and it cannot be Capital Expenditure. 12.6 However, the above arguments of the assessee was rejected by the AO and treated it as capital expenditure and disallowed the same. 12.7 Against this, the assessee carried the appeal before the Commissioner of Income Tax (Appeals). 13. The ld. Commissioner of Income Tax (Appeals) observed that the assessee company entered into an agreements with Shriram Chits Private Ltd, Hyderabad, Shriram Chits (Karnataka) Private Limited, Bangalore and Shriram Chits Tamil Nadu Private Limited, Chennai on 01.12.2008 for doing the Life insurance business in India on the representation of the assessee. The terms of the agreements entered by the assessee with three companies were identical and discussed in the assessment order. By virtue of the entering of three agreements on 01.12.2008 with three chit....
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....Tax (Appeals) of the considered view that the nature of the claim of expenditure incurred by the assessee is not a revenue expenditure but a capital expenditure for acquiring an intangible asset like business or commercial right to access the network of its subsidiaries and associates. According to the Commissioner of Income Tax (Appeals) this intangible right was acquired by the assessee during the FY 2008- 09 relevant to Ay 2009-10 and therefore same is not allowable as revenue expenditure during the assessment year under consideration. The stand taken by the assessee that the impugned expenditure is revenue expenditure placing reliance on High Court of Punjab & Haryana in the case of CIT vs. Groz Asia Ltd. reported in 214 Taxman 205 is not acceptable to the CIT(A) as the decision rendered by the Punjab & Haryana High court was on the different set of facts and the issue was not under consideration of sec.32(1)(ii) and Explanation 3 of the IT Act. The issue under consideration is whether right of access is a intangible asset and whether such right was acquired by the assessee for use of 10 years for a specified consideration in view of the specific provision in the law u/s 32(1)(....
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....tribute its various financial products. Therefore, the assessee company acquired the right of access to the entire branch network of subsidiaries for a specified consideration. The 3 chit companies were not supposed to do any work for "assessee company. The right of access to network of the chit fund companies for a period of 10 years was granted to the assessee for a specified consideration. The consideration was required to be paid in 2 instalments in the financial year 2008-09 and also financial year 2009-10. The manner of payment is not relevant for deciding whether the expenditure incurred for acquiring intangible asset was a capital or a revenue expenditure. Therefore, Commissioner of Income Tax (Appeals) of the considered view that the nature of the claim of expenditure incurred by the assessee is not a revenue expenditure but a capital expenditure for acquiring an intangible asset like business or commercial right to access the network of its subsidiaries and associates. The stand taken by the assessee is that the impugned expenditure is revenue expenditure placing reliance on High Court of Punjab & Haryana in the case of CIT vs. Groz Asia Ltd. reported in 214 Taxman 205. ....
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.... the nature of liability of net value of the payment and whether the expenditure is capital or revenue which is wholly and exclusively used for the purpose of business carried on by the assessee. 17. If the assessee incurred expenditure as commercial expediency, it is to be allowed. When it is incurred wholly and exclusively for the purpose of business, then reasonableness of the expenditure is to be judged from the point of view of the businessmen and the commercial expediency is a matter entirely left to the judgment of the assessee as held by Madras High Court in the case of Amarjothi pictures vs. CIT 69 ITR 755 and Aluminium Corporation of India Ltd vs. CIT 86 ITR 11(SC). In our opinion, the businessman is only the best judge to determine the business expediency and therefore when he claims that he has incurred certain expenditure for the business expediency, his version is ordinarily be accepted. Further, it does not mean that the Assessing Officer cannot be entitled to enquire or investigate as to whether the said expenditure was actually incurred by the businessman. If it is incurred wholly and exclusively for business consideration, a businessman is the best judge of his....
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....ment of C22,50,000 is revenue expenditure. As regards the payment made towards access to information base and for transition of customer order filing this payment again, is for business consideration and it cannot be accepted that the amount was paid for obtaining information useful for a long period and that the same could be treated as plant. There is no question of acquisition of any asset when the assessee made the payments and acquired the information about the customer base. That will help the assessee to carry on its business very efficiently and in a more profitable manner. The payment of C28.80 lakhs, is, therefore, a proper business expenditure allowable as deduction. 18. In the present case, the Assessing Officer was of the opinion that expenditure resulted in enduring benefit. Thus, he disallowed the claim of the assessee by treating it as capital expenditure. According to ld. AR the expenditure incurred has not resulted in acquiring any tangible or intangible property or acquiring any asset of enduring benefit so as to treat it as capital expenditure. Basically, the expenditure would be capital in nature if it is made with a view to bring into a profit making asset ....
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....ase would be of the nature of capital expenditure. vi) If the amount is incurred for acquisition of an asset of an enduring nature is in the capital field though payment has been made in small amounts or periodical instalments. vii) A lumpsum amount incurred would not cease to be revenue expenditure or get into or converted into capital expenditure merely because it is payment made in lumpsum. It is the intention and object with which expenditure incurred and not the method or the manner in which the payment is made or the sources of such payment. viii) If the expenditure is recurring and incurred during the course of business or manufacturing it would be revenue expenditure. ix) An asset or advantage of an enduring nature does not mean that it may last for ever. If the capital asset, in its nature, a short lived one, the expenditure incurred over it does not, for that reason, cease to be a capital expenditure. x) It is not the law that if an enduring advantage is obtained the expenditure for securing it must be treated as capital expenditure if advantage acquired is to carry on the business then it would be revenue expenditure.'' 18.1 On the above proposition, we....
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....ssessment year 2009-10 and C25 crores for assessment year 2010-2011 and payment of C33 crores is subject matter of dispute. In the assessment year 2009-2010, the Assessing Officer allowed the claim of C33 cores as Revenue Expenditure. This was a subject matter of proceeding u/s.263 of the income by the Commissioner of Income Tax and the Commissioner of Income Tax vide order dated 18.02.2014 observed as under:- ''(1) The assessee company had claimed an expenditure of 33 crores towards proving access to branch network. (2) The assessee company had made the aforesaid payment to M/s. Shriram chits Karnataka Pvt. Ltd for obtaining information and services for the purpose of business requirements of Shriram Life Insurance Co.Ltd and M/s. Shriram General Life Insurance Ltd, wherein the assessee company had 74% stake. (3) The Assessing Officer had accepted the assessee company's agreement and allowed the above expenditure as revenue without verification . 3.2 The Ld. CIT further opined that :- (i) The assessee company had substantial interest in M/s. Shriram Life Insurance Co. Ltd and M/s. Shriram General Life Insurance Ltd. and the expenditure incurred towards the same is n....
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.... (iv) Accordingly the expenditure of `33 crores claimed by the assessee cannot be allowed for assessment year 2009-10 however, it can be allowed in the year in which the assessee deducts the tax and remits the same to the Government of India account. 5.2. From the above it is apparent that the Ld.CIT has only examined the agreement which have been already considered by the Ld. Assessing Officer. Though he has made several observations, there were no other findings other than, non deduction of tax at source and applicability of Section 40(a)(ia) of the Act. The Ld. A.R. during the course of proceedings before the Ld.CIT had submitted the letters from the recipients of the payments from the assessee company wherein they have stated that they had declared the amount received from the assessee as their income and paid the tax duly. The amended second proviso to Section 40(a)(ia) of the Act was also referred. The Tribunal in the case of Rajeev Kumar Agarwal Vs. Additional Commissioner of Income Tax in ITA No.337/Agra/2013 vide order dated 29th May, 2013 has held that "the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective....
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.... while disposing the appeal for the assessment year 2010-2011, made an observation that the Assessing Officer is at liberty to take remedial measures after following the due process of law for claim of C33 crores as deduction for the assessment year 2009-2010. It is to be here noted that the Commissioner of Income Tax (Appeals) is concerned with the adjudication of issues raised before him for the assessment year 2010-2011. In our opinion, the Commissioner of Income Tax (Appeals) cannot travel beyond the assessment year in appeal before him. He has exceeded his jurisdiction in making such observation for assessment year 2010-2011 as there is no dispute before him for the assessment year 2009-2010. More so, when this issue was decided by Tribunal in favour of the assessee vide order dated 02.01.2015, the Commissioner of Income Tax (Appeals) not justified in giving such direction. Accordingly, we expunge the above observations by placing reliance on the order of the coordinate bench in the case of Sun Metal Factory (I) (P) Ltd vs. ACIT, 124 ITD 14, wherein held that ''The appellant authority can give findings and directions only in respect of year/period which is before that....