TaxTMI 
TaxTMI 
2015 (7) TMI 118
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....t prejudice to the above, on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the addition to the extent of Rs. 1,12,55,780 out of the total addition of Rs. 1,15,28,410 made by the Assessing Officer to the book profit of the appellant company u/s.115JB of the I.T. Act." The Revenue's sole substantive ground is reproduced as under: "1. The Ld. CIT(A) erred in law and on facts in reducing the disallowance u/s 14A in respect of investment in foreign subsidiary holding that it will not result in exempt income, since the assessee had not furnished specific evidence to show that the investment was actually in foreign company." The abovesaid pleadings raise the solitary issue of section 14A disallowance. Both parties reiterate their respective submissions. We proceed to deal with section 14A disallowance in succeeding paragraphs 3. The case file reveals that the CIT(A)'s order under challenge comprises of relevant extract of the assessment order dated 31.12.2009 as under: "4. The ground No.3 is against disallowance of Rs. 1,15,28,410/- u/s. 14A of the Act. 4.1 The A.O. has stated in the assessment order dated 31/12/2009 which i....
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....in respect of earning of such income which do not form art of the total income. The submission of the assessee found to be very general and no specific evidences have been furnished to show that no disallowance u/s.14A is called for. Accordingly, vide the order sheet entry dtd.10/12/2009, the assessee was asked to show cause why disallowance u/s. I4A be not made in response, the assessee vide submission dtd. 24/12/2009 submitted as under: The assessee must have incurred administrative expenses such as documentation, salaries of employees, handling the investment port folio, administrative over heads like stationery, telephone, computer, office equipments, vehicles etc. every year, a part of which can be attributed to the investment portfolio. Moreover, reliance is placed on the following case laws. (1) Rajasthan State Warehousing Corp. Ltd. Vs. CIT(242 ITR 450) (Raj) (2) Maruti Udyog Ltd. Vs. Dep. Comm. (Delhi) 92 TTJ 987 (3) Wipro Information Technology Vs. Dep. CIT (Bang) 88 TTJ 378 (4) Dep. Comm. of I.Tax Vs. Shree Synthetics Ltd. (Indorej 88 TTJ 717. 15) Harish K. Shaft Vs. ITO 85 TT J 872. Further, from the submission of the assessee itself, if is seen tha....
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....r provisions of sub-section (2) of section 14A. In this connection, it may be pointed out that the said sub-section (2} of section 14A was inserted by the Finance Act, 2006, w.e.f. 1-4- 2007. Therefore, it is applicable only in respect of assessment years beginning on or after 1-4-2007. Hence, the said provisions are not applicable to the year under consideration, i.e. A.Y. 2006-07. 3.1.2 Considering the above, it is clear that the provisions of Rule 8D are wrongly applied by the Assessing Officer in making disallowance u/s. 14A. Therefore, the disallowance needs to be deleted. 3.2 Without prejudice to the above, it may be pointed out that a perusal of the relevant portion of the impugned assessment order shows that the learned Assessing Officer has made the impugned disallowance without appreciating: (a) that Section 14A cannot be so read as to entail a disallowance of expenditure in every single case where the assesses had tax exempt income; (b) that it was only if the Assessing Officer was not satisfied with the claim of the assessee, either that no disallowance whatsoever was warranted u/s. 14A or that disallowance only of a particular amount was warranted under tha....
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.... to Rs. 195.08 crores. Therefore, there is no utilization of borrowed funds for the purpose of making any investments. In view of the above, no disallowance can be made u/s. 14A, out of interest expenses. 2.3.2 As regards the Disallowance of Rs. 1,13,90,1231- out of Other Expenses, the Assessing officer has observed as under: The assessee must have incurred administrative expenses such as documentation, salaries of employees, handling the investment portfolio, administrative overheads like stationery, telephone, computer, office equipments, vehicles etc. every year, a part of which can be attributed to the investment port folio. Moreover, reliance is placed on the following case laws: (1) Rajasthan State Warehousing Corp. Ltd. V/s. CIT (242 ITR 450) (Raj) (2) Maruti Udyog Ltd. Vs. Dep. Comm. (Delhi) 92 TTJ 987 (3) Wipro Information Technology Vs. Dep. CIT (Bang.) 88 TTJ 378 (4) Dep. Comm. of I. Tax Vs. Shree Synthetics Ltd. (Indore) 88 TTJ 717. (5) Harish K. Shaft Vs. ITO 85 TTJ 872." As regards the above observation, it may be noted that the assessee company has neither put in any extra efforts nor employed any staff in connection with the investments made.....
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....allowance of expenses relating to exempt income are to be made by appropriate method. It is not in dispute that appellant earned exempt income in the form of dividend on investment of more than Rs. 325 crores. Appellant incurred employees' remuneration and other administrative expenses totaling to Rs. 670 crores, part of which may relate to investment resulting in exempt income. Similarly payment of interest will also partly relate to investment resulting in exempt income therefore disallowance under section 14 A on account of interest and other expenses are necessary. Coming to the method of computation of disallowance under section 14 A, assessing officer disallowed expenses relatable to exempt income as per rule 8D. For interest, proportionate expense is disallowable whereas for other expenses .5% of investment value is disallowable. Considering the fact that appellant claimed huge administrative and other expenses, the disallowance of administrative expenses made by the assessing officer @.5% of investment resulting in exempt income is reasonable. I do not agree with the appellant that expenses cannot be more than exempt income. From the size of the balance sheet and app....