2015 (7) TMI 834

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.... pressed. 3. The issue raised vide Ground No.2 is relating to the disallowance made under section 14A of the Income Tax Act. The assessee has agitated the action of the Ld. CIT(A) in sustaining the disallowance on account of administrative expenses at the rate of 0.5% of the average value of investment as per Rule 8D(2)(iii) as against the suo-moto disallowance of Rs. 2 lakh offered by the assessee. We may observe that the Revenue, vide ground No.1 of its appeal, has also agitated the action of the Ld. CIT(A) in deleting the disallowance on account of interest expenditure under Rule 8D(2)(iii) of the Income Tax Rules. 4. During the assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) observed that the assessee had earned dividend income of Rs. 3,13,15,384/- which was claimed as exempt under section 10(34) of the Act. He further observed that the assessee had disallowed only a sum of Rs. 2 lakh. The AO applied Rule 8D and disallowed a sum of Rs. 61,45,777/- under Rule 8D(2)(ii) on account of interest expenditure and further a sum of Rs. 18,32,980/- on account of administrative expenses under Rule 8D(2)(iii). Aggrieved by the order of the AO, the as....

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....er of the Ld. CIT(A), the assessee has agitated the sustaining of the disallowance under Rule 8D(2)(iii) whereas the Revenue has agitated the action of the Ld. CIT(A) in deleting the disallowance made by the AO under Rule 8D(2)(ii). 7. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. The Ld. CIT(A) has observed in the impugned order that the AO has not given any finding that the assessee had incurred the indirect expenses under Rule 8D(2)(ii) for earning of exempt income. The assessee had explained one to one relation of the borrowed funds and their utilization towards business of the assessee to prove that the interest expenditure was incurred wholly and exclusively for the purpose of business of the assessee. In view of the submissions of the assessee that the interest expenditure had been incurred by the assessee for the purpose of its business and that the same had no relation with earning of exempt income, the Ld. CIT(A) has deleted the disallowance on account of interest expenditure. The Ld. A.R. of the assessee has submitted that the identical issue had come for consideration before the Tribunal ....

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....f the assessment order under consideration reveals that the AO has failed to follow the guidelines of objective satisfaction as laid down by the Hon'ble Bombay High Court in the case of "Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT" (supra) while making the disallowance. The AO has straightway applied Rule 8D for working of the disallowance against the mandate of the provisions of section 14A of the Income Tax Act. We may further observe that the Ld. CIT(A) having regard to the accounts of the assessee has observed that the assessee has not incurred any interest/indirect expenditure for earning of the exempt income. The balance sheet of the assessee reveals that the assessee had reserve and surplus of Rs. 2,69,82,76,106/- as on 31.03.08 as against the total investments of Rs. 69,33,10,403/-. The reserve and surplus investments of the assessee as on 31.03.06 was at Rs. 1,31,08,13,906/- and therefore there was an increase of about Rs. 138 crores in reserve and surplus during the year. The total investments of the assessee as on 31.03.07 was at Rs. 3,98,81,678/- which have increased to Rs. 69,33,10,403/- as on 31.03.08 and so there was the investment of Rs. 66 crore during the y....

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....emaining disallowance over and above the disallowance offered by the assessee himself is therefore ordered to be deleted. 9. Now we take up the Revenue's appeal bearing ITA No.6211/M/2011. ITA No.6211/M/2011 10. The Revenue has taken the following three grounds of appeal: "1. Whether on the facts and circumstances of the case and in law, the CIT (A) erred in restricting the disallowance of expenses u/s 14A @ 0.5% of the average investment amounting to Rs. 18,32,980/- without establishing any nexus between investment in shares and assessee's own funds and without considering the specific provision of Rule 8D of the I T Rules. 2. Whether on the facts and circumstances of the case and in law, the CIT (A) is right in holding that the remission of loan liability of Rs. 2,10,73,487/- is capital receipt not chargeable to tax inspite of Apex Court's decision in the case of Goetz (India) Ltd. reported in 284 ITR 323 (SC)? 3. Whether on the facts and circumstances of the case and in law, the CIT (A) is right in directing that the amount of disallowance of expenses u/s 14A to be added while computing book profit u/s 115JB should be restricted @ 0.5% of average in....

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.... decision of the Tribunal in the case of "CIT vs. Chicago Pneumatics Ltd." [2007] 15 SOT 252 (Mumbai) held that if the assessee was entitled to a claim the same should be allowed to the assessee. He therefore directed the AO to calculate the amount of Rs. 21073487/- being the rebate received on loan as the same was capital receipt. 14. We may observe that the Ld. CIT(A) has discussed the nature of the loan amount and has held that the waiver was not in respect of any benefit in kind or of any perquisite. The waiver was of the principle loan amount in cash. The assessee had not claimed any deduction in respect of loss, expenditure or trading liability in relation to the loan amount. The waiver was of the principle amount of loan for capital asset. He, thereafter, relying upon the decision of the Hon'ble Jurisdictional High Court, in the case of "Mahindra & Mahindra Ltd. vs. CIT" 261 ITR 501, held that the waiver of the loan amount was a capital receipt not taxable as business income of the assessee. We may further observe that the Hon'ble Bombay High Court in the case of 'Pruthvi Brokers & Shareholders Pvt. Ltd.' ITA No.3908 of 2010 decided on 21.06.12, while rely....