TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 870
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....T(A) who vide order dated 21.02.2012 granted partial relief to the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue are now in appeal before us. The grounds raised by the Assessee reads as under:- 1.1 The Commissioner of Income Tax (Appeals) ['CIT(A)'] erred in making an additional disallowance of Rs. 14,65,232 under Section 14A of the Act. 1.2 The Appellant has not made any borrowings for the purpose of investments. Therefore, no interest expense has been incurred in relation to investments. 1.3 The CIT(A) erred in confirming the approach of the Assessing Officer ('AO') to disallow the interest expense of Rs. 14,65,232 on the basis of proration of interest expenses by dividing average value of investment to average value of total assets. 1.4 The above method appears in Rule 8D of the Income Tax Rules, 1961 ('the Rules') and Rule 8D does not apply to the year under consideration as held in the Appellant's own case for AY 2006-07 by the Honorable jurisdictional Tribunal vide its order dated 19 January 2012. 1.5 The Appellant suo-motu offered Rs. 16,30,762 on the basis of apportionment of indirect expenses in the rati....
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....case the presumption was that the investments have been made out of free funds and not borrowed funds and therefore no disallowance of interest was required. The Assessee during the course of assessment proceedings however worked out the disallowance u/s. 14A at Rs. 16,30,762/- and requested the A.O to consider the same for disallowance. The submission of the Assessee was not found acceptable to the A.O for the reason that Assessee has not maintained separate accounts in relation to the income that does not form part of the total income. A.O was further of the view returns on investment is not automatic and involves time, energy and resources in terms of finance, administration, decision making and managing the activities involving the buying and selling of investments, re-investment of dividend. He also noticed that Assessee while working the disallowance during the course of assessment proceedings had bifurcated the indirect and common expenses into related and non related expenses which according to him was without any rationale and the apportionment of the expenses on the basis of ratio of exempt income to the total turnover was arbitrary. He was of the view that the better way....
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....n case in the immediate preceding year as mentioned above held that rule 8D is applicable only with effect from assessment year 2008-09 and therefore disallowance under section 14 A cannot be made as per the formula given in rule 8D for this assessment year. Accordingly respectfully following the decision of jurisdictional ITAT in the appellant's case for assessment year 2006-07, it is held that disallowance of expenses under section 14 A cannot be made for assessment year 2007-08 as per rule 8D. However, even without applying rule 8D, disallowance of expenses relating to exempt income has to be made. Appellant quantified the disallowance during assessment proceeding on the basis of salary of the person working for investment division and proportionate indirect expenses resulting in exempt income. The disallowance quantified by the appellant was Rs. 16,30,762. Assessing officer did not agree with this disallowance proposed by the appellant on the ground that appellant did not consider certain expenses and after considering of the same the indirect expenses comes to Rs. 1022.68 Lacs for making this disallowance. The difference between assessing officer and appellant's quan....
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....ent of Rs. 16,30,762 plus Rs. 14,65,232 totaling to Rs. 30,95.994. 7. Aggrieved by the aforesaid order of ld. CIT(A), Assessee and Revenue are now in appeal before us. 8. Before us, ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted that the interest free funds available with the Assessee were far in excess of the investment and in such a case the presumption would be that the investments are out of interest free funds and therefore no disallowance on account of interest expenditure was called for and for this proposition Assessee placed reliance on the following decisions. (i) CIT vs. Torrent Power Ltd. -363 ITR 474 (Guj.) (ii) CIT vs. Suzlon Energy Ltd. - 354 ITR 630 (Guj.) (iii) CIT vs. Gujarat Power Corporation Ltd. -352 ITR 583 (Guj.) (iv) CIT vs. Hitachi Home and Life Solutions (I). Ltd. - (2014) 41 taxmann.com 540 (Guj.) (v) CIT vs. Reliance Utilities & Power Ltd. - 313 ITR 340 (Bom) (vi) Munjal Sales Corporation vs. CIT - 298 ITR 298 (SC) 9. Ld. A.R. further submitted that ld. CIT(A) confirmed the disallowance of Rs. 14,65,232/- u/s. 14A in respect of interest which was worked out by the A.O based on Rule 8D. He submitted that....
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.... u/s. 14A at Rs. 16,30,762/- and in the aforesaid working of Assessee also no mistake has been pointed out by the Revenue. Further, in view of the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd.(supra) where the Hon'ble High Court has held that Rule 8D would be applicable from A.Y. 08-09 and prior to that reasonable disallowance may be worked out by A.O and the year under consideration being A.Y. 07-08, we are of the view that no disallowance in excess of the amount that has been worked out by the Assessee (i.e. Rs. 16,30,762/-) is called for. We thus direct the deletion by the disallowance in excess of the disallowance worked out by the Assessee of Rs. 16,30,762/-. Thus the ground of Assessee is allowed. 11. In the result, the appeal of Assessee is allowed. Now we take up Revenue's appeal in ITA No. 922/Ahd/2012 1st ground is with respect to disallowance of employees contribution to ESIC. 12. During the course of assessment proceedings and on perusing the tax audit report, A.O noticed that there were certain instances where the Employees contribution of ESIC was not deposited with the authorities before the prescribed due date and the aggrega....
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....ssee to the employees accounts in the relevant fund or funds on or before the "due date" under the Provident fund Act, ESI Act, Rule, Order or Notification issued thereunder or under any Standing Order, Award, Contract or Service or otherwise. .." 16. In view of the aforesaid decision of Hon'ble Gujarat High Court and in the absence of any contrary binding decision brought on record by ld. A.R, we are of the view that A.O was justified in treating the delayed deposit of Employees contribution of ESIC as income of the Assessee and accordingly uphold the order of A.O on this ground. In the result, the ground of Revenue is allowed. Ground no. 2 is with respect to disallowance u/s. 14A. 17. Before us, both the parties submitted that the present ground is interconnected with ground no. 1 of Assessee's appeal and the submissions made by them while arguing the appeal would also be applicable to the present ground. In view of the aforesaid submission of both the parties, we for the reasons stated hereinabove while deciding the appeal for Assessee's appeal in ITA No. 889/Ahd/2011(supra) and for similar reasons dismiss the ground of Revenue. Ground no. 3 is with respect to deleting the ....