TaxTMI 
TaxTMI 
2012 (12) TMI 1047
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....plying the yard stock of making pro-rata disallowance based on the cost inflation index and quantum of exemption on the basis of disallowance confirmed in A.Y.1992-93 without appreciating that the exempt income u/s 10(15), 10(23) and 10(23G) amounting to Rs. 36,10,19,907/- has been earned after investment. 3. That the ld. CIT(A) has failed to appreciate that the assessee has utilized funds available with bank for earning of the said exempt income and therefore, the AO has rightly worked out the disallowance of Rs. 7,05,00,000/- and Rs. 2,26,00,000/- on account of proportionate interest and management expenses attributable to earning of the said exempt income. 4. That the ld. CIT(A) has totally ignored the fact that sub-section (2) and (3) of section 14A are retrospective in nature and so is the resultant rule 8D. Hence the disallowance u/s 14A was required to be computed with reference to the mandate of there provisions. 5. That the appellant craves leave to add or amend or alter the ground of appeal before the appeal is heard." 3. The assessee in its C.O. has raised following grounds: "1. That the worthy CIT(A) is unjustified in holding that ....
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....t accept assessee company's reliance on number of judicial pronouncements delivered by Income Tax Appellate Tribunal and Hon'ble High Courts. The AO's dismissal of these authorities was that these decisions were delivered in terms of the then prevailing section 80M of the Act. He also observed that some of these decisions rather confirm the view that proportional disallowance on the expenditure incurred for earning of exempted income has to be made. The AO was further of the opinion that it was not possible to segregate the non interest bearing funds from interest bearing funds. He also made another important observation that if no expenditure is attributed to this exempted income the assessee would avail deduction of 100% expenditure. He also referred to C.B.D.T. Circular No.780 which states that only net income has to be exempted. The AO also glanced over section 10(34) and has held that income defined there has only income and not the gross receipt. Accordingly, the AO held that there is to be an expenditure which has to be attributed to this exempted income. The AO buttressed his stand to the effect that expenditure is to be attributed to the exempted earning by referring to wh....
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.... in the form of notional proportionate interest and allowed the appeal of the assessee against disallowance of Rs. 7.05 crores made by the AO. 6. As regards the disallowance of Rs. 2.26 crores, the Ld. CIT(A) following the order of the ITAT in assessee's own case retained disallowance of Rs. 8.10 lacs out of total disallowance of Rs. 2.26 crores made by the A.O. 7. The Ld. DR, Mr. Tarsem Lal, mainly relied upon the order of the Assessing Officer. He argued that the assessee is having interest free funds is purely a guess work and not supported by any credible evidence. The assessee has not been able to pin-point any fund utilised through its exempted income out of own funds and not out of interest bearing funds. The decisions relied upon by the ld. CIT(A) are not applicable in the present facts and circumstances of the case. He further argued that the assessee was required to give the actual data date-wise in the form of cash flow statement where investment can be made to the availability of interest free advances. Therefore, the ld. CIT(A) is not justified in accepting the contention of the assessee which in fact has not been supported by the facts. If the order of the ld. C....
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.... for the year prior to the said assessment year. He referred to the clarificatory note to the Finance Bill 2006 is specific reference to clause 7 which was placed on record. He further argued accordingly that this amendment in section 14A will take effect from Ist April, 2007 and will accordingly apply to the assessment year 2007-08 and subsequent years. The method as indicated in section 14A(2) stands notified through Rule 8D by CBDT on 24.03.2008 and has been inserted by IT (Fifth Amendment) Rules, 2008 and this rule is applicable w.e.f. assessment year 2008-09 and onwards. Therefore, to make disallowance as per the prescribed method in Rule 8D of the Income Tax Rules, 1962 is not applicable in the impugned year. Mr. R.K. Gupta, the ld. counsel for the assessee further relied upon the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. Deputy CIT (2010) 328 ITR (Bom) 81, placed at PB 261-302 where it has been held that Rule 8D shall be prospective and not retrospective. This decision of the Hon'ble High Court has been followed by various Benches of the ITAT and in view of no contrary judgment on the issue, Mr. R.K. Gupta prayed to dismiss the....
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.... the investment in tax free securities and infrastructural advances at the beginning of the year and closing of the year. 13. Mr. R.K. Gupta, CA the ld. counsel for the assessee referred to the order of the A.O. and the ld. CIT(A) and argued that the order of the CIT(A) in para 9 is very relevant where each and every contention of the AO has been discussed to arrive at the conclusion that the order of the AO is not a correct order. The Ld. counsel for the assessee further relied upon the decisions of various courts of law in support of his arguments as under: i) Impulse (India) P. Ltd. vs. ACIT (OSD) 22 SOT 368 (Del) ii) CIT vs. Winsome Textile Industries Ltd. (2009) 319 ITR 204 (P&H) iii) CIT vs. Shapoorji Pallonji & Co. Ltd. (2009) 318 ITR 417 (Bom.) iv) Asstt. CIT vs. State Bank of Travancore (2009) 121 TTJ (Coch) 418. v) Asstt.CIT vs. Jindal Saw Pipes Ltd. (2008) 118 TTJ 228 (Del) vi) Asstt. CIT vs. Eicher Ltd. (2006) 101 TTJ (Del) 369 vii) Maruti Udyog Ltd. vs. DCIT (2005) 92 ITD 119 (Del.) viii) Escorts Ltd. vs. Asstt.CIT (2006) 102 TTJ 522 (Del) ix) DCIT vs. BSES Ltd. (2008) 113 TTJ 227 (Mum.....
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....ard to the invocation of the power to determine the expenditure incurred in relation to the earning of non-taxable income by adoption of the prescribed method. The invocation of the power is made conditional on the objective satisfaction of the Assessing Officer in regard to the correctness of the claim of the assessee, having regard to the accounts of the assessee. These safeguards which are implicit in the requirements of fairness and fair procedure under article 14 must be observed by the AO when the arrives at his satisfaction under sub-section (2) of section 14A. Sub-rule (1) of rule 8D of the Income-tax Rule, 1962, has also incorporated the essential requirements of sub-section (2) of section 14A before the Assessing Officer proceeds to apply the method prescribed under sub-rule (2). The provisions of sub-section (2) and (3) of section 14A of the Act, are constitutionally valid. The provision of rule 8D of the Rules, are not ultra vires the provision of section 14A, more particularly sub-section (2) and do not offend article article 14 of the Constitution. Different dates have been provided in the provision of section 14A and rule 8D for their enforcement. Sub-sectio....
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....cent. Consisted of bonus shares for which no cost had been incurred. The shares of GS were stated to have been acquired several year earlier, the assessee being a promoter of that company. During the year in question, the assessee claimed that it has not invested any amount in investments on which income was exempt under section 10(33) and it had disposed of some of its investments at a substantial profit. The Tribunal noted that the Assessing Officer had not examined the correctness of the claim of the assessee with reference to the accounts of the assessee, having regard to the provisions of section 14A(2). The proceedings were remanded to the Assessing Officer for a fresh examination on the basis of the provisions of section 14A(2). On appeal to the High Court: Held, that the provision of rule 8D of the Rule which have been notified with effect from March 24, 2008, would apply with effect from assessment year 2008-09. Even prior o assessment year 2008-09, when rule 8D was not applicable, the Assessing Officer had to enforce the provisions of sub-section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been ....
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....ank for making investment which far exceeded investment in tax free securities can be said to be established only when it is shown that interest free funds are not available with the assessee bank whereas reverse is true in this case, the borrowed funds are not available for investment in tax free securities and infrastructural advances. The AO has not brought on record that interest free funds are not available with the assessee bank. The assessee is having borrowed funds to the extent of Rs. 11058.54 crores whereas investment and advances are to the tune of Rs. 11926.42 crores. The AO has not controverted the fact that the assessee-company is not having enough funds to make investment in tax free securities. As a matter of fact, section 14A requires to determine the amount of expenditure incurred in relation to such exempt income which does not form part of total income under the Act. Therefore, the onus lies on the AO to establish that in fact there was some expenditure actually incurred by the assessee. The A.O. in the present case has not brought on record any such expenditure which has actually been incurred by the assessee on account of interest expenditure or even the manag....