TaxTMI 
TaxTMI 
2016 (6) TMI 586
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....to be the amount to be disallowed under section 14A for earning the exempt income. 2. Brief facts of the case are that the assessee is engaged in the business of manufacture and sale of automotive, two, three wheelers and parts thereof. The assessee has filed its return for the assessment year 2008-09 on 30.09.2008 admitting loss of Rs..59,67,82,166/-. Subsequently, the assessee has filed its revised return on 31.03.2010 revising the total loss of Rs..59,82,66,374/-. The return filed by the assessee was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 12.08.2009. Thereafter, fresh notice under section 142(1) of the Act along with questionnaire was issued to the assessee on 20.10.2011. In response thereto, the AR of the assessee has appeared and furnished details and written submissions. After considering the written submissions and details filed by the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act on 28.12.2011 and determined total income at Rs..91,46,18,434/- by making various additions. 3. The assessee carried the matter in app....
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....would definitely involve the services of competent manpower as well as informed decision making by the top management and the directors. Therefore, the contention that no expenditure whatsoever was incurred for earning the dividend income is beyond the realm of possibility. Hence, this is a fit case for application of rule 8D. Further, the Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing (supra) has also clearly held that provisions of rule 8D are applicable from A.Y.2008-09 onwards. In view of the above facts and the precedent, I am of the considered opinion that the AO had rightly applied the provisions of rule 8D to the present case. 4.3 Regarding the quantification, the AO had calculated the disallowance at Rs. Nil, Rs. 1,95,18,961/- and Rs. 1,70,92,500/- under clauses (i), (ii) & (iii) of rule 8D (2) respectively. There is no dispute regarding the first component because it is Nil. With regard to the second component, being the expenditure by way of interest which is not directly attributable to any particular income or receipt, the AO has determined the amount at Rs. 1,95,18,961/-. The AO has taken into account interest expenditure of Rs. 9,26,30,1....
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.... of the investments will be deemed to be expenditure incurred for the same. When the Act has specified a definite formula for working out the amount, restricting the same to an amount of Rs. 26,45,886/- as suggested by ld.AR will not be in accordance with law. If law fails, there is no question of any unjustness. Hence, the disallowance made by the AO of Rs. 1,70,92.500/-, being half per cent of the average investment yielding exempt income, is confirmed. In the result, disallowance of Rs. 1.70,92,500/- is confirmed and the ground is partly allowed." 6. Before us, the ld. Counsel for the assessee has contended that the confirmation of disallowance at 0.5% of average investment as expenditure for earning exempt income to be disallowed under section 14A of the Act is legally not correct and by relying on the decision in the case of Inautix Technologies India P. Ltd. v. ACIT in I.T.A. Nos. 2277 & 2625/Mds/2014 dated 19.06.2015, he has submitted that the disallowance may be restricted to 2% of the dividend income only on the ground that the notification of Rule 8D w.e.f. 24.03.2008 is prospective in operation. In this case, the assessment year under consideration is 2008-09 and with....
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...., the only plea raised by the ld. Counsel for the assessee before the Bench is that the disallowance may be restricted to 2% of the dividend income 8. Since the assessee has not excluded any expenditure relatable to earning exempt income during the previous year relevant to the assessment year 2008-09, by invoking section 14A of the Act, the Assessing Officer has rightly applied Rule 8D and worked out the expenditure relatable to earning of exempt income, which was confirmed by the ld. CIT(A). Therefore, the request for restricting the disallowance @ 2% of the dividend income as expenditure is not permissible under the Law. By following the above decision of the Hon'ble Bombay High Court, in the case of Indian Bank v. ACIT for the assessment year 2008-09 in I.T.A. No. 1923/Md/2011 vide order dated 30.11.2015 [consolidated order in I.T.A. Nos. I.T.A.Nos.880/Mds/2010, 1923/Mds/2011, 1871/Mds/2012, 1395, 1396 & 1397/Mds/2014] at para 82-83, the Coordinate Bench of the Tribunal has held as under: "82. The fifth ground raised by the assessee relates to disallowance under section 14A. The Assessing Officer made disallowance of Rs..22,58,62,431/- under section 14A of the Act and com....
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....vity of the assessee is manufacturing electronic ignition systems and in addition the assessee is also investing and trading in shares/mutual funds, but the assessee has not maintained any separate sets of books for the investment activity and the manufacturing activities. All the funds are pooled up and utilized for various activities from a common kitty. Therefore, the Assessing Officer has segregated the probable expenses by way of financial charges and other overhead expenses between the investment activity and manufacturing and export activities. Accordingly, by invoking the provisions of section 14A of the Act and applying Rule 8D, the Assessing Officer apportioned the expenses against the income generated from the investment activity. The ld. CIT(A), by considering various decisions and submissions of the assessee, confirmed the disallowance made by the Assessing Officer. From the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd v. DCIT (320 ITR 81), it is very clear that the application of provisions of Rule 8D, which has been notified with effect from 24.03.2008, shall apply with effect from assessment year 2008-09 onwards. 8. The....
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.... The ld. CIT(A) has passed a detailed order, which is reproduced hereinabove. 11. In view of the above, we are unable to accept that only the expenditure of Rs..26,45,886/- would have incurred to handle the investment of huge magnitude of Rs.. 338.98 crores. Under the above facts and circumstances, the Assessing Officer has rightly applied Rule 8D and worked out the expenditure relatable to earning of exempt income, which was confirmed by the ld. CIT(A) and we find no infirmity in the order passed by the ld. CIT(A). Thus, the ground raised by the assessee stands dismissed. In totality, the appeal filed by the assessee is dismissed. I.T.A. No. 1782/Mds/2012 12. The first issue raised in the appeal of the Revenue is with regard to deletion of disallowance of Rs..1,95,18,961/- by the ld. CIT(A) by holding that no interest could be disallowed under Rule 8D(2)(ii). The Assessing Officer has calculated the disallowance at Rs..1,95,18,961/- under clause (ii) of rule 8D(2). With regard to the above component, being the expenditure by way of interest which is not directly attributable to any particular income or receipt, the Assessing Officer has determined the amount at Rs..1,95,1....
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.... not be disallowed and incorporates an implicit theory of apportionment of expenditure between taxable and non-taxable income. Therefore, the order passed by the ld. CIT(A) should be reversed. 15. Per contra, the ld. Counsel for the assessee strongly supported the order passed by the ld. CIT(A). 16. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The Department has not disputed over the quantum of investment made by the assessee to the extent of Rs..338.96 crores and receipt of exempt income amounting to Rs..11.70 crores. The value of investment was Rs..344.74 crores and Rs..338.96 crores as on 31.3.2007 and 31.3.2008 respectively. The investment as on 31.3.2008 was Rs. 338.96 crores. The sale proceeds of investments during the year was Rs..964.52 crores, which was higher by Rs..5.78 crores than purchase of investments of Rs..958.74 crores. There is no dispute on the free reserve and surplus funds available with the assessee of Rs..791.40 crores. When the assessee got its own fund and non-interest bearing funds more than the investment in tax-free securities, then there is no question of deeming that the assessee has....
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....AR of the assessee has submitted that the ITAT "C" bench in ITA No. 792/Mds/2007 for the AY 2003-04 and the "D" bench in ITA No. 491/Mds/2008 for the AY 2004-05 in assessee's own case has held that replacement of dies and mould was only "revenue expenditure" after distinguishing the facts of the assessee's case from that of the Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills Pvt. Ltd (293 ITR 201). The Apex Court has reversed the decision of the Hon'ble Madras High Court in the case of CIT v. Janakiram Mills Ltd which held it as "capital expenditure". The AR of the assessee also furnished copies of the ITAT order in assessee's own case for A.Y. 2000-01 wherein similar disallowance has been deleted. The AR of the assessee has also relied on assessee's own case for the assessment year 2007-08 In ITA No. 469/09-10/A-lll dated 21.02.2011 wherein the ground has been allowed. Under the above facts and circumstances, the ld. CIT(A) has held as under: "6.2 I have carefully considered the facts of the case and the submission of the Id. AR. I have also gone through the orders of the Hon'ble Tribunal in appellant's own case for AYs. 2003-04 a....
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....e vs. corresponding expenses). Therefore, these brand building expenses are to be amortised over the estimated life of the product Further, these expenses are mainly in the form of preliminary expenses incurred to promote sale of the product. Hence, they fall in the category of expenses contemplated under section 35D of the Act. Since the assessee has chosen to amortise the expenditure over a period of three years for the book purposes, it should have claimed the expenses on the same basis for income-tax purposes also. Therefore the Assessing Officer has adopted the basis as considered by the assessee for the book purposes and allowed Rs.. 9,79,41,441/- only and disallowed the remaining expenditure of Rs..41,28,15,721/- and added it to the total income. 22. The assessee carried the matter in appeal. After considering the submissions of the assessee and facts of the case, the ld. CIT(A), by passing a detailed order, deleted the disallowance made by the Assessing Officer. 23. The Revenue is in appeal before the Tribunal. 24. With regard to claim of product launch expenditure, after considering the submissions of the assessee and also considering various decisions, the ld. CI....
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....l payment is to be dealt with as per the provisions of section 9(1) r.w.s.195 of the Act. He held that the commission payment fits into the scope of payment enumerated in sec 9(1) of the Act and as per section 9(1)(i), the commission payment shall be deemed to accrue or arise in India if such income is accruing or arising from any business connection in India. In the case of the assessee, the payments were made for assessee's business purposes, which are carried on in India. Hence, the payment, though made to non-residents abroad, is deemed to have been arisen in India. He further stated that tax is required to be deducted under section 195(1) of the Act if the sum paid is chargeable to tax. The assessee should have obtained certificate under section 195(2) of the Act from the Department if it felt that the said sum is not taxable in India. The Assessing Officer has also relied on the decision in the case of M/s. Transmission Corporation of Andhra Pradesh reported in 239 ITR 589 (SC). Thereafter, he applied provisions of sec 40(a)(i) of the Act for non-compliance the provisions of sec 195(1) of the Act in respect of commission paid to nonresidents and disallowed the entire sum ....
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....o the non-resident agents would not fall within the definition of 'Tees for technical services" and the assessee was not liable to deduct tax at source on payment of commission." 28. Respectfully following the above judgement of the Hon'ble Jurisdictional High Court in the case of CIT v. Faizan Shoes Pvt. Ltd. (supra), the ground raised by the Revenue is dismissed. 29. The next issue raised in the appeal of the Revenue pertains to set off of the loss of 80IC units against the income of other units. The Assessing Officer has observed that the assessee has arrived at a loss of Rs..32,78,84,171/- from Himachal unit which was set off against the income of other non 80-IC units located at Mysore and Hosur. Profits of Mysore and Hosur units are taxable, whereas, profit of H.P. unit is not taxable. He stated that provisions of section 80-IA(5) of the Act will apply to the units eligible for deduction under section 80-IC of the Act in view of the provisions contained in sub-section (7) of sec 80-IC of the Act. He held that the eligible income or loss derived by the Himachal unit is not eligible for set off with any other unit. The income or loss of the unit is to be treated as if....