TaxTMI 
TaxTMI 
2016 (7) TMI 570
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....ised return was filed on 31.03.2010, declaring the same income as originally returned, for claiming credit for additional TDS certificates enclosed with the revised return. The return was processed and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (in short 'the Act') vide order dated 22.12.2010, wherein the assessee's income was determined at Rs. 2,59,79,88,020/- in view of the following disallowances: - i) Disallowance under section 14A of the Act Rs. 93,94,550/- ii) Disallowance under section 43B Rs. 46,519/- 2.2 Aggrieved by the order of assessment for A.Y. 2008-09 dated 22.12.2010, the assessee preferred an appeal before the CIT(A)-13, Mumbai. The learned CIT(A) disposed the assessee's appeal vide the impugned order dated 16.11.2011, allowing the assessee partial relief. 3. Aggrieved by the order of the CIT(A)-13, Mumbai dated 16.11.2011, the assessee has preferred this appeal raising the following grounds: - "GROUND NO I: DISALLOWANCE U/S 14A The learned Commissioner of Income-tax Officer (Appeals) thereinafter referred to as the C!T(A)I erred in ....
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....tself had suo moto disallowed an amount of Rs. 12,50,000/- as being the expenditure attributable to the earning of exempt income, on account a percentage of staff cost, operating and administrative, establishment and general expenses pertaining to the MIS Department, which was reasonable and no further disallowance ought to have been made. However, after considering the assessee's submission in the matter, the AO was of the view that the provisions of section 14A r.w. Rule 8D(2)(iii) were attracted in the case on hand and proceeded to compute disallowance thereunder of Rs. 1,06,44,550/-, @0.5% of the average investment on account of administrative expenses. On appeal, the learned A.R. for the assessee submits that the learned CIT(A) restricted the disallowance under rule 8D(2)(iii) to Rs. 66,42,000/- by excluding the investments made by the assessee in foreign companies, FMPs and other investments, the income of which is exigible to tax. 4.1.1 According to the learned A.R. for the assessee, as per the provisions of section 14A(2) of the Act, the AO is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim/disallowance....
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.... in respect of expenditure in relation to exempt income, can the AO determine the amount of expenditure which should be disallowance in accordance with the method provided in Rule 8D of the Income Tax Rules 1962 (the Rules). Sub-rule (1) of Rule 8D of the Rules stipulates that the AO having regard to the accounts of the assessee on not being satisfied with the correctness of the claim of the expenditure made by the assessee, can go on to determine the disallowance under Rule 8D(2) of the Rules. Therefore, Rule 8D(2) will not come into operation until and unless the specific precondition in Rule 8D(1) is satisfied. Hence, as per the provisions of section 14A(2) of the Act and Rule 8D(1) both affirmatively record that the disallowance made by the assessee must be examined with reference to the accounts and only when the explanation/claim is found to be not satisfactory can the computation under Rule 8D(2) be made. We find that this view and legal ratio have been expressed in many judicial pronouncements, inter alia, by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (2010) 238 ITR 81 (Bom.) and the Hon'ble Delhi High Court in the cases of Maxopp Inve....
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.... of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 10. For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The initiation of penalty proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions." 4.3.4 Respectfully following the ratio of the decisions, inter alia, of the Hon'ble Delhi High Court in the cases of Joint Investments Pvt. Ltd. (supra), we set aside the orders of the authorities below in respect of the disallowance made and sustained by them under section 14A r.w. Rule 8D(2)(iii). We, consequently, restore the matter to the file of the AO for fresh consideration in accordance with the pre-conditions set out in the provisions of section 14A(1) of the Act and Rule 8D(1) of the Rules; in respect of examination of the sufficiency or correctness of the assessee's claim of suo moto disallowance of Rs. 12,50,000/- havi....
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....o 16 thereof, following the decision of the Hon'ble Apex Court in Alom Extrusions Ltd. (supra) held as under: - 14. From a reading of above, it is clear that the employer-assessee would be entitled to deduction only if the contribution to the employee's welfare fund stood credited on or before the due date and not otherwise. It transpires that Industry once again made representations to the Ministry of Finance to remove this anomaly. The result was that an amendment was inserted which came into force with effect from 1st April, 2004 and two changes were made in section 43B firstly by deleting the second proviso and further amendment in the first proviso which reads as under:- "Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return." 15. In this manner, the amendment provided by Finan....