2011 (10) TMI 676

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....as under:- 1. The CIT(A) has erred in law and on facts in directing to delete the administrative and other expenses of Rs. 78,52,255/-, which have been incurred in relation to earning of dividend income U/s.10(23G) and disallowed U/s.14A of the I.T.Act. 2.1. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 22/02/2006 were that the assessee-company was originally formed by the name of Power Gen India Ltd. The said company was a wholly owned subsidiary company of Power Gen Plc, a UK based company. The said UK based company had applied to the Ministry of Industries, Government of India to establish a Company India i.e. the assessee-company. An approval was granted and t....

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....     11,76,14,009/- (b) Non-taxable income     Dividend income from GPEC Pvt.ltd. 1,37,20,35,000/-" 2.2. Thereafter, the AO has mentioned that the aforestated dividend income of Rs. 137.20 crores was an exempted income which was received from M/s.GPEC Ltd. As per AO, GPEC is 100% subsidiary of the assessee-group. The investment in share capital of GPEC Ltd. was to the extent of Rs. 1172 lacs. The said investment was made from the share capital funds received from the holding company, i.e. Power Gen Plc UK. AO's allegation was that to generate the said capital and to arrange the funds the assessee had incurred certain expenses which were in respect of the exempted dividend income. As per AO, t....

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....eld as under:- "4. I have carefully considered the submissions made. It is a case where the assessee company had invested in shares of Gujarat Paguthan Energy Corporation Pvt.Ltd. and dividend earned from it was exempt u/s.10(23G) of the Act. it is also a fact that entire dividend was received by a single cheque and the Assessing Officer has himself noted that entire funds invested in these shares were out of assessee's own free funds. It is not understood how the Assessing Officer has mentioned in a single line that this was a colourable device in view of decision of Mcdowell's case. There is no discussion as to how this device was a colourable one. If the Memorandum of Association of the company is seen, it would be noticed that ....

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....in any case for the purpose of receipt of dividend by the assessee company. Similarly, it is not at all understood as to how payment for transfer pricing provision and corporate filing has been considered to be expenses, part of which relate to earning of dividend. Similar is the position for the expenses on foreign travel. It is also noticed that employees salary are basically for the other income of the assessee regarding its operation and maintenance fees etc. It also cannot be said that any rent is required to be paid for dividend and at best, some part of bank charges and some part of accountants salary etc can be considered to be related to earning of dividend. Since dividend has been received by a single cheque such charges ....

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....d that all the legal and professional expenses have not been incurred during the year under consideration. According to him, the admitted factual position was that the professional advice was taken when the assessee-company was incorporated in the year 1995, however, the assessment year under consideration is A.Y. 2003-04. Ld.AR has also vehemently stated that there was no question of apportionment of expenditure because the assessee's only source of income for the year under consideration happened to be dividend income. An another fact has also been brought on record that there was no change in the investment amount as per the balance-sheet drawn on 31/03/2002 and 31/03/2003 which has reflected the figures respectively of Rs. 9,092,827,771....

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....r administrative expenditure, which should be considered for disallowance under rule 8D from 2007-08 onwards." Unquote. 5.2. In respect of administrative expenses an another decision has also been cited of Hon'ble Kerala High Court pronounced in the case of CIT vs. Catholic Syrian Bank Ltd. & Ors. 237 CTR 164 (Ker.), wherein as well the same view has been expressed by the Hon'ble Court. In the light of these decisions, we hereby conclude that since the impugned dividend was received by a single cheque and that the administrative expenses in respect of professional charges were not in respect of the dividend earned during the year under consideration and that there was no substantial change in the investment pattern during the year under ....