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2016 (10) TMI 323
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....XII, Kolkata, was justified in holding that Rs. 1,22,89,710/- was not allowable disallowance u/s 14A on the basis of Hon'ble ITAT, Kolkata's decision in assessee's own case for Asst Year 2004-05 when the issue of application of Rule 8D as notified on amendment in March, 2008 is procedural nature as per decision of the Hon'ble Supreme Court in the cases vide (2000) 247 ITR 586 (SC) ? 5. Brief facts of this issue are that the assessee is a company engaged in the business of manufacture and sale of carbon black and generation and sale of power. The assessee filed its return on 30-11-06 declaring a loss of Rs. 16,20,03,209/-. The said return was processed determining at loss. Thereafter, on scrutiny the notices u/s. 143(2)/142(1) were issued. In response to which, the ld.A/Rs of the assessee appeared and submitted all the details including the books of accounts and information as called for before the AO. During the assessment proceedings u/s. 143(3) the AO found that the assessee has earned dividend income of Rs. 11,400/- and interest on tax free 6.75% US 64 Bonds of Rs. 1,17,565/-, which was claimed as exempt from tax u/s. 10. The assessee in its computation of inc....
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....d. 9. At the time of hearing before us, both the parties argued that the issue involved in this appeal is squarely covered by the order dated 27-05-2011 of the Third Member, ITAT, Kolkata, wherein the ITAT, Kolkata vide its order dated 10-06-2011 in ITA No.566/Kol/2009 & CO 39/K/09 for the AY 2004-05 in assessee's own case has held as under page 2 & 10 of the paper book. 10. Heard and perused the record. The Hon'ble Third Member in assessee's own case for AY 2004-05 supra held that the disallowance of 1% as directed by the CIT-A of the exempt income is fair and reasonable. The order of the Hon'ble Third Member was also followed by the CIT-A-XXIV in assessee's own case for the AY 2007-08. Further, the ITAT Kolkata Benches in its orders dated 19-08-2010 in the following cases has held that 1% of the exempt income is fair and reasonable for the purpose of making disallowance u/s.14A, the relevant portion of which is reproduced as under: "Since there was a difference of opinion between the ld. Members constituting the Division Bench of ITAT, Kolkata with regard to the following question, the matter was referred to Third member under section 255(4) of the I.T Act, 1....
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....Rule 8D in assessment year 2005-06, then the question remains whether it was open for the Tribunal to estimate amount disallowable on any basis other than the basis adopted by the A.O. The assessee in its cross objection did not per se challenge the disallowance made by the A.O u/s. 14A of the Act in the assessment order but only objected to the enhancement of disallowance by the Id. C.I.T. (A) by reference to Rule 8D of the Rules. Once both the Ld. Members agreed that Rule 8b was not applicable to the assessees 'case for assessment year 2004-05, then the direction of the Id. C.I.T*(A) for making disallowance as per Rule 8D was required to be vacated. Since the assessee did not challenge the order of the A.O making the disallowance u/s. 14A calculating' the amount disallowable @ 1% of the total exempt income, then it was not open for the Tribunal to go into the question of quantification of amount disallowable, because neither the assessee nor the revenue had challenged the estimation of amount disallowable, as made by the A.O. in the assessment order. In these circumstances. the Tribunal cannot go into the question of reasonableness of the estimate of the amount disallowab....
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....tions in the country. The customers are also scattered in different parts of the country and outside. To cater to the business needs of the company the company had decided to take on hire the exclusive flying rights of an aircraft and thus entered into the agreement dated 17.11.03 with M/s Spencer Travel Services Ltd (copy attached). By virtue of the said agreement the assessee was always made available of the aircraft for the flying needs of its senior officials. If a reference is made to the aforesaid agreement, Spencer Travel Services Ltd was to incur all costs and expenses associated with the operation of the aircraft. The assessee was not required to pay anything over and above the sum of Rs. 340 lacs agreed between the parties irrespective of the use of the aircraft. The aircraft flying rights were taken considering the business needs of the assessee and the aircraft was used by very senior officials of the company for the purposes of business and furtherance thereof " . 14. The AO after considering the above submissions of the assessee and following the similar payments made in AY 2005-06 disallowed 25% of the expenditure of Rs. 340 lacs, amounting to Rs. 85,00,0....
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....ays been made by account payee cheques. The details of payments made to M/s. Sreebala Pvt. Ltd are attached herewith. We also attach herewith copy of the renewal agreement with the aforesaid party." 20. The AO after considering the above submissions of the assessee being similar payments made in AY 2005-06 disallowed the amount of Rs. 12,26,700/- for the assessment year under consideration and added back the same to the total income of the assessee. 21. On first appeal, the CIT-A found that the issue of allowability of payment of retainership/consultancy charges paid to M/s. Sreebala P.Ltd came up before the ITAT, Kolkata in assessee's case in a.y 1996-97 and 1997-98. The Tribunal vide its order dated 26-7-04 in ITA Nos. 720 & 747/Kol/03 held that the payments made to M/s. Sreebala P.Ltd were allowable as business expenses. He further found that the Tribunal in assessee's own case for AY 1998-99 in ITA No. 232/K/04 dated 05.05.05 and for AY 1999-2000 in ITA No.1818/K/05 dtd. 30.01.06 followed its earlier order for AY 1996-97 and 1997-98 and allowed the claim of assessee regarding retainership fees paid to M/s. Sree Bala P.Ltd The disallowance in AY 2003-04 and 2004-05 was del....
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....-02-2012 & 30-10-2014 in GA Nos. 276 of 2012 & ITAT 12 of 2012 & 1382 of 2014/ITAT 31 of 2014 (in ITA No.235/Kol/2012 for the AY 2005-06), wherein the revenue's appeal was dismissed by upholding the order dated 13th November, 2013 of the Tribunal in ITA No. 235/Kol/2012 for the AY 2005-06 on similar issue. The Ld. DR conceded that the Hon'ble High Court of Calcutta dismissed their appeal. Respectfully following the same, this ground of revenue is dismissed. 29. The appeal in ITA No.2123/Kol/2013 filed by the revenue for AY 2006-07 is dismissed as stated above. Now we shall take up, ITA No.2124/Kol/2013 A.Y 2008-09 filed by the Revenue 30. The Revenue raised following grounds: 1. Whether Ld CIT(A)-XII, Kolkata, was justified in holding that expenditure of Rs. 85,00,000/- as flying rights charge was allowable business expenditure on the basis of decision of the CIT(A)-XXXIV, Kolkato in assessee's own case for Asst year 2005-06, when the said decision is challenged before the Hon'ble ITAT, Kolkata? 2. Whether Ld CIT(A)-XII, Kolkata, was justified in holding that expenditure of Rs. 12,26,700/- as retainer-ship fee was allowable business expenditure when ....
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....hen required, and the services are provided by RPG Enterprises Ltd (at cost), who have experts employed and/or engaged in various areas of business run on modern lines. In competitive environment, the services are absolutely essential but it is very difficult for the company to employ experts in all fields of business on its own. As licencee of RPG Enterprises Ltd we enjoy the services of their experts readily, as and when required, though at cost. Major areas where services are provided by RPG Enterprises Ltd include, amongst others, (a) Human resources, (b) Strategic planning (c) Corporate finance, (d) Management information, (e) Forex management, (f) Taxation and legal, (g) Total quality management, (h) Project development, (i) Information technology, (j) Corporate governance, etc. It is with the timely support of such services provided by RPG Enterprises Ltd that the company has become the largest carbon black manufacturer in the country and the largest exporter of carbon black from India. It is also one of most cost efficient production center. The company started its production facil....
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....est and other expenses u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. 2. That on the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) should have seen that the Assessing Officer without pointing out the mistake in the disallowance offered by the assessee u/s 14A proceeded to invoke Rule 8D(2)(ii) and Rule 8D(2)(iii) for making the disallowance u/s 14A which was not permissible. 3. That on the facts and in the circumstances of the case the Commissioner of Income Tax (Appeals) erred in not deciding the issue of addition of the disallowance made u/s 14A read with Rule 8D to the book profit for the purposes of section 115JB and in holding that the issue is purely academic in nature. 40. Ground no's 1 to 3 relate to upholding the action of the AO by the CIT-A in making disallowances of interest and other expenses u/s. 14A of the Act. 41. During the previous year the assessee earned dividend income of Rs. 1,55,10,976/- and interest of Rs. 1,17,565/- on tax-free US 64 Bonds and claimed these as exempt u/s. 10. In response to the query, made to the assessee why management expenses should not be....
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....therefore a further disallowance of Rs. 80,27,500/- is made u/s. 14A read with Rule 8D and added to total income. 42. Before the CIT-A , the assessee objected to the additions of Rs. 80,27,500/- being expenses u/s 14A to the computation of Book Profits for the purposes of S.115JB of the Act and challenged the action of AO in invoking Rule 8D to make disallowance u/s 14A of the Act which has been disputed by the appellant and submitted as under: It is submitted that the only addition that can be made under clause (f) to the Explanation to section115JB are "the amount or amounts of expenditure relatable to any income to which section 10 (other than the provisions contained in clause (38) thereof) or section 11 or section 12 apply". Under the provisions of section 14A no 'deduction is to be allowed in respect of' expenditure incurred by the assessee in relation to income which does not form part of total income under this Act. Since the issue of expenditure related to dividend income, falling under section 10 it is clear that the two provisions are similar in nature. Clause (f) uses the words "expenditure relatable to any income", while' section 14A uses the wo....
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....t income of Rs. 117565/- during the relevant assessment year. The AO has calculated expenditure under rule 8D in order to earn the exempted income. The A.R has submitted that the assessee did not incur any expenditure for earning this exempted income. I have considered the finding of the AO and the written submission filed by the A.R. I think after the amendment brought in the Finance Act, 2006 w.e.f 01-04-2007 the word used are "the Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of total income...." From this words of the statue it is clear that the AO has no option, but to determine expenses as per Rule 8D. Accordingly, the AO is justified in calculating the expenses for earning the exempted income and thus, assessee's appeal on ground no. 1 is dismissed." 44. Aggrieved by such order of the CIT-A now the assessee before the Tribunal by filing respective ground as mentioned hereinabove. 45. At the time of hearing before us the Ld.AR submits that the Asseesee suo moto disallowed an amount of Rs. 2,22,500/- and argued assessee's own funds are larger than the investments and no part of loan was utilized f....
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.... case the CIT(A)erred in deleting the disallowance made u/s. 14A of the Income-tax Act without appreciating the fact that before proceeding for invoking the provision of section 14A read with Rule 8D(2)(iii) the AO has conducted necessary examination and ground work, which are evident from the recordings of note-sheet." 6. We have heard rival submissions and gone through facts and circumstances of the case. Brief facts leading to the above issue are that during the course of assessment proceedings AO noticed that assessee has earned dividend income of Rs. 1,65,924/- and claimed the same as exempt u/s. 10(34) of the Act. The AO required the assessee to furnish the details of expenditure incurred for earning this dividend income. The assessee in reply stated that no expenditure has been incurred to earn this dividend income because no new investment was made during the year and no interest at all is paid on the investments made for earning this dividend income. Further, it was clarified by the assessee that no loans were taken for making this investment for earning this dividend income. The AO was not convinced with the reply of the assessee and made disallowance simply by m....
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....e total income under this Act in accordance with such method as may be prescribed, if AO having regard to the accounts of assessee, is not satisfied with the correctness of the claim of assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act". The words that need reference in the section are "if AO having regard to the accounts of assessee, is not satisfied with the correctness of the claim..." means that before going to the computation, AO has to cross the barrier of the satisfaction with the correctness of the claim, then AO can be permitted to straightaway apply the computation under Rule 8D. 12. Thus the issue in this appeal is with reference to invoking of provisions of section 14A(2) and Rule 8D. The Hon'ble Bombay High Court while upholding the constitutional validity of the section 14A and Rule 8D has this to observe with reference to sub section 2 & 3 of section 14A: "Sub-sections (2) and (3) of section 14A were inserted by an amendment brought about by the Finance Act of 2006 with effect from April 1, 2007. Under sub-section (2), the Assessing Officer is required to determine ....
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....the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Subsection (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to e....
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.... made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules. 31. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of Rule 8D, we find that the method for determining the expenditure in relation to exempt income has three components. The first component being the amount of expenditure directly relating to income which does not form part of the total income. The second component being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest [other than the amount o....
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....e for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of subsection (2) of section 14A. Prior to that, the assessing was free to adopt any reasonable and acceptable method. 14. The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Hero Cycles Ltd 323 ITR 518 (P&H) has also held that disallowance under section 14A could not stand where it was found that for earning exempted income no expenditure has been incurred: "Held - dismissing the appeal, that the expenditure on interest was set off against the income from interest and the investment in the shares and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, was a question of fact. The contention of the Revenue that directly or indirectly some expenditure was always incurred which must be disallowed under section 14A and the impact of expenditure so incurre....
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.... assessee had incurred any expenditure in relation to income which did not form part of total income and if so to quantify the extent of disallowance. Thus, in order to disallow the expenditure under section 14A, there must be a live nexus between the expenditure incurred and the income not forming part of total income. No notional expenditure can be apportioned for the purpose of earning exempt income unless there is an actual expenditure in relation to earning the income not forming part of total income. If the expenditure is incurred with a view to earn taxable income and there is apparent dominant and immediate connection between the expenditure incurred and taxable income, then no disallowance can be made under section 14A merely because some tax exempt income is received by the assessee. 5.2 Averting to the facts of the case in hand, the assessee had made a claim that no expenditure has been incurred or claimed for earning the exempt income. From the details of the expenditure, it is clear that the expenditure incurred and claimed by the assessee has direct nexus with the professional income of the assessee. It is not the case of the revenue that the assessee has use....
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....& (3) of section 14A, there is no question of disallowing the amounts invoking Rule8D. Therefore, the CIT(A)'s direction on this is set aside and the additions so made by the A.O. in the computation of business income is deleted. Ground is considered allowed." 5.4 Similarly in case of Auchtel Products Ltd (supra), it was held by this Tribunal in Para 15 has under: "15. A bare perusal of the above provisions disallowable as per Rule 8D, if he, "is not satisfied with the correctness of the claim of the assessee" in respect of such expenditure in relation to exempt income. Even if the assessee claims that no expenditure was incurred in respect of exempt income, the AO is supposed to follow the mandate of Rule 8D if he is not satisfied with the correctness of the assessee's claim. To put it simply, the further disallowance u/s.14A is called for when the AO is not satisfied with the assessee's claim of having incurred no expenditure or some amount of expenditure in relation to exempt income. Satisfaction of the AO as to the incorrect claim made by the assessee in this regard is sine qua non for invoking the applicability of Rule 8D. Such satisfaction can be reached and recorded only whe....
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....If the claim was not found to be in consonance with the facts on record, it could have been rejected and disallowance could have been made as per rule 8D. However, it is found that the Assessing Officer has not considered the claim of the assessee at all and he has straightway embarked upon computing disallowance under rule 8D. The Commissioner (Appeals) made an assumption that whenever exempt income is earned there will be some expenditure incurred in relation thereto. Such presumption cannot form the basis for making disallowance under rule 8D." 17. In the case of Priya Exhibitors (P) Ltd vs. ACIT (2012) 54 SOT 356 it was held as under: "From the careful study of the observations made by the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra), it is apparent that first the Assessing Officer has to determine the claim of the assessee regarding expenses which neither the Assessing Officer nor the Commissioner (Appeals) has done in the instant case. In fact, the said decision goes against the department itself in so far as their Lordships has held that the Assessing Officer must in the first instance determine whether the claim of the assessee is ....
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....e and there is no satisfaction recorded by the AO about the correctness of the claim of the assessee and without the same he invoked Rule 8D of the Rules. While rejecting the claim of the assessee with regard to expenditure or no expenditure, as the case may be, in relation to exempted income, the AO has to indicate cogent reasons for the same. From the facts of the present case it is noticed that the AO has not considered the claim of the assessee and straight away embarked upon computing disallowance under Rule 8D of the Rules on presuming the average value of investment at ½% of the total value. In view of the above and respectfully following the coordinate bench decision in the case of J. K. Investors (Bombay) Ltd., supra, we uphold the order of CIT(A). This ground of appeal of revenue is dismissed. 50. The facts of aforementioned case are that during the course of assessment proceedings AO noticed that assessee has earned dividend income of Rs. 1,65,924/- and claimed the same as exempt u/s. 10(34) of the Act. The AO required the assessee to furnish the details of expenditure incurred for earning this dividend income. The assessee in reply stated that no expenditure h....