TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 178
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....ase was then taken up for scrutiny. The assessment was completed under section 143(3) of the Act of the Act vide order dated 24.12.2010; wherein the assessee's loss was determined at Rs. 1,94,76,340/-, inter alia, in view of the following additions/disallowances: - (i) Advertisement Rs. 70,50,500/- (ii) Disallowance under section 14A Rs. 94,11,637/- (iii) Club Membership Rs. 16,62,928/- (iv) Expenses for increase in share capital Rs. 94,11,637/- 2.2 Aggrieved by the order of assessment dated 24.12.2010 for A.Y. 2008-09, the assessee preferred an appeal before CIT(A)-16, Mumbai. The learned CIT(A) disposed off this appeal vide order dated 04.01.2012 allowing the assessee partial relief. 3. The assessee and Revenue being aggrieved by the order of the learned CIT(A)-16, Mumbai dated 04.01.2013 for A.Y. 2008-090 have preferred cross appeals. 3.1 Revenue's appeal in ITA No. 2137/Mum/2012 for A.Y. 2008-09 Revenue has raised the following grounds of appeal: - "(i) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to interpret the provisions of section 14A of the Income Tax Act, 1961 and Rule 8D in its right perspective and true mea....
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..... 1,99,65,779/- under section 14A r.w. rule 8D (wrongly mentioned as Rs. 1,05,54,142/- in the grounds raised) which was restricted by the learned CIT(A) to Rs. 1,05,54,142/-, the suo moto disallowance made by the assessee. It was prayed that the finding of the learned CIT(A) be reversed and that of the Assessing Officer (AO) restored on this issue. 4.2 On the other hand, the assessee in its ground (supra) has assailed the action of the learned CIT(A) in the impugned order in not accepting the legal plea it raised in the course of appellate proceedings that only an amount of Rs. 9,46,325/- is disallowable under section 14A r.w rule 8D, without assigning any reason for such non-acceptance. It is pleaded that this ground be considered on merits. 4.3.1 We have heard the rival contentions and perused and carefully considered the material on record. The facts of the matter that emanates from the record are that in the course of assessment proceedings, the AO observed that the assessee had earned exempt income of Rs. 72,32,077/- and had suo moto disallowed an amount of Rs. 1,05,54,142/- as being amount of deduction inadmissible in terms of section 14A of the Act. The AO was of the view ....
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....the assessee in relation to such income which does not form part of the total income under the Act by virtue of the pos 14(A)(1); ii) The payment by a domestic company under Section 115O(1) of additional income tax on profits declared, distributed or paid is a charge on a component of the profits of the company. The company is chargeable to tax on its profits as a district taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the pos 10(33). Income from mutual finds stands on the same basis; iii.) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall ....
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....ve by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of section 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses incurred to earn the exempt income against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy, the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. In section 14A, the first phrase is "for the purposes of computing the total income under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is 'in relation to income which does not form part of total income under the Act"....
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....if it was construed to mean 'expenditure' in the sense of physical spending, still the expenditure was not such as could be claimed as an 'allowance' against the profits of the relevant accounting year under sections 30 to 37 and, therefore, section 14A could not be invoked. Hence, the two asset theory was not applicable in the instant case as there was no expenditure incurred in terms of section 14A. 2.3.4 Therefore, in both cases i.e in Godrej & Boyce Mfg. Co. Ltd. vs. Dy. CIT (2010) 234 CTR (Bom) 1, the Hon'ble Bombay High Court has held that in order to disallow the expenditure under s. 14A there should be some expenditure actually incurred for earning the exempt income. Thus, the primary condition for disallowance is factual incurrence of expenditure in relation to the income not forming the part of the total income. Similar view was expressed by the Hon'ble Supreme Court in the case of Walfort Share & Stock Brokers (P) Ltd. (2010) 233 CTR SC) 42. The Ld. AO has mechanically undertaken the exercise of computing the disallowances of expenditure as per Rule 8D without finding any faults or incorrectness in the disallowances offered by the appellant in i....
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....t films as revenue in nature without appreciating that the assessee becomes owner of the advertisement films which are reusable over an indefinite period of time and gives enduring benefit to the assessee. The learned D.R. was heard and placed strong reliance on the finding in the order of the AO on this issue in holding the said expenditure to be capital in nature and allowing depreciation thereon. 5.2 Per contra, the learned A.R. of the assessee supported the finding of the learned CIT(A) that the expenditure of Rs. 70,50,500/- incurred on short commercial advertisement film as revenue in nature. It is submitted that the learned CIT(A) correctly followed the decision of the Hon'ble Bombay High Court in the case of CIT vs. Geoffrey Manners and Co. Ltd. (2009) 315 ITR 134 (Bom) wherein the decision in the case of Patel International Films Ltd. (102 ITR 219) relied on by the AO has been distinguished by the Hon'ble Bombay High Court. 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record including the judicial pronouncements cited. The facts of the matter as emanate from the record are that in the course of assessment proceedi....
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....se on this issue is squarely covered by the decision of the Hon'ble Bombay High Court in Geoffrey Manners & Co. Ltd. (2009) 315 ITR 134 (Bom) wherein it is held as under: - "A similar issue had come up for consideration before the Division Bench of the High Court of Punjab and Haryana in CIT v. Liberty Group Marketing Division [2008] 8 DTR 28. In that case the assessee had claimed expenditure incurred on glow sign boards as also T.V. Films, The expenditure was held to be revenue in nature. In our opinion the correct test to be applied in such a case would be, that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. If, however, and if it is in respect of business which is yet to commence then the same cannot be treated as revenue expenditure as expenditure is on a product yet to be marketed. Considering the above, in our opinion the judgment in Patel International Film Ltd. (supra) is clearly distinguishable. The Commissioner (Appeals) and the Tribunal on the facts of this case were clearly within their jurisdiction in holding that the expenditure was by way of revenue expenditure ....