TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 1021
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....come under section 14A of the Income-tax Act, 1961 as against the disallowance of Rs. 38,00,216/- made by the appellant in computing the normal income. iii. That the learned Commissioner of Income Tax (Appeals) is not justified in confirming the addition of Rs. 8,72,79,000/- being alleged expenses incurred in earning exempt income under Section 14A of the Income-tax Act, 1961 as against the disallowance of Rs. 38,00,216/- made by the Appellant in computing the Book Profit under Section 115JB of the Income-tax Act, 1961. iv. That further grounds shall be submitted at the time of hearing. 3. Grounds of appeal raised in ITA No. 2398/Del/2014 for assessment year 2010-11 are as under: i. That the order of the learned Commissioner of Income Tax (Appeals) is against the facts and law. ii. That the learned Commissioner of Income Tax (Appeals) is not justified in confirming the addition of Rs. 15,63,49,582/-(including Rs. 8,80,64,287/- being out of interest paid) as alleged expenses incurred in earning exempt income under Section 14A of the Income-tax Act, 1961 as against the disallowance of Rs. 57,71,705/- made by the appellant in computing the normal income. iii. That the learn....
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....stment income from which Does not or shall not form part of total income. Rs.1663.56 + 1827.59 = 3491.15 Rs.(1745.58*0.5%) Rs.8,72,79,000/- 4.2 Thus, disallowance u/s 14A of the Act is worked out at Rs. 8,72,79,000/-. However, since assessee itself has disallowed an amount of Rs. 38,00,216/- in its computation, the net disallowance of Rs. 8,34,78,784/- i.e. (Rs.8,72,79,000 - 38,00,216) is being made and added to the assessee's total income as well as book profit computed u/s 115JB of the Income Tax Act, 1961." 4.1 Being aggrieved from the assessment order, the assessee filed an appeal before the learned Commissioner of Income Tax (Appeals), who confirmed the additions made by the Assessing Officer. Hence, the present appeals before the ITAT. 5. Ground nos. 1 & 2 are general in nature and do not require to adjudicate upon. 6. Ground no. 2 is regarding the addition of Rs. 8,72,79,000/- for earning exempt income under Section 14A of the Act read with Rule 8D(2)(iii) of the Income Tax Rules, 1962 (in short "the Rules") 6.1 Learned Authorized Representative submitted that the identical issue has been adjudicated by the ITAT, Delhi Bench in the assess....
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.... 608843 121769 730612 Total 1656312 103842 1759154 351831 2110985 Crs Total CC Expenses 186.15 Employee cost - CC 125.76 0 & M Expenses - CC 60.39 No. of Employees- CC 715 % of 0 & M Expenses of 14A 0.168923077 0 & M Expenses 1689230 Actual Salary 2110985 Total Expenses - 14A 3,800,216 4. The Assessing Officer has stated in Para 4.4 (Page 21) of the assessment order that disallowance has been made by the assess....
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....quential in nature. The AO is directed to restrict the disallowance while computing book profit under section 115JB to Rs. 20,81,729/- as computed by the assessee. These grounds of appeal are accordingly disposed of. Copy of the order is enclosed herewith. ii) Against the above order of ITAT Revenue filed an appeal in the High Court of Delhi as ITA 218/2016 which was dismissed vide order dated 30.03.2016 and Para (5) is reproduced hereunder: - 5. Considering that it is not case where regular activities were undertaken by the Assessee in respect of the investments to earn income there form, there was no basis for the AO to hold that the expenditure as disclosed by the Assessee towards earning exempt income was insufficient. The court finds no legal infirmity in the impugned order of ITAT. No substantial question arises for consideration. iii) In the above said order of the Hon'ble ITAT the past history has been tabulated on page 11 and disallowance so made from assessment years 2002- 03 to 2007- O8 have stood deleted. In view of the above facts and circumstances, it is prayed that the disallowance made in computation of Normal Income as well as Book Profit under section 11....
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....ounting of these investments and income there on. There cannot be any quarrel with this proposition but the moot question is whether the amount computed by the assessee is not sufficient enough and if so the reasons for insufficiency. On going through the assessment order we note that the AO has simply made a general remark that the assessee is required to incur certain expenses to supervise and account these income and it is not acceptable that investment has been made and no expenditure- could be attributable. It is not a case of no expenditure. From the facts it is clear that the assessee has itself added back a sum of Rs. 20,81,729/. In case the AO was not satisfied with this amount then he is required to demonstrate that why this expenditure is insufficient. From the assessment order and from the order passed by the CIT(A), we note that there is .no^whisper whatsoever about the insufficiency of such expenditure. The AO has nowhere even commended upon the activities in relation to investments and the income from such investments which would have required expenditure and such expenditure would have been much more than the expenditure disallowed by the assessee voluntarily. Fro....
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....espect of investments or income which is tax free. Assessee Company is not engaged in investment activity by way of frequent purchase and sale of such investments. Can on the basis of these activities it be said, that the expenditure of Rs. 20,81,729/- added back by the assessee company is insufficient. The AO and the CIT(A) has not brought any material to even demonstrate that this expenditure is insufficient. The learned DR also during the course of his argument could not point out or give any reason why this expenditure of Rs. 20,81,729/- is insufficient considering the above facts of the assessee's case. It may also be relevant to refer to the past history of the assessee's case whereby following disallowances were made in the preceding assessment years by the AO:- AY. Expenses disallowed by AO CiT(A) ITAT order 2002- 03 2,00,00,000/- Deleted by CIT(A) Deletion confirmed by ITAT 2003- 04 2,31,57,500/- Deleted by CIT(A) Deletion confirmed by ITAT 2004- 05 2,83,00,000/- Deleted by CIT(A) Deletion confirmed by ITAT 2005- 06 2,58,00,000/- Deleted by CIT(A) Appeal of revenue was dismissed 2006- 07 9,00,00,000/- Deleted by CIT(A) Deletion confirmed by ITAT 20....
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.... AO itself at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If the AO is not satisfied on this count after making reference to the accounts the AO is entitled to adopt and apply Rule 8D. Thus the requirement of the law is that the AO is required to examine the accounts of the assessee and if he not satisfied after making reference to the account only then he could make disallowance applying Rule 8D. The relevant observation of the Court is as under:- "Section 14A of the Act postulates and states that no deduction shall be allowed in respect of expenditure incurred by an assessee in relation to income which does not form part of the total income under the Act. Under sub Section (2) to Section 14A of the Act, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, the Assessing Officer can determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 8D of the....
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....he assessee made detailed submissions to the Assessing Officer, which have been reproduced by the CIT(A) in para 3.2.1 of his order. As per the assessee, the determination of disallowance u/s 14A of the Act of Rs. 5,00,000/- was based on the employee costs and other costs involved in carrying out this activity. Further assessee also explained that the shares which have yielded exempt income were acquired long back out of own funds and no borrowings were utilized. The mutual fund investments were claimed to be also made out of surplus funds. It was specifically claimed that no fresh investments have been made during the year under consideration in shares. yie exempt income. All the aforesaid points raised by the assessee have not been addressed by the Assessing Officer and the same have been brushed aside by making a bland statement that the disallowance is "not acceptable". Therefore, in our view, in the present case, the Assessing Officer has not recorded any objective satisfaction in regard to the correctness of the claim of the assessee, which is mandatorily required in terms of section 14A(2) of the Act and therefore his action of invoking rule 8D of the Rules to compute the im....
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.... to the accounts of the assessee. In the case on hand, we find that the Assessing Officer has not given any cogent reason in the order of assessment for disbelieving the contention of the assessee that it has incurred no expenditure to earn the exempt income of Rs. 18,400 but has proceeded to apply the provisions of Rule 8D to arrive at the disallowance of Rs. 1,93,730 as the expenditure deemed to be incurred for earning exempt income. Further as contented by the learned Authorized Representative, the judicial pronouncements relied on by the assessee i.e. J.M. Financial Ltd (2014 (4) TMI 752 - ITAT MUMBAI), apply to the factual matrix of the case on hand and in this view of the matter, it cannot be said that the assessee was incurring expenditure to maintain and / or monitor its long term investments of Rs. 3,87,00,000 in its sister / associate concern M/s. Trichy Steel Rolling Mills P. Ltd. and Rs. 46,000 invested in the shares of Andhra Bank. Thus we delete the disallowance of Rs. 1,93,730 made by the Assessing Officer under Section 14A r.w. Rule 8D." 10.6 In view of the above facts and the position of the law we are of the view that the disallowance made by the AO and as confi....