TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 131
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....ts and circumstances of the case and in law, the learned CIT (A) erred in upholding the disallowance u/s 14A read with rule 8D(2) of Rs. 19,81,195/-. 1.2 The learned CIT (A) ought to have appreciated that the Assessing Officer had not reached appropriate satisfaction regarding the amount disallowed by the Appellant of Rs. 2,50,000/- was not adequate. 1.3 The learned CIT (A) ought to have appreciated that the provisions of S.14A could not be applied in the instant case, since the investments were made out of own funds and Appellant had submitted nexus of funds used for the purpose of investment during the course of appellate proceedings. 1.4 Without prejudice to the above, the learned CIT(A) grossly erred in upholding the actions of Assessing Officer to include the value of investments that do not produce exempt income while computing disallowance u/s 14A read with rule 8D, without giving any reasoning. 1.5 Without prejudice to the above, the learned CIT(A) grossly erred in upholding the actions of Assessing Officer , by not excluding interest-charges paid on term loan acquired specifically for acquisition of fixed assets while computing disallowance u/s 14A read with rule 8D, w....
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....s of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time. It is, therefore, not correct to say that dividend income/exempt income can be earned by incurring no or nominal expenditure. It is difficult to accept that a company can earn dividend income/exempt income without incurring any expenses whatsoever including management or administrative expenses as investment decisions are generally taken in the meetings of the Board of Directors for which administrative expenses are incurred. The term 'expenditure' occurring in section 14A would take in its sweep not only direct expenditure but also all forms of expenditure regardless of whether are fixed, variable, direct, indirect, administrative, managerial or financial. Sub-section (1) of section 14A provides in unequivocal terms for not allowing deduction in respect of expenditure incurred by the assessee in relation to exempt income and sub-section (2) lays down the mechanism for determining such amount of expenditure incurred in relation to exempt income in accordance with method as prescribed under rule 8D. Reliance in this regard is placed on the recent decision of Ho....
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....ee has voluntarily made disallowance of Rs. 2,50,000/- of expenditure incurred for earning exempt income which was not considered by the A.O. . It was submitted that it had made investment in various mutual funds and its subsidiary companies and has received dividend income of Rs. 48,69,223/- which was claimed as exempt income from tax u/s 10(34) of the Act but there was no such huge expenditure of Rs. 19,81,195/- incurred by the assessee as disallowed by the AO u/s 14A of the Act r.w.s. 8D of Income-tax Rules, 1962 for earning exempt income. It was submitted that during the year no fresh investment had been made and investments made during the previous years were wholly out of own fund by issue of preference shares. No borrowed funds were utilized for investment in mutual fund. It was submitted that the assessee had not incurred any expenses for investment in mutual fund or for earning dividend. It was submitted that the authorized agent acted as financial adviser for investment as well as redemption of mutual fund, and hence assessee did not have to incur any expenditure. It was submitted that the investment in share of its 100% subsidiary capital Sky N-Land Video Networks Pvt. L....
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....finding of the Assessing Officer is approved and therefore disallowance of total expenditure related to such exempt income, of Rs. 19,81,195/- is sustained." 6. Aggrieved by the above appellate order dated 06-01-2015 passed by the ld. CIT(A), the assesee filed second appeal before the tribunal. 7. The ld. Counsel for the assessee submitted that the disallowance of expenditure for earning exempt income has been made u/s 14A of the Act by the AO amounting to Rs. 19,81,195/-. It was submitted that for the assessment year 2009-10, in assessee's own case, the tribunal had decided the issue whereby the disallowance has been deleted on account of nonrecording of the satisfaction. Our attention was drawn to the decision of the tribunal in ITA No. 5160/Mum/2013 vide orders dated 25-08-2016 for assessment year 2009-10 in assessee's own case, wherein the tribunal deleted the disallowance made by the AO u/s 14A of the Act which disallowance made by the AO was later affirmed by learned CIT(A). It was submitted that despite giving detailed explanations as to the disallowance made u/s 14A of the Act , the AO did not recorded satisfaction before rejecting the contentions of the assesse. It was s....
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....se for assessment year 2006-07. The show cause notice was issued by the AO to the assessee as to how it arrived at the figure of Rs. 2.50 lacs for making disallowance of expenditure for earning exempt income u/s 14A of the Act but no details were submitted by the assessee and hence the AO applied Rule 8D of Income-tax Act,1961 which is mandatory. 9. The ld. Counsel for the assessee, in the rejoinder, submitted that the assessee had not incurred any expenses for earning dividend on investments in shares/mutual funds. 10. We have considered rival contentions and also perused material available on record. The assessee company is engaged in the business of providing internet service and internet data centre. The assessee has made investments in subsidiary company as well as in the mutual funds to the tune of Rs. 15,82,38,000/-. The assessee has earned dividend income of Rs. 48,69,223/- which has been claimed to be exempt u/s 10(34) of the Act. The assessee has suo motu disallowed expenditure of Rs. 2,50,000/- u/s 14A of the Act having incurred in relation to earning of exempt income towards STT.the assessee has claimed that it has its own funds which were invested in shares and mutua....
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.... of expenditure incurred in relation to earning of exempt income having regards to the accounts of the assessee and recording satisfaction that the suo motu disallowance offered by the assessee is incorrect , despite assessee coming forward with detailed reply as enumerated above. The so called satisfaction so recorded by the AO vide para 4.3 of the assessment order for the impugned assessment year as claimed by the learned DR to be satisfaction as mandated u/s 14A of the Act is not sufficient as required to be recorded by the AO as mandated u/s 14A(2) of the Act to be recorded after being not satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee, which exercise the AO did not do to identify expenditure having being incurred for earning exempt income having regards to the accounts of the assessee before proceeding to compute disallowance by invoking rule 8D of Income-tax Rules, 1962 r.w.s 14A of the Act . The facts of the details and nature of the accounts of the assessee are especially within the knowledge of the assessee and hence, the burden of proving that fact is upon the assessee . If a fact which especially are within the ....
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....eleted the additions made by the AO u/s 14A of the Act in ITA no. 5160/Mum/2013 vide orders dated 25.08.2016 on grounds of nonrecording of satisfaction by the AO which was held to be necessary requirements in terms of Section 14A(2) of the Act before invoking method as prescribed under Rule 8D of Income-tax Rules, 1962 for computing disallowance of expenditure incurred in relation to earning of exempt income u/s 14A of the Act, wherein tribunal observed as under: "6. We have carefully considered the rival submissions and perused the material placed before us including the orders of authorities below. On perusal of the orders, we find that by invoking the provisions of section 14A r.w.r 8D, the AO has not at all commented on the disallowance of Rs. 2,50,000/- which was made by the assessee suo mottu for earning exempt income. We are of the considered opinion that invoking the provisions of section 14A r.w.r 8D without recording the satisfaction by the AO is wrong and accordingly the order of the ld.CIT(A) by upholding the action of AO cannot be sustained. The case of the assessee finds supports from the various decisions of High Court as well Tribunal referred during the course of ....
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....ng Co. Ltd. (supra) :- "70. Now, in dealing with the challenge it is necessary to advert to the position that sub-section (2) of section 14A prescribes a uniform method for determining the amount of expenditure incurred in relation to income which does not form part of the total income only in a situation where the Assessing Officer, having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. It, therefore, merits emphasis that sub-section (2) of section 14A does not authorize or empower the Assessing Officer to apply the prescribed method irrespective of the nature of the claim made by the assessee. The Assessing Officer has to first consider the correctness of the claim of the assessee having regard to the accounts of the assessee. The satisfaction of the Assessing Officer has to be objectively arrived at on the basis of those accounts and after considering all the relevant facts and circumstances. The application of the prescribed method arises in a situation where the claim made by the assessee in respect of expenditure which is relatable to the earning of income which does not form pa....