TaxTMI 
TaxTMI 
2016 (10) TMI 1043
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....d by decision of learned CIT(A) in restricting disallowance of expenditure to Rs. 3,55,270/- u/s 14A of the Income-tax Act, 1961 (Hereinafter called "the Act") as against disallowance of Rs. 1,59,23,145/- of expenditure made by the AO with respect to expenditure incurred in relation to the earning of an income which does not form part of total income. The Revenue is aggrieved by the decision of learned CIT(A) in holding that investments in shares of subsidiary company is not an asset yielding tax free income and has to be totally excluded from computation of disallowance of expenditure u/s 14A of the Act. The assessee earned tax free dividend income of Rs. 2,58,64,934/- which was claimed exempt from tax. The assessee did not allocated any expenses incurred for earning dividend income. The AO applied Rule 8D of Income-tax Rules, 1962 and made disallowance of Rs. 1,39,96,085/- u/r 8D(2)(ii) of Income-tax Rules, 1962 and Rs. 19,27,060/- u/r 8D(2)(iii) of Income-tax Rules, 1962, aggregating to Rs. 1,59,23,145/-. Before learned CIT(A), the assessee relied on the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited v. DCIT (2010) 328 ITR 81....
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....utors (Baroda) Private Limited v. UOI reported in (1985) 155 ITR 120(SC). The ld counsel for the assessee on the other hand relied on the decisions of the Tribunal in the case of Garware Wall Ropes Limited v. Addl. CIT in ITA no. 5408/Mum/2012 dated 15-01-2014, EIH Associates Hotels Limited v. DCIT in ITA no. 1503/Mds./2012, Interglobe Enterprises Limited v. DCIT in ITA no. 1580/Del/2013 and J M Financial Limited v. ACIT in ITA no. 4521/Mum/2012.It was also submitted that Rule 8D of Income-Tax Rules, 1962 is not applicable for the impugned assessment year 2007-08. We have considered rival contentions and perused the material on record including case laws relied upon by rival parties. The assessee has earned dividend income of Rs. 2,58,64,934/- which was claimed exempt from tax. The assessee has claimed that no expenditure has been incurred by the assessee in relation to the earning of exempt income. The authorities below applied Rule 8D of Income-tax Rules, 1962. In our considered view, Rule 8D of Income-tax Rules, 1962 is not applicable for the impugned assessment year 2007-08, while reasonable disallowance is to be made of expenditure incurred in relation to the earning of incom....
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....0 lacs which is almost 14 times the actual depreciation claimed. The actual expenditure of SIL is Rs. 825.21 lacs(excluding depreciation), while for purposes of working the cost it has been taken at Rs. 1091.90 lacs which is in excess by Rs. 2.46 crores. The AO worked out cost per transaction at arms' length at Rs. 1.64 and excessive expenses claimed by the assessee to the tune of Rs. 7.95 crores were added to the income of the assessee by invoking provisions of Section 40A(2)(a) of the Act. In first appeal before learned CIT(A), the assessee contended that Section 40A(2) of the Act is not applicable to the co-operative society relying on decision of Mumbai-Tribunal in the case of Manjara Shetkari Sahakari Karkhana Limited reported in 91 ITD 361 and also submitted that the actual costs incurred by the subsidiary in provisions of services to the assessee were before the AO as the subsidiary company has not taken any other work except the assessee company's work and consequently all the expenses of the subsidiary company were in relation to the provisions of services to the assessee company. Thus, it was submitted that the AO should have worked out disallowance based on actual costs ....
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....ssessee to SIL which are held to be excessive and unreasonable keeping in view provisions of Section 40A(2) of the Act by the AO and partial relief is granted by the learned CIT(A).The assessee's counsel submitted that disallowance cannot be sustained as the Section 40A(2) of the Act is not applicable to co-operative society. The assessee also relied upon decision of the Pune-Tribunal in the case of Shivamrut Dudh Utpadak Sah. Sangh Maryadit v. DCIT in ITA no. 742/Pune/1991 reported in (1999) 63TTJ 405(Pune-Trib.). We have considered the rival contentions and perused the material on record including case laws relied upon by rival parties. The assessee is a co-operative society and has made payment for availing back end services for managing its IT infrastructure from its subsidiary company SIL. The assessee's payment were held to be excessive and unreasonable as being payment made to related parties u/s 40A(2) of the Act and to the extent considered excessive and unreasonable, disallowances of the expenditure considered unreasonable and excessive were made by the AO, which disallowance was partly confirmed by learned CIT(A). We have considered and perused the provisions of Section....
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....eby it was stated that the learned CIT(A) erred in not accepting the allocation of interest expenditure towards property construction made by the assessee itself out of the total interest paid on the entire borrowed funds. It was observed by the AO that vide revised return of income filed by the assessee, the assessee has claimed Rs. 61,76,025/- which represents borrowing cost which had earlier been capitalized but now is claimed as revenue expenses. It was submitted by the assessee that the assessee is capitalizing the cost of borrowings in terms of accounting standard AS -16 issued by the ICAI in respect of funds utilized for construction of office building and this was added to the capital work-inprogress. It was submitted that due to change in opinion of the auditors, this amount is claimed on revenue account. The AO rejected the contentions of the assessee as the amount pertained to the acquisition of capital asset and hence is capital in nature. Thus, the amount was disallowed by the AO and added to the income of the assessee by the AO. Aggrieved, the assessee filed first appeal with learned CIT(A) and claimed that the assessee has utilized own funds for construction of build....
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....g of construction of building and as advised by the auditors, the assessee later filed revised return of income whereby the said interest was also claimed as revenue expenditure as in-fact no interest was incurred towards construction cost incurred by the assessee. We have considered the rival contentions and perused the material on records. We have observed that the assessee has constructed building and total land and building including capital work-in-progress as appearing in audited financial statement as placed in file by the assessee as at 31-03-2007 was Rs. 98.73 crores while the building fund held by the assessee as at 3103-2007 in its reserves and surplus is Rs. 113.91 crores, which is much higher than the land and building including capital work-in-progress held by the assessee. There is no finding of fact recorded by the Revenue that borrowed funds were used by the assessee, while it is the say of the assessee that no borrowed funds were utilized by the assessee for construction of Building.The assessee has debited and capitalized notional interest of Rs. 61.76 lacs out of total interest incurred during the year, towards cost of construction in its books of accounts keep....
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....arly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessee on whom it is imposed by law, officers should - (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs". A reading of the circular shows that a duty is cast upon the assessing officer to assist and aid the assessee in the matter of taxation. They are obliged to advise the assessee and guide them and not to take advantage of any error or mistake committed by the assessee or of their ignorance. The function of the Assessing Officer is to....
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....te needs of the business of the assessee and benefits derived there from. We have adjudicated this ground while adjudicating Revenue's appeal in ITA no. 8622/Mum/2010 for assessment year 2007-08 in this order in preceding para's and our decision in ITA no. 8622/Mum/2010 on this ground shall apply mutatis mutandis to this issue in assessee's appeal in ITA no. 7738/Mum/2010. We order accordingly. 10. The next grievance of the assessee is with respect to learned CIT(A) confirming the disallowance for delayed PF employee's contribution to PF authorities to the tune of Rs. 1,89,337/- when it was admittedly paid within the grace period and in any case prior to the due date of filing of return of income as prescribed u/s 139(1) of the Act. It is the admitted and undisputed position between the rival parties that there was delay in deposit of employee's contribution to PF authorities by the assessee which was not paid within the due date prescribed by PF authorities but were paid within grace period allowed by PF statute and in any case, the same were paid prior to the due date of filing of return of income as prescribed u/s. 139(1) of the Act, with the Revenue. The issue is no more res-i....
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....2 for assessment year 2008-09. 17. The assessee is aggrieved by the decision of learned CIT(A) in confirming the disallowance u/s 14A of the Act read with Rule 8D of Income-tax Rules, 1962 to the tune of Rs. 3.89 crores and not excluding the investments which do not results in earning tax free income, as against exempt income of Rs. 3.60 crores. The assessee earned tax free dividend income of Rs. 3,60,83,071/- which was claimed exempt from tax. The assessee allocated expenses of Rs. 1,64,97,856/- incurred for earning dividend income. The AO applied Rule 8D of Income-tax Rules, 1962 and made disallowance of Rs. 3,53,24,395/- u/r 8D(2)(ii) of Income-tax Rules, 1962 and Rs. 35,89,403/- u/r 8D(2)(iii) of Income-tax Rules, 1962, aggregating to Rs. 3,89,13,798/-, against which voluntary disallowance made by the assessee of Rs. 1,64,97,856/- was reduced and balance Rs. 2,24,15,942/- was added to the income of the assessee. Rule 8D of Income-tax Rules, 1962 is applicable for the assessment year 2008-09 and onwards as held by Hon'ble Bombay High Court in Godrej and Boyce Manufacturing Company Ltd.(supra). The AO shall compute disallowance u/s 14A of the Act with respect to expenditure incu....
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....d (2009) 313 ITR 340 (Bom) and also decision of Hon'ble Bombay High Court in the case of HDFC Bank Limited v. DCIT (2016) 383 ITR 529(Bom.) while computing disallowance of interest expenditure and if the assessee's own interest free funds are more than the investments in the securities capable of yielding exempt income, presumption will apply unless rebutted by the Revenue that the assessee has utilized its own interest-free funds for making investment in securities which are capable of yielding exempt income. We order accordingly. 18. This disposes of the assessee's appeal in ITA no 694/Mum/2012 for the assessment year 2008-09 which is partly allowed as indicated above. 19. We shall now take up appeal of the Revenue for assessment year 2009-10 in ITA no 5627/Mum/2013. 20. The Revenue is aggrieved by the decision of the learned CIT(A) whereby the learned CIT(A) has held that investment in shares of subsidiary company is not an asset yielding tax-free income and has to be totally excluded from computation of disallowance u/s. 14A of the Act. Further, Revenue is aggrieved by the decision of learned CIT(A) in not applying Section 14A of the Act r.w.r. 8D of Income-tax Rules, 1962 w....
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.... mutatis mutandis to this appeal. We order accordingly. 24. The next grievance of the assessee is with respect to the decision of learned CIT(A) in confirming the levy of interest u/s. 234B and 234C of the Act by the AO, without appreciating that there was a sudden spurt in advances and recovery in March 2010, which factors could not at all have been anticipated by the assessee while making its bona-fide estimation of advance tax and as such there was no default or deferment of advance tax liability at all, and consequently interest u/s. 234B and 234C of the Act is not leviable. The contention of the learned counsel for the assessee is that the assessee received advances in the Month of March 2010 and hence the assessee was not in a position to estimate advance tax liability as such advances were received only in March 2010. Our attention is drawn to 'statement of fact' filed wherein it is stated in SOF that there was a sudden spurt in advances and recovery in March 2010 and these factors could not have been at all anticipated by the assessee while making bona-fide estimation of advance tax. Thus, it was submitted that no default or deferment with respect to advance tax obligation....