TaxTMI 
TaxTMI 
2017 (6) TMI 135
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.... 2. That the learned CIT (A) has erred in law and on facts of the case by confirming the disallowance of Rs. 27,20,584/- made by Ld. AO u/s 14A by applying Rule 8D of Income Tax Rules 1962. 3. That the learned CIT (A) has erred in law and on facts of the case by making the provisions of Section 14A read with Rule 8D applicable to the Appellant Company in a mechanical manner. 4. That the Learned CIT(A) has erred in law and on facts of the case by ignoring the disallowance made by the Appellant Company himself in respect of earning the exempted income u/s 14A of Income Tax Act, 1961. 5. That the appellant craves to leave, add or modify any ground of appeal before the disposal of Appeal." 4. The only issue in the present appeal pertains to disallowance of expenses made by invoking the provisions of section 14A of the Income Tax Act, 1961 (in short 'the Act'). 5. Brief facts relevant to the issue are that the assessee had earned dividend of Rs. 3,08,09,411/- during the year. The Assessing Officer questioned the assessee that since dividend income was exempt from tax, therefore, expenses incurred to earn the same is required to be disallowed as per section 14A of the Income T....
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....ontentions of the assessee stating that the Assessing Officer had categorically given his satisfaction that the disallowance made by the assessee on its own was not correct. The CIT(Appeals) pointed out that the Assessing Officer had observed that while the assessee had disallowed salary of one employee only, Profit & Loss Account showed expenses of Rs. 1916.88 lacs as 'Employees Benefit Expenses' and Rs. 7.60 lacs on bank and other financial charges. The CIT(Appeals) further pointed out that the Assessing Officer had also recorded his satisfaction by observing that the assessee had not filed any evidence in support of its claim. The CIT(Appeals) held that these findings of the Assessing Officer amounted to objective satisfaction about the incorrectness of the claim of assessee of the expenditure incurred. He therefore rejected the assessee's contention that the said disallowance had been made in the absence of satisfaction of the Assessing Officer regarding the incorrectness of the claim of the assessee. The CIT(Appeals) also held that the assessee had incurred interest expenses from common pool of mixed funds for earning exempt income and that the expenditure incurred on infrastr....
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....gned year and thus no disallowance u/s 14A r.w.r.8D(2)(ii) on account of interest expenditure was warranted in this case. The Ld. counsel for assessee drew our attention to the Profit & Loss Account for the impugned year and pointed out that the total finance cost debited to the Profit & Loss Account amounted to Rs. 7.60 lacs which consisted of interest on over draft Rs. 0.21 lacs, bank charges Rs. 3.26 lacs and other interest cost of Rs. 4.13 lacs as disclosed in schedule 2.20 of the Balance Sheet. The Ld. counsel for assessee further placed a detailed break up of other interest cost as follows: i) Late deposit of excise duty Rs.0.50 lacs ii) Interest on supplementary bills of vendors due to revision in rates with retrospective effect. Rs.1.23 Lacs iii) Interest u/s 234C on income tax Rs.2.40 lacs Total : Rs.4.13 lacs 9. Thus the Ld. counsel for assessee pointed out that in fact no expenditure on account of interest on borrowed funds had been incurred by the assessee. The Ld. counsel for assessee also stated that identical issue had been decided in assessee's case by the ITAT Chandigarh Bench in ITA Nos.154 & 155/Chd/2015 relating to assessment years 2010-11 an....
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....Total 6,01,105/- Add: 46.30% (% age of Administrative expenses to the salary) for Admn. Exp. 2,78,311/- Gross Total 8,79,416/- 12. The first argument which was raised before us and which needs to be addressed is regarding the satisfaction of the Assessing Officer vis-à-vis the correctness of the claim of the assessee that the expenses incurred for earning the exempt income amounted to Rs. 8,79,416/-. On examining the assessment order and on reading para 3.1 of the same, which was pointed out to us by the Ld. DR wherein purportedly the satisfaction of the Assessing Officer was recorded, we find the same reads as under: "3.1 I have examined the above submission of the assessee submitted vide letter dated 18.12.2014 but not inclined to accept the view that only salary of one employee pertains to expenditure attributable towards earning dividend income. From the profit and loss account, it is observed that the assessee has incurred Rs. 1916.88 lakhs as Employees Benefit Expenses and Rs. 7.60 lakhs on Bank and other financial charges. The assessee has not filed any evidence with regard to the claim that no business assets or funds out of business were utilized or no adm....
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....rranted in the case of Assessee Company during the A.Y. 2012-13 u/s. 14A read with Rule 8D. Further, in order to substantiate our claim, we rely on the following precedents: 14. Coming to the proposition regarding the satisfaction of the Assessing Officer u/s 14A of the Act which has been laid down by the jurisdictional High Court in the case of Abhishek Industries Ltd.(2016) 380 ITR 652(P&H) and Deepak Mittal (supra), we find that the Hon'ble High Court in the case of Abhishek Industries Ltd. (supra), while dealing with the issue, held that the satisfaction to be recorded must be based on credible and relevant evidence. The Hon'ble High Court has held that onus to prove that the claim of the assessee was incorrect lies on the shoulders of the Revenue and the Assessing Officer cannot state that he is not satisfied about the correctness of the claim of the assessee by making general observation. The Hon'ble High Court has categorically held that on the basis of clear and cogent material only can be based u/s 14A disallowing the assessee's claim. The Hon'ble High Court has laid down the said proposition at para 9 of its order as under : "Section 14A of the Act requires....
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....4-A of the Act and thus was not permissible in law. 16. Now applying the aforesaid proposition laid down by the Hon'ble High Court to the facts of the present case, we find that the assessee had stated that its entire investments were made in debt oriented mutual funds, that the company's Board of Directors had put in place a policy defining funds where investments were required to be made and making said investment was equivalent to choosing fixed deposits from various available options which does not entail incurring any expenditure. The assessee had also submitted that it is a large concern and all investments are mainly in electronic mode whereas ECS credit to dividend is automatically done. Thus the assessee had submitted that the investments hardly entailed incurring of any expenses. Further the assessee had submitted that it had disallowed expenses of two of its employees, being 100% of its Accounts Officer and 10% salary of its Company Secretary and further 46.30% of salary given to these persons, on account of administrative expenses incurred. Now, the Assessing Officer, we find, has recorded his satisfaction vis-a-vis the incorrectness of the claim of the assessee w....
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....could be made by invoking Rule 8D(2)(ii) of the Income Tax Rules, 1962 since the assessee had not incurred any interest expenditure at all and also for the reason that it had enough own surplus funds available with it for the purpose of making investment. The Ld. counsel for assessee had demonstrated both these facts to us by drawing our attention to the annual accounts of the assessee for the impugned assessment year. We find merit in this contention of the Ld. counsel for assessee. As pointed out to us, the Annual Accounts of the assessee show total finance cost incurred during the year amounting to Rs. 7.60 lacs, out of which only 0.21 lacs was on account of interest on over draft while the rest related to other interest expenses and were not in the nature of borrowing charges, as is evident from the detail provided in the annual account of the assessee and also placed before us and reproduced above. At the same time, we find that the disallowance made under Rule 8D(2)(ii) amounted to Rs. 1.27 lacs. The interest expenses attributable to interest bearing funds in the present case not exceeding to Rs. 0.21 lacs the disallowance could not in any case have exceeded the said amount. ....