TaxTMI 
TaxTMI 
2017 (6) TMI 495
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.... in law as the jurisdiction u/s 153A was vitiated. 2. That the order dated 02-01-2013 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income-Tax (Appeals) I, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned ACIT, Central Circle 13, New Delhi in sustaining addition of Rs. 2,43,40,709/- under the provisions of Section 14A of the Income-tax Act, 1961 read together with Rule 8D of the Income Tax Rules, 1962 on account of expenses incurred for earning exempt income by ignoring the fact that the Appellant Company had already disallowed a sum of Rs. 2,19,88,109/- u/s 14A of the Income Tax Act, 1961 resulting in double disallowance of the said amount. 3. That the order dated 02-01-2013 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income-Tax (Appeals) I, New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned ACIT, Central Circle 13, New Delhi in sustaining the disallowance u/s 14A which was to be added in the book profits as declared by the Company for the purposes of computation of MAT liability." 3. ....
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....much as he was not justified to uphold the action of the Learned ACIT, Central Circle 13, New Delhi in sustaining the addition of Rs. 13,56,44,550/- on account of expenditure on earning of exempt income to the Book Profit for the purpose of computation of MAT liability u/s 115JB of the Income Tax Act, 1961." 5. Firstly we take up the appeal for the AY 2008-09 succinctly stated the facts of the case is that the search and seizure operation u/s 132(2) of the Income Tax Act was carried out on 03.03.2010 in Bhushan Steel Group and therefore, notice u/s 153A for AY 2008-09 was issued to the assessee. The returns for this assessment year was processed on 27.10.2009. The assessee filed its return of income at a loss of Rs. 208403653/- on 24.11.2010. The ld Assessing Officer noted that for earning exempt income assessee has only disallowed Rs. 927175/- u/s 14A of the Act. Therefore, show cause notice regarding applicability of Rule 8D was issued on 09.08.2011. The assessee submitted that it has earned long term capital gain of Rs. 231221639/- and dividend of Rs. 4749499/- and disallowed u/s 14A a sum of Rs. 927175/- has been made in the return of income. The ld Assessing Officer relying o....
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....sing Officer applying the decision of the coordinate bench in 317 ITR 86 computed the disallowance under Rule 8D of Rs. 30922206/- and made net disallowance of Rs. 28997064/-. Consequently, the assessment u/s 153A read with Section 143(3) of the Act was passed on 30.12.2011 making the above disallowance. The assessee contested the assessment order before the ld CIT(A) unsuccessfully. Therefore, this appeal. 10. The ld AR submitted that assessee itself has disallowed a sum of Rs. 1925142/- u/s 14A of the Act and AO without examining the same and recording a satisfaction about the incorrectness of the claim of the assessee has applied Rule 8D and made the disallowance. He submitted that in view of absence of satisfaction the addition is unwarranted. The ld DR vehemently contested the claim of the assessee. 11. We have carefully considered the rival contentions and perused the orders of the lower authorities. In the present case the assessee has earned exempt income of Rs. 5128390/- and disallowed on its own Rs. 1925142/-. The ld Assessing Officer straightway asked the assessee vide letter dated 09.08.2011 that vide Rule 8D shall not be applied in the case of the assessee. According....
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....sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. As we have already noticed, sub-section (2) of section 14A of the said Act refers to th....
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....y way of interest (other than the amount of interest included in clause (i)) incurred during the previous year in the ratio of the average value of investment, income from which does not or shall not form part of the total income, to the average of the total assets of the assessee. The third component is an artificial figure-one half per cent. of the average value of the investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under section 14A of the said Act. It is, therefore, clear that in terms of the said rule, the amount of expenditure in relation to exempt income has two aspects-(a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the ind....
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....does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub- section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an assessment year beginning on or before April 1, 2001, either to reassess under section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under section 154." 16. Equally illuminating are the following observations in Godrej and Boyce Mfg. Co. Ltd. (supra) (page 117 of 328 ITR) : "However, if the assessee does not maintain separate accounts, it would be necessary for the Assessing Officer to determine the pro portion of expenditure incurred in relation to the dividend business (....
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....nts in shares and mutual funds. The said findings coupled with the failure of the Assessing Officer to hold and record his satisfaction clinches the issue in favour of the respondent-assessee and against the Revenue. The self or voluntary deductions made by the assessee were not rejected and held to be unsatisfactory, on examination of accounts. The judgments in Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) would be relevant if the satisfaction of the Assessing Officer is in issue, and such question of satisfaction is with reference to the accounts. 19. However, the decisions relied upon by the Tribunal in the case of Tin Box Co. (supra), Reliance Utilities and Power Ltd. (supra), Suzlon Energy Ltd. (supra) and East India Pharmaceutical Works Ltd. (supra) could not be now applicable, if we apply and compute the disallowance under rule 8D of the Rules. The said rule in sub-rule (2) specifically prescribes the mode and method for computing the disallowance under section 14A of the Act. Thus, the interpretation of clause (ii) to sub-rule (2) of rule 8D of the Rules by the Commissioner of I....