TaxTMI 
TaxTMI 
2017 (6) TMI 1124
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....." 3. Brief facts of the case are that the assessee company was carrying on the business as finance and investment company, making investment in shares and securities and advancing moneys and borrowing moneys to/from industrial enterprises. The assessee had filed its return of income showing income of Rs. 6,17,39,487/-. However, the tax was paid u/s 115JB at an income of Rs. 32,18,30,990/-. 3.1 The AO noticed that the assessee had shown income from operation at Rs. 43,98.75.523/- which included the following incomes under various heads, as follows: i. Speculation profit- (profit/loss) on F&O Rs.-185/- ii. Interest Income Rs. 44,44,186/- iii. Short term gain on sale of investments Rs. 7,10,20,860/- iv. Winning from Race Horses Rs. 486/- Rs. 7, 54.65,532/- 3.2 He further noted that as per Schedule 13 & 14 of the P&L A/c, the assessee had claimed expenses at a total amount of Rs. 3,42,11,767/- [under the head "salary & other benefits" at Rs. 2,00,035/- and "administration and other expenses" at Rs. 3,40,11,732/-]. This included the amount of Rs. 1,19,257/- towards horse race expenses. The AO, accordingly, concluded th....
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.... was noticed that an amount of Rs. 64,000/- had been, taken as the amount disallowable u/s 94(7) in respect of short .term capital gains without security transaction tax. Similarly, an amount of R.s 25,686/- had been taken as the amount disallowable u/s 94(7) in respect of short term capital gain. 3.8 On perusal of the details, the AO noticed that the amount of Rs. 64,000/- was the net loss on sale/ purchase of various mutual funds. He found that assessee had claimed loss on sale of investment in contravention of provisions of sec. 94(7),,as, the investment had been cleared by the assessee within a period of 3 months prior to the record date for dividend and were within a period of 3 months after such record date. He, accordingly, made an addition of Rs. 64,000/-and Rs. 25,686/-. 3.9 The AO further noticed that assessee company had given loans to various persons and entities as noted at page 8 para IV.3 of his order. From the details furnished, the AO found that except in the case of SNAM Investment Pvt. Ltd., to which interest @ 6% had been charged, no interest had been charged/ received by the assessee in respect of loans/ advances given to the other parties. 3.10 After ....
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....27,17,773/- 100% 3.14 Ld. CIT(A) observed that as per clause (f) of Explanation 1 to Sec. 115JB(2), only the expenditure relating to income other than income assessable u/s 10(38) was to be added while calculating profits u/s 115JB profits. He, accordingly, directed the AO to add only Rs. 22,93,407/- (being 24.9% of Rs. 91,95,698/-) of the disallowance of expenditure upheld by him. Revenue is aggrieved by the finding of Id. CIT(Appeals) in considering only Rs. 22,93,407/-instead of Rs. 91,95,698/- for making adjustment of disallowance computed under section 14A, read with Rule 8D, while computing 'book profit' under section 115JB of the Act. 3.15 As regards the disallowance of sum of Rs. 89,686/- u/s 94(7) by AO, the assessee pointed out before ld. CIT(A) that there has been an arithmetical error in computation of disallowance u/s 94(7). The computation was done with respect to date of receipt of dividend while section 94(7) specifies the reference date as the record date. He, accordingly, revised computation u/s 94(7) with reference to record date, which was submitted before ld. CIT(A), according to which disallowance worked out to Rs. 2,884/- only, which, ld. CIT....
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....lowance under Rule 8D of the Income Tax Rules, 1962 ('the Rules'), total investments as appearing in the balance sheet needs to be considered as against those investments which are capable of earning exempt income. 2. That the Commissioner of Income Tax (Appeals) erred on facts and in law in upholding the action of the assessing officer in making upward adjustment of disallowance computed under section 14A, read with Rule 8D, while computing 'book profit' under section 115JB of the Act. 2.1 That the Commissioner of Income Tax (Appeals) erred on facts and in law in not appreciating that disallowance computed under section 14A of the Act read with Rule 3D of (he Rules does not represent actual expenditure incurred for earning exempt income and the same, therefore, need not to be added back while computing 'book profit' under section 1J5JB of the Act." 3.19 The assessee has filed application for condonation of delay in filing the memorandum of cross objections. It is stated in the petition that there is a delay of approximately 686 days in filing the cross objection is because when the appeal was decided by ld. CIT(Appeals), the then counse....
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....der section 14A of the Act read with Rule 8D of the Income Tax rules, 1962 while computing 'book profit' of the appellant on the ground that the same represents the actual expenditure incurred for earning of the exempt income." 4.1 Ld. counsel referred to relevant provisions of clause (f) to Explanation 1 to section 115 JB which are reproduced hereunder: "Special provision for payment of tax by certain companies. 115.JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income-tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012 is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its ....
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.... the basis of adjusted book profit and not on the basis of income/ profit computed under regular provisions of the Act. 4.5 To buttress his submission ld. counsel pointed out that clause (iv) of Explanation 1 to Section 115JB (as applicable up to assessment year 2005-06) provided that book profit had to be reduced by the amount of profits eligible for deduction u/s SOHHC, computed under clause (a) or clause (b) or clause (c) of sub-section (3) or sub section (3A), as the case may be. of that section. He pointed out that, as per the assessee. the book profit had to be reduced by the amount of deduction admissible, computed with reference to book profit. The Revenue, on the other hand, contended that deduction u/s 80HHC admissible under the normal provisions of the Act. had only to be reduced from the book profit. He pointed out that it was held that section 115J/ 115JA/ 115JB being complete code, deduction admissible u/s SOHHC, to be reduced from book profit, in terms of clause (iv) of .'the Explanation had to be computed with reference to book profit. He has relied on various decisions in support of his contention. 4.6 Ld. counsel further pointed out that in certain decis....
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.... and machinery). 94. Man v expenses are recognised in the statement of profit and loss on the basis of a direct association between the costs incurred and the earning of specific items of income. This process, commonly referred to as the matching of costs with revenues, involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events; for example, the various components of expense making up the cost of goods sold are recognised at the same time as the income derived from the sale of the goods. However, the application of the matching concept under this Framework does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities." (emphasis supplied) On perusal of the above extracts of the Framework, it will be appreciated that under the matching principle, only those costs are recognized in the profit and loss account which have direct association with the earning of income. The above matching principle has also been discussed by the Supreme Court in the case of Rotork Controls India Pvt. Ltd. v. CIT: 314 ITR 6....
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....historical trend of warranty provisions made and the actual expenses incurred against it. On this basis a sensible estimate should be made. The warranty provision for the products should be based on the estimate at year end of future warranty expenses. Such estimates need reassessment every year. As one reaches close to the end of the. warranty period, the probability that the warranty expenses will be incurred is considerably reduced and that should be reflected in the estimation amount. Whether this should be done-through a pro - rata reversal or otherwise would require assessment of historical trend. If warranty provisions are based on experience and historical trend(s) and if the working is robust then the question of reversal in the subsequent two years, in the above example, may not arise in a significant way. In our view, on the facts and circumstances of this case, provision for warranty is rightly made by the appellant-enterprise because it has incurred a present obligation as a result of past events. There is also an. outflow of resources. -A reliable estimate of the obligation was also possible: Therefore, the appellant has incurred a liability, on the facts and circumst....
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.... followed by the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. CIT 328 ITR 81. 4.10 He further referred to the decision of Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. 347 ITR 272, wherein it has been held that no disallowance could be made under the said section where no expenditure had 'actually' been incurred by the assessee in relation to earning of the exempt income. The Hon'ble Delhi High Court approved the contention raised by the assessee that the term 'expenditure incurred' appearing in Sec. 14A(1) of the Act would mean actual expenditure incurred. Thus, the provisions of sec. 14A of the Act would be applicable only when the assessee had actually incurred certain expenditure which had proximate nexus with earning of exempt income. 4.11 Ld. counsel pointed out that the contention of Revenue that disallowance calculated u/s 14A read with Rule 8D of the I.T. Rules should be ipso facto incorporated in clause (f) of Explanation 1 of section 115JB of the Act on the ground that the scope of both the provisions are similar is not correct inasmuch as while u/s 14A the expression used is 'in relation&....
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.... held that if the language of the statute is plain and capable of one and only one meaning, that obvious meaning is to be given to the said provision. 4.17 Accordingly, ld. counsel submitted that applicability of provisions of sec. 14A is confined to computation of tax liability under the five heads of income enumerated in sec. 14 under normal provisions contained in Chapter IV of the act. The said section 14A cannot be extended and read into section 115JB, falling under Chapter XI1-B of the Act. 4.18 Ld. counsel further submitted that scope of section 14A and section 115JB of the act are entirely different. He submitted that u/s 14A of the Act disallowance is made of expenditure in relation to the earning of income not forming part of the total income. Thus, section 14A takes within its sweep both direct and indirect expenditure having proximate connection with earning of exempt income. However, under clause (f) of Explanation 1 to section 115JB of the Act, only those expenditure debited to the profit and loss amount, which are relatable to earning of income exempt u/s 10 (excluding section 10(38) or section 11 or section 12 are added back while computing adjusted book profi....
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....n relation to the assessment year 1962-63 and subsequent assessment years." 5.1 Ld. Principal CIT(DR) pointed out that in pursuance of this amendment, Circular no. 14 was issued. He pointed out that this amendment was a fall out of the decision of Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corporation v. CIT 242 ITR 450, rendered on 23-2-2000 and other judgments laying down the same ratio decidendi, as under: "The following principles may be laid down: (i) if the income of an assessee is derived from various heads of income, he is entitled to claim deduction permissible under the respective head, whether or not computation under each head results in taxable income; (ii) if the income of an assessee arises under any of the heads of income but from different items, e.g., different house properties or different securities, etc., and income from one or more items alone is taxable whereas income from the other item is exempt under the entire permissible expenditure in earning the income from that head is deductible; and (ii) in computing the "profits and gains of business or profession when an assessee is carrying on business in various ventures and....
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....against exempt income derives a double benefit by taking the benefit of indirect expenditure against taxable income though part of which is relatable to exempt income. In this regard ld. CIT(DR) referred to the decision of Hon'ble Supreme Court in the case of Escorts Ltd. & another vs. Union of India & others 199 ITR43, wherein it has been held as under: "There is a fundamental, though unwritten, axiom that no Legislature could have at all intended a double deduction in regard to the same business outgoing; and if it is intended, it will be clearly expressed. In other words, in the absence of clear statutory indication to the contrary, the statute should not be read so as to permit an assessee two deductions - both under section 10(2) (vi) and section 10(2)(xiv) of the 1922 Act or both under section 32(1) (ii) and section 35(1) (iv) of the 1961 Act. : 5.4 Ld. Principal CIT(DR), therefore, submitted that the contention of ld. counsel for the assessee that under clause (f) to Explanation 1 to section 115JB only direct expenditure are contemplated is against the basic principle of taxation. He submitted that 'proximate' will mean direct as well as indirect expe....
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....inding authority and normally it should record its conclusion on every disputed question raised before it, setting out its reasons in support of its conclusion. But, in failing to record reasons, when the Appellate Tribunal fully agrees with the view expressed by the Appellate Assistant Commissioner and has no other ground to record in support of its conclusion, it does not act illegally or irregularly, merely because it does not repeat the grounds of the Appellate Assistant Commissioner on which the decision was given against the assessee or the department" 5.10 He pointed out that when the counsel fairly conceded the matter in the Hon'ble Delhi High Court, the Hon'ble Delhi High Court was not required to repeat the reasons as stated in the court by the ld. counsel for the assessee for conceding the same. Rather it agreed with it and gave its decision. Ld. CIT(DR), therefore, submitted that AO is empowered to adopt the disallowance u/s 14A while making the addition as contemplated under clause (f) of Explanation 1 to sec. 115JB(2). Ld. CIT(DR), therefore, submitted that this issue is, therefore, no longer res integra and, therefore the question referred to by Hon'bl....
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....s exempt income and then again claiming the expenses incurred relatable to the exempt income against the taxable income. This would have resulted in reduction of the taxable income to the extent of the expenses relatable to exempt income. In order to overcome this anomaly, section 14A was inserted. Chapter XIIB has been inserted by the Finance Act, 1987 w.e.f. 1-4-1988 and the object was to make the companies which were not at all paying any taxes to pay the tax on the basis of book profits as per the deeming provisions contained in the Chapter. The computation of book profit has been specifically prescribed in the section itself and the starting point of the same is the net profit as shown in the P&L a/c prepared in accordance with Schedule VI to the Companies Act, which is to be increased by various items contemplated in the explanation and also to be reduced by various items, mentioned in the explanation itself. The adjustments contemplated in the explanation are broadly the same as are being made while computing profits of business in case of companies under normal provisions of Act. Under this Chapter specific items have been prescribed for computation of book profit. The s....
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....te. The intention of the legislature must be found out by reading the statute as a whole. 6.4 Literal meaning cannot always be followed logically, because sometimes it tends to defeat the obvious intention of the legislature and results in producing a wholly unreasonable result. To achieve the obvious intention and to produce a reasonable result. 6.5 The Hon'ble Supreme Court in the case of N.B. Sanjana v. Elphinstone Spinning & Weaving Mills Ltd. AIR 1971 SC 2039, examined Rule 10 under the Central Excise Act, 1944 observing, inter alia, as under: "This rule relates to raising of demand for short-levy within a e limit in cases where lesser amounts have been paid. The petitioners argued that where no payments had been made and where nil assessments e been made, there would be no application of this rule and no demand could be raised. The Supreme Court observed that we cannot take a literal interpretation in such a case. It should be an interpretation in the context which I mean appropriately that the word "paid" would include "ought to have been paid" and assessments would cover 'nil' assessment. The machinery of the tax - s stem should be made workable a....
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....ourt followed was the maxim: Expressio unius est exclusio alteris. But this principle, observed the Supreme Court, is a valuable servant but a dangerous master. "The rule is subservient to the basic principle that Courts must endeavour to ascertain the legislative intent and purpose and adopt a rule of construction which effectuates rather than on that which may defeat these." The High Court ignored in this case the legislative intent in having Rule 10A. Rule 10A was for "special circumstances not foreseen by the framers of the Act or the Rules". The High Court did not consider at all whether the demand would fail under Rule 10A but merely interpreted broadly Rule 10 to conclude that the demand did not fall in that rule. That clearly goes against the legislative might . The Supreme Court therefore set aside the High Court order and upheld the demand under Rule 10A though that rule was not quoted in the demand doing so the Supreme Court upheld the basic principle of legislative intent and purpose." 6.7 Again in the case of K.P. Varghese v. ITO AIR 1981 SC 1922, while examining the true meaning of section 52(2), which enabled the revenue to charge tax on the capital gains....
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....deeming provisions is to substitute the total income computed under normal provisions by that computed under MAT provisions. Submission of ld. CIT(DR) is that this cannot be extended to computation for same items under normal as well as MAT provisions. Under the provisions of section 14A, both direct and indirect expenses in relation to earning of exempt income are to be reduced. Therefore, different meaning cannot be ascribed in clause (f) and, therefore, the submission of Id. counsel for the assessee that only directly relatable expenditure is to be reduced, cannot be accepted. 6.11 Ld. CIT(DR) further submitted that the term "relatable to" used in clause (f) cannot be ascribed a restrictive meaning as compared to the term used "in relation to" in section 14A. Both terms are with the same purport and object. 6.12 Ld. counsel has submitted that the AO cannot go beyond audited financial statements of the assessee while computing book profits u/s 115JB. However, the submission of ld. CIT(DR) IS that this argument is fallacious, because here the AO is not going beyond the audited accounts but is computing the expenditure debited in the P&L A/c, which is relatable to earning of ....
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.... expenditure charge while computing book profits u/s 115JB because no indirect expenditure will be allocated towards earning of exempt income. The submission is that obviously, this cannot be the intention of legislature. As per the provisions of section 115JB(1), a comparison of the total income computed under the normal provisions of the Income-tax Act is to be made with the book profits as computed u/s 115JB. This makes it clear that total income as contemplated under normal provisions is inextricably linked to book profits under MAT provisions and it is -wrong to suggest that both operate in entirely different fields. This interpretation overlooks the very object of insertion of MAT provisions. Therefore, the submission is that when we resort to comparison between computation under normal provisions of the Income-tax Act and MAT provisions, the comparison will not be on same footing. Submission of ld. CIT(DR) is that it cannot be denied that the legislative intent regarding disallowance of expenditure relating to earning of exempt income was same, whether under normal provisions or under the MAT provisions. Hence, the whole object of comparison between the total income under no....
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....12, the following substantial questions of law were framed in the present appeals. "(i) Whether the Income-tax Appellate-Tribunal was right in holding that while computing the book profit under section 1I5JA (sic. Section 115JB) of the Income-tax Act, 1961, no disallowance under section 14A was required to be made? (ii) Whether the Income-tax Appellate Tribunal was right in deleting interest under section 234D of the Income-tax Act, 1961? Learned counsel for the respondent-assessee, during the course of hearing, has fairly conceded that the first question has to be answered in favour of the Revenue and against the assessee in view of the specific provisions in the Explanation 1 below section 115JB(2) clause (f). The Assessing Officer it is stated had made an addition of Rs. 88,292 to the book profits towards expenditure incurred having nexus with dividend income, which were exempt under section 10(33). Recording the said statement, the first question is answered in favour of the appellant-Revenue and against the respondent-assessee." 6.20 Thus, it cannot be said that Hon'ble Delhi High Court has not considered this issue and merely allowed the reve....
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....s of the Appellate Assistant Commissioner on which the decision was given against the assessee or the department. The criticism made by the High Court that the Tribunal had "failed to perform its duty merely affirming, the conclusion of the Appellate Assistant Commissioner" is apparently unmerited. On the merits of the claim for exclusion of the amount of Rs. 7,000, there is no question of law which could be said to arise out of the order of the Tribunal. The assessees had credited Sampangappa with two sums of Rs. 6,000 and Rs. 1,000 in the months of November and December, 1950, respectively. It was clear that Sampangappa had not advanced at the material time any amount to the assessees. The explanation of the assessees was, therefore, untrue." Thus, it is evident that in every case it is not necessary that long drawn reasoning should be given before arriving at any conclusion more particularly when both the parties are agreed on certain provision of law. We, therefore, reject the assessee's contention that the decision of Ho'nble jurisdictional High Court in Goetze (India) Ltd. does not constitute a binding precedent more particularly in respect of subordinate courts in....
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.... 1956. Explanation (I) to section II5JB(2) defines the expression "book profit" and means the net profit as shown in the P&L A/c for the relevant previous year prepared under sub-section (2) as increased by the amounts specified in clause (a) to (h) of the Explanation I. Clause (f) of the Explanation 1 refers to the amount or amounts or expenditure retable to any income to which section 10 (other than provisions contained in clause 38 thereof or section 11 or section 12 apply. For applying the provisions of clause (f) of Explanation to section 1I5JB(2), there should be nexus between the amount of expenditure relatable to the income exempt u/s 10 of the Act. The dividend income is exempt u/s 10(33) for assessment year 2001-02. Since the expenditure incurred has not been identified and no nexus has been established with the dividend income, the expenditure could not be disallowed under clause (f) of the Explanation, As per the decision of Hon 'ble Supreme Court in the case of Apollo Tyres Ltd., the Assessing Officer is not entitled to tinker with the book profits as determined as per provisions of Company's Act unless the amount is specified in clauses (a) to (h) of the Expla....
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....en it is rendered per incuriam, ie, in ignorance of a statutory provision or binding precedent - however, the rule of per incuriam is of limited application, and if the provision of the Act was noticed and considered, then the judgment cannot be ignored as being per incuriam merely on the ground that it has erroneously reached the conclusion; and (vii) when it is an erroneous decision, i.e, a decision conflicting with the fundamental principles of law. Ld. Principal CIT(DR) further relied on the decision of Hon'ble Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd. 206 ITR 727 wherein hon;ble court while summarizing the general principles with regard to precedents, inter-alia, observed as under:- (iii) Where there are conflicting decisions of courts of co-ordinate jurisdiction, the later decision is to be preferred if reached after full consideration of the earlier decisions. Ld. Principal CIT(DR) has also relied on following decisions :- - CIT v. Pamwi Tissues Limited, 313 ITR 137 - Indian Oil Corporation Ltd. v. State of Bihar, 167 ITR 897 - Kunhayamraed & Ors. v. State of Kerala & Anr., 245 ITR 360 Ld. ....
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....Further, the Hon'ble Supreme Court in the case of Mamaleshwar Prasad v. Kanhaiya Lal (Dead) AIR 1975 SC 907 observed as follows :- "Certainity of the law, consistency of rulings and comity of Courts all flowering from the same principle converge to the conclusion that a decision once rendered must later bind like cases. We do not intend to detract from the rule that, in exceptional instances where by obvious inadvertence or over sight a judgement fails to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, it may not have the sway of binding precedents. It should be a glaring case, an obtrusive omission." Although the above observations are not 'ratio' but then as held in the case of (1) Kharawala v. ITO 147ITRpages 67, 85 :- The observation of the Supreme Court on the true interpretation of sub-section (1) cannot, therefore, be regarded as mere passing observations. At the highest, they may be treated as an obiter dictum, that is to say the expression of opinion on a point which it was not necessary for the decision of the case. Even if they are conceivably regarded as obiter dictum ....
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....wiss Time Limited v. Umrao : AIR 1981 P&H 213 2. Amar Singh Yadav v. Shanti Devi: AIR 1987 Pat 191 3. T.P.Naik v.UOI:AJR1998MP83 Third proposition advanced by Ld. Senior Counsel is that a lower authority/Court cannot declare a judgment of a higher Court as per incurium. In this regard he has relied on following decisions:- 1. Cassel & Co. Ltd. v. Broome [1972] 1 All ER 801 (House of Lords) -quoted in ITO v. Modern International: ITA No. 1253/Kol/2011. 2. CIT v. B.R. Construction : 202 ITR 222 (AP)(FB). Thus, we are pitted against two decisions of Hon'ble jurisdictional high court taking divergent views and, under such circumstances we have to decide which decision to follow. We find from the decisions relied upon by Ld. Senior Counsel more particularly in the case of Bhika Ram (supra) that later pronouncement by a bench of co-equal strength should be followed even if earlier decision was not considered. We are not convinced with the submission of ld. Senior Counsel that Tribunal can decide which decision state the law more elaborately and accurately. We are of the view that decision in the case of Cassel & Co. Ltd. v. Broome (supra) sho....
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....assessee. The ITO determined the tax due from the assessee for the assessment year at Rs. 1,25,512,10, and on that basis, the penalty payable by the assessee was fixed at Rs. 12,734.10. It may be pointed out that on February 2, 1961. a provisional assessment was made by the ITO under section 23B of the 1922 Act. Immediately thereafter , the assessee deposited Rs. 92,294.55. In determining the penalty due from the assessee, the ITO took into consideration not the amount demanded under section 156 of the Act but the amount assessed under section 143 of the Act. In the back drop of these facts the controversy before Hon'ble Supreme Court was whether the penalty was to be levied on the tax assessed under section 143 or as demanded under section 156 being tax assessed minus the amount paid under the provisional assessment order. Hon'ble Supreme Court before resorting to the interpretation of term in addition to the amount of the tax, if any, payable by him as appearing in section 271(l)(a)(i) observed as under:- "On the other hand, it two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a ....
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....e of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :- A x B/C Where A = amount of expenditure by way of interest other than the amount of interest included in Clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and-the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of....
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....e satisfied, the provision of section 14A cannot be invoked. 8.3. Ld. counsel referred to the Collins Cobuild Student's dictionary, wherein the expression 'does' refers to third person singular of the present tense of 'do', which means the act done in present. Therefore, the word 'does' refers to an act of the present and not the future. 8.4 Ld. counsel submitted that if the department's contention is to be accepted, then it implies that firstly the income from such investment would be earned in future and secondly such income would continue to remain exempt from tax i.e. the law at present would prevail in the subsequent year. He submitted that there is no certainty that the income which is exempt in current year will remain exempt in subsequent year. He pointed out that the term 'shall' in clause (iii) to Rule 8D(2) implies that in the current year one should be sure of income accruing in subsequent year to remain exempt. In support of his contention, he pointed out that dividend was first exempt from tax by insertion of sec. 10(33) by Finance Act, 1997 w.e.f. 1-4-1998 by the Finance Act 2002, the exemption was removed and dividends w....
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....nd. therefore, the AO has used Rule 8D and has, accordingly, taken all investments, capable of yielding exempt income, whether actually yielded or not. He submitted that the action of AO cannot be struck down by the ITAT because AO has only followed the mandate of Rule 8D(2)(iii). He submitted that none of the decisions relied upon by Id. counsel for the assessee have considered the principles laid down by Hon'ble Supreme Court in the case of Rajednra Prasad Moody 115 ITR 519 (SC), wherein it has been held that an expenditure to be allowable, need not be profitable, meaning thereby that merely because there is no exempt income, expenditure in relation to this unearned exempt income cannot be disallowed. He submitted that since the various decisions relied upon by the Id. counsel for the assessee are against the ratio of the Hon'ble Supreme Court's decision in the case of Rajendra Prasad Moody (supra), it is not binding on the Tribunal. 9.1 Ld. Principal CIT(DR) further referred to the decision of Special Bench of the ITAT in the case of Cheminvest Ltd. (supra), wherein the controversy was that the assessee had not earned or received any dividend in the year under con....
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....approved by the Board. Ld. CIT(DR) referred to para 6 of Circular No. 21/2005 is reproduced hereunder:- "6. In a case where appeal before a Tribunal or a Court is not filed only on account of the tax effect being less than the monetary limit specified above, the Commissioner of Income-tax shall specifically record that "even though the decision is not acceptable, appeal is not being filed only on the consideration that the tax effect is less than the monetary limit specified in this instruction". Further, in such cases, there will be no presumption that the Income-tax Department has acquiesced in the decision on the disputed issues. The Income-tax Department shall not be precluded from filing an appeal against the disputed issues in the case of the same assessee for any other assessment year, or in the case of any other assessee for the same or any other assessment year, if the tax effect exceeds the specified monetary limits." Ld. CIT(DR) further referred to Section 268A(4) which reads as under :- "Filing of appeal or application for reference by income-tax authority. 268A. (1) ............ ** ** &nb....
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....entitled to the expenditure relating to investment on shares in the year in which dividend is received but not for a year in which there was no declaration of dividend. It leads to uneven result, so that there was probably no adequate reason for non-application of Rajendra Prasad Moody !s case (supra) in respect of this issue before the court. " 11. We have considered the submissions of both the parties and have perused the record of the case. The basic issue for consideration is that the investment, which did not yield any exempt income, should enter or not enter into the computation under Rule 8D, while arriving at the average value of investment, income from which does not or shall not form part of the total income. 11.1 In the present case, our decision is restricted only to the extent of interpretation of language employed in Rule 8(2)(iii). The submission of Id. counsel for the assessee is that this issue is now covered by the decision of the Hon'ble Delhi High Court in the case of CIT v. Hofcin India (P) Ltd. (supra), wherein it has been held that if no dividend income was>earned, section 14A could not be invoked. The Hon'ble Delhi High Court has referred to....
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....ed on the ratio laid down by the Hon'ble Supreme Court in the case of Rajendra Prasad Moody (supra). 11.5 In the case of Rajendra Prasad Moody (supra), the facts were that the assessees were brothers and each of them had borrowed. moneys for the purposes of making investment in shares of certain companies. During the relevant assessment year they paid interest on the moneys borrowed but did not receive any dividend on the shares purchased with these moneys. Both of them made a claim for deduction of the amount of interest paid on borrowed moneys but this claim was negated by the ITO and on appeal by the AAC on the ground that during the relevant assessment year the shares did not yield any dividend and. therefore, interest paid on the borrowed moneys could not be regarded as expenditure laid out or expended wholly and exclusively for the purposes of making or earning income chargeable under the head 'income from other sources', so as to be allowable as a permissible deduction u/s 57(iii). The Tribunal. however, on further appeal, disagreed with the view taken by the taxing authorities and upheld the claim of each of the two assessees for deduction u/s 57(iii). 11.....
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....sets of Rs. 16,52,225/-. As against this, the respondent assessee had claimed administrative and miscellaneous expenditure written off amounting to Rs. 8.75 Crores. For the Assessment Year 2008-09, the assessee had filed return declaring loss of Rs. 6.60 Crores approximately. The assessee had declared revenue receipts in the form of foreign currency fluctuation difference gain of Rs. 12,46,595/-. It had claimed expenses amounting to Rs. 7.02 Crores as personal expenses, operating and other expenses, depreciation and financial expenses. 11.9 In both the assessment orders, the Assessing Officer held that the respondent-assessee had not commenced business activities as they had not undertaken any manufacturing activity or made downstream investments. It was observed that the respondent- assessee, after receiving approval of Foreign Investment Promotion Soard (FIPS) dated 20.12.2000 acquired shares capital of Ambuja Cement India Ltd. This, the Assessing Officer felt, was not sufficient to indicate or hold that the respondent-assessee had started their business. He, accordingly, disallowed the entire expenditure of Rs. 8.75 Crores for the Assessment Year 2007-08 and Rs. 7.02 Crores f....
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....(A), though it is not argued before us, had taken the stand that the respondent-assessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A. 11.13 Thus, Hon'ble Delhi High Court primarily decided the issue regarding applicability of section 14A even if no dividend income was earned. The Hon'ble High court in paras 14 to 16 of its decision observed as under: 14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Inch, TTA No. 970/2008, decided on 02.04.2014, made reference to two ' earlier decisions of the same Court in CIT v. Hero Cycles Limited, [2010J323 ITR 518 and CIT vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoke....
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....tribution tax. 16. what is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A)." 11.14 Now the position of law as stands is that the decision of Hon'ble Jurisdiction High Court is directly on the point in dispute whereas the decision of Hon'ble Supreme court in the case of Rajendra Prasad Moody (supra) has been rendered in the context of section 57(iii), the applicability of which has been ruled out by Hon'ble Delhi High Court in the case of Cheminvest (supra). 11.15 Under Article 227 of the Constitution....
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.... to suggest that a Tribunal over which the High Court has superintendence can ignore the law declared by that court and start proceedings in direct violation of it. If a Tribunal can do so, all the subordinate courts can equally do so, for there is no specific provision, just like in the case of Supreme Court, making the law declared by the High Court binding on subordinate courts. It is implicit in the power of supervision conferred on a superior Tribunal that all the Tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working; otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer," (ii) CIT v. Svnil Kumar (1995) 212 ITR 238 (Raj.), it was observed as under: "The point which has been raised could have been considered to be debatable because other High Courts have taken a different view. But since the view taken by this court is binding on the Tribunal and other authorities under the Act in this State, it could not be considered to be a debatable point in view of the decision of this court in the case of CIT v. M.I, Sanghi [19....
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.....17 As far as argument relating to meaning to be ascribed to the phrase 'shall not' used in Rule 8D(2)(iii) is concerned, the Revenue's contention is that it refers to those investments which did not yield any exempt income during the year but if income would have been yielded it would have remain exempt. There is no dispute that if an investment has yielded exempt income in a particular year then it will enter the computation of average value of investments for the purposes of Rule 8D(2)(iii). The assessee's contention that if there is no certainty that an income, which is exempt in current year, will continue to be so in future years and, therefore, that investment should also be excluded, is hypothetical and cannot be accepted. 11.18 In view of above discussion, the matter is restored back to the file of AO for recomputing the disallowance u/s 14A in terms of above observations. Thus, revenue's appeal is dismissed and assessee's cross-objection, on the issue in question, stand allowed for statistical purposes, in terms indicated above. 12. Now we will consider the other two grounds. As far as ground no. 3 is concerned, we do not find any reason to i....