TaxTMI 
TaxTMI 
2012 (3) TMI 582
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....id amount claimed, the Assessing Officer disallowed and added Rs. 33,895/- by rejecting the contention of the assessee company. The Assessing Officer discussed this issue at pages 2 of 4 in para 1 of the assessment order. 4. On appeal, the CIT(A) deleted the addition for the reasons stated in para 3 of the impugned order, which reads as under:- "3. I have carefully considered the submissions and arguments advanced by the Ld. A.R of the appellant company and perused the relevant documents produced before me. It was seen that Rs. 16,275/- on account of Trade Discount was decided to be paid during the year under appeal, though this trade discount was allowed at the sale made by the party M/s Vindh Traders, Lucknow, during the immediate preceding year. Since the liability was crystallized, determined and paid during the year under appeal, therefore, it is allowable during this year. Similarly, the trade discount was determined and allowed to the party M/s Rohit Enterprises, Brailly, on the sales made by the said party in the preceding year. Since there was dispute which was settled during the year, therefore, it is an allowable during the year under consideration. Regarding Cash D....
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....sessment year 2007-08. 9. After hearing the Ld. representatives of both the parties, we find that the issue is squarely covered in favour of the assessee and against the Revenue by the order of the Tribunal dated 27.12.2011 in ITA No.1349/Chd/2011 in assessee's case relating to assessment year 2007-08. While deciding a similar issue, the Tribunal in assessment year 2007-08 followed the order of ITAT Chandigarh Bench 'B' passed in assessee's case in ITA No. 594/Chd/2005 dated 26.5.2006 relating to assessment year 2001-02. The relevant findings given by the Tribunal in assessee's case in assessment year 2001-02 reads as under:- "8 We have heard both the parties at length and carefully gone through the material available on record. In the present case it is not in dispute that the assessee distributed the gifts on the occasion of Diwali. The Assessing Officer while making the disallowance had considered that those expenses were not related to the business of the assessee. Similar issue had been decided by the Tribunal in ITA No. 895/Chandi/2000 in the case of DCIT C.C. V, Ludhiana V Nahar International Ltd, Ludhiana (Supra). In the detailed order dated 24.2.2005 in the aforesaid re....
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....AR' placed reliance on CO No. 61/Chd/2004 for the assessment year 1999-2000 in the case of Nahar Industrial Enterprises. Before CIT(A), it was contended by the assessee that the impugned addition was made on surmises and conjectures and without bringing relevant material on record. Guest House expenses are allowable. Any adhoc disallowance, without any evidence, is not sustainable in the eyes of law. This is established proposition of law that addition cannot be made on surmises and conjectures. It should be founded on cogent and credible evidence. In the present case, we do not find any evidence brought on record by the AO to support his addition. Therefore, findings of the CIT(A) are upheld and this ground of appeal is dismissed." 13. Respectfully following the order of the Tribunal (supra), we do not see any merit in this ground of appeal and dismiss the same. 14. Ground No.4 of the appeal reads as under:- 4. On the facts and in the circumstances of the case, the Ld. CIT(A)-II , Ludhiana has erred in deleting addition of Rs. 11,462/- on account of subscription expenses of club, or director and employees of the company. 15. After hearing Ld. representatives of both the p....
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....e. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Prakash Cotton Mills P. Ltd v CIT (1993) 201 ITR 684. Shri Neeraj Sharma, Ld. Counsel for the assessee also relied upon another judgment of Hon'ble Supreme Court in the case of Standard Batteries Ltd v CIT (1995) 211 ITR 444 (SC). In these decisions, it has been held that any amount which is compensatory in nature is an allowable expenditure in respect of its nomenclature a penalty. Shri Neeraj Sharma, Ld. Counsel for the assessee further furnished a copy of order dated 1.1.2008 passed by Regional Officer, ESIC, Chandigarh under section 85(B) of the ESI Act, 1948. As per this order, the impugned amount paid by the assessee to ESI department is an additional amount for delay of payment on ESI charges. Since the particular amount of ESI was an allowable expenditure and was allowed by the Assessing Officer u/s 43B of the Act on actual basis, therefore, any amount over and above paid by the company for delay in the payment of the amount is nothing but compensation and is compensatory in nature. The Ld. CIT(A) has also categorically held that the impugned payment paid by the company to ESI departm....
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....nder : "During the year under consideration the assessee company has earned exempt income u/s 10(34) & 10(38) comprising of dividend income of Rs. 1893345/- and Long term Capital Gain of Rs. 1499596/-. No expenses were incurred to earn the said dividend income. Also no collection charges were paid for the credit of dividend warrants as the warrants were sent for local clearing. The investment made during the year as well as in earlier year was made from current accruals, reserves and surplus available with the company. Your kind self would appreciate that sufficient funds in the form of reserves were available with the company to make the investments. Since no amount was borrowed for the purpose of making investments, therefore neither interest nor any other expenditure out of Administrative expenses can be disallowed u/s 14A of the Act. However, without prejudice to the above submissions if at all some expenses are attributable for earning the said dividend income of Rs. 1893345/- the same principle for computing such amount as laid down by the Hon'ble ITAT in CONO 17/2001 for Asstt. Year 1997-98 in case of Nahar Industrial Enterprises Ltd one of the group company and also ....
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....x Rules as discussed above. " 25. On appeal, the CIT(A) upheld the order of Assessing Officer for the reasons stated in para 9 to 10 of the impugned order. 26. Sh Navdeep Sharma, Ld. Counsel for the assessee vehemently argued that Assessing Officer was not justified in applying Rule 8-D of the Income Tax Rules, 1962 and thereby making a disallowance of Rs. 10,06,483/- u/s 14A of the Income Tax Act, 1961(in short 'the Act'),without assuming the proper jurisdiction and in view of the fact that the assessee itself disallowed Rs. 23,560/- in its return on proportionate basis once such claim was made by the assessee. The Assessing Officer was required to apply his mind to the plea of the assessee.He further submitted that the Assessing Officer was also expected to give findings that he is not satisfied with the corrections of the claim made by the assessee. Sh Navdeep Sharma Ld. Counsel for the assessee further submitted that the Assessing Officer is also expected to spell out the reasons as to why the claim made by the assessee can not be accepted. It is after doing so that Assessing Officer can resort to the provisions of Rule 8-D of the Income Tax Rules. Reliance was placed....
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....h does not form part of the total income under the Act. In other respects ld. counsel for the assessee reiterated the submissions made before the revenue authorities. 10. The Id. D.R submitted that the very fact that the AO invoked the provisions of Rule 8D of the Rules only implies that he was not satisfied with the claim of the assessee with regard to the expenses incurred in earning the exempt income. In other words, it was submitted by the Id. D,R that the satisfaction of the AO is implied. On merits it was submitted that the AO has rightly applied Rule 8D of the rules and the assessee cannot have any grievance. 11. We have considered the rival submission. The Hon'ble Bombay High Court in INCOME TAX APPEAL NO.626 OF 2010 in the case of Godrej and Boyce Mfg. Co.Ltd. Mumbai. vs. Dy. Commissioner of Income Tax, Range 10(2),Mumbai and Anr. 328 ITR 81 (Bom) has held as follows: "Insertion of Subsections (2) and (3) to Section 14A: 25. Subsections (2) and (3) of Section 14A were inserted by an amendment brought about by the Finance Act of 2006 with effect from 1 April 2007. Subsections (2) and (3) provide as follows: "14A(2) The Assessing Officer shall determine the amoun....
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.... Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer Is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which 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 und....
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....has also proceeded on the same basis. We are, therefore, of the view that the orders of the CIT(A) has to be set aside and the issue should be remanded to the AO for fresh consideration. The AO will consider the claim of the assessee with regard to the disallowance to be made under section 14A of the Act in the light of the decision of the Hon'ble Bombay High Court referred to above. The AO will decide the issue after affording the assessee opportunity of being heard. For statistical purposes the appeal of the assessee is treated as allowed." 31. From the above decisions, it is clear that the application of Rule 8-D of I.T. Rules, 1962 is not automatic. Further, it is also clear that when the assessee makes the claim regarding the quantum of expenses to be disallowed in terms of section 14A of the Act, it is duty of the Assessing Officer to consider the claim of the assessee. It is only when the Assessing Officer is not satisfied with the claim of the assessee, he can have recourse with the provisions of Rule 8-D of the Income Tax Rules, 1962. Further, it is also clear that the satisfaction that the claim made by the assessee regarding expenses incurred in relation to the inco....
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....ntends that no satisfaction has been recorded by the AO regarding the assessee's calculation being incorrect. Even so, Rule 8D of the Rules has been applied. This, in our opinion, is not correct. Such satisfaction of the AO is a pre-requisite to invoke the provisions of Rule 8D of the Rules. The Id. CIT (A), therefore, erred in partially approving the action of the AO." 35. From the above decisions, it is clear that the satisfaction of the claim made by the Assessing Officer regarding the expenses incurred in relation to the income does not form total income under the Act, is not correct, is to be arrived at by the Assessing Officer on objective basis. Both the authorities below have not recorded any findings that having regard to the account of the assessee they are not satisfied with the correctness of the claim of the expenditure made by the assessee that no expenditure had been incurred in relation to income which does not form part of the total income under the Act for the assessment year under consideration. In the absence of any findings, we are of the view that the order of the CIT(A) deserves to be set aside. We order accordingly and remand the issue to the Assessing ....
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....o expenses were incurred to make investment of surplus amounts in mutual funds. The suo moto disallowance had, however, been made by the assessee keeping in consideration, the provisions of section 14A of the Act. 18. Now, as per section 14A(2) of the Act, if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the assessee's total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not appropriately applied by the AO as correctly held by the CIT(A). It has not been shown by the AO that any expenditure had been incurred by the assessee for earning its dividend income. Merely, an ad hoc disallowance was made. The onus was on the AO to establish any such expenditure . This onus has not been discharged. In "CI....