TaxTMI 
TaxTMI 
2012 (4) TMI 731
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....e assessee submitted that the investment which yielded interest income as well as dividend income were made out own funds and not out of borrowed funds and, therefore, no interest expenses can be said to have been incurred for earning exempt income. The assessee also submitted that it did not incur any other expenditure to earn exempt income. The AO held that administrative management, recurring or over head expenses are common to earning of income from business as well as income from other sources. The AO also held that the assessee did not discharge its onus of proving that no expenses were incurred in earning exempt income. The AO, therefore, treated 5% of the exempt income as expenses incurred in earning exempt income which resulted in an addition of Rs. 1,85,26,581/- to the total income of the assessee. 3. On appeal by the assessee the CIT(A) found that on an identical issue in A.Y 2001-02 the CIT(A) following the decision of the Special Bench of ITAT in the case of Daga Capital Management 26 SOT 603(Bom) directed the AO to apply Rule 8D of the Income Tax Rules, 1962 and disallow administrative management recurring or overhead expenses accordin....
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....him in relation to income which does not form part of the total income under this Act.(Sub-Section 2 and 3 were inserted by FA 2006 w.e.f 1-4-2007 and original section 14A was numbered as Sub-Section (1)) Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. (Proviso was inserted by F.A. 2002, w.e.f. 3-2-2001) Rule 8-D was enacted by the I.T. (5th Amend.) Rules, 2008, wef. 24-32008, pursuant to the provisions of Sub-Section (2) and it reads as follows: "8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relati....
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....pect of the tax-free dividend earned by it could be made as it had not incurred any expenditure to earn the dividend. The AO rejected the claim and made a disallowance u/s 14A. This was deleted by the CIT (A). On appeal by the department, the Tribunal followed the judgement of the Special Bench in Daga Capital 117 ITD 169 (Mum) (where it had been held that s. 14A(2) & (3) & Rule 8D are procedural in nature and have retrospective effect) and remanded the matter to the AO for re-computing the disallowance. The assessee challenged the decision of the Tribunal. HELD: (1) The argument that dividend on shares / units is not tax-free in view of the dividend-distribution tax paid by the payer u/s 115-O is not acceptable because such tax is not paid on behalf of the shareholder but is paid in respect of the payer's own liability; (2) S. 14A supersedes the principle of law that in the case of a composite business expenditure incurred towards tax-free income could not be disallowed and incorporates an implicit theory of apportionment of expenditure between taxable and non-taxable income. Once a proximate cause for disallowance is established - which is the relati....
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....proper to remand the issue of disallowance u/s.14-A of the Act to the AO for fresh consideration in the light of the law as laid down by the Hon'ble Bombay High Court. The AO will afford opportunity of being heard to the Assessee and decide the issue in accordance with the law as laid down by the Hon'ble Bombay High Court." 7. We are of the view that it would be appropriate to follow aforesaid order of the Tribunal as the facts and circumstances are identical in the present assessment year. We order accordingly and remand the issue to the AO for fresh consideration in the light of the directions given by the Tribunal in A.Y 2001-02 referred to above. 8. Ground No.2 raised by the assessee reads as follows: "2. The CIT(A) erred in ignoring "other income" and "net adjustments in respect of earlier years" of Rs. 62,38,200 of the eligible units for the purpose of granting deduction under section 80IA." 9. The assessee claimed deduction under section 80IA of the Act in respect of its Trombay Unit 7, Combined Cycle Power Plant (CCPP). The A.O has allowed deduction under section 801A in respect of the following undertakings:....
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....in this appeal reads as follows" "The ld. CIT(A) has erred in allowing the disallowance of expenditure made by the Assessing Officer of Rs. 25,86,759/- on maintenance of garden without appreciating the fact that the expenditure had not been incurred wholly, necessarily and exclusively for the purpose of assessee's business. 15. It is not in dispute before us that identical issue had come up for consideration before the Tribunal in assessee's own case for A.Y 2001-02 in ITA No.4572/M/08 and this Tribunal by its order dated 9/9/2011 had taken a view that expenditure on maintenance of garden has to be considered as expenditure incurred wholly, necessarily and exclusively for the purpose of business of the assessee. The following are the relevant observation of the Tribunal in this regard. "24. Ground No.2 raised by the Revenue reads as follows: "2.The learned CIT(A) erred in deleting the disallowance of expenditure on maintenance of garden amounted to Rs. 23,98,364/- without appreciating that the expenditure has not been incurred wholly , necessarily and exclusively for the purpose of business." 25. The AO has disallowed an amou....
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....ies are concerned the issue has already been considered by the Tribunal in A.Y 2001-02 in ITA No.4497/M/2008 & ITA No.4572/M/2008 and this Tribunal has held as follows: "30. The assessee has claimed expenditure incurred in respect of certain projects which were subsequently shelved on grounds of commercial expediency, as revenue expenditure. The assessee has submitted that when it was found that the projects were not likely to be profitable, they were given up in order that the Companies could concentrate on other more profitable projects to facilitate the carrying on of the business of the companies. The assessee furnished the following list of projects which were shelved during the year ended 31st March, 2001. Shelved Projects Amount (Rs.) ACC-Kymore Power Project 4,58,113 INDAL- Hirakud Power Projects Haryana Vidyut Prasaran 2,20,281 5,00,000 MSEB Power Project POWERGEN 14,66,566 2,74,73,477 Bidding regarding RVPNL Power Project-Jaipur 8,33,333 Bathinda Power Project ....
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....rred on feasibility reports as revenue expenditure. The assessee furnished the following details of expenditure on feasibility reports and preliminary studies incurred during the year ended 31st March, 2001. Projects Amount (Rs.) Augmentation of air conditioning LSHS Tank augmentation Flue gas desulphyurization- 3rd stream LNG Terminal 6,46,990 7,00,344 3,13,473 2,30,543 Proposed box culvert in Trombay main drainage Electro-chlorination plant Mini Hydro Scheme at Bhira 18,972 35,153 2,56,187 Mini Hydro Scheme at Mulshi Study for evaluation of 2 hydro projects at Zambia Mini Hydro power plant scheme on tailrace of Khopoli Power Plant 2,56,646 17,767 1,73,318 Total 26,18,393 The assessee also furnished statements indicating the break up of the above expenditure under cover of its letter dated 27th November,....
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.... of the Revenue is dismissed." Facts and circumstances being identical respectfully following the order of the Tribunal we uphold the order of the CIT(A) and dismiss Ground No.2 raised by the revenue. 18. Ground No.3 is an assie which arose in A.Y 2001-02 does not in A.Y 2002-03. The ground of appeal is taken as ground by mistake and the parties agreed before us that the aforesaid ground has been taken by mistake. Consequently, ground Np.3 is dismissed as not arising out of the order of the CIT(A). 19. Ground No.4 raised by the revenue reads as follows: "4. The ld. CIT(A) has directed the Assessing Officer to allow interest u/s. 244 of Rs. 8,27,591/- from April, 2002 to February 2005 without appreciating the fact that under provisions of sub-section 20 of section 244A, the ld. CIT(a) has no jurisdiction to direct the Assessing Officer not to restrict the period from oct.2004 to Feb. 2005." 20. The assessee's grievance before CIT(A) was that the AO has granted interest under Section 244A of Rs. 8,6739,757 in place of granting interest of Rs. 8,68,88,725. As per the Assessee, the shortfall of interest of Rs. 1 ,4896....