TaxTMI 
TaxTMI 
2018 (4) TMI 12
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....case are that the assessee company earned dividend income of Rs. 12,74,97,916/- from mutual funds and other investments and Rs. 22,87,91,487/- being long term capital gains on sale / redemption of investments, both aggregating to Rs. 35,62,89,403/-, that was exempt from tax. The total income (revenue) as appearing in the Profit and Loss Account of the assessee company was Rs. 36,69,34,00,324/-. While filing the return of income, the assessee disallowed a sum of Rs. 73,39,364/- under Sec.14A(1) of the Income Tax Act, 1961 (the Act). The assessee company, in its computation of income, in Note No. 14 had submitted that its treasury operations were centralized and located at its registered office at the Times of India Building, in Mumbai and the investments were made from this registered office only. The assessee company had incurred a sum of Rs. 75,58,63,650/- as common expenses (excluding staff costs and expenses directly relatable to printing and publishing activities of the assessee) at its registered office. The salaries, wages and other employee benefits of employees belonging to the Finance Dept. had been considered in entirety in arriving at the common expenses. Based on the ab....
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.... arrived at having regard to the accounts of the assessee. Hence, sub- section (2) does not ipso facto enable the assessing officer to apply the method prescribed by the rules straight away without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The assessing 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 assessee 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 rule....
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....ne so, the action of the A.O. in invoking Section 14A(2) and Rule 8D is beyond jurisdiction. 4.9 In the circumstances, respectfully following the decision of the jurisdictional High Court in the case of Godrej 86 Boyce Mfg. Co. Ltd. vs. DCIT (328 ITR 81) (Bom.) I am of the opinion that invoking Rule 8D by the AO is not justified and accordingly the appeal is allowed. 5.2 I have carefully considered the facts, gone through the Assessment Order and other material available on record as well as the written submissions filed before me. 5.3 The facts submitted by the Appellant company, which facts were also before the A.O., indicate that till the year ended 31st March 2006 the Appellant company did not have any borrowings. The extract of source and application of funds from the Appellant company's audited Balance Sheets for the years ended 31st March 2006 to 31st March 2010, reveals that the Appellant company has deployed its own funds in investments, though it had borrowings in those years. In the circumstances, the facts go to show that only own funds have been deployed by the Appellant company in making investments to earn tax-free income. The Ld. A.R, has relied upon the d....
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....e to be presumed that the investment made by the assessee would be out of the interest-free funds available with the assessee. We, therefore, are unable to agree with the submission of Mr. Suresh Kumar that the Tribunal had erred in dismissing the appeal of the Revenue on this ground." 5.6 Respectfully following the ratio of the jurisdictional High Court in the above decisions, the Appellant company having sufficient interest free funds available wherefrom it has made investments on which it has earned tax-free income, the borrowings made and the interest paid thereon by the Appellant company cannot be attributed to making investments. Hence the Ld. A.O. erred in invoking Rule 8D to attribute interest paid on borrowings and other expenses for purposes of disallowance under Sec.14A(2) of the IT Act. The addition of Rs. 32,59,61,000/- made by the A.O. is, therefore, deleted. 5.7 In A.Y.2007-08 vide order no. CIT(A)-I/IT-529/09-10 dated 25.02.2011, my Ld. Predecessor upheld the method adopted by the Appellant company in apportioning the common expenses pertaining to its registered office (excluding the staff costs and the expenses directly relatable to publishing and printing acti....
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....and ground No.4 is dismissed," 5.8. Respectfully following the same , I am inclined to agree that the disallowance of Rs. 73,39,364/- made by the Appellant company under Sec.l4A(l) of the Act can be attributable to the earning of exempt income by the Appellant company and therefore further disallowance made by the A.O. of Rs. 32,59,61,000/- is not warranted. 6. Against this order, the assessee is in appeal before us. 7. We have heard both the counsel and perused the records. The ld. Counsel of the assessee submitted that the issue involved is covered in favour of the assessee by decision of this ITAT in assessee's own case for assessment year 2008-09 in ITA No. 3298 & 3537/Mum/2012 vide order dated 08.01.2018. Further, the learned counsel submitted a chart showing the deployment of funds. From this he claimed that sufficient interest-free funds were available to make the incremental investment. Hence he submitted that in accordance with the ITAT decision here in above and the finding of learned CIT-A for the current year, the addition in this case has rightly been deleted by the ld. Commissioner of Income Tax (Appeals). 8. Per Contra, the ld. Departmental Representative re....
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....ictional Bombay High Court in the case of "Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT [(2010) 328 ITR 81 (Bom)]" in which it has been held as under: "Sub-section (2) of section 14A does not enable the assessing officer to apply the method prescribed by Rule 8D without determining in the first instance the correctness of the claim of the assessee, having regard to the accounts of the assessee. ................... The satisfaction envisaged by sub- section (2) of Section 14A is an objective satisfaction that has to be arrived at by the assessing officer having regard to the accounts of the assessee. .................. An objective satisfaction contemplates a notice to the assessee an opportunity to the assessee to place on record all the relevant facts including his accounts and recording of reasons by the assessing officer in the event that he comes to the conclusion that he is not satisfied with the claim of the assessee." From the above judgment it is clear that it is necessary for AO to give opportunity to assessee as to why rule 8D should not be invoked. Assessee has placed on all the relevant facts including his accounts qua the claim and it has also given the detailed ....
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....le both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal." 7. We, therefore, respectfully following the ratio laid down by the Hon'ble Bombay High Court inclined to set aside the order of CIT(A) on this issue and direct the AO to delete the disallowance as made u/s 14A of the Act. 10. We find there is cogency in the ld. Counsel of the assessee's submissions that the issue in present appeal is covered in favour of the assessee by the ITAT decision in assessee's own case earlier. It is not the case that the Hon'ble jurisdictional High Court has reversed the decision. As regards the ld. Departmental Representative's objection that current year's investments and source have not been examined by ITAT, we find that for the current year, the ld. Commissioner of Income Tax (Appeals) has given his findings that sufficient inte....