TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 863
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....on of Rs. 15,50,542/- being disallowance u/s 14A r.w.w. 8D instead of appellant company's suo-moto disallowance of Rs. 50,000. 3. Alternative and without prejudice to the ground no2 above, the learned AO failed to appreciate that appellant is eligible for getting proportionate increase of deduction u/s 10A of Income Tax Act 1961 for the disallowance amounting to Rs. 15,50,542 made u/s 14A r.w.r. 8D. 4. The learned AO and learned DRP erred in law and on facts in increasing the BOOK PROFIT of the assessee u/s 115JB of Income Tax Act 1961 by adding Disallowance u/s 14A r.w.r. 8D amounting to 15,50,542/- 3. The first issue raised in the present appeal is against adjustment made on account of arm's length price in relation to interest received / receivable on loans extended to associated enterprises. 4. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal stands covered in favour of assessee by the order of Tribunal in assessee's own case in M/s. KPIT Cummins Infosystems Ltd. Vs. ACIT in ITA No.247/PN/2013, relating to assessment year 2008-09 and ITA No.526/PN/2014, relating to assessment year 2009-10, ....
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....ems Ltd. reported in 56 taxman.com 206 (Bom) had held as under:- "18. The Pune Bench of Tribunal in Varroc Engineering Pvt. Ltd. Vs. ACIT (supra) had also laid down similar proposition and directed the Assessing Officer/TPO to verify the claim of the assessee vis-à-vis the borrowals of loans, which in turn, were advanced at LIBOR + rate to the associate enterprises, in case the advancement of loan to the associate enterprises is on LIBOR+ / WIBOR+ rates, then the said transaction with the associate enterprises is within arm's length price, otherwise, the TPO may re-compute the arm's length price of international transactions. Following the same parity of reasoning, we direct the Assessing Officer to compute the adjustment, if any, in the hands of assessee, after verifying the claim of the assessee. The ground of appeal No.4 raised by the assessee is thus, allowed." 9. The issue in the present assessment year has also to be decided in line with the issue decided in earlier years and following the same parity of reasoning, we direct the Assessing Officer to verify whether the loans were advanced to associated enterprises on LIBOR+ or WIBOR+ rates, as the case may b....
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.... The Assessing Officer while passing the assessment order in para 10 had observed that the assessee had earned significant amount of tax free dividends and in the computation of income, the assessee has disallowed sum of Rs. 50 lakhs under section 14A of the Act. Then, reference is made to the Note filed by the assessee on expenditure disallowable under section 14A of the Act. The Assessing Officer thereafter, takes note of the contents of said explanation and observed as under:- "I have gone through the submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The entire investment in mutual fund is in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted. The disallowance u/s 14A is required to be made by applying Rule 8D. As per the working of disallowance u/s 14A a....
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....on 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares / making the investment in shares is to be examined by the AO." 17. In the present case, the Assessing Officer has failed to record necessary satisfaction as to why suo moto disallowance made by the assessee was not correct and in the absence of the same and applying the ratio laid down by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT (supra) and in Maxopp Investment Ltd. Vs. CIT (supra), we find no merit in the disallowance worked out by the Assessing Officer by invoking provisions of Rule 8D(iii) of the Rules. In the absence of recording of satisfaction under sec....