AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 769
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....ts and should have been capitalized. 2. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) erred in deleting the addition of Rs. 91558225/- made by AO u/s 14A without appreciating the facts that the assessee had failed to establish that the borrowed funds were exclusively used for business purposes. 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) erred in deleting the income of Rs. 660185/- being made by AO on account of reversal of income as per RBI guide lines." 2. The brief facts are that the assessee is a non banking financial company engaged in the business of leasing, hire purchase and finance. The Assessing Officer during the course of the assessment proceedings noted that assessee company had incurred total expenditure of Rs. 34,30,05,872/- in respect of issue of debentures and discount of commercial paper. In the books of account, the assessee had debited a sum of Rs. 21,27,56,382/- and in the P&L account and remaining amount of Rs. 13,02,49,490/- was treated as deferred revenue expenditure. The bifurcation of the figures was as under:- Details Debenture issue expenses Discount on commercial papers Total....
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....as committed to do so, whereas in the present case the assessee has not avail such option and has claimed the deduction for the full amount and same should be allowed in the year of the payment and should not be deferred over the period of time. The Hon'ble Jurisdictional High Court in the case of CIT vs. Panacea Biotech Ltd. (supra), has distinguished the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. (supra). He further observed that issue under consideration is also squarely covered by the Jurisdictional Tribunal in the case of the assessee itself for the Assessment Year 2000-01. Accordingly, he allowed the claim u/s.37 during the year itself. 4. Before us the ld. counsel for the assessee, at the outset submitted that this issue stands covered by the decision of the Tribunal in assessee's own case for the Assessment Year 2000-01 and 2001-02. On the other hand, learned DR strongly relied upon the order of the Assessing Officer. 5. After considering the relevant finding given in the impugned orders as well as the order of the Tribunal in assessee's own case for the earlier years, we find that the amounts in respect of ....
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....s, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilise the said amount and secure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself: "15.. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the f....
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.... assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of accounts are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See - Kedarnath Jute Manufacturing Co. Ltd. v. Commissioner of Income Tax (Central), Calcutta, (1972) 3 SCC 252; Tuticorin Alkali Chemicals & Fertilizers Ltd., Madras v. Commissioner of Income Tax, Madras, (1997) 6 SCC 117 ; Sutlej Cotton Mills Ltd. v. Commissioner of Income Tax, Calcutta, (1978) 4 SCC 358; and United Commercial Bank, Calcutta v. Commissioner of Income Tax, WB-III, Calcutta, (1999) 8 SCC 338]. 20) At the most, an inference can be drawn that by showing this expenditure in a spread over manner in the books of accounts, the assessee had initially intended to make such an option. However, it abandoned the same before reaching the crucial stage....
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....ntained physically. As a result, the expenditure (management and/or administrative) required to be incurred on the securities, if at all, has become inconsequential." 8. However, the learned Assessing Officer rejected the assessee's contention on the ground that, firstly, there is an inbuilt cost even in so called passive activity of investment and there is incidental expenditure of collection, telephone, etc.; secondly, there is a deployment of funds and therefore, composite fund having cost, needs to be spread so as to apportion appropriate cost of funds invested in the activity lending to carrying of exempt income; lastly, Rule 8D is procedural and therefore, it has to be applied. After relying upon the ITAT Special Bench decision in the case of ITO, Mumbai vs. M/s. Daga Capital Management Pvt. Ltd, he proceeded to work out the disallowance by applying Rule 8D and thereby made Rs. 9,15,58,225/- which consisted of interest disallowance of Rs. 8,52,13,518/- and indirect expenditure of Rs. 63,44,707/-. 9. Before the ld. CIT(A), it was submitted that the investment have been made by the assessee's own fund and not from the borrowed capital and there were huge reserves and surplus ....
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....atisfaction, Assessing Officer cannot proceed to make any disallowance. On the issue of interest expenditure, he submitted that now it is a well settled proposition that if assessee has own surplus funds which are interest free far exceeding the investment made, then no interest component should be disallowed. Alternatively on the issue of administrative cost, he submitted that those investments which has not yielded dividend income, then same should be excluded from the computation of disallowance under Rule 8D (2)(iii). In respect of his contentions, especially on the issue of recording of satisfaction, he relied upon the decision of Hon'ble Delhi High Court in the case of HT Media Ltd. vs. Pr.CIT, reported in (2017) 399 ITR 576 (Del.) and Hon'ble Apex Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. Dy.CIT & Anr., reported in (2017) 394 ITR 449 (SC). 12. We have heard the rival submissions and also perused the relevant finding given in the impugned orders. First of all, we find that before the Assessing Officer in response to the show cause notice as to why disallowance u/s.14A r.w. Rule 8D should not be made, assessee has given a very detailed reason as t....
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.... crossed, i.e., the stage of the Assessing Officer recording that he is not satisfied with the claim of the assessee in the manner indicated, i.e., after examining the assessee's accounts, the question of applying the formula under rule 8D(2) does not arise. That this is a mandatory pre-requisite for applying rule 8D(2) is fairly well-settled." 14. Thus in absence of any kind of satisfaction by the Assessing Officer after examining the nature of expenditure debited and examining the accounts of the assessee, he cannot proceed to apply Rule 8D. Here in this case, it is more so, because assessee has given a very categorical explanation as to why disallowance u/s.14A should not be made, because entire investments have been made out of internal accruals and own interest free funds; and secondly, has given reasons as to why administrative expenditure cannot be held to be attributable at all for the purpose of disallowance. The Assessing Officer should have first examined such a claim with regard to the accounts of the assessee and the nature of expenditure debited so as to prima-facie come to a satisfaction whether any expense can be attributed for the purpose of earning the exempt....