TaxTMI 
TaxTMI 
2019 (1) TMI 674
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....rule 8D under section 14A? 2. Whether on the facts and circumstances of the case, the ld. CIT (A) has erred in upholding the rejection of the disallowable amount of Rs. 11,30,955/- offered by the assessee, without examining as to why the A.O. was not satisfied with the correctness of the claim of the assessee, having regard to the accounts of the previous year? 3. Whether on the facts and circumstances of the case, the ld. CIT (A) has erred in upholding that once having rejected the computation of disallowable amount offered by the assessee, the A.O. has no discretion but to apply rule 8D(2)(iii) as the words used in section 14(2) are "the A.O shall determine " and the word "shall" does not leave any discretion, whatever be the result, of application of rule 8D(2)(iii)?" 3. The brief facts of the case for AY 2008-09 are that the assessee is engaged in the business of trading of power and coal and generation of power. Assessee company filed its return of income on 30.09.2008 showing income of Rs. 174438856/-. The assessee earned dividend income of Rs. 253850000/- and has investment of Rs. 13263.35 million in shares and mutual funds. The ld AO noted that divid....
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....at investment is made in mutual fund and expenditure is debited to the mutual fund income account only. Therefore, there cannot be any disallowance u/s 14A of the Act. He stated that even otherwise the assessee has offered disallowance on proportionate basis. He further submitted an application of additional evidence to show that the disallowance is far less of only Rs. 4143014/-. In the form of additional evidence he submitted a certificate of the Chartered Accountant to show the amount of disallowance on proportionate basis. His other argument was that while working out the disallowance u/s 14A read with Rule 8D only that investment are required to be considered from which exempt income is earned. He also relied upon several judicial precedents on this aspect and lead decision is of the Honorable Delhi high court in case of ACB India Limited V ACIT dated 8/4/2015 6. The ld DR vehemently submitted that Rule 8D is mandatory from Assessment Year 2008-09 onwards and law does not provide any exclusion while making computation of disallowance. He further referred to the assessment order to show that proper satisfaction is recorded by AO. He therefore, supported the order of the lowe....
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....the Chartered Accountant showing the disallowance for Assessment Year 2008-09 as under:- Date: 09.10.2018 TO WHOMSOEVER IT MAY CONCERN We state that the Assessing Officer made a disallowance of Rs. 3,62,74,506/- Under section 14A read with Rule 8D against the exempt income of Rs. 25,38,50,000/- earned by the assesse in AY 2008-09 for the Assessee "PTC India Limited" having PAN No. AABCP7947F. We have analyzed and scrutinized the books of accounts of the assesse and specially the aspect of expenses incurred by the assesse with respect to the exempt income of Rs. 25,38,50,000/-. We state as under: - 1. The exempt dividend income is mostly earned from mutual funds. The dividend is credited in the bank accounts of assesse when the assesse gets the redemption of the investment. 2. The company has a strict and well defined investment policy which has been approved by the Board of Directors and there has been no deviation from the said investment policy. 3. As per investment policy of the Company, the company invests surplus funds from time to time in Debt Mutual Funds and the dividend is earned from Debt Mutual Funds....
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.... disallowance u/s 14A read with Rule 8D, only those investment which has resulted into exempt income during the year are required to be considered. With respect to ground No. 1 of the appeal, respectfully the decision of the Hon'ble Delhi High Court, it is further held that only those investments which has earned exempt income during the year are required to be considered for the purposes of working disallowance u/s 14A read with Rule 8D. In view of the above facts, respectfully following the decision of the Hon'ble Delhi High Court and submission of the additional evidence by the assessee, we set aside the whole issue back to the file of the ld AO with a direction to the assessee to substantiate before the ld AO about the actual expenditure incurred by it towards earning exempt income. The ld AO may verify it along with the certificate of the Chartered Accountant with various record examined by the CA. After examination, ld AO is directed to decide the issue of disallowance u/s 14A read with Rule 8D afresh in accordance with law. In view of above facts and decision of Honourable Delhi High court in ACB Investments P Ltd (Supra), it is further held that the ld Assessing ....
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....essee is incorrect and he applied the provisions of rule 8D of the income tax act and worked out the disallowance of Rs. 55110363/- under section 14A of the income tax act. Therefore, he disallowed the net sum of INR 5 4940363 /- over and above the disallowance offered by the assessee of INR 170,000. Assessee preferred appeal before the learned CIT - A, who confirmed that the assessing officer has correctly recorded the satisfaction about the incorrectness of the claim of the assessee. However with respect to the disallowance under section 14 A of the act. He restricted it to INR 42974351/-. He held that assessee himself has stated that a sum of INR 241279/- relates to direct interest expenditure for earning tax-free dividend income and therefore, to that extent the disallowance of direct interest expenditure under rule 8D is to be disallowed. He further upheld the disallowance of INR 42 09/03/2007 to under rule 8D (2) (iii) of the act. Accordingly he upheld the disallowance of INR 42974351/-. The assessee being aggrieved with the order of the learned assessing officer making the disallowance which is partly confirmed by the learned CIT - A, has preferred an appeal before us. ....
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....e income during the year. Further, similar to the facts for assessment year 2008 - 09, the assessee has also submitted a certificate of the chartered accountant working of disallowance under section 14 A of the income tax act wherein the assessee himself has stated that total expenditure in relation to exempt income comes to INR 3044955/-. The certificate of the chartered accountant also shows the direct expenditure of INR 320064 and indirect expenses of INR 2724891/-. In view of this we direct the learned assessing officer to examine the claim of the assessee based on the certificate of the chartered accountant. If the assessing officer is satisfied with the correctness of the claim the disallowance should be restricted to that extent. If the AO is not satisfied with the correctness of the claim of the assessee then he may apply the rule 8D of the income tax rules 1962. However, while applying the rule 8D of the income tax rules. The learned AO must consider only those investments which have yielded exempt income. Accordingly, we set aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to substantiate its claim that only INR 3....
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.... has in the impugned appellate order given directions that the interest expenses of Rs. 37,40,000/- cannot be disallowed under Rule 8D . 9. That the Ld CIT(Appeals) has erred on facts and in law in following the previous year orders and the same were never confronted to the assessee. 10. That in any case the view taken by the Ld CIT(A) in earlier years is not a correct view in law and appeals have been filed against the said orders in ITAT by the assessee. 11. The AO and CIT(A) have erred on facts and in law in upholding the levy of interest u/s 234D against the assessee. The charging of interest is illegal, bad in law and without jurisdiction." 17. Though in appeal memo the assessee has raised 11 grounds of appeal, However, all the grounds are related to the disallowance under section 14 A of the income tax act confirmed by the learned CIT(A). Brief facts of the case shows that the assessee filed its return of income on 24/9/2010 declaring total income of INR 947670950/-. The assessee during the year earned dividend income of INR 235150000 on its investment and the total amount of investment in shares and mutual fund was INR 8,377,050,000. In the comp....
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....us. 18. The learned authorised representative reiterated the submissions made before the lower authorities and also reiterated the submissions made before us for assessment year 2008 - 09. The assessee also submitted in the form of additional evidence the working of the disallowance made by the chartered accountant of INR 1969940 where the direct expenditure of INR 508367 and indirect expenditure of INR 1461572 was worked out. As per the certificate of the chartered accountant, it was stated that the exempt income is only INR 23 5150 000 which is 24.81% of the returned income and therefore the total indirect expenses are required to be disallowed in that proportion which is worked out at INR 1461572/-. It was further stated that the chartered accountant has worked out the disallowance from the records of the company. He therefore submitted that the disallowance cannot exceed the above amount, which is actual expenditure incurred by the assessee. 19. The learned departmental representative reiterated the submissions made before us for assessment year 2008 - 09 and vehemently supported that the learned assessing officer has correctly recorded the satisfaction that the claim mad....
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....2010 - 11 wherein the learned assessing officer has levied the penalty under section 271 (1)(C) of the Income Tax Act of Rs. 14761857/- on account of disallowance under section 14 A of the Income Tax Act. The learned CIT (A) deleted the penalty holding that appellant has furnished an explanation which is satisfactory and facts are not doubted. He further stated that the issue of disallowance under section 14 A, being a debatable matter, the provisions of section 271 (1)(c) of the Act are not attracted in the case. He further stated that there is no deliberate furnishing of inaccurate particulars of or concealment of the income. He passed in order deleting the above penalty vide order dated 14/10/2016, which is under challenge by the revenue before us. The revenue has raised the solitary ground of appeal as under:- "1. In the facts and circumstances of the case, the ld CIT(A) erred in deleting the penalty levied by the AO u/s 271(1)(c) amounting to Rs. 1,46,56,380/- ignoring the fact that the assessee had made wrong claim for deduction under the provisions of Income Tax Act, 1961." 23. The learned authorised representative submitted that assessee has furnished the correc....