TaxTMI 
TaxTMI 
2019 (4) TMI 354
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of Income Tax (Appeals) - 6 [CIT(A)] has: Disallowance under section 14A of the Act read with Rule 8D of the Income-tax Rules. 1962 ('the Rules') General Ground 1. erred in confirming the disallowance under section 14A of the Act by invoking the provisions of Rule 8D of the Income-tax Rules, 1962; Non recording of satisfaction by AO with regard to incorrectness of the claim of Appellant 2. erred in confirming the action of the AO in invoking Rule 8D of the Rules, wherein the AO applied Rule 8D without recording its judicial satisfaction (as required under section 14A of the Act) on incorrectness of the claim made by the Appellant, thereby not appreciating the fact that the Appellant suo-moto offered Rs. 26,83,723 for disallowance u/s 14A of the Act; Disallowance of Administrative expenses towards Dividend Income 3. erred in disallowing 0.5% of average value of investments as per Rule 8D(2)(iii) towards administrative expenses without appreciating that Appellant's suo-moto disallowance of Rs. 26,83,723 includes the administrative expenditure attributable to earning exempt income; 4. Without prejudice to the above, disallowance under section 14A of the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sight the appeal remained to be filed against the CIT(A) order on or before 9 January 2018; 6. That it is humbly submitted that there is no intention to take advantage by belated filing of the appeal or any ulterior motive; 7. That it is humbly submitted that the delay in filing the appeal was due to the above mentioned reasons beyond the control of the undersigned, and accordingly a prayer is made to your Honour to condone the delay and admit the appeal and decide the issue on merits in the interest of justice. 8. That this Affidavit is made to put on record the facts." 3.2 The assessee has also submitted an application along with the aforesaid affidavit praying for condonation of delay in filing this appeal before the tribunal late by 1 day beyond the time stipulated u/s 253(3) of the 1961 Act. The assessee also relied on the following judgment in an application filed with tribunal praying for condonation of delay, as under:- MST Katiji & Others (1987) 167 ITR 471 (SC), Sterlite Industries (India) Ltd. (2006) 102 TTJ (Mumbai) 53 Balkrishnan v. M. Krishnamurthy (1998) 7 SCC 123 Lala Mata Din v. A Narayan AIR 1970 (SC) 1953 3.3 The learned DR fairly left the matter....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rnished by the assessee before the AO, as detailed hereunder: Sr No. Nature of expenses Amount (in Rs) 1 Telephone Expenses 1,00,000 2 Stationery 2,30,000 3 Salaries (based on proportionate time spent by certain employees) 23,53,723 Total 26,83,723 The amount of salary is arrived at as under: Sr. No Name of Employee Cost to Company (Rs) Proportion of time spent on earning exempt income Amount (Rs) 1 K. S. Krishnan 48,66,966 20% 9,73,393 2 R Balasubramaniuam 20,35,900 50% 10.17,950 3 N Ramamurthy 18,11,900 20% 3 62 380 Total 23,53,723 The rationale for the disallowance of salary expenses were given by the assessee before the AO as that once investments are made, nothing further needs to be done as dividend is directly reinvested into the investment/credited to the bank account and no other transactions are affected. The rationale for disallowing proportionate salary was given and it was submitted that small amount of overhead were also disallowed correctly. 4.2 The AO went through the submissions of the assessee as to assessee's claim that it incurred Rs. 26,83,723/- as an expenses in relation to earning of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rred for managing such huge investments. 5. Aggrieved by an assessment order dated 24.02.2016 framed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal with learned CIT(A) who was pleased to dismiss the appeal of the assessee vide appellate order dated 27.10.2017, wherein learned CIT(A) held that the assessee has not adopted any scientific basis for disallowance of expenses relatable to earning of an exempt income nor exact expenses which were incurred for earning of an exempt income was worked out by the assessee. The learned CIT(A) upheld the decision of the AO in invoking Rule 8D of the 1962 Rules and it was held that the additions so made by the AO u/s 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules are in accordance with Mumbai-tribunal order in assessee's own case for AY 2008-09 to 2011-12. 6. Still Aggrieved by the appellate order dated 27.10.2017 passed by learned CIT(A) , the assessee has filed second appeal with tribunal. 7. The Ld. Counsel for the assessee submitted that the issue in this appeal concerns disallowance of expenses incurred in relation to earning of an exempt income, u/s 14A of the 1961 Act. It was submitted that no dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the tribunal to the AO to compute the total expenditure incurred by the assessee toward earning of an exempt income. 7.2 It was submitted by learned counsel for the assessee that while deciding appeal of the assessee for AY 2011-12 in ITA No. 1018/Mum/2015 vide order dated 17.10.2016 on the issue of disallowance of administrative expenses, the tribunal has set aside the issue to the file of the AO by following aforesaid decision of co-ordinate bench of the tribunal in assessee's own case for AY 2008-09 to 2010-11. 7.3 Our attention was drawn by learned counsel for the assessee to the decision of co-ordinate benches of the tribunal in the case of ACIT v. Cyrus Investments Private Ltd., in ITA no. 6414/Mum/2016 for AY 2012-13 vide orders dated 09.05.2018 wherein one of us being Accountant Member was part of the Division Bench who decided the said appeal. It was submitted that the additions were deleted on the grounds that AO had not recorded satisfaction u/s. 14A(2) as to why disallowance made by the assessee voluntarily is not a correct disallowance and the disallowance of expenditure u/s 14A so made by the assessee suo moto were upheld. It was submitted by Ld. Counsel for the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Disallowance as per Rule 8D(iii) made in Assessment order dated 16 March 2015 passed under section 143(3) of the Act Opening value of investments: (j) 45.50 Closing value of investments: (k) 142.23 Average value of investments : (1) = [(j) + (k)]/2 93.87 Disallowance of 0.5% of the average value of investments : (m) = (1) * 0.5% 0.47 Amount already disallowed in return of income : (n) 0.27 Additional Disallowance under section 14A read with Rule 8D : (o) = (m) - (n) 0.20 Excess disallowance under section 14A as per Rule 8D (p) = (m) - (1) 0.10 It is submitted that as per above calculations , additional disallowance of expenditure incurred in relation to earning of an exempt income having regards to accounts of the assessee of approx. Rs. 10 lacs is further required to be made u/s 14A of the 1961 Act. 7.4 Without Prejudice, It is claimed that if Rule 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act is invoked, then in that case only those investments should be considered for making disallowance u/s 14A of the 1961 Act which actually yielded an exempt income. The Reliance is placed on the decision of Special Bench of Delhi-tribunal in the ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies (based on proportionate time spent by certain employees) 23,53,723 Total 26,83,723 The amount of salary is arrived at as under: Sr. No Name of Employee Cost to Company (Rs) Proportion of time spent on earning exempt income Amount (Rs) 1 K. S. Krishnan 48,66,966 20% 9,73,393 2 R Balasubramaniuam 20,35,900 50% 10.17,950 3 N Ramamurthy 18,11,900 20% 3 62 380 Total 23,53,723 On being show caused by the AO as to justify that disallowance of expenses as were made by the assessee is in accordance with Section 14A of the 1961 Act read with Rule 8D of the 1962 Rules, the assessee justify that it had correctly made disallowance of expenses incurred in relation to earning of an exempt income u/s 14A of the 1961 Act and no further disallowance of expenses is warranted. The rationale for the disallowance of salary expenses were given by the assessee before the AO as that once investments are made, nothing further needs to be done as dividend is directly reinvested into the investment/credited to the bank account and no other transactions are affected. The rationale for disallowing proportionate salary was given and it was submitted that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No. 1718/Mum/2013 for AY 2009-10 and ITA no. 5881 & 6641/Mum/2013 & CO. No. 10/Mum/2013 for AY 2010-11, vide common order dated 21.02.2014, held that Rule 8D of the 1962 Rules is applicable for assessment year's 2008-09 TO 2010-11 and certain expenses are bound to be incurred for earning of an exempt income. The directions were given by the tribunal to the AO to compute the total expenditure incurred by the assessee toward earning of an exempt income, by holding as under:- "9. As regard, the disallowance of administrative expenses, the ld. AR of the assessee has submitted that the assessee suo-moto disallowed Rs. 10.17 lakh which are sufficient considering the nature and volume of the transaction. He has further submitted that the AO has not given the finding that the assessee has incurred any expenditure for earning the exempt income therefore, the provisions of section 14A cannot be invoked. Alternatively, the ld. AR has submitted that the disallowance in earlier years has been restricted to 5% of the exempt income and the same can be disallowed for these years on account of administrative expenses. On the other hand, the ld. DR has relied upon the orders of the Assessing Offic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the Coordinate Bench in A.Y. 2008-09 to 2010-11 (referred above) with following directions: 'It is to be noted that Rule 8D is applicable for the year under consideration therefore, the disallowance of administrative expenses has to be computed as per the formula provided in Rule 8D. However, the disallowance worked out under Rule 8D cannot exceed the total expenditure claimed by the assessee which can be apportioned to the exempt income. Thus we set aside this issue to the record of AO for the limited purpose of computing the total expenditure incurred by the assessee for the composite/indivisible activities in which taxable and non-taxable income is received and if the disallowance work out under Rule 8D on account of administrative expenses exceeds the total claim of expenditure incurred for the composite activities resulting taxable or non-taxable income then the disallowance should be restricted to the said actual total claim of expenditure." 6. Consistent with the view taken by the coordinate bench, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for considering the issue afresh by duly con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." So far as contention of the assessee that strategic investments made in associated concerns/subsidiaries etc. should not be included while computing disallowance of expenditure incurred in relation to earning of an exempt income u/s 14A of the 1961 Act, we are afraid that this proposition cannot be accepted in view of decision of Hon'ble Supreme Court in the case of Maxopp Investment Limited v. CIT reported in(2018) 402 ITR 640(SC) . The assessee has also fairly conceded to be governed by aforesaid decision of Hon'ble Supreme Court and the said plea stood withdrawn. At this stage, it is important to refer to decision of tribunal in the case....