TaxTMI 
TaxTMI 
2018 (11) TMI 1611
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..... It seeks to allow interest payment on income tax dues of Rs. 14,09,227/- against the interest income as against the income tax refunds of Rs. 43,12,278/-. Its only prayer seeks only net of two sums to be taxed. The CIT(Appeals) detailed reasoning under challenge denying the impugned netting relief reads as follows: "4.3. I have carefully examined the assessment order, the written submissions and the other material on record. The basic issue involved here is that the AO has denied the claim of the appellant in allowing interest of Rs. 14.09.227/- paid to the Income Tax Authorities to be set off against interest of Rs. 43,12,278/- received from the Income Tax Authorities. The appellant has supported his claim by placing reliance on the decision of the Mumbai Tribunal in DCIT vs. Bank of America NT & SA [2011-TII-114-ITATMum-Intl.] wherein on identical facts the set off has been allowed. The AO on the other hand has relied on the subsequent third member decision of the Pune Tribunal in the case of DCIT vs. Sandvik Asia Ltd. [133 ITD 126 (Pune-TM)(2011)], where it was held that such adjustment was not possible. 4.4. The judicial pronou....
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....d on the facts of the case and the judicial pronouncements cited above i.e. DCIT vs. Sandvik Asia Ltd. [133 ITD 126 (Pune-TM(2011)] and Bank of America N.A. Mumbai vs. Department of Income Tax decided on 27th November, 2013, I uphold the action of the AO in denying the claim of the appellant that the interest paid / incurred on Income Tax dues should be adjusted against the interest accrued / received on Income Tax refunds. Ground no. 2 is therefore, dismissed." 3. We have heard rival contentions. There is no dispute between the parties about the two sums involved on interest income on refunds and interest expenditure on income tax. The sole question herein is that of netting of these two figures only. Learned CIT(Appeals) has placed a very strong reliance on this tribunal's order in Bank of America case (supra) for denying, the netting in issue. We find in this factual back drop that the impugned issue is no more res integra as hon'ble Bombay high court decision in the said assessee's case hold such a netting to be allowable in DIT (International Taxation) vs. Bank of America NT & SA I. T.A No. 177 of 2012 decided on 03.07.2014 vide follo....
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....ing legal developments on the impugned netting aspect. His only case is there lordships never intended to make the said decision as a precedent. We find no merit in the instant plea as Revenue's very substantial question of law raised in its tax appeal stands rejected. We therefore direct the assessing officer to finalize the assessee's netting computation qua its interest as taxes paid to the department as against interest income of tax refunds as per law. This first substantive ground raised in assessee's appeal is taken as accepted in taxpayer's favour. 4. Next comes assessee's second substantive ground seeking to delete section 14A read with Rule 8D(2)(iii) administrative expenditure of Rs. 12,47,65,000/- @ 0.5% of the average value of investments coming to Rs. 2495.30 crores as against its suo moto disallowance of Rs. 43,59,012/-. The assessee's exempt income derived from its investments in tax free funds, shares, mutual fund reads a sum of Rs. 208,93,24,198/-. We deem it appropriate at this stage to reproduce the ld. CIT(Appeals) findings under challenge as follows: "6.3. At the outset, I observe that this is a recurring issue is the case ....
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....sallowance. He cites this tribunal's decision in REI Agro Ltd. v. Dy. CIT [2013] 144 ITD 141 as confirmed in hon'ble jurisdictional high court holding that only dividend income yielding investments are to be taken for consideration than all tax free investments. The taxpayer then pleads that the impugned total disallowance in any case should not exceed total cost incurred by the treasury ventical of Rs. 2,06,05,347/- i.e. by not apportioning salary (an in turn overheads) of its treasury figures. Case Law M/s Maruti Traders & Investors vs. ACIT I.T.A. No. 2204/Kol/2016 dated 11.04.2018 is quoted in support for contending that it is incumbent for the assessing authority to verify assessee's accounts in order to ascertain the correct amount of section 14A read with Rule 8D disallowance. 7. The Revenue on the other hand places strong reliance on both the lower authorities' action disallowing the administrative expenses in issue. 8. We have heard rival contentions. We first of all wish to reiterate that the assessee has admittedly derived exempt income of Rs. 2089324198/- from bonds, shares and mutual funds. Learned CIT....
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....as disallowed. The Assessee went in appeal before the CIT(A). CIT(A) confirmed the disallowance. 7.1 The Ld. AR submitted that the Assessee has not incurred any direct expenditure for earning of the income. The Assessee himself made disallowance and offered to tax proportionate salary and administrative cost of the personnel involved in the Assessee's Corporate Treasury department as the Corporate Treasury department inter alia is responsible for the management of the investment and banking functions of the Assessee company. Therefore, their proportionate salary and related overhead cost was disallowed on the basis of the principles contained in Sec. 14A. The AO incorrectly observed that the Assessee has made ad hoc disallowance. The disallowance was based on certain principles. The AO without recording any cogent reason for the disallowance of the claim just applied Rule 8D while the Assessee has not incurred any direct expenditure for earning of the dividend. Reliance was placed on the following decision: i) Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272/[2011] 203 Taxman 364/15 taxmann.com 390 (Delhi) i....
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....iginally this sec. provides that in computing the total income of the assessee no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. Subsequently, by Finance Act, 2002 with retrospective effect from 11/5/200 I proviso was added which states that this sec. shall not empower the AO either to re-assess or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee for any assessment year beginning on or before 1/4/2001. With effect from 1/4/2007 by Finance Act, 2006 sub-sec. (2) empowers the AO to determine the amount of expenditure incurred in relation to such income which does not form part of the total income in accordance with the method as may be prescribed. Such power is to be exercised if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure mentioned in sub-sec. (I). Before applying Rule 8D, it is apparent that the AO must be satisfied with the correctness of the claim of the assessee having regard ....
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....ntial investment. The average investment value income from which is exempt were computed as under : Value of total investment as on 01 .04.2007 Rs. 3,067.77 crore Less: Value of Investment the income from which is not exempt from tax Rs. 212.08 crore Value of investment the income from which is exempt Rs. 2,855.69 crore Value of total investment as on 31.03.2008 Rs. 2,934.55 crore Less : Value of investment the income from which is not exempt from tax Rs. 387.30 crore Value of investment the income from which is exempt Rs.2.547.25 crore 7.3.1 We noted that the AO was of the opinion that the investment decisions are generally taken by the managerial personnel or other professional experts employed for the purpose for which administrative, managerial and establishment expenses are incurred. The Assessee has to identify these expenses on the basis of the accounts maintained by the Assessee. In the absence of separate details or the accounts and taking account of the volume of....
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....total income, in accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. Moreover, the satisfaction of the AO has to be arrived at, having regard to the accounts of the assessee. Hence, sub-sec (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway 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 AO 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 AO must be arrived at on an objective basis. It is only when the AO 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 AO to arrive at a satisfaction in ....
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....lement the provisions of sub-sec. (1). Therefore, it is necessarily for the AO first to ascertain whether there is proximate connection between the expenditure incurred and the income not forming part of the total income. If such proximate connection is established with the exempt income, the AO would be justified in applying the provisions of sub-sec (2) & (3) of sec.l4A and Rule 8D of the IT Act, l96l. The expenditure incurred u/s 14A would include direct and indirect expenditure, but relationship with exempted income must be proximate. If there is material to establish that there is direct nexus between the expenditure incurred and the income not forming part of total income then disallowance would be justified even where there is no receipt of exempted income u/s l0 in the year under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. v. ITO [2009] 121 ITD 318 (Delhi). 7.3.5 The basic principle of taxation is to tax the net income. On the same analogy, the exemption is also to be allowed on net basis i.e. gross receipts minus related expenses. Therefore, if any expenditure is directly related to exempted income, it cannot be all....
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....the Treasury dept. spend the time and personnel associated with the Treasury Dept. are responsible for making investment of company's surplus funds in various instruments yielding dividend and interest. The salary, in our opinion, at the most, could have been apportioned in the ratio which the total investment bears with the total assets. No reason or explanation is either on record or explained to us by the Id. AR as to how the sum of Rs. 73,59,513/- was only been apportioned while the expenditure incurred in respect of this Department is Rs. 1,16,59,453/-. The AO, we noted, has also given a categorical finding in this regard about the incorrectness in the disallowance computed by the Assessee. The primary onus in our opinion, lies on the Assessee to give the evidence and the material so that the AO can be satisfied. The material and evidences are in the possession of the Assessee. Therefore, the Assessee is duty bound to provide the same when an explanation is called for by the AO as to how he has computed the disallowance and how he has worked out the proximate relationship of the expenses with the total expenditure incurred by him with the investment made. Once the Assessee....
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....tal income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section l4A. Sub-section (3) applies to cases where the assessee claims tha....
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.... "In the present case, there is no satisfaction by the AO and consequently, in view of the decision of the Coordinate Bench of this Tribunal in the case of Balarampur Chini Mills Ltd. (supra) no disallowance u/s l4A can be made." Thus, this decision, in our opinion, will not assist the Assessee. 7.3.9 We have also gone through the decision in Champion Commercial Co. Ltd. (supra). We noted that in this case the grievance of the Assessee was that the disallowance should have been deleted in the entirety on the ground that the AO had not recorded specific satisfaction to the effect that the claim of the Assessee i.e. no expenditure was incurred on earning of tax exempt dividend, was incorrect. We noted that the facts of this case are different from the facts of the Assessee's case. In this case, the Assessee had not shown any expenditure being incurred against the exempt dividend income which was directly credited to the bank account of the Assessee and therefore he argued that the provisions of Sec. l4A cannot be invoked. On this question, the Tribunal took the view that the provisions of Sec. l4A r.w.r 8D has rightly been invoked. In the case of the As....
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....nch decision, in preceding assessment year. All of its contentions are therefore found to be repetitive of its arguments raised in assessment year 2008-09 which already stand rejected. We thus find no substance in assessee's instant substantive ground therefore. 10. Coming to assessee's legal argument in view of Maxopp investments Ltd. (supra), it transpires that their lordships had decided proportionate interest disallowance issue in relation to exempt income rather than indirect expenditure in the nature of overheads therein. It has already come on record that the Assessing Officer has not accepted assessee's books computing its suo moto disallowance of proportionate interest expenditure. He disallowed its administrative expenditure only under the third limb of Rule 8D . We therefore adopt above co-ordinate bench detailed reasoning mutatis mutandis to confirm administrative expenditure disallowance of Rs. 12,04,05,988/-. The assessee failed qua its second substantive ground as well. 11. Next comes assessee's additional / third substantive ground seeking to claim ESOPs of Rs. 261737836/- to be wholly and exclusively incurred ....
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....ppeal I.T.A. No. 685/Ko/2014 is partly accepted in above terms. 13. We now come on Revenue's cross appeal I.T.A. No. 1267/Kol/2014. Its first substantive ground seeks to restore the Assessing Officer's action treating assessee's receipt of Rs. 9,82,64,664/- derived from sale of carbon credits as business income as per assessment order as reversed in lower appellate proceedings as follows. 14. We have heard rival contentions. The Revenue vehemently contends during the course of hearing the learned CIT(Appeals) has erred in law and on facts in treating the above carbon credit receipts accepted than revenue's receipts. We find the instant issue is no more res integra as per PCIT vs. M/s L.H. Sugar Factory Pvt. Ltd. 392 ITR 568 (All) as well as various other judicial precedents quoted in the CIT(A) order (supra) make it clear that such receipts as to be treated capital head only. Coupled with this, the legislature has inserted section 115BBG in the Act vide Finance Act, 2017 w.e.f 01.04.2018. We make it clear that this appeal pertains to assessment year 2009-10 only. This is not the Revenue's case that the a....
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....ded the total transfer price of Rs. 35,15,93,155/- against the price of Rs. 40,44,26,809/-. The AO also noted that the Assessee is bound to pay to the State Government Electricity Duty on the units generated by the captive plant and he calculated the cost element to be paid to the State Government at Rs. 223.86 lacs. Therefore, he was of the view that this has to be reduced while computing the profit and accordingly he recomputed the profit from power undertaking - I at Rs. 6,42,55,155/- and reduced the deduction accordingly. 4.1 In respect of power undertaking - II, the AO noted that the Assessee generated 8,97,59,276 units and set transfer price at Rs. 3.36/unit. Here also the Assessee has taken into account additional demand charges while computing the transfer price which was re-calculated by the AO. The AO further noted that the Assessee has to pay to the State Government, Electricity Duty on the units generated by the captive plant and he computed the Electricity Duty to be paid at Rs. 167.15 lakhs and to that extent he was of the view that the profit has to be reduced from this captive power plant. Accordingly, the AO recomputed the profit at Rs. 15,69,04,973....
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.... captive undertaking issue in the appellant's favour in AY 2003-04 and AY 2004- 05 and the CIT(A) has also similarly held for AY 2006-07 and AY 20070S. Therefore, respectfully following the above mentioned decisions 1 hold that the deduction under section 80IA is fully available to the company in respect of the captive power undertakings.' 4.4 In respect of the steam undertaking issue, the CIT(A) noted that one power undertaking VI, Bhadrachalam generates steam for captive use of other undertakings at Bhadrachalam and allowed the deduction by observing as under: "1 find that it has been repeatedly established that steam is power as per the Delhi Tribunal decision in SIAL SBEC Bioenergy Ltd. vs.. DCIT [S3 TT] 866 (2004)] and DCIT v. Maharaja Shree Umaid Mills [120 TTJ 711 (2009)]. Further, the Hon'ble Supreme Court had dismissed the Department's SLP against the judgement of the Madras High Court in the case of Tanfac Industries Ltd. (TC No. 1773 of 2008) [319 ITR 8, 9] wherein the High Court had dismissed the Department's appeal against the decision of the Tribunal which had held the deduction under section 80IA was applicable on th....
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....sessee. We noted that the Tribunal under para 10.13 of its order accepted the rate as has been worked out by the CIT(A) to be the fair market value by holding as under: "10.13 The Ld. AIR further submitted that in the instant case the assessee would be entitled to determine its profits of the power unit by considering the tariff rate determined at Rs. 4.45 per unit as per the policy of the APSEB. Keeping in view the ratio of the decision of the Hon'ble Supreme Court in Thiru Arooran Sugars Ltd. (supra), we are of the view that the market price in case of a captive unit should be the price that the assessee would have paid to an outsider if the same commodity/services were to be procured by the assessee i.e. the landed cost. However in the instant case the actual price is unreasonably high since the rate of APSEB contains certain fixed charges which are not directly relatable to the captive plant. Further the average rate computed in conjunction with the APGPCL has not been rightly considered by the assessee since the said party is a related party. The tariff rate computed by the assessee in accordance with the guidelines by APSEB is the most reasonable and....
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....compute the profit eligible for deduction u/s 80IA on the basis of the aforesaid finding given by the Tribunal for A.Y. 2002-03." We adopt the above detailed reasoning mutatis mutandis to decline Revenue's instant third substantive ground as well. Necessary computation shall follow at the Assessing Officer's end as per law. 17. The Revenue's last substantive grievance is that the CIT(A) has erred in law as well as in facts in allowing assessee's section 80IC deduction claim of Rs. 38,16,63,000/-. The ld. CIT(Appeals) has admittedly followed his findings in preceding assessment year to allow assessee's impugned deduction claim. This tribunal's coordinate bench decision in Revenue's appeal itself in assessment year 2008-09 (supra) had upheld the ld. CIT(A) identical findings qua the very units as follows: "5. Ground no. 3 relates to the claim of deduction by the assessee u/s 80IC. The facts relating to this ground are that the assessee claimed deduction u/s 80IC in respect of the undertaking at Haridwar, Uttaranchal. The AO did not allow the deduction holding that the assessee had not carried out by the desig....
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....e order of CIT(A) and CIT(A) has rightly allowed the claim of the Assessee. We, accordingly, confirm the order of CIT(A) on this issue. Thus, this ground stands dismissed." Respectfully following the said order we are of the view that the said unit is eligible for deduction u/s 80IC. So far as the issue that no profit has been credited in the Profit & Loss account, we noted that CIT(A) has even though decided in favour of the Assessee that the Assessee is eligible for deduction u/s 80IC but has not given any finding whether the income generated from this undertaking stands included in the gross total income of the Assessee. In our opinion, the income need not be separately credited to the Profit & Loss account when the income derived from the eligible undertaking has to be computed. The revenue authorities should only ensure whether income from the eligible undertaking is included in the gross total income of the Assessee or not as the basic condition for allowing of deduction u/s 80lC is that the Assessee is eligible for deduction if the gross total income includes any profit and gain derived by the eligible undertaking. We, therefore, restore this issue to the file....
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.... only the salaries and other expenditure of the Treasury Department. This is where the AO has disagreed. The judicial pronouncements relied upon by the appellant in the written submission deal with a situation where disallowance has been made by the AO and the appellant has contended that there is no need for disallowance at all since it has incurred no expenditure in earning the tax-free income. It is in this context that the adjudicating authorities have held that there must be some expenditure which has been incurred for the earning of the tax-free income and the disallowance should not be of hypothetical / deemed expenditure. In the given case since the appellant has himself agreed that it has incurred certain expenditure for the earning of the Document 2 tax-free income and has even offered it for disallowance in the revised return of income, I do not find any relevance of the case laws. The only dispute is with respect to the computation of the quantum of disallowance. 6.7 In order to compute the disallowance under section 14A, it is important to understand the jurisdiction of the AO: In this connection, I reproduce the relevant par....
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.... which does not form part of the total income, the AO has no option but to follow the prescribed formula laid down in Rule 8D. Law mandates the action of the AO. Document 3 Hence the argument of the appellant company that the AO is not correct in applying the provisions of Rule 8D is not based on the principle of law. 6.8 Keeping in mind the quantum of tax free income earned and the fact that the appellant company has himself acknowledged that the Treasury Department of the appellant is directly involved in the earning of the tax free income, I see no reason as to why other indirect expenses incurred in connection with the earning of the tax-free income should not be considered for disallowance. In fact, section 14A contemplates the disallowance of both direct and indirect expenses and Rule 8D has been inserted to arrive at a basis of apportionment of expenditure when the indirect expenses can not be identified separately. 6.9 I find that this issue is squarely covered against the appellant vide order of CIT(A) dated 13.06.2012 in appeal No.250/CIT(A)-VIII/Kol/11-12 for the A.Y.2008-09 on identical facts in the appellant's own case. Keepin....
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.... of Vodafone International Holdings Vs. UOI [supra] wherein Supreme Court has held that treatment of any particular item in different manner in the 1961 Act and DTC serves as an Document 5 important guide in determining the taxability of said item. Since DTC by virtue of the deeming provisions specifically provides for taxability of carbon credit as business receipt and Income Tax Act does not do so, our view gets duly fortified by the principles stated in the above decision of Supreme Court. Accordingly this ground of the assessee is allowed and the addition made by the AO is deleted. 3.7 The AO in the assessment order has stated that Carbon Credits are in the nature of Business Income as per the provisions of the Section 28 of the Incomes Tax Act, 1961 and thereafter has quoted the provisions of section 28(iv) and 28(va). I find no merit in this line of argument adopted by the AO. 3.8 Section 28(iv) deals with the value of any benefit or perquisite whether convertible into money or not, arising from business or the exercise of a profession. According to the said section such benefit or perquisite is to be taxed as : "Business I....
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....est waiver of Rs.3,43,59,395/-, which is payable to bank. This is a cash benefit received by the assessee. Therefore, section 28(iv) has no application to assessee's case because in view of the decision of the Hon'ble Jurisdictional High Court in the case of Iskraemeco Regent Ltd. v. CIT (supra) and also the decision of Hon'ble Delhi High Court in the case of Ravinder Singh v. CIT (supra). 3.9 Coming to Section 28(va), it is observed that the said section is applicable in cases where the assesse receives an amount on account of "not carrying out any activity in relation to any business". The appellant has received money on account of sale of carbon credits and not on account of agreeing not to carry out any activity in relation to any business. I fail to see how the said provision can be applied in the current case and accordingly see no merit in the argument of the AO. 3.10 Based on the facts of the case, the judicial pronouncements cited above i.e. ITAT Hyderabad in the case of M/s My Home Power Ltd vsDy CIT [TS-820-ITAT- 2012 (Hyd), Shree Cement Ltd. vs ACIT (ITA No.503/JP/2012) etc. and the observations made above I hold that the action....
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.... as has been mentioned in the explanation to section 194J(1). We further find from the memorandum explaining to provisions of the Finance Bill 2012 that as per clause No.71 it was specifically mentioned that there was no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. We find the provisions of section 194J(1)(ba) speaks of any remuneration or Document 8 fees or commission by whatever name called other than those on which tax is deductible u/s. 192 to a director of a company on which tax has to be deducted at the applicable rate and the above provision has been inserted by the Finance Act, 2012 w.e.f., 01-07-2012. We, therefore, find force in the submission of the learned counsel for the assessee that no tax is required to be deducted u/s. 194J out of such director's sitting fees for the A. Y. 2007-08. In this view of the matter, the order of the CIT(A) is set-aside and the ground raised by the assessee on the issue of TDS on sitting fees paid to Directors is allowed. 5.8 I find that the issue is squarely covered by the judicial precedents discussed above including the decision....