TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 1611
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....e 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 pronouncement relied upon by the appellant has been overruled in....
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....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 following detailed discussion: "3. Even with regard to the question No.2 we do not find t....
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.... 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 of the appellant. Though the issue has been similar in earlier years, the law governing the issue has changed substantiall....
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....risdictional 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(appeals) has admittedly adopted judicial consistency in following his order for immediate preceding assessment year whilst affir....
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....enditure 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) ii) CIT v . REI Agro Ltd. (ITAT 161 of2013) Calcutta High Court decision dated 23-12-2013 iii) Cellica Developers (P) Ltd. v. Dy. CIT [2014] 63 SOT 255/45 taxmann.com 367 (Kol.) ....
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....ct, 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 to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the material on record. It cannot be an impression that it is much more than the gossip or hearsay, it means judgment or belief that it is a belief or a co....
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....pt 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 investment activity, the AO took the view that the disallowance made by the Assessee u/s l4A does not have any relation with the accounts and therefore the Assessee was not correct in computing the disallowance. The AO, therefore, applied Rule 8D and computed the disallowance under Rule 8D(2)(iii). 7.3.2 The Id. A....
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.... 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 regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the AO not being so satisfied that recourse to the prescribed method is m....
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.... 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 allowed to be set off against taxable profit. On the same analogy, in our opinion, if any expenditure is directly related to taxable income, it cannot be allowed to be set off against the exempted income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the as....
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....s 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 has submitted the evidences, the onus is on the AO and the AO is duty bound to record the reasons why he is not satisfied with the correctness of the claim of the Assessee in respect of such expenditure in relation to the income. Until and unless the Assessee discharges his primary onus when the AO has asked for it, the onus cannot be shifted on the AO so as to give benefit to the Assessee. Even though ....
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....equirement 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 that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exemp....
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....at 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 Assessee, the Assessee claimed the expenses relatable to the exempt income. Therefore, this decision will not assist the Assessee. 7.3.10 We have also gone through the decision of the Mumbai Tribunal in the Raj Shipping Agencies Ltd. (supra). We noted that in this decision also the Tribunal has categorically taken the view that for invoking provisions of Sec. l4,A satisfaction has to be recorded by the AO with reference to the accounts. Rule 8D cannot be invoked....
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.... 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 for the purpose of its business. This tribunal's special bench in the case of Biocon Ltd. vs. DCIT [2013] 144 ITD 21(Del) has accepted such a claim qua disallownace between fair market value of shares of ESOP and exercise of the option at the instance of the concerned employees to be allowable revenue expenditure. The assessee's paper book's pages 104, 105, 107,108, 109, 111 and 117 inter alia comprise of the relevant SEBI guidelines, ICAI note, annual report to this effe....
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....urse 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 above stated legislative amendments carries any retrospective effect. We uphold the CIT(Appeals) finding under challenge in these facts and circumstances therefore. The Revenue fails in its first substantive ground. 15. The Revenue's second substantive ground challenges the CIT(A) order reversing Assessing Officer's action disallowing commission and directors sitting fee on account of non-deduction of TDS. He had invoked section 40a(ia) of the Act to disallo....
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....eduction 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/-. 4.2 In respect of power undertaking - IV, the AO observed that the undertaking generated steam used for generation of electricity by the captive power undertakings. The AO took the view that the two units are functionally integrated as a single unit so far as generation of steam and electricity and vice versa are concerned. Since the Assessee has artificially bifurcated the two units, therefore, he was of the opinion that no deduction u/s 80IA can be allowed in respect of the steam unit as....
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....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 the value of steam used for captive consumption. The appellant company has also submitted that it is a separate / independent undertaking which produces power in the form of steam and which is transferred to other undertakings at market value for captive use. This was supported by the audited statutory Form 10CCB report which lists out all aspects related to the said independent undertaking like date of commencement, statutory inspection/clearances, statement of costs, fixed assets, profit & loss a/c and balances sheet and the proces....
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....iew 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 scientific way to derive the market price. This rate worked out to Rs. 4.45 per unit. The Ld CTT(A) had further reduced this rate by deleting the surcharge and additional duty and worked out the unit rate at Rs. 4.368 which has also been accepted by the assessee. In view of the clear findings by the CIT(A) and the decision of the Supreme Court and the Mumbai Tribunal we are of the view that the decision of the CIT(A) is correct and there is no infirmity in the said decision. Hence this ground of the Revenue is also dismissed." Fr....
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..... 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 designated division of the Assessee. The assessee has not included in the credit side of the profit and loss account any profit while deduction has been claimed on the notional profit. The assessee went in appeal before the ld. CIT(A). ld. CIT(A) deleted the disallowance. 5.1. The ld. DR relied on the order of the AO while the assessee contended that the allegations are similar to the disallowance made u/s 80IA, this issue has been decided in favour of the assessee in assessee's own case for assessment year 2002-03 to 200405 and now it is squarely cove....