TaxTMI 
TaxTMI 
2018 (8) TMI 1838
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....ssed by the learned CIT (A) is contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so held now. 2.0 The learned CIT (A) erred in law and on facts in upholding disallowance of Rs. 2,57,76,000/- u/s 14A towards administrative and other expenditure ignoring the fact that the learned A.O. had not recorded any satisfaction having regard to the book of accounts of the appellant as required under the law and also ignoring the fact that the appellant itself had made suo moto disallowance towards such expenses and also ignoring the binding decisions of Hon'ble ITAT for the earlier Assessment Years. It is submitted that it be so held now. 3.0 The learned CIT(A) erred in law and on facts in not allowing deduction of Rs. 37,36,68,000/-being liability incurred by the appellant in terms of Memorandum of Understanding dated 22/2/2010 with the workman in respect of "equal pay for equal work" in spite of the same having crystalized during the year and being allowable u/s 37 (1) r.w.s. 28 (i) of the Act and instead relying on findings of Hon'ble ITAT for A.Y. 200001, which was in different context and differ....
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.... of Rs. 2,57,76,000/- to the book profit computed u/s 115JB of the Act in respect of proportionate expenditure out of administrative and other expense related to exempt income computed by the learned A.O. and upheld by him as per the formula prescribed under Rule 8D r.w.s. 14A of the Act. It is submitted that provisions of section 14A of the Act r.w. Rule 8D of the Rules is applicable only to computation of total income under Chapter-IV and not to book profit which is calculated under Chapter-XII-B of the Act and hence no such addition ought to have been made u/s 115JB of the Act. It is submitted that it be so held now." 3. The revenue has raised following grounds of appeal:- "i. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in deleting the disallowance of Rs. 583.15 lacs u/s 14A towards interest and other expenses incurred in relation to exempted income of dividend, without taking note that it was up to assessee to adduce evidence that all the borrowings were used for the purposes of the business and it is the assessee's own surplus funds that were invested in the shares earning exempted income. ii. On the facts and in t....
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.... that the entire investment in tax free income yielding securities has been made from own interest free funds, therefore, no further disallowance u/s. 14A r.w. Rule 8D should be made. The assessing officer has not accepted the explanation of the assessee stating that assessee has not maintained separate accounts for source of funds utilized for the investment activities. Thereafter, the assessing officer has determined the disallowance according to provision of section 14A r.w. Rule 8D of IT Rule and made an addition of Rs. 8,40,91,000/- to the total income of the assessee. 7. Aggrieved assessee has filed appeal on this issue before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee by stating as under:- "2.5 In view of decisions of Hon'ble ITAT Ahmedabad and Hon'ble High Court of Gujarat as reproduced above it is held that the AO is not justified in holding that the appellant diverted borrowed funds in investment activities and therefore the interest of Rs. 5,83,15,000/- on portion of funds diverted from the business to investment activities is not allowable. In view of the facts as discussed in preceding paragraphs and also in view of decisi....
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....tical issues involved therein. During the course of assessment proceedings, the assessing officer has noticed that assessee has received exempt income of Rs. 19,75,14,447/- during the year under consideration. The assessing officer has disallowed on amount of Rs. 8,40,91,000/- as per provision of section 14A r.w. Rule 8D of the I.T. Rule. The ld. CIT(A) has deleted the addition of interest expenditure of Rs. 5,83,15000 u/s. 14A on the ground that the assessing officer could not prove any nexus between interest bearing borrowed funds and the investment made in the tax fee securities.The Ld.CIT(A) has also placed reliance on the decision of the ITAT and Hon'ble Gujarat High Court in the case of the assessee itself. However, the ld. CIT(A) has sustained the addition to the extent of Rs. 2,57,76,000/- in respect of administrative expenses . The ld. counsel has brought to our notice the decision of Co-ordinate benches of the ITAT on the issue of disallowance of interest and administrative expense on similar facts in the case of the assessee for assessment year 2004-05 to 2009-10. The Hon'ble Jurisdictional High Court has confirmed the Tribunal's order for assessment year 2004-05. The re....
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....r in respect of interest expenditure because the own funds of the assessee is much higher than the investment in share etc., Regarding other administrative expenses, we have confirmed a disallowance of Rs. 5 lakh in A.Y. 2004-05 and hence, in the present year also, we confirm the disallowance of Rs. 5 lakh regarding other administrative expenses and delete the balance disallowance. This ground of Revenue's appeal is partly allowed. For A.Y. 2007-08 8. We have considered rival submissions and perused the material available on record and gone through the order of authorities below and the Tribunal decision cited by Ld. A.R. of the assessee. Regarding disallowance out of interest expenditure, we are of considered opinion that no such disallowance is called for when the own interest free funds is far in excess of investment in tax free securities and the A.O. could not prove any nexus between interest bearing borrowed funds and such investment in tax free securities and therefore, the same is deleted. In respect of disallowance u/s 14 (A) out of other expenses, a disallowance of Rs. 5 lacs was confirmed by the Tribunal in assessee's own case in A.Y. 2004-05 and also in A.....
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....essment year 2008-09. From A.Y. 2008-09 onwards amendment was brought in rule 8D thereby prescribing a method for calculation of disallowance u/s. 14A of the Act. However the condition precedent to applying Rule 8D of Income Tax rule is that the A.O. has to make a proper satisfaction from the records of the assessee that such expenses have been incurred towards making the investment and earning the exempt income.In the instant appeal no such satisfaction has been recorded by the Learned Assessing Officer pointing out any error in the calculation of the administrative expenses rather he hasmechanically applied the method provided under rule 8D of Income tax rule. 14. We also observe that Hon'ble Jurisdictional High Court in the case of Pr. CIT vs. India Gelatin and Chemical Limited (2015) 376 ITR 553 (Gujarat) adjudicating similar issue of administrative disallowance u/s. 14A of the Act for A.Y. 2009-10 thereby confirming the order of the Tribunal limiting the disallowance suomoto made by the assessee thereby disregarding the administrative disallowance computed by the A.O. applying method provided under rule 8D of the Income tax rules. 15. Similar view was also taken by Co-or....
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....any infirmity in the decision of ld. CIT(A) in respect of deleting addition of interest part u/s. 14A of the Act. In respect of disallowance of administrative expenses u/s. 14A of the Act to the amount of Rs. 2,57,76,000/- the Co-ordinate Benches of the ITAT in the case of assessee for the preceding years has decided the identical issue on identical facts and restricted the adhoc disallowance to the amount of Rs. 10 lacs and Rs. 15 lacs for assessment year 2008-09 and assessment year 2009-10 respectively. The relevant part of the decision of the ITAT Vide ITA No. 319 & 339/Ahd/2012 is reproduced as under:- "12. As regards the disallowance of administrative expenses u/s.14A of the Actat Rs. 0.66 crores& 2.07 crores for both the assessment years calculated by the A.O. @ 0.5% of the average investments after giving benefit of suomotodisallowance of Rs. 40,281/- &Rs. 50,281/- for A.Y. 2008-09 & 2009-10 respectivelywee find that Co-ordinate Bench Ahmedabad as well as Hon'ble Jurisdictional High Court has dealt with this issue also. 13. Co-ordinate Bench in ITA No. 729/Ahd/2010 in the case of assessee for A.Y. 2007-08 while dealing with this issue of administrative disallowance sus....
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....satisfaction on his part which as per the provisions of section 14A of the Act isprecedent before applying rule 8D of IT Rules. However we find that assessee has made a minor disallowance suomoto at Rs. 40,281/-&Rs. 50,281/- for A.Y. 2008-09 & 2009-10 even though the exempted income is at Rs. 14.77 crores& 19.70 crores which by no canon can be a reasonable disallowance. Even in the preceding yearslumpsum disallowance of Rs. 5 lakh has been sustained. We therefore looking to the magnitude of average investments and huge dividend income of Rs. 14.77 crores and 19.70 crores and the fact that there has been regular movement of funds under the head investment, an ad-hoc disallowance of Rs. 10lacs&15lacs for A.Y. 2008-09 & for 2009-10 respectively would meet the end of justice. We accordingly do so, giving partial relief to the assessee." Respectively following the decision of the Co-ordinate Bench as cited above, we restrict the disallowance on account of administrative expenses to the amount of Rs. 15 lakhs for the year under consideration. Therefore, the appeal of the assessee is partly allowed and ground of appeal of revenue is dismissed. Ground No. 3 of assessee's appeal:- 10.....
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....oss on trading of fertilizer bonds during the year under consideration. During the financial year 2008-09, the assessee was allotted fertilizer bonds of face value of Rs. 1065.72 crores in lieu of the subsidy receivables by the company. Out of the allotted bonds, bonds of the face value of Rs. 604.52 crores were sold during financial year 2008-09 and the gain thereon was considered as business profit. However , the assessee has sold the remaining bonds of the face value of Rs. 461.01 crores for the consideration of Rs. 393.48/- which resulted in loss to the amount of Rs. 67.62 crores and the assessee has claimed it as business loss since fertilizer bond constitutes business asset of the assessee. The assessing officer has disallowed the claim on the ground that the fertilizer bond cannot be said to be assessee's stock in trade. 15. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee following the decision of his predecessor in assessee's own case for assessment year 2008-09 on the ground that investment in the fertilizer bond is to be treated as capital asset. During the course of appellate proceedings before us, the ld. ....
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....as business loss. 33. It is true that these bonds were shown as investment in the Balance sheet.Before moving further we would like to go to the judgment of Hon'ble Apex Court in the case of Patnaik and Co. Ltd. wherein a company subscribed for a Government loan on a promise by the Government thatassesseewill receive preferential treatment in placing the order for motor vehicles which is turn would be supplied to Government departments. Assessee claimed a certain amount of loss sustained by it on disposing of its subscription and claimed it as business loss. Revenue disallowed treating it as capital loss. Tribunal held it as business loss but Hon'ble High Court took different view confirming the action of the A.O. However Hon'ble Apex Court held it to be a Revenue loss by observing that there was nothing to show that there is any reason for the assessee to hold on the investment in the loan indefinitely. There was no enduring advantage. Thus the investment does not bring in an asset of a capital nature and the loss suffered by the assesseewas a Revenue loss. 34. Similarly in the case of D.S. Bist&Sons (supra) where the facts of the case were that , assessee was forced to subs....
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....Rs. 33,14,627/-, the appellant has submitted that these two amounts have been crystallized during the year under consideration. The appellant in its above submission dated 26/02/214 has stated that expenses regarding consumption of material of Rs. 31,51,966/- and another consumption of material of Rs. 1,62,523/- are related to consumption of chemicals and consumable which were consumed during the year under consideration but were not reported to the accounts department and accordingly the said consumption could not be accounted for. It is submitted by the appellant that these consumption of material of Rs. 31,57,966/- and Rs. 1,62,523/- were discovered during the year under consideration by the internal auditor and reported in their audit report. Based on this it is pleaded that these expenditures can be said to have been crystallized during the year and therefore the same should be allowed. But the submission of the appellant is not only of general nature but contradictory also. On one hand the appellant has pleaded that these expenditures were crystallized during the year and on the other hand it has submitted that consumption of chemicals and consumables which were consumed duri....
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....t is submitted that the entire amount has been crystallized and accounted for during the accounting year relevant to AY 2010-11. The appellant in its submission as reproduced in earlier paragraph has mainly stated that it had imported trading material called melamine during the financial year (FY) 2008-09. A copy of the invoice dated 20th March 2009 is enclosed by the appellant in this regard. As per the appellant the said material was delivered during FY 2008-09. As per the appellant however, the liability on account of purchase of goods was finally settled and paid on 25th May 2009 (i.e. during the financial year relevant to AY 2010-11 i.e. the year under consideration. Accordingly, it is submitted that since the liability on account of purchase of goods was settled and paid off during the year under consideration, the liability should be considered as crystallized during the year under consideration. Thus, it is submitted that the deduction of Rs. 2,76,25,680 should be allowed while computing income of the year under consideration on basis of crystallization of liability though such liability is pertaining.to earlier year. The appellant has further clarified that the actual amou....
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.... was there and how the liability was finally determined subsequently as a result of settling of dispute. Considering all these facts, it is held that the appellant has failed to explain that the above expenses of Rs. 2,69,82,822/- was actually crystallized during the year-under consideration. Merely on the basis that the payment was made during the year under consideration, it cannot be said that these expenses of Rs. 2,69,82,822/- was crystallized during the year under consideration unless and until proper documentary evidences in this regard I are filed by the appellant. In respect of another amount of Rs. 6,42,858/-(i.e. Rs. 2,76,25,680/- minus Rs. 2,69,82,822/-) it is stated by the appellant that such amount is related to the year under consideration and thereby is allowable as deduction for the year under consideration. But again this submission of the appellant is without any documentary evidences and therefore the same is not acceptable. In view of this the total addition of Rs. 2,76,25,680/- is hereby confirmed on, the ground that the appellant has failed to prove that the said amount had been crystallized during the year under consideration and hence the same are allowable....
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.... to be added to the total income of the assessee. Therefore, the assessing officer has added interest of Rs. 1,11,81,827/- to the total income of the assessee. 22. In the appeal, the ld. CIT(A) has dismissed the appeal of the asessee stating that assessing officer has correctly taxed the interest amount received on refund issued to the assessee. 23. During the course of appellate proceedings before us, the ld. counsel has contended that above mentioned interest was not accrued to the assessee during the year under consideration because of litigation in respect of granting of interest pending before ITAT. 24. We do not find any merit in the appeal of the assesee on this issue after considering the decision of the Special Bench of the Tribunal in the case of Avada Trading Co. P. Ltd. vs. ACIT (2006) 100 ITD 131 (Mum) wherein it is held that interest on refund under section 244A(1) would be assessable in the year in which it is granted. Accordingly, this ground of appeal of the assessee is dismissed. Ground no. 7 of assessee's appeal 25. During the course of assessment proceedings, the assessing officer has added an amount of Rs. 8,40,91,000/- as proportionate expenditure re....