TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 1069
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....ing to Rs. 23,88,051/- as against Rs. 44,61,102/- disallowed by the AO for A.Y. 2009-10. 2. On the facts and circumstances of the case and in law, the decision of the CIT(A) in restricting the disallowance u/s 14A r.w. Rule 8D(2)(ii) to the extent of exempt income is not acceptable as Department's SLP on the issue of Section 14A is pending before the Hon'ble Supreme Court in the case of Essar Teleholdings Ltd. (CA No. 2165/2012). 3. The appellant prays that the order of the CIT (A) on the above grounds be set aside and that of the Assessing Officer be restored. ITA No. 359/MUM/2018 Assessment Year: 2009-10 3. The grounds of appeal filed by the assessee read as under : 1. The CIT(A) erred in upholding the disallowance under section 14A of the Act of Rs. 23,88,051 determined by applying the provisions of rule 8D of the Income- tax Rules, 1962 (the Rules). 2. The CIT(A)ought to have held that the pre-conditions to be satisfied before application of rule 8D had not been fulfilled in the present case. 3. The CIT(A) ought to have held that no disallowance could be made under section 14A of the Act in respect of expenditure allegedly incurred towards earning of exempt ....
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....e AO computed the disallowance u/s 14A r.w. Rule 8D at Rs. 44,61,102/-. 5. In appeal, the Ld. CIT(A) directed the AO to restrict the disallowance to the extent of exempt income i.e. dividend of Rs. 23,88,051/-. The Ld. CIT(A) followed the submission before him by the assessee that without prejudice to the other grounds of appeal, the disallowance u/s 14A r.w. Rule 8D cannot exceed the exempt income as per the decision of the Hon'ble Delhi High Court in Joint Venture Pvt. Ltd. v. CIT (ITA No. 117/2015). 6. Before us, the Ld. DR submits that the disallowance computed by the AO at Rs. 44,61,102/- be confirmed as it is based on calculation as per section 14A r.w. Rule 8D. 7. The Ld. counsel submits that before invoking the provisions of Rule 8D, for computing the amount of disallowance u/s 14A of the Act, the AO has to record his dissatisfaction with the suo motu disallowance made by the AO in an objective manner. In this regard, reliance is placed by him on the decision in Godrej & Boyce Mfg. Co. Ltd. v. DCIT 328 ITR 81 (Bom) [paras 70 and 71 at pages 120 and 121 of the Report] and Godrej & Boyce Mfg. Co. Ltd. v. DCIT 394 ITR 449 (SC) [para 37 at page 471 of the Report]. It is sta....
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....d the AO to restrict the disallowance to the extent of exempt income . 10. Before us, the Ld. DR submits that the disallowance computed by the AO at Rs. 1,36,60,657/- be confirmed as it is based on calculation as per section 14A r.w. Rule 8D. 11. Besides the similar submission made for AY 2009-10, the Ld. counsel submits that the assessee carried out business of share trading and derivative trading and dividend income earned is incidental to the business of the assessee and that the borrowing made were not for the purpose of earning dividend. It is further stated that the expenditure incurred in earning dividend income and share of profit can only be disallowed and there are no direct expenses incurred for earning dividend income and share in profit, hence, no such disallowance is called for. It is further stated that in the assessee's case there is no new investment in shares during the year under appeal and in fact there is no new investment in shares since 2005-06 onwards. Also it is pointed out for disallowance u/s 14A r.w. Rule 8D, the AO while calculating the average investments has included to the credit balance of firms in the books of the assessee, whereas for the purpos....
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....d for the day to day activities and there would be no doubt that a part of the same is relatable to the earning of exempt income. Therefore, the AO made a disallowance of Rs. 15,09,62,609/- u/s 14A r.w. Rule 8D. As the assessee in the statement of income has suo motu made a disallowance of Rs. 1,27,488/-, the AO restricted the disallowance to Rs. 15,08,35,121/- (Rs. 15,09,62,609/- minus Rs. 1,27,488/-). 15. In appeal, the Ld. CIT(A) directed the AO to restrict the disallowance to the extent of exempt income i.e. upto dividend of Rs. 12,54,587/- and profit from firm of Rs. 9,60,11,832/-. 16. Before us, the Ld. DR submits that the disallowance of Rs. 15,08,35,121/- made by the AO u/s 14A r.w. Rule 8D be affirmed as the same has been done as per the provisions of the Act. 17. On the other hand, the Ld. counsel, in addition to the contentions for AYs 2009-10 and 2011-12 submits that the AO has committed the following mistakes in computation of disallowance u/s 14A r.w. Rule 8D: i. The value of investments and stock in trade as on 01.04.2011 was Rs. 10,73,16,376 and as on 31.03.2012 was Rs. 14,33,24,019. The aggregate value of such investments as at the beginning and at the end of ....
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....ry dated 21.11.2011, the AO asked the assessee to explain as to why the provisions of section 14A r.w. Rule 8D should not be applied to his case. The assessee filed a reply which has been extracted by the AO at para 4.2 of the assessment order dated 22.11.2011. In that reply, the assessee explained that out of total expenses of Rs. 5,50,716/-, a reasonable amount calculated @ 2% may be disallowed which works out to Rs. 11,014/-. However, the AO was not convinced with the said explanation of the assessee for the reason that in the computation of income the assessee has not made disallowance of any expenditure incurred for earning income which does not form part of total income. Thereafter, following the judgment of the Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Co. Ltd. (supra), he computed the disallowance u/s 14A r.w. Rule 8D. For AY 2011-12, during the course of assessment proceedings, the AO asked the assessee to explain as to why the disallowance u/s 14A r.w. Rule 8D should not be made. In response to it the assessee filed a reply which was not acceptable to the AO for the reason that the basic object of introduction of section 14A in the Act is to disallow the....
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....ch investments is attributable to business of banking falling under the head 'profits and gains of business and profession'. On that basis, the Circular contains the decision of the Board that no appeal would be filed on this ground by the officers of the Department and if the appeals are already filed, they should be withdrawn. A reading of this circular would make it clear that the issue was as to whether income by way of interest on securities shall be chargeable to income tax under the head 'income from other sources' or it is to fall under the head 'profits and gains of business and profession'. The Board, going by the decision of this Court in Nawanshahar case, clarified that it has to be treated as income falling under the head 'profits and gains of business and profession'. The Board also went to the extent of saying that this would not be limited only to co-operative societies/Banks claiming deduction under Section 80P(2)(a)(i) of the Act but would also be applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 applies. 38. From this, Punjab and Haryana High Court pointed out that this circular carves out a distinct....