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2020 (9) TMI 32
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....sion' to the tune of Rs. 3,92,80,961/-. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in deleting the addition made by Assessing Officer under the head 'disallowance of punitive charges' to the tune of Rs. 34,25,485/-. 3. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in deleting the addition made by Assessing Officer under the head 'disallowance of interest' to the tune of Rs. 37,17,885/- utilised for giving interest-free loans. 4. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in deleting the addition made by Assessing Officer under the head 'disallowance of peripheral development charges' to the tune of Rs. 3,99,28,438/-." 5. Grounds raised in A.Y,. 2013-14 read as under: "1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in deleting the addition made by Assessing Officer towards 'disallowance of donation" to the tune of Rs. 1,75,00,000/-. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is justified in del....
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....ns business of mining and power generation. In her mining business she engages agents to monitor orders from buyers and to oversee smooth execution thereof, in order to avoid hassles. The whole process of executing supply involves planning of dispatches to various locations, keeping track of various modes of transport, proper receipt at the buyers' site, acceptance of materials as per specifications etc. As such the agents provide their services and are paid commission at pre-determined rate. After being satisfied with the service rendered, the assessee pays them, after deducting Income tax at source. Some of the agents are also registered under the provisions of Service Tax and charge accordingly. All of the agents are Income tax assesses. All details in respect of the agents were provided by the assessee during the assessment stage which were fully verifiable. However, the entire amount of expenditure was disallowed on the ground that some of the buyers denied the involvement of agents. As submitted, it was the assessee who engaged the agents and not the buyers. It was the assessee, who paid the agents and not the buyers. As such, it is humbly submitted that the buye....
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....s HUF are concerned, it is pleaded that the assessee cannot question the status of the commission agents especially when bills were raised for the services rendered as per understanding. I tend to agree with the contention of the assessee in this regard. Only because the payments of commission have been made to HUFs, the same cannot be considered to be not genuine unless it is proved that the commission payment has been made without rendering any services. Moreover, it is for the AO to find out whether the commission receipts could be accepted as income of the HUFs or its karta/member and take appropriate action in the hands of the HUFs. The assessee cannot be penalized by way of disallowance of commission payment if the payment has been made for services actually rendered. The AO has not brought on record any evidence to show that the commission payment in question is bogus or is a ploy adopted by the assessee to reduce the taxable profit. 2.3 The AO in the assessment order has given a list of commission agents, letters issued to whom have not been replied. Since all the relevant details relating to commission payments were given by the assessee, the onus cast on the asse....
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....dated 4.9.2019, on identical facts a wherein, the addition made by the AO and deleted by the CIT(A) has been upheld by the Tribunal. Ld A.R. submitted that the judgments relied upon by ld CIT DR are distinguishable on facts, hence, have no application in the case of the assessee. Therefore, he urged that the finding of ld first appellate authority deleitng the addition recorded by the ld CIT(A) be upheld for both the assessment years. 13. We have heard rival submissions and perused the record placed before the Tribunal, inter alia, decisions of the Tribunal relied upon by ld counsel for the assessee and order of this Bench dated 31.8.2017 in ITA No.142/CTk/2015 for A.Y. 2010-11 in assessee's own case/appeal filed by the revenue. 14. On vigilant perusal of decision of Hon'ble High Court of Bombay in the case of Suresh Kumar G. Hundia(supra), we find that in this case the Tribunal recorded finding that the assessee who was in the business of import & export of bullion, claimed deduction of commission paid the HBL on the ground that services of director of HBL were used for purchasing bullion. However, on enquiries made by the Tribunal, assessee stated that no such commission wa....
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....name and address of buyers for whom they have executed commissioning work alongwith nature of services rendered and the basis of claim of commission. In some of the cases, commission agents in reply only furnished the name of the buyer without the address. In some other cases, letters issued to commission agents u/s. 133(6) of IT.Act, 1961 were returned unserved by the postal authorities with remark "not known/left/addressee refused." In some cases, commission agents did not mention anything about the agents and only pleaded that they have executed work only for Indrani Patnaik. Thereafter, the Assessing Officer observed that it is seen that while making payment towards commission, assessee has deducted tax at source as required u/s.194H of the Act. He observed that mere deduction of tax at source does not establish that the claim of expenses is genuine. By making provision of TDS, the assessee only loses 10% of the expenses, whereas claim of expenses gives the benefit of 90% to the assessee. He further observed that commission agents against whom tax has been deducted at source are bifurcating the commission income and reflecting the same in their individual capacity as w....
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....t, it is humbly submitted, can't negate the expenditure incurred by the assessee. b. Rs. 55,56,819/- have been disallowed on the ground that some letters issued by the department were returned unserved. The assessee had provided addresses of the agents and buyers, as available with it. It also provided copies of the acknowledgements of returns submitted by the agents, which carry their addresses, PAN., details of Jurisdictional assessing officers etc. If due to some reason, the letters were returned unserved, it is submitted, the appellant was not at fault. c. Rs. 69,14,054/- have been disallowed on the ground that the department didn't receive any communication from the agents/buyers. The assessee reiterates its stand that it provided all necessary details of the agents and buyers and it may not be treated to be at fault for their failure to respond to the departmental notices. Rs. 29,21,476/- have been disallowed on the ground that the agents failed to furnish names of buyers. It is humbly submitted that the assessee submitted all details before the ld AO including bills raised by the gents, copies of their returns, details of....
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....they may facilitate in locating buyers for goods/services, providing information about the product, making the actual sale, and ensuring delivery and follow-up service. However, the precise nature and details of the facilitations engaged in by the agents depends upon the facts and circumstances of the arrangement/agreement entered into with the principal, the nature of the products/goods sold, relevant business factors, etc. Benefits from the agency arrangement accrue to both the principal and agent. Principals can extend market reach without incurring major fixed personnel costs, and agents can earn compensation based on their productivity. Some agents may represent more than one principal. All of the above mean that the agent is more reactively dependent on the principal being part of a direct arrangement than with the clients/buyers/customer which relationship is more proactive and hence independent. While, commission agents depend on customers in generating their compensation, the compensation itself is paid by the principal after the customer/buyer pays the principal the proceeds of the sale or other transaction. While some agents may be aggressive, they also depend on satisfi....
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.... in direct transactional and interactive relationship with the Appellant. The buyers therefore had no cause to regard the agents as purchase intermediaries (they being supply facilitators temporarily visible at a given point in time in respect of the transactions operational at that time) and the agents had no reasons to prepare iron-clad lists and details of the buyers. Therefore, there was little reason for the buyers to make enquiries about the agents and certify the genuineness or veracity of the latter in the matter of supplies of materials. I All the buyers were concerned with was the timely delivery of quality-tested goods/products as specified by them. All the Appellant expected from the agents was total adherence to the terms of the agreement/arrangement between them. f) Therefore, the express non-remembrance of the agents in the creative-proactive awarenesses of the buyers alone will not negate the fact of the impugned transactions and the truth and character of the Commission payments. The AO has not carried out any investigations or inquires, on unearthed/discovered any evidences that suggest that the transactions and payments were not what they seemed....
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....nvested in by it, and is therefore entitled to be compensated for the same in the form of receipts of Commissions. Compensation can be denied or disallowed only if it is proved that the apparent arrangement is not germane or related to the business and/or is non-genuine and no economic value is being generated by the agent for the principal. The Appellant is free to enter into agreements with and appoint as many agents, as it seeks to, in line with its business needs and commercial practices. If the agreements and appointments are wholly and exclusively for the purpose of business, and the payments made in the said regard are fully billed/vouched, accounted for and audited, then there is little scope for Revenue to take a prejudicial view. j) The AO has not been able to show that the payments have not been made to the purported agents and that these payments are not relatable to the carrying out the business and for other business purposes. The AO has merely leaped to conclusions (in the cases of Categories II, III and IV) that the seeming absence of buyers (as ostensibly evidenced by letters addressed to them returning unserved), or the negations or disavowals by such buy....
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....pal-agent transactions. The part of the order that deals with the enhancements of Commission payments appears to have framed on suspicion and presumption, and as held by the Hon'ble Supreme Court in the case of State of Kerala vs. M.M. Mathew 42 STC (1978), however strong such suspicion or presumption it could not replace legal proof. l) In the matter of the disallowance of the Commission amounts paid to the HUFs totaling Rs. 47,17,304/- (Category V), the simple issue was whether the payments were made to the HUFs concerned. Whether the payments were assessable as incomes in the hands of the kartas or in the hands of the HUFs themselves is a separate matter. The AO's ground that an HUF could not seemingly 'physically' receive the commission amounts is not one that automatically disallows the expense in the hands of the payer. Separately, the conclusion of the AO that HUFs are not "physical entities" display a lack of understanding/appreciation of the plain meanings of the word "physical" which inclusively connotes a corporeal, material, phenomenal and temporal existence or state of being. When there is no technical meaning defined of a word emplo....
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....exist in physical form as manifested through. their Kartas and in such form, and as, defined "persons" under the Income-tax Act u/s 2(15) are / perfectly capable of carrying out business and/or commercial transactions. There are no physical/legal infirmities in this regard. In the case of Ram Laxman Sugar Mills-v-CIT 66 ITR 613 SC, it has been held that A Hindu undivided family is undoubtedly a "person" within the meaning of the Indian Income-tax Act. In various cases that indicate that the Honourable Courts have upheld that HUFs can earn commission income, the following may be considered. Where the karta is a partner representing the HUF in a firm and salary or commission is paid to such partner, the issue arises whether such salary or commission should be assessed in the hands of HUF or as personal income of the karta. The test laid down by the Honourable Supreme Court in Kumar Singh Hukam Singhji 78 ITR 33 (1970) (SC) is whether such payment has been made because of investment in the firm or as a compensation for the services rendered. In case of the former, it will be assessed as income of the HUF while in case of the latter, it will be assessed as the personal income of the ka....
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.... r) The inverse argument of the AO that the TDS deductions were part of a grand income- concealment-tax-evasion-orescapement scam operated by the Appellant in a manner that the latter was enabled to legally decamp with 90% of unaccounted money diversions at a cost of 10% of the same towards TDS, is not borne out by factual evidences or the diligent results of rigorous inquiry. The statement of the AO that the Commission agents were proved to have rendered no services to the Appellant too is seen to be one that calls for a conclusion without due foundation. Recording sworn statements from the buyers and not obtaining these from the Commission agents themselves is an asymmetric exercise, and the latter would have revealed the k-true picture to the AO. s) The enhancement made of Rs. 7,09,10,967/- on the said count is consequently deleted and the Appeal allowed." 8. Ld D.R. could not point out any specific error in the findings of the CIT(A) that at times commission agent when approaches the purchasers, he does not identify himself as an agent of the seller and merely identifying himself as representative of the seller, in such circumstances, the buyer cannot be awar....
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....dence was furnished in support of the services rendered by the commission agents. However, in the case at hand, the service provided by an agent was established in different forums. The same issue was placed before this Bench by the revenue in the case of Tarini Minerals (P) Ltd., (supra) for A.Y. 2010-11 and the Tribunal confirmed and upheld the findings recorded by the ld CIT(A) deleting the addition on account of "payment of commission". On being asked by the Bench, the ld CITDR could not point out any dissimilar new facts or circumstances from this case and present A.Y. 2012-13 and 2013-14 under consideration. Hence, we are compelled to accept and follow the findings recorded by this Bench in the order dated 4.9.2019. 20. We also find that the ITAT Cuttack in the case of Tarini Mineral (P) Ltd., (supra) on similar facts have upheld the decision of the ld CIT(A) following the judgement of Hon'ble Supreme Court in the case of S.A. Builders ltd vs CIT 88 ITR 1 (SC). 21. Ld CIT D.R. also could not point out any specific error, ambiguity or perversity in the findings of the CIT(A) that at times commission agent when approaches the purchasers, he does not identify himself....
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....- and added the same to the total income of the assessee. 24. On appeal, the ld CIT(A) deleted the addition by observing as under: "I have given careful consideration to the matter. Explanation-1 below section 37(1) clarifies that any expenditure incurred by an assessee for any purpose whish is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business and no deduction or allowance shall be made in respect of such expenditure. In the case of the assessee, the punitive charges paid to Gangavaram Port Ltd., is for overloading of rakes and not for infraction of any law. Hence, clearly it is not a penalty for breach of law. The nomenclature punitive charges cannot lead to disallowance u/s.37 if the payment is not for any purpose which is an offence or which is prohibited by law." 25. Ld CIT DR supported the order of the Assessing Officer. He submitted that the act of the assessee in overloading the wagon was an act which was against public policy for which punitive charges are levied. He drew our attention to section 73 of the Railway Act, 1989 which reads as follows :- " 73. Punitive charge for overloading a w....
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....o where, it is claimed that the charges paid as punitive charges is infraction of any law. Hence, it cannot be held that the punitive charges is a penalty for breach of law. 29. In the case of Arun Kumar Gupta, HUF (supra), relied upon by ld CIT DR, the facts are that the payment made by the assessee against violation of Muncipality laws for misuse of property which is infraction of law. However, in the present case, the punitive charges is against overloading charges in the rake. 30. In the case of Mamata Enterprises (supra) relied upon by ld CIT DR, the facts are that the appellant made construction in contravention of the provision of Karnataka Muncipal Corporation Act and hence, the offence was compounded on payment of compounding fine. In the case at hand, there is no fine imposed for excess loading in the ship. The excess payment is known as punitive charges. In the present case there is no offence whatsoever and there is no compounding fee paid and claimed as deduction. 31. We find in the case of Runga Mines Ltd (supra), Kolkata ITAT under similar facts held that overloading charges may, in its terminology, be termed as punitive charges but such payments appear t....
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....total income of the assessee. 36. On appeal, the ld CIT(A) deleted the addition made by the AO, by observing as under: " I have considered the matter carefully. It is a fact that the total capital of the assessee stands at Rs. 441.11 crores as on 31.3.2012 against loans & advance of Rs. 43.16 crores (wrongly mentioned as Rs. 50.86 crores by the AO). Hence, there was no need for the assessee to divert borrowed funds by way of interest free loans to sister concerns. Moreover, it is seen that the loans from banks have been utilized for creation/acquisition of specific assets and no part of the same has been diverted by way of interest free loans to sister concerns and others. In the case of CIT v HDFC Bank (2014) 366 ITR 505, it has been held by the Hon'ble Bombay High Court that where the assessee's capital, net profit, reserves, surplus and current account deposits are higher than the investment in tax free security, it would have to be presumed that the investment made by the assessee would be out of interest free funds available with the assessee. The decision in this case is squarely applicable to the case of the assessee because she has huge capital balance a....
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....ed that the investment made by the assessee would be out of interest free funds available with the assessee. 41. Ld CIT DR could not controvert that the claim of the assessee that she has total capital of Rs. 441.11 crores as on 31.3.2012. Therefore, respectfully following the judgement of Hon'ble Bombay High Court in the case of HDFC Bank (supra), we uphold and confirm the findings of the ld CIT(A) dismissing the ground of revenue. Accordingly, Ground No.3 for assessment year 2012-13 and Ground No.3 of appeal for assessment year 2013-14 are dismissed. 42. Ground No.4 of appeal for assessment year 2012-13 is against the deletion of Rs. 3,99,28,438/- made under the head "disallowance of peripheral development charges". 43. Apropos this Ground, ld CIT DR, supporting the action of the Assessing Officer, drew our attention towards para 9 at pages 5-6 of the assessment order, submitted that the AO by following the decision of Hon'ble Supreme Court in the case of Travancore Titanium Products Ltd vs CIT, 1966 SCR (3) 321, has rightly disallowed the claim of the assessee towards peripheral development charges by observing that he is unable to verify whether peripheral development ....
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....e nature of business carried on by the assessee must be evaluated and accepted as per the commercial expediency and trading principles. The expenditure claimed by the assessee must be incidental to the business and must be necessitated or justified by the commercial expediency and must be directly and intimately connected with the business and must be incurred by the prudent business man/taxpayer. For the purpose of smooth running of business, the characteristic of permissible deduction, there must be a direct and interlinked connection with the business of the assessee, meaning thereby, the amount inextricable claimed by the assessee and mode of business of the assessee, in order to justify the deduction, the expenditure must be incidental to the business and must be necessitated or justified by the commercial expediency. Precisely, it can be said that there must be inter-connection between the expenditure claimed by the assessee and business operation by the assessee. 46. In the present case, undisputedly, the assessee is a mines owner and the mines are located in the deep forest and obviously the mining activities in the mines area affects the periphery of the mines, where....
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....ce of roads in the periphery of the mines belonging to the assessee. Of course, there was no direction from the so called district committee for doing such works. But it is a fact that it very much incidental to the assessee's business to maintain the roads in and around the mines areas for smooth running of her business. It is not understood, what business expediency, the AO was looking for to allow the expenses. In this view of the matter, the disallowance of Rs. 3,99,28,438/- under the above head is deleted." 49. In view of above, from the explanation submitted by the assessee before the AO dated 5.2.2015, it is clear that the assessee informed the name of contractor, who was paid the impugned amount for upgradation of roads in the periphery area i.e. M/s. Keonjhar Infrastructure Dev. Company Ltd. On receipt of above explanation, the AO without pointing out any defect in the quantum of expenses spent by the assessee and mode of payment adopted by the assessee for making payment and without verifying from the recipient contractor regarding receipt of payment and rendering of services towards upgradation of roads proceeded to make disallowance and addition. The AO was duty boun....
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....atement, the assessee herself accepted that she has not verified the scientific activity of SHG&PH and she has given donation without knowing the institution. Ld CIT DR submitted that the assessee has not given any explanation on the statement of the Secretary and the Treasurer of SHG&PH on the issue of bogus donation. Therefore, the AO was right in making disallowance/addition in the hands of the assessee treating the same as bogus donation, which was received back by the assessee. Ld CIT DR pointed out that the claim of donation u/s.35(1)(ii) of the Act was rightly disallowed and added back to the total income of the assessee. Ld CIT DR prayed that the ld CIT(A) has granted relief without any reasonable cause and basis, therefore, the impugned order may kindly be set aside that of restoring the order of the AO. 53. Replying to above, ld A.R. placed reliance on the order of the ITAT Kolkata 'B' Bench in the case of EBIW Info Analytics Pvt Ltd vs ITO in ITA No.582/Kol/2019 order dated 13.11.2019 for A.Y. 2014-15 and submitted that the Co-ordinate Bench of this Tribunal by following another order of ITAT Kolkata in the case of Narbheram Vishram in ITA No.s42 & 43/Kol/2018 for A.Y....
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....acity of the organization, her role ended and that she had given the donation under bonafide belief. As such, it is the earnest submission of the appellant the she can't be expected to keep a track of the activities of the donee organization and the disallowance of the donation is unjustified and fully deserves to be deleted. Copies of the submission before the A.O. are attached. 2.2 I have considered the matter with reference to the facts on record. It is a fact that the assessee has given a donation of Rs. 1,75,00,000/- to an organization in Kolkata by name School of Human Genetics & Population Health (SHG&PH) and the donation has been given through cheque. This organization/school is duly approved by the competent authority for accepting donations for scientific research as per the provisions of section 35(1). Of course, subsequently certain office bearers/executives of the school have stated in the course of survey operation U/S.133A that the school used to receive donations through agents which were being refunded back in ."cash to the donors in exchange of 8% commission. From the statements recorded from these office bearers of the school, it is seen tha....
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....) of the Act on the ground upon a survey operation conducted on the donee institution on 27.1.2015, the office bearers had admitted that it was not a genuine organisation. It was also submitted that at the point of time when the donation was given, the organisation during A.Y,. 2012-13 was enjoying approval from the Income tax authorities to receive donation u/s.35(1)(ii) of the Act and the appellant had granted donation to the organisation after being thoroughly satisfied about its status as an approved organisation for receiving donation for the purpose of scientific research to be claimed u/s.35(1)(ii) of the Act. It has not been controverted that the assessee has given donation through banking channel and at the time of granting donation, the donee organisation was enjoying the approval of Income tax authorities u/s.35(1) of the Act during F.Y. 2012-13. It is also in dispute that the survey proceedings u/s.133A of the Act was conducted on the donee organisation much after grant of donation by the assessee on 27.1.2015. 56. From conjunct reading of assessment order and order of ld CIT(A), we are of the considered views that undisputedly, donation has been given by the assesse....
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....clusion drawn therein would apply mutatis-mutandis to Ground No.4 of appeal for A.Y. 2013-14. Hence, Ground No.4 of appeal of revenue is dismissed. ITA Nos.393 & 394/CTK/2017 for A.Y. 2012-13 & 2013-14 - Assesse's appeal. 60. Ground No.1 of appeal for A.Y. 2012-13 & 2013-14 are general in nature. 61. Ground No.2 for A.Y. 2012-13 and A.Y. 2013-13 is common i.e. disallowance under section 14A of the Act. Hence, we proceed to adjudicate the facts for the assessment year 2012-13. 62. Ld A.R., challenging the action of the Assessing Officer in making the addition u/s.14A of the Income tax Act, (in short 'the Act') submitted that the ld CIT(A), in his order in para 3.2 noted that the contention of the appellant that she has not incurred any expenditure for earning of dividend income , cannot be accepted. Ld A.R. submitted that though the appellant has not claimed any expenditure, the AO made addition merely on presumption of incurring expenses against exempt income, without recording any reason as per requirement of section 14A of the Act. Ld A.R. submitted that the key words in sub-section (2) of Section 14A of the Act are that "if the AO, having regard to the account of the....
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.... "during assessment proceeding, the appellant had explained that she has a capital balance of Rs. 441.11 crores as on 31.3.2012 and funds borrowed was exclusively utilised for the purpose for which those were obtained". Ld A.R. further explained that the term loan of Rs. 84.74 crores raised from HDFC Bank was utilised for acquiring windmills to the extent of Rs. 90.00 crores and there was no scope for appellant to utilise the loan fund otherwise or for making investment for earning exempt income. 64. Further, ld A.R. placed reliance on the judgment of Hon'ble Bombay High Court in the case of CIT vs HDFC Bank, 366 ITR 505 (Bom), wherein, it is held that where the assessee's capital net profit, reserve, surplus and current account deposit were higher than investment in tax free securities, it would have to be presumed that the investment made by the assessee would be out of interest free fund, available with the assessee. Ld AR pressing into service this proposition rendered by Hon'ble High Court submitted that the ld CIT(A) concluded that interest bearing loan from bank have been utilised for the creation of asset i.e. windmills and it has not been diverted and this fact has not ....
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....ted. 67. Replying to above, ld CIT DR submitted that under section 14A of the Act, statue provide for presumptive expenditure which has to be disallowed by force of statue. He placed reliance on the order of the ITAT Chennai in the case of M.A. Alagappan vs ACIT, 82 Taxmann.com 276 (Che.Trib). Ld D.R. further placed reliance on the decision of ITAT Delhi in the case of Delhi Towers Ltd vs DCIT, 78 taxmann.com 56 (Del) and submitted that the mere fact that the AO did not expressly recorded his satisfaction, while making the disallowance, would not per se destroy mandate of section 14A of the Act. Ld CIT DR supporting the orders of lower authorities submitted that the assessee has not claimed any expenditure towards earning of exempt income, hence, there is every possibility that the investment from which such exempt is earned might have been made out of the loan amount, for which the assessee had paid interest and claimed in the profit and loss account. Therefore, the AO was correct in making addition and ld CIT(A) was also justified in confirming the same. Drawing further our attention towards para 5 & sub-para 2 & 3 of the assessment order, ld CIT DR submitted that the expendit....
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.... at hand. Ld A.R. comparing the facts and circumstances of the case of Delhi Tower (supra) with the present case submitted that in para 11 of the said order of ITAT Delhi, a calculation of disallowing expenditure was given in the paper book and the Tribunal, from the balance sheet and profit and loss account, observed that there is no fresh investment that has been made by the assessee during the year under consideration and the dividend income has been earned from old investment. Thereafter, the Tribunal observed that the ld CIT(A) was not correct in confirming the entire disallowance made by the AO and restricted the disallowance to the tune of exempt income earned by the assessee. Ld A.R. submitted that in the present case, the assessee has not submitted any calculation regarding disallowance under section 14A r.w. 8D of I.T.Rules a. The ld A.R. strenuously contended that from the observations of the AO in the assessment order and findings recorded by the ld CIT(A) in the impugned order clearly reveals that the authorities below have not made substantial compliance of mandate of statutory provisions of section 14A r.w Rule 8D of I.T.Rules. Therefore, the order of ITAT Delhi in t....
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.... is that the AO must record that, having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, in relation to exempt income. 73. Further, placing on the decision of Hon'ble Delhi High Court in the case of Joint Investment Pvt Ltd (supra), ld A.R. submitted that as per subsection (2) of Section 14A of the Act, the jurisdiction to proceed further and determine the amount of disallowance could be derived only after examination of the accounts and rejection of the assessee's claim or explanation. Ld A.R. further pointed out that in this judgment, Hon'ble High Court has clearly laid down the proposition that the AO can proceed to make disallowance u/s.14A r.w Rule 8D only when the AO rejects the claim of the assessee that expenditure claimed by the assessee towards earning of exempt income or claim that no expenditure has been incurred for earning of exempt income is rejected. 74. Further placing reliance on the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd (supra), ld A.R. drew our attention to para 41 of the judgement and submitte....
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....iture in relation to the exempted income and consequently, it was held that the Tribunal was justified in deleting the disallowance. Therefore, the disallowance made by the AO and confirmed by the ld CIT(A) for both the assessment year may kindly be deleted. 78. On consideration of above noted rival submissions, first of all, we are of the view that it would be appropriate to reproduce relevant section 14A of the Act for proper adjudication of the ground of the assessee challenging the confirmation of disallowance by the ld CIT(A) made by the AO u/s.14A of the Act r.w. Rule 8D, which reads as under: "14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of ....
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....the assessee has not incurred nor claimed any expenditure in respect of such income, hence, no disallowance is warranted for. Thus, the case of the assessee falls within the ambit of sub-section (3) of Section 14A of the Act. Further, from sub para (2) of para 5, we observe that the AO observed as under: "Though the assessee has not claimed any expenditure for such exempt income, there is every possibility that the investment from which such exempt income is earned might have been made out of the loan amount, for which assessee paid interest." 81. Thereafter, the AO mentioned the provisions of Rule 8D in the next sub-para (3) and immediately after recording said provisions, he proceed to calculate the disallowance under Rule 8D of the I.T.Rules. From above noted analysis of relevant paras of the assessment order, it is clear that after receiving reply of show cause notice from the assessee that the assessee has not claimed any expenditure in respect of such income, hence, no disallowance is required to be made, the AO without complying with the mandate of sub-section (2) & (3) of Section 14A directly jumped to an imaginary conclusion "that the assessee has not claimed a....
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....ome merely because some incidental benefit has arisen towards exempted income. 85. On vigilant and careful understanding of intention of the legislature and the mandate given in section 14A of the Act, we are of the humble view that before making disallowance u/s.14A of the Act, the AO is required to record satisfaction that having regard to the accounts of the assessee, he is not satisfied with the correctness that the claim of the assessee in respect of such expenditure, in relation to exempt income not forming part of total income is incorrect. Such satisfaction must be arrived at on the objective basis. 86. As we have noted above, in the instant case, the AO simply show caused the assessee and after taking on record reply of the assessee merely observed that though the assessee has not claimed any expenditure for such exempt income that there is every possibility that the investments from which such exempt income is earned might have been made out of loan account, for which assessee paid interest. But there is no exercise as per mandate of sub-section (2) & (3) of Section 14A of the Act by the AO, having regard to the accounts of the assessee, is not satisfied with the co....
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....at having regard to the kind of the assessee, suo moto disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO." 91. Furthermore, Hon'ble Delhi High Court in the case of Joint Investments Pvt Ltd (supra) in para 8 held thus: "The court in Taikisha Engineering (supra) pertinently observed Section 14A(2) of the Act and Rule 8D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee was not satisfactory, computation under sub-rule (2) to Rule 8D of the Rules was to be made. We need not, therefore, go on to sub-rule (2) to Rule 8D of the Rules until and unless the AO has first recorded the sat....
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....hat the AO has not considered the claim of the assessee filed in response to the show cause notice that no expenditure has been incurred for earning exempt income and he straightforward embarked upon and jumped to compute the disallowance under Rule 8D of Rules on the presumption that there is every possibility that the investments made from which such exempt income is earned might have been made out of loan amount, for which the assessee has paid interest. The disallowance u/s.14A of the Act requires findings of the AO that the claim of the assessee pertaining to suo moto disallowance or no expenditure is not correct having regard to the accounts of the assessee and thereafter only the AO is validly entitled to compute disallowance under Rule 8D of the Rules. In absence of such exercise, the disallowance made by the AO cannot be held as valid and sustainable in view of mandate given by the legislature for invoking provisions of Section 14A of the Act. 94. The decisions relied upon by ld CIT DR have been passed by Coordinate Benches of Chennai and Delhi ITAT in the year 2017. Subsequently, the judgment of Hon'ble Supreme Court in the case of Maxopp Investment Ltd (supra) date....
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.... generally affected by Malaria. He submitted that the forest area being wetland, which is the breeding ground of mosquitoes, generally affected the resident in this disease. That is the vital ground for distributing the mosquitoes to the people of mining area for their safety and the assessee had purchased 51,000 mosquito nets for Rs. 1,24,39,665/- for distribution among the resident of mining area. The expenses incurred by the assessee were on welfare schemes only which are for malaria eradication for which, the assessee distributes mosquito nets. He also submitted that amount of Rs. 4,00,000/- has been given to Social Health Education Development Society for water shed development as donation, which is for the business purposes of the assessee. He submitted that the order of the ld CIT(A) on this count be reversed by allowing the appeal of the assessee. 99. Replying to above, ld CIT DR submitted that the purchase of mosquitoes has not satisfied the test of commercial expediency, hence, ld CIT(A) has rightly disallowed the same. As regards the amount of donation of Rs. 4 lakhs, ld CIT(A) submitted that the donation to Social Health Education Development Society for water shed d....