TaxTMI 
TaxTMI 
2020 (9) TMI 455
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....es - Rs. 1,95,26,109 and Out of Administrative & Personnel Expenses - Rs. 35,89,914) suo moto made by the appellant company in its return of income without considering the reasonability and basis of addition made by the appellant company. 1.2 That the Ld.CIT(A) has erred in not considering the contention of the appellant company that addition in terms of Rule 8D can be made only if the AO was not satisfied as regards the amount suo moto added by the appellant company on account of expenditure relatable to the exempt income. 1.3 That the Ld.CIT(A) has erred in upholding the aforesaid disallowance by not considering that some portion out of the total Administrative, Personnel and Financial Expenses would also have been incurred for other activities viz. financing on which the appellant has earned an interest income of Rs. 53.09 Crs. 2. That on facts and in law the Ld.CIT(A) has erred in upholding the application of the provisions of Rule 8D(2) of the Income Tax Rules, 1962 by the Assessing Officer, inserted by IT (Fifth Amdt.) Rules 2008, w.e.f. 24.03.2008 in the case of the appellant for the Assessment Year 2007-08. ITA No. 4287/Del/2010 (Revenue's appe....
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....n facts and in law, the Ld.CIT(A) erred in upholding the levy of penalty u/s 271(1)(c) of Rs. 1, 13,02,230 without appreciating the fad that the appellant had duly made disallowance on the basis of reasonable estimate which stands accepted in the earlier years and there was no basis for the AO and the Ld.CIT(A) to disregard the said basis adopted by the appellant and uphold an ad hoc disallowance made by the AO on the basis of Clause {iii) of sub-rule (2) of Rule 80, which was notified on 24th March, 2008 and was not applicable to the Assessment Year under reference as per the holding of the Hon'ble High Court of Delhi in the case of Maxopp Investment Ltd. vs. CIT, New Delhi - ITA No.687/2009 {dated 18.11.11) and Godrej & Boyce Mfg. Co. Ltd. vs. DCIT & Anr (2010) 328 ITR 81. 1.3 That on facts and in law, the Ld.CIT{A) has erred in not appreciating that the appellant had suo moto made disallowance of expenses u/s 14A on the same basis which stood accepted in the earlier years assessments u/s 143(3) hence levy of penalty on this account is not justifiable. 1.4 That on facts and in law, the Ld.CIT(A) has erred in not appreciating that under similar set of facts a....
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.... allowed the appeal of the assessee. 5. The Ld. AR submitted that for the assessment year under consideration a return declaring a loss of Rs. 15,70,81,547/- was filed by the assessee on 22.10.2007. Subsequently, the return was revised on 20.01.2009 declaring a loss of Rs. 11,52,84,272/-. The assessee is an investment company and is engaged in the business of investment and trading in shares/securities as well as in the business of granting loans and advances. Assessee in its return of income suo moto made a disallowance u/s 14A as under: - Out of Interest Cost - Rs. 65,17,34,199 - Out of Financial Expenses - Rs. 1,95,26,109 - Out of Personnel & Administrative Expenses - Rs. 35,89,914 Total - Rs. 67,48,50,222 For explaining the basis and manner of computation of the above disallowance of interest before the Assessing Officer, the same was submitted by the assessee (along with relevant workings) that at the beginning of the previous year relevant to Asstt. Year 2005-06 i.e. on 01.04.2004, the assessee held shares of the aggregate value of Rs. 3,81,94,91,358/-. The corresponding position of share capital and reserves and surplus on the said date was as u....
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....t attributable to investments, own funds viz. share capital, reserves and surplus and dividend/ profit on sale of investments earned from year after year, it was held that in respect of the investments made in shares as on 31.03.2004/01.04.2004 i.e., at the beginning of the previous year relevant to A.Y. 2005-06, virtually, no borrowed funds were used for investment in shares. The CIT(A) held that in respect of borrowings made during A.Y. 2005-06 for investments in shares, the assessee has correctly computed the disallowance on account of interest in relation to earning dividend income which does not form part of total income. In A.Y. 2006-07 adopting similar methodology, the disallowance u/s 14A for interest cost was computed by the assessee and was suo moto added back in the return of income. This was also accepted by the Assessing Officer, however it was alleged by him that the capital and reserves of assessee cannot be held attributable only to investments made in share. Attributing (on proportionate basis) part of capital and reserves to other business assets i.e. stock in trade, fixed assets, cash and bank, loans and advances, balance was held attributable to investments i....
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....nce under Rule 8D sub rule (2) clause (ii) the Assessing Officer did not exclude the interest cost amounting to Rs. 46,16,82,089/- attributable to the business of granting loans and advances, despite clear nexus being demonstrated to this effect before him vide submissions dated 29.12.2009 and 30.12.2009. These submissions were filed before the Assessing Officer against a specific query raised by him vide order sheet entry dated 24.12.2009 during the course of assessment. While computing disallowance under Rule 8D sub rule (2) clause (ii) the Assessing Officer incorrectly computed "Total Interest Cost", "Average Value of Investments" and "Average Value of Total Assets". A petition u/s 154 dated 05.01.2010 was also filed in this regard before Assessing Officer . 6. As regards basis of disallowance of expenses, the Ld. AR submitted that the basis and manner of computation (along with working) was submitted by the assessee along with submissions dated 27.11.2009. The Ld. AR submitted that the assessee had to incur substantial administrative and personnel cost in the activity of granting loans and advances etc. due to the administrative work/efforts required as stated in the submiss....
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....d become irrelevant if the exempt income has actually materialized or not, so that the disallowance of the said expenditure u/s 14A would follow. The same therefore is only a continuation of Circular 14 of 2001, taking the premise of Section 14A to its logical conclusion. The purpose of these Circulars and the legislative intent is to apply the basic principle of taxation, i.e. that it is only the net income- taxable or non-taxable, i.e. net of all expenditure incurred for earning the same, that could be subject to tax or, as the case may be, exempt from tax. The later Circular, which is in consonance with Memorandum explaining the provisions of Finance Bill, 2001 (introducing Section 14A) as well as the Notes to the clauses presented along with the said Bill, has been noted with approval by the Hon'ble Supreme Court in CIT(A) Vs. Walfort Share & Stock Brokers (P) Ltd.[2010] 192 Taxman 211/326 ITR (S.C). The issue considered in perspective, is not if the income not forming the part of the total income (the tax-exempt income) is earned or not but if expenditure relatable to such income has been incurred. If such expenditure stands incurred, Section 14 A (1) becomes applicable. T....
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....o disallowance of Rs. 67,48,50,222/- u/s 14A in respect of earning dividend income. The assessee has given a working before the Assessing Officer on account of interest expenses and on account of administrative expenses on estimate basis. The same has not been properly adjudicated by the Assessing Officer as well by the CIT(A). The assessee has given in its reply dated 23/12/2009, the details as to why the disallowance u/s 14A shall not be computed under Rule 8D of Income Tax Rules. Thus, the extract of the same are as follows:- "i) The reserves and surplus of the assessee have been on account of dividend income as well as profit on sale of shares held as investments. The position of Investments/Reserves/Capital etc. as on 1st April, 2004 was as under: Investments as on 1/4/2004 Capital as on 1/4/2004 Reserves as on 1/4/2004 Dividend Recd from 1/4/99 to 31/3/2004 Profit on Sale of Investments from 1/4/99 to 31/3/2004 Total of Dividend and Profit on sale of Investments 381.95 54.76 293.35 172.73 258.45 431.18 In view of the fact that Dividend Income and Profit on sale of Investments aggregating to Rs. 431.18 Crs. were more than i....
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....llowance as per Rule 8D of the Income Tax Rules which is not applicable for the year under consideration as the present Assessment Year is 2007-08. It is pertinent to note that the Assessing Officer has also not given the satisfaction as to how the working given by the assessee is not plausible. The assessee has made disallowance at 10% which was in support for the earlier Assessment Year 2006-07 which was confirmed by the Tribunal in assessee's own case being ITA No. 1805/Del/2009 order dated 3/4/2019. Therefore, the suo motu disallowance at 10% is reasonable and cannot be faulted with. We, therefore, set aside the findings of the CIT(A) and direct the Assessing Officer to accept the suo motu disallowance of Rs. 67,48,50,222/-. Hence, the appeal filed by the assessee is allowed. 10. In result, the appeal of the assessee being ITA No. 3965/DEL/2010 is allowed. 11. As regards the penalty appeal filed by the assessee, since the same is based on the quantum appeal and there is no finding given by the Assessing Officer that the assessee furnished inaccurate particulars of income or concealed the particulars of income, the penalty does not survive as per the provisions of Section ....