TaxTMI 
TaxTMI 
2020 (10) TMI 401
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....les Promotion Expenses', aggregating to Rs. 3,22,630/-, simply concurring with the A.O. about the appellant's alleged failure to establish the nexus with the business need and without giving any appropriate credence to the details of the expenditure with bills/vouchers and explanation of the appellant with supporting case laws. 2. That, the Ld. C.I. T.(A) further erred in upholding the overall adhoc disallowance of Rs. 1,68,773/ being 20% of total Sale Promotion Expenses of Rs. 8,43,863/-, which merely amounted to double addition on same account, without any proper reasoning for such disallowance and thus pivoted on surmise and conjecture". 3. The assessee in the present case is a Company which is engaged in the business of trading in goods and merchandise as well as dealing in shares and securities and real estates. The return of income for the year under consideration was filed by it on 21.09.20 4 declaring a loss of Rs. 11,00,69,298/-. In the Profit & Loss Account filed along with the said return, a sum of Rs. 8,43,863/- was debited by the assessee on account of sales promotion expenses. During the course of assessment proceedings, it was noticed by the Asses....
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....s expenditure. 5 . As regards the disallowance of 20% made by the Assessing officer and confirmed by Id. CIT (Appeals) out of sales promotion expenses of Rs. 8,23,863/- the Id Counsel for the assesese contended by relying on the provision of sub section (2) of section 142 that the Assessing Officer was required to carry out the necessary enquiry to establish that part of the expenses claimed by the assessee on sales promotion were not for the purpose of its business. He contended that the adhoc disallowance made by the Assessing Officer out of the sales promotion expenses without making any such enquiry and purely in arbitrary manner was not sustainable and the Id. CIT (Appeals) was not justified in confirming the adhoc disallowance made by the Assessing Officer on this issue. Alternatively he also contended that since the expenditure of Rs. 3,22,630/- out of sales promotion expenses incurred by the assessee-company on celebration of Ireland National Day was fully disallowed by the Assessing Officer, the disallowance of 20% should have been restricted out of the balance amount of sales promotion expenses of Rs. 5,21,233/- (Rs. 8,43,863/- minus Rs. 3,22,630/-). 6. The Id. D.R.....
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....f the business of the assessee-company. Even the decision of this Tribunal in the case of M/S MKJ Tradex Ltd (supra) cited by the Id. Counsel for the assessee in support of the assessee's case on this issue is distinguishable on facts inasmuch as an award was conferred in that case by the President of France to Shri Mahendra Kumar Jalan for promoting the trade and culture between France and India and expenditure incurred on the news of the said award as published in the local newspaper was held to be in the nature of an advertisement expenditure by the Tribunal which was connected to the business of the assessee-company, It was specifically observed by the Tribunal in this regard that the award conferred to the Managing Director was going to increase the image of the assessee company at national and international level in the area of the business connection. Accordingly, the expenditure was held to be incurred by the assessee wholly and exclusively for the purpose of business by the Tribunal in these facts and circumstances of that case which, in our opinion, are altogether different from the facts involved in the present case. Moreovers rightly pointed out by the Id. DR the bi....
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....Rs. 5,21,233/- (Rs. 8,43,863/- minus Rs. 3,22,630/-). Ground no, 1 of the assessee's appeal is accordingly dismissed while ground no. 2 is partly allowed, 9. The issue raised by the assessee in Ground No. 3 of this appeal relates to the disallowance of Rs. 4,28,328/- made by the Assessing Officer and confirmed by the Id. CIT (Appeals) out of miscellaneous expenses. 10. During the course of assessment proceedings, the claim of the assessee for miscellaneous expenses of Rs. 44,65,150/- was examined by the Assessing Officer. On such examination, he found that general expenses and office expenses amounting to Rs. 11,28,453/- and Rs. 10,13,186/- were claimed by the assessee under the head of miscellaneous expenses. On verification of the ledger account as well as the supporting bills and vouchers, the Assessing Officer noted that the general expenses and office expenses claimed by the assessee totalling to Rs. 21,41,639/- were mostly paid in cash and the same were not fully verifiable. As further noted by him, the assessee also had failed to substantiate the business expediency of the said expenses. He, therefore, made a disallowance of Rs. 4,28,328/- being 20% of the general expe....
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....ad also failed to establish fully the business expediency of the said expenses. At the time of hearing before the Tribunal, the Id. DR has invited our attention to the details of the general expenses and office expenses claimed by at page no. 28 and 29 of the assessee's paper book which clearly show that the said details given by the assessee were very vague and general in nature and it was difficult for the Assessing Officer to verify the business expediency of the same in the absence of sufficient details and supporting documentary evidence. Keeping in view of all these facts of the case, we agree with the view taken by the authorities below that the expenses claimed by the assessee under the head "general expenses and office expenses" were not fully verifiable and the same being not fully established as wholly and exclusively incurred for the purpose of the assessee's business some disallowance out of the same was called for. Since the disallowance so made at 20% by the Assessing Officer and confirmed by the Id. CIT (A) in the facts and circumstances of the case is fair and reasonable, we do not find any justifiable reason to interfere with the same, Ground no. 3 of the ....
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....8D of the Rules over and above offered by the appellant of Rs. 45,11,497/- is liable to be deleted. (f) That, without any prejudice to the above, the impugned disallowance upheld by the Ld. C.IT(A) is against the decision of Hon'ble I. T.A.T. Kolkata in the case of REI Agro Ltd. vs. DCIT (144 ITD 141) duly confirmed by the Hon'ble Calcutta High Court holding that disallowance u/s. 14A r. w. r. 8D of the Rules is to be in relation to the exempt income out of average investment which yielded such exempt income, which was Rs. 15,02,51,798/- and not Rs. 90,19,45 950/- as taken by the A.O". 15. During the course of appellate proceedings before the Tribunal, the assessee has raised the following additional grounds on this issue with a request to admit the same:- "4(g) That admittedly the dividend received on the equity investment which was exempt from tax u/s 10(34) of the Income Tax Act being Rs. 8,88,566/-, in view of the Judgment of Supreme Court in the case of Principal Commissioner of Income-tax-Z v Caraf Builders & Constructions (P.) Ltd. [2019] 112 taxmann.com 322 (SC)/[2020] 268 Taxman 317 (SC)], the disallowance u/s 14A should not exceed the amount o....
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....icer for the following reasons given in his impugned order:- "I have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellate company as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings. The AR of the appellate has submitted that during the relevant A. Y. , the assessee earned dividend income of Rs. 8,88,566/- which was claimed exempt from tax under section 10(34) of the Act. In the computation of total income, the assessee had suo mote offered a sum of Rs. 45,11,497/- u/s. 14A of the Act. It clearly indicated that the assessee has incurred the expenses for earning of the dividend or exempt income and for that he himself disallowed some expenses. Now the only issue is calculation of disallowance and in this regards the AO has made the disallowance as per rule 8D The AO has also observed that the assessee has paid interest (net) to the tune of Rs. 8,95,14,830/- which also come under the preview of disallowances. Thereafter, AO proceeded to make disallowance u/s.14A of expenditure incurred and exempt income earned....
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....re alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. The mere fact that those shares were old ones and not acquire recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assesse to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, the assessing officer rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in ....
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.... Id. CIT (Appeals) should be restricted alternatively to Rs. 26,84,024/-. 20. The Id. D. R. , on the other hand, submitted that the Hon'ble Supreme Court in the case of Caraf Builders & Constructions (P) Limited (supra) relied upon by the Id. Counsel for the assessee has merely dismissed the SLP filed against the decision of the Hon'ble Delhi High Court without passing any speaking order on merit and the said decision, therefore, cannot be considered as the decision of the Hon'ble Apex Court on merit, which is binding. He also submitted that the disallowance of Rs. 45,11,497/- was made by the assessee-company suo motu under section 14A there y admitting that the expenses to that extent were actually incurred by it in relation to the earning of the exempt income in the form of divide now cannot claim that the disallowance under section 14A should be less than Rs. 45,11,497/- as offered by itself suo motu in the return of income. 21. In the rejoinder, the Id. Counsel for the assessee submitted that the Hon'ble Delhi High Court in the case of Caraf Builders & Limited (ITA No. 1260 of 2018 dated 13.11.2018) was Hon'ble Supreme Court by dismissing the SLP filed by the Departme....
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....aid additional grounds raised by the assessee are admitted by us by relying on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Limited (supra). On merit, the issue raised by the assessee in ground no.4(g) is that the disallowance u/ s 14A r. w. Rule 8D cannot exceed the exempt income actually earned by the assessee during the year un er consideration. In support of this contention, Id. Counsel for the assessee has relied on the judgment of the Hon'ble Supreme Court in the case of Caraf Builders & Constructions (P) Limited (supra) wherein the decision of the Hon'ble Delhi High Court holding that the disallowance u s 14A r.w. Rule 8D cannot exceed the exempt income of that year was affirmed by the Hon'ble Supreme Court by dismissing the SLP filed by the Revenue. The Ide DR in this regard has contended that the SLP filed by t e Revenue in the said case was dismissed by the Hon'ble Supreme Court without passing any order on merit and the same therefore is not a binding precedent. He, however, has not disputed the fact that the decision of the Hon'ble Delhi High Court in the case of Caraf Builders & Constructions (P) Limited (s....
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....te Bench of this Tribunal in t e case of ACIT vs. Sharmila Kumar (ITA No.678/Kol/2016) cited by heId. Counsel for the assessee wherein this aspect was considered by the Tribunal in the light of the relevant provisions of the Income Tax Act as well as the judgement of the Hon'ble Calcutta High Court in the case of CIT vs. Britannia Industries Ltd. 396 ITR 677 and that of Hon'ble Gujarat High Court in the case of Milton Laminates Pvt. Ltd. 218 Taxman 108. In the said judgments, the assessee on redemption of mutual fund investment had wrongly offered even the principal sum of investment to tax and when the Id. CIT (A) directed the Assessing Officer to exclude the principal amount from the total income of the assessee, the income finally assessed became lower than the income returned by the assessee. This issue was taken up by the Revenue in appeal before the Tribunal and it was held by the Tribunal vide its order dated 14.05.2018 passed in ITA No.678/Kol/2016 by relying on the relevant provisions of the Income Tax Act as well as the judgment of the Hon'ble Calcutta High Court in the case of CIT vs. Britannia Industries td. and that of Hon'ble Gujarat High Court in the ....