TaxTMI 
TaxTMI 
2020 (11) TMI 277
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.... 2009 declaring a total income of Rs. 478,26,51,845/-. The Assessment Officer processed the income under section 143(1) of the Income Tax Act ("IT Act") and scrutinised the account under CASS. In August 2010, the AO notified the Assessee under section 143(2) and heard its representative under section 129 of the Act. 3. Eventually, through Assessment Order, dated 28.12.2011, the AO concluded the assessment as follows: i. Disallowance of expenses under section 14A, read with Rule 8D. ii. Addition on account of foreign exchange loss. iii. Addition on account of loss on the sale of assets. iv. Disallowance of expenditure incurred for repair of Usgao bridge. v. Disallowance of expenses out of community development. vi. Income on account of sale of mines held by the firm to be treated as revenue receipts. vii. The difference between sundry creditors and sundry debtors was added back to the income. viii. Disallowance of bad debts written off. ix. Disallowance of loss on transportation. x. Suppression of closing stock on account of ground loss at berth No. 9. xi. Capital loss carried on ac....
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.... account was scrutinised under CASS, which resulted in reassessment. The AO made additions on eleven counts, amounting to Rs. 16,74,11,869/-. 10. Before the CIT(A), many issues have fallen for consideration. As the appellant, the Assessee had partial success. So, both the Revenue and the Assessee approached the Tribunal. Before the Tribunal, the Assessee succeeded substantially, though on a couple of issues it failed. That said, it has not chosen to appeal against the Tribunal's Order. It is only the Revenue that challenged the Order. So, we will confine ourselves to the substantial questions of law, leaving our peripheral issues. Substantial Question of Law (I): (i) Is the Tribunal right in deleting the additions made by the AO under section 14 A of the IT Act, read with Rule 8D of the IT Rules? 11. As the record reveals, the Assessee received dividend income of Rs. 13,85,03,376/-. It was exempted under the IT Act. The Assessee claimed that he did not incur any expenditure to earn that dividend. It is said to have invested surplus funds through the bankers and other financial institutions. The mutual fund officials used to come to the Assessee's doorstep to fill ....
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.... total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. 13. Rule 8D of the Income Tax Rules provides the methods for determining the amount of expenditure in relation to income not includible in the total income. But this Rule comes into play once an expenditure falls within the mischief of section 14A of the IT Act. We need not elaborate on that Rule. 14. In Kanga & Palkhiwala: Law & Practice of Income Tax[(Lexis Nexis, New Delhi, 11 ed. Online edition)], the learned revising author Arvind P. Datar has an interesting word about this 'inequitable and unfair' provision. According to Kanga & Palkhiwala, on a cursory reading, section 14A seeks to prevent a deduction that may result when income does not form part of the taxable income. But the expenditure incurred to earn that income is allowable as a deduction. However, this section and Rule 8D have been am....
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....ent. But the respondent asserted that it utilised its surplus funds. This Court, then, found that there was no material for the appellant to conclude that the respondent borrowed the funds. Second, given the volume of investment, the respondent is said to have received charge-free services from the managers of the banks and other financial institutions with whom they have invested. So there is said to be no expenditure. 18. This Court rejected the appellant's contentions and affirmed the Tribunal's findings. Here, too, we face an identical problem, similar assertions and counter assertions, and the same result: the Tribunal reversed CIT(A)'s findings. Can our response be different here? 19. Here, on facts, the Tribunal noted that the AO only discussed the provisions of section 14A(l) but has not justified how the expenditure the Assessee incurred during the relevant year related to the income not forming part of its total income. The AO, according to the Tribunal, straightaway applied Rule 8D. Indeed, there must be a proximate relationship between the expenditure and the tax-exempt income. Only then would a disallowance have to be effected. This Court, we may note, on more th....
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....te J, 9 July 2019)]. In that case, during the AY 2008-09, the respondent company contributed over one crore to Goa Infrastructure Development Co. Ltd., a Government Undertaking. It was for the construction of Usgao bridge, which was said to be essential for the respondent's business. Then, a similar question as we face now arose. 25. In Salgaocar Mining Industries, the respondent-assessee relied on the Supreme Court's LH Sugar Factory and Oil Mills (P) Ltd. v. CIT[1980] 125 ITR 293 (SC)], and Madras High Court's CIT v. Coats Viyella India Ltd.[2002] 253 ITR 667 (Mad)]. The appellant-revenue, on the other hand, relied on, as it has done here, Allahabad High Court's Raza Buland Sugar co. Ltd., and also the Supreme Court's Empire Jute Co. Ltd. v. Commissioner of Income Tax[[1980] 3 Taxman 69 (SC)]. 26. As interpreted by Salgaocar Mining Industries, in Raza Buland Sugar, the State Government introduced a scheme for constructing staff quarters. For that, the appellant Assessee was to lease out its land near its factory to the UP Housing Board. As a matter of policy, the Government was to contribute some amount for constructing the staff quarters for various factories and the balan....
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....ccording to it, this test is not of universal application and, as the parenthetical clause shows, it must yield where there are special circumstances leading to a contrary conclusion. To sustain that plea of non-universality, it has relied on Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd.[(1965) 58 ITR 241 (PC)]. That is, it would be misleading to suppose that in all cases securing a benefit for the business would be prima facie capital expenditure "so long as the benefit is not so transitory as to have no endurance at all". Then, it has quoted with approval its own earlier decision in Empire Jute Co. Ltd. v. C. I. T.[(AIR) 1980 SC 1946)] to hold thus: "[T]here may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense, and it is only where the advantage is in the capital field that the expenditure would....