TaxTMI 
TaxTMI 
2020 (12) TMI 1112
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....ance of Rs. 13,26,591/- under the provisions of Section 14A read with Rule 8D of Income Tax Rule. 3. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of manufacturing of electrical engineering products. The assessee in the year under consideration has shown dividend income of Rs. 55,54,823/- and share of profit from the firm Rs. 1,13,080/- which was claimed as exempted income. The assessee against such exempted income has made Suo-Moto disallowance of the expenses as detailed under: i. Direct expenses paid as portfolio management fees Rs. 3,68,510/- ii. Administrative expenses .5% of the exempted income Rs. 38,696/- (Dividend income+ share of profit+ long-term capital gain) The assessee during the assessment proceedings contended that it had surplus funds available with it, not required for immediate business purposes, which was utilized in the investments. Accordingly, the assessee contended that it has not incurred any expenditure in the earning of such exempted income. 4. The assessee also submitted that the onus lies upon the AO to prove that the assessee has i....
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....which to invest, when sell off and at what price to sell off. The PMS for such services was paid the fees which has already been disallowed by the assessee. In other words, there was no involvement of any manpower, time devotion of the directors or any other resources of the company in maintaining or making such investments. As such, all the expenses incurred by assessee under the administrative head were incurred for the manufacturing activity of the business. But the assessee as a matter of abundant precaution has made the disallowance of Rs. 38,696/- being 0.5% of the exempted income. Without prejudice to the above, the assessee also contended that at least the investments which were made through the involvement of PMS should be ignored while working out the disallowance under the provisions of Rule 8D of Income Tax rules. 9. The assessee also submitted that there was the reduction in the value of investments shown by it in year under consideration in comparison to the immediate preceding assessment year. Wherever there was any increase in the value of investments, it was through the involvement of the PMS. Accordingly, there was no need to make any disallowance based on aver....
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....ccepted and such investments are to be considered for the purposes of Rule 8D. The appellant gets part relief accordingly." 13. Being aggrieved by the order of the Learned CIT (A), the assessee is in appeal before us. 14. The Learned AR before us submitted that the AO has invoked the provisions of Section 14A read with Rule 8D of Income Tax Rule without recording the satisfaction about the incorrectness of the claim of the assessee as provided under Section 14A of the Act. Accordingly, the Learned AR contended that no disallowance can be made without recording such satisfaction. The Learned AR support of his contention has made reference to the following judgments: "ITAT order dated 01.08.2018 in ITA No. 1403/A/2014 (By. Ass.) and ITA No. 1413 & CO No. 243/Ahd/2014 for Asst. Year 2010-11 Order of High Court of Gujarat dated 18.06.2019 in Tax Appeal No.99 of 2019 Order of High Court dated 31.07.2018 in Tax Appeal No.900 to 902 of 2018 (2018) 409 OTR 401 (Guj.) Order of High Court of Gujarat dated 15.10.2018 in Tax Appeal Nos. 1252, 1253 and 1255 of 2018 ITAT order dated 15.10.2018 in ITA No. 3202/Ahd/2016 for Asst. Year 201....
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....e note that, primary onus lies upon the assessee to justify based on the documentary evidence that the expenditure claimed by it were not incurred in connection with the exempted income. In the case on hand, the assessee failed to make any submission about the same. As such the onus shifts from the assessee upon the AO when he makes the submission to the AO with the documentary evidence that it has not incurred any expenditure in connection with the exempted income. But, we find that the assessee has not made any submission except disallowing the expenses on estimation basis. As such we find that the AO has derived the satisfaction by recording in the assessment order as detailed under: "...This shows that the assessee itself has admitted that some expenditure has been incurred by the assessee, which has been debited in the profit and loss account, for earning the exempted income. However, the working of disallowance made by the assessee is not correct. In this case, the Assessing Officer does not have to prove the nexus of such expenditure with the exempt income as the assessee itself has admitted of having spent some expenditure for earning of exempted income by making a....
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....tion that the working of the assessee regarding expenditure incurred for earning exempt income is not correct, then the same has to be worked out as per Rule 8D of the IT Rules and the AO has worked out the disallowance on the basis of Rule 8D only. We, therefore, do not find any reason to interfere in the order of the learned CIT(A). 9. In the result, the appeal of the assessee is dismissed." 20. It is also important to note that the Ld. AR at the time of hearing cited various orders/judgments as mentioned above, but in our considered view these are distinguishable from the present facts of the case, more particularly, in the existent situation when the ITAT in the own case of assessee, as discussed above, has decided the issue against it (the assessee). Therefore, we are not incline to recapitulate to all such citations referred by the Ld. AR for the assessee. 21. However, we find force in the argument of the Learned AR for the assessee that investments which have been made through the involvement of the PMS providers should be ignored while working out the disallowance of the expenses under Rule 8D of Income Tax Rule. It is because such investments were made on th....
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.... that such loss cannot be adjusted against the short-term capital gain within the provisions of Section 94(7) of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee. 27. Aggrieved assessee preferred an appeal to the Learned CIT (A) who confirmed the order of the AO by observing as under: "5.3 I have considered the facts of the case and submission made by the AR of the appellant. The A.O. has analyzed these transactions as per the provisions of section 94(7) of the I.T. Act, 1961 and has given full particulars in his order. These facts have not been claimed to be incorrect by the appellant in its submission. The only submission is that it has not incurred these losses intentionally. But such claim is not relevant for application of the provisions of section 94(7). The language of this section is unambiguous and hence its provisions are applicable to all transactions of loss on account of sale and purchase of shares and securities where the purchase has taken place within 3 months of the record date for dividend and sale has taken place within 9 months of such record date. 5.3.1. Accordingly the addition made by the AO i....