TaxTMI 
TaxTMI 
2021 (7) TMI 1201
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....(3) of the Act dated 30.12.2011. The Order of Assessment was subject matter of appeal before the Hon'ble ITAT and the Hon'ble ITAT remanded certain issues for consideration by the AO. The AO passed an order dated 19.03.2015 under section 143(3) r.w.s. 254 of the Act on remand by the ITAT. Similarly, for Assessment Year 2010-11, an order under section 143(3) dated 27.02.2013 was passed by the AO. 3. The assessee filed writ petition before the Hon'ble High Court of Karnataka in WP No.12872/2013 in which the assessee challenged the order dated 19.03.2015 passed in Assessment Year 2009-10 and the order dated 27.02.2013 in Assessment Year 2010-11. The Hon'ble Karnataka High Court in its judgment dated 18.02.2016 gave directions with regard to taxability of privilege fees paid by the assessee and set aside the orders of assessment for Assessment Years 2009-10 and 2010-11 referred to above. The Hon'ble Karnataka High Court also directed that in so far as other disallowances are concerned, the matter is remanded to the AO to re-examine the same after affording assessee opportunity of being heard. 4. It is pursuant to the aforesaid judgment of the Hon'ble Karnataka High Court that the AO ....
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....he liability in question was not a contingent liability and in this regard, placed reliance on the decision of the Hon'ble Supreme Court in the case of Bharat Earth Movers Vs. CIT 245 ITR 428 (SC). In the aforesaid decision, the question for consideration was whether provision for liability on account of leave encashment of employees could be disallowed as being a contingent liability. The Hon'ble Supreme Court laid down that if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What is important is the incurring of the liability and ascertainment of the quantum of liability with reasonable certainty. If the above requirements are satisfied, the Court held that the liability is not a contingent one. The learned Counsel drew our attention to page 233 to 251 of the Paper Book wherein the assessee has given the basis of the quantification of the liability of Rs. 18,58,958/-. A specific query was raised by the Bench as to what is the basis on which ex-gratia payment was sanctioned by the Government. The learned Counsel for the assessee submitted that the qu....
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....ii) of the Act. The assessee did not offer explanation with regard to the source of funds out of which investments were made. The AO therefore concluded as follows: "6.9 The investments have flown from a common pool of funds, -the current accounts. The business receipts an payments as well investments are made from these accounts. The company has not maintained separate records in report of its income not forming part of total income. Therefore, it cannot be assumed with any degree of certainty that the investments were made exclusively out of surplus funds. Considering the commonality of the expenses, having regard to the accounts, not being satisfied that the correctness of the claim of the assessee is respect of such expenditure in relation to income which does not form part of total income. I am satisfied the assessee's claim that no expenditure is incurred, is not correct and therefore, the provisions of section 14A are hereby invoked and applied. Considering the fact that such indirect expenses cannot be allocated to any specific head of income and also that the assessee does not maintain the accounts in such manner as to enable to identify the expenditure relating to e....
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....the current account. In such a scenario such expenditure is to be disallowed. In all other cases where a direct nexus cannot be established between the expenditure and the exempt income the provisions of section 14a read with rule 8D are applied. This is the essence of this section. The business receipts and payments as well as investments are made from these accounts. The company has not maintained separate records in report of its income not forming part. of total income. Therefore, it cannot be. assumed with any decree of certainly that the investments were made exclusively out of surplus funds. Considering the commonality of the expenses, having regard to the accounts of the assessee, regarding the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of total income, the undersigned is satisfied that the assessee's claim that no expenditure is incurred, is not correct and therefore, the provisions of section 14a are hereby invoked and applied. Considering the fact that such indirect expense cannot be allocated to any specific head of income and also that the assessee does not maintain the accounts in such m....
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.... is earned, certain Indirect / common expenditures would always be attributable to such receipts. In this view of the matter, the applicati9n of Rule 8D(iii) r.w.s 14A, has to be upheld in principle. It is also apparent in the present case that, statedly there is exempt income earned during the year to the extent of Rs. 7,70,76,407/-. The jurisdictional courts have held there can be application of section 14A r.w.s. 8D(iii) in a particular case, only to the of exempt income which has been earned during the year. In the present case, the AO has recorded that the appellant earned dividend income of Rs. 770,76,407/- , during the current year, which was claimed as exempt. In respect of clause (iii) of 8D of 1.T. Rules, one-half percent of average value of taxfree investments is suggested for any other indirect expenditure. The indirect expenditure is normally estimated even under the standard accounting principles as per the requirements of section 14A. The rule suggests a prescribed percentage in this regard. Rule 8D(i) and (ii) may require examination of accounts and various details by the AO for making the disallowances whereas on the other hand, no such exercise is required in resp....
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....ated 20.03.2015 for Assessment Year 2010-11 and the appeal in ITA No.1925/Bang/2017 deals with the aforesaid ground. The issue will be adjudicated while deciding the said appeal. 14. The second issue raised by the assessee in this appeal is the disallowance under section 14A of the Act. The grievance in this regard is projected by the assessee in grounds 5 to 11 of the grounds of appeal. The facts are identical to the facts as it prevailed in Assessment Year 2009-10. As far as Assessment Year 2010- 11 is concerned, the AO recorded identical reasons for making disallowance under section 14A of the Act and this emanates from the Order of Assessment dated 27.02.2013 in which the AO has given the following findings: 4.5 The assessee has submitted that the daily collection amount has been invested in mutual funds in order to avoid the funds remaining idle in current accounts, that too after fulfilling all requirements such as advances, weekly payments and revenue and capital expenditures of the Corporation. But it is seen that the Corporation has also been making use of loan funds/overdraft facility for giving advance to distillers/suppliers etc. This has resulted in financial expens....
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....half of the assessee. The conclusions arrived at in this regard in Assessment Year 2009-10 will hold good for Assessment Year 2010-11 also. Accordingly, relevant grounds of appeal raised by the assessee are dismissed. 16. The other issues raised by the assessee is with regard to computation of tax liability under section 115JB of the Act and the grounds of appeal in this regard raised by the assessee reads as follows: "12. The learned Commissioner of Income-tax (Appeals) failed to adjudicate the ground of the appellant that the learned Assessing Officer is not justified in law in computing the tax under section 115,JB of the Act on the facts and circumstances of the case. 13. The learned Commissioner of Income-tax (Appeals) failed to adjudicate the ground of the appellant that the learned Assessing Officer computed the tax liability under section 115,JB of the Act without giving a show cause notice to the appellant and consequently the computation made is in violation of principles of natural justice and requires to be deleted on the facts and circumstances of the case. 17. We are of the view that the computation of income under section 115JB of the Act is automatic and the c....