TaxTMI 
TaxTMI 
2019 (2) TMI 1956
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....the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) ['CIT(A)] erred in confirming the disallowance made by the Assessing Officer (AO') under section 14A of the Income-tax Act. 1961 (Act) as per Rule 80 while computing the total income. 1.2 On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO in applying Rule 8D, even though there was no recording of any non-satisfaction with the disallowance computed by the appellant. 1.3 On the facts and in the circumstances of the case and in law, the CIT(A) erred in not appreciating the fact that investments made by the appellant were strategic investments made in group companies for holding controlling stake and not to earn dividend income which is only incidental 1.4 On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the disallowance under section 14A cannot be lower than Rs. 43,68,365/- as suo moto computed by the appellant in the return of income. 1.5 On the facts and in the circumstances of the case and in law the ClT(A) erred in not appreciating that amount of disallowance under section 14A ....
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....ance of the case. I find from the facts of the case and that the arguments from both the sides that the assessee argued that there is no satisfaction recorded by the AO while invoking the provisions of section 14A read with Rule 8D of the Rules. The learned Counsel for the assessee drew my attention to the specific finding of AO in the assessment order which reads as under: - "On perusal of the return of income and audited financial accounts of the assessee for the year under consideration, it is noticed that the assessee earned dividend income of Rs. 18,76,89,600/-. The assessee has made disallowance under section 14A of Rs. 43,68,365/- while computing the total income. As such, I am not satisfied with the disallowance made by the assessee in the return of income. Accordingly, the assessee company was asked to explain why expenses should not be disallowed under section 14A read with Rule 8D of the Income Tax Act, 1961." 5. The learned Counsel for the assessee stated that assessee has specifically filed detailed disallowance suo moto which is as under: - Sr. No. Particulars Amount 1. Demat Charges 5,000 2. Interest debited to Profit and Loss Account 43,63,365 Total 43....
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....putation of disallowance u/s 14A of the 1961 Act. The assessee having earned dividend income of Rs. 1,60,62,485/- had claimed the same to be an exempt income. The assessee has suo motu offered disallowance u/s 14A of Rs. 37,55,126/- u/r 8D(2)(iii). The AO has made disallowance u/s 14A r.w.r 8D of Rs. 84,47,344/-, while learned CIT(A) deleted disallowance u/r 8D(2)(ii) as it is brought on record that the assessee has availed bank loans of Rs. 4.64 crores towards export credits and paid interest of Rs. 22.18 lacs towards loans towards export limits. The assessee's own funds are to the tune of Rs. 377.55 crores being share capital of Rs. 3.81 crores and reserves and surplus of Rs. 373.74 crores. The investments are to the tune of Rs. 150.65 crores as at 31-03-2011 while the same was Rs. 164.69 crores as at 31-03-2010. The audited financial statements are placed in paper book, which supports this contention of the assessee. The presumption shall apply as is held by Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Limited (2009) 313 ITR 0340(Bom HC) and also HDFC Bank Limited (2016) 67 taxmann.com 42(Bom. HC)) that the assessee has invested its own interest f....
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.... which are to be taken cognisance for making disallowance u/r 8D(2)(iii). The AO shall also verify the contention of the assessee that only HO is involved in making investments and other divisions/factories have no role to play in making, controlling, managing and/or monitoring investments. The onus is on the assessee to prove its contentions to get relief. We order accordingly. The next contention of the assessee is that there are certain Mutual funds held by the assessee which did not declare dividend as per their original scheme of investment. These MF will disburse capital at the termination of scheme which is charged to capital gain tax as per scheme of the 1961 Act is the contention of the assessee. It is claimed that since no exempt income will ever arise on these MF, they shall be excluded from the computing average investments for computing disallowance u/r 8D(2)(iii) r.w.s. 14A. We again find merit in the contentions of the assessee as if there is no exempt income likely to arise from investment instruments keeping in view their scheme of subscription, its inclusion for purposes of disallowance u/s 14A r.w.r. 8D(2)(iii) is not warranted. The AO shall verify all such instr....
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....elow disallowance suo motu voluntarily made by the assessee in the return of income filed with the Revenue. The assessee has claimed that if his several contentions are favourably considered by tribunal keeping in view legal position, the disallowance u/s 14A can fall below the voluntary disallowance made by the assessee suo motu in return of income filed with the Revenue. The assessee has relied on decision of Hon'ble Gujarat High Court in the case of Principal CIT v. UTI Bank Limited (2017) 398 ITR 514(Guj) and decision of ITAT, Mumbai in the case of Rupee Finance and Management Private Limited v. DCIT (2017) 57 ITR(Trib.) 205(Mumbai). We find merit in the contention of the assessee that once tribunal has adjudicated matter in assessee's favour then merely because disallowance was made in return of income voluntarily under a wrong belief, the assessee cannot resile from its position is not acceptable . The mandate of the 1961 Act is to tax real income and not an income which was never the income chargeable to tax in the hands of the assesseee but was declared under a wrong belief or notion . The mandate of the 1961 Act is to tax real income and tax can only be levied under the au....