AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 1200
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....e action of Learned Assessing Officer ["Ld. AO"] in disallowing an amount of Rs. 2,251,065 under section 14A of the Income-tax Act, 1961 ("the Act"), read With Rule 8D of the Income-tax Rules, 1962 ("the Rules"). 1.1 That the Ld. C!T(A) erred on the facts of the case and in law in upholding the action of the Ld. AO 'in computing the said disallowance of Rs. 2,251,065 as per Rule 8D of the Rules read With section 14A of the Act, being 0.5% of the average of opening and closing investment in mutual funds pertaining to financial year 2012-13. 1.2 That the Ld. C!T(A) erred on facts and in law in confirming the aforesaid disallowance Without appreciating that no expenditure was actually incurred in earning the exempt dividend income, which was actually a mere reinvestment of units issued as dividend to the Appellant on mutual funds held by it. ITA No.5205/Del/2018 (AY 2014-15) 1. That on the facts and in the circumstances of the case and in law, the order passed by the Learned Assessing Officer ("Ld. AO") is bad in law. 2. That the Learned Dispute Resolution Panel ("Ld. DRP")/ Ld.AO erred in law and on the facts and in the circumstances of the case in disallowing an amount....
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....interest under section 234B and 234C of the Act." 3. Briefly stated the facts necessary for adjudication of the controversy at hand are : assessee is into providing Decision Analytic Services for custom-made data-driven solutions to a variety of business applications. During the scrutiny proceedings, Assessing Officer (AO) noticed that the assessee has earned dividend income of Rs. 3,13,94,353/- & Rs. 5,34,50,201/- for AYs 2013-14 & 2014-15 respectively and claimed the same as exempt under section 10(35) of the Income-tax Act, 1961 (for short 'the Act'), without disallowing any amount of expenditure for earning this dividend income. AO by invoking the provisions contained u/s 14A read with Rule 8D of the Income-tax Rules, 1962 (for short 'the Rules) made a disallowance of Rs. 22,60,300/- & Rs. 35,75,677/- for AYs 2013-14 & 2014-15 respectively on the ground that since the assessee has not maintained any separate investment division, the infrastructure and establishment developed by the assessee company for the purpose of business has been used for work of investment in equity shares. 4. In AY 2014-15, AO has also not allowed credit of Minimum Alternative Tax (MAT) of Rs. 2,09,67,....
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....that all the investment has been made in the Debt Oriented Funds; that in the earlier three years, identical issue has already been decided by the Tribunal in favour of the assessee and relied upon the decisions rendered by Hon'ble High Court in case of Maxopp Investment Ltd. (2012) 347 ITR 272 (Del.) and the coordinate Bench of the Tribunal in case of Petronet LNG Ltd. in ITA No.5230/Del/2015 for AY 2009-10 & Ors.. 10. However, on the other hand, ld. DR for the Revenue to repel the arguments addressed by the ld. AR for the assessee contended inter alia that AO has recorded satisfaction and has duly discussed the indirect expenses incurred by the assessee; that there is huge investment made by the assessee which cannot be made without incurring additional expenditure. Ld. DR for the Revenue to repel this argument referred to assessment order wherein AO has discussed in detail the indirect expenses incurred by the assessee company to earn the dividend income. Ld. DR has also referred to para 5.3 of the impugned order passed by the ld. CIT (A). 11. Undisputedly, assessee company has earned dividend income of Rs. 3,13,94,353/- & Rs. 5,34,50,201/- in AYs 2013-14 & 2014-15 respectivel....
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....Prudential Fund wherein the entire investment shown in the year under consideration is "dividend reinvested" (Debt Oriented Funds), AO was required to record his categoric dissatisfaction as to working of the assessee that such and such expenses have been incurred to earn dividend income, but not shown. 15. Furthermore, when we examine sub-para 5.3 of the impugned order passed by the ld. CIT (A) he has also failed to bring on record the working for incurring of expenses for making investment and earning dividend by the assessee company rather upheld the findings returned by AO mechanically. Ld. CIT (A) in AY 2013-14 observed that:- "I have carefully examined the issue. In a hotch-potch of various activities being concomitant, it may not be possible to find out the actual expenditure - incurred in relation to earning of exempt income. Under these circumstances, the A.O. has no option but to resort to section 14A particularly when the assessee claims to have incurred no expenditure in this regard. There may not be any requirement of separate investment division but to say that no resources were utilized to earn exempt income and the earning was on automatic mode is not an acceptab....
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....enditure by the Assessing Officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of .sub-section (2) of section 14A . Prior to that, the assessee was free to adopt any reasonable and acceptable method. So, even for the prerule 80 period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the Act. Even where the assessee claims that no expenditure has been incurred in' relation to income which does not form part of the total income, the Assessing Officer will have to verify the correctness of such claim. In case, the Assessing Officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the Assessing Officer is to accept the claim of the assessee in so far as the quantum of disallowance under section 14A is concerned. In such eventuality, the Assessing Officer cannot embark upon a determination of the amount of expenditure for the purposes....
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.... formula for determination of an expenditure to earn the income which does not form part of the total income under the Act, which can only be invoked if the AO is not satisfied with the claim of the assessee. 21. So, we are of the considered view that when AO/CIT(A)/DRP have not come up with factual working that such and such expenses have been incurred by the assessee to earn the dividend income by recording their dissatisfaction with the working of the assessee company, rather mechanically invoked the provisions contained u/s 14A r/w Rule 8D which is not permissible. Moreover, AO has not found any fault in the audited financials of the assessee showing no expenditure in earning dividend income. 22. It is a matter of fact that the entire investment during the year under consideration is on account of dividend reinvested (Debt Oriented Funds) not creating any occasion for the assessee company to put in their administrative and managerial manpower for making investment. So, AO is directed to delete the disallowance of Rs. 22,60,300/- & Rs. 35,75,677/- for Assessment Years 2013-14 & 2014-15 respectively after due verification that apart from "dividend reinvested" no other investmen....