TaxTMI 
TaxTMI 
2022 (1) TMI 527
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.... in this regard and, therefore, he could not determine the disallowance as per Rule 8D of Income-tax Rules disregarding disallowance offered by the appellant company of Rs. 4.00 lacs in the return of income. 2. Without prejudice to above the CIT(A) also erred in not: appreciating the legal position enunciated by Hon'ble High Court of Delhi in the case of ACB India Ltd. V. ACIT (2015) 374 ITR 108 that the disallowance as per Rule 8D is to be worked out with reference to average amount of investments on which dividend income was actually received during the year and in the case of the company on the aforesaid basis disallowance worked out was Rs. 21.03 lacs and after adjustment of disallowance already made by the company of Rs. 4.00 lacs further disallowance could be uphold only of Rs. 17.03 lacs. 3. That the order passed by CIT(A) in regard to disallowance on account of administrative expenses u/s. 14A of the Act is without fully and properly considering the facts and circumstances of the case and the law. 4. That the CIT(A) erred in upholding the initiation of penalty proceedings u/s. 271(1)(c) of the Act in the facts and circumstances of the appellan....
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....sion contemplated in Rule 8D of the Income Tax Rules, 1962, it was the claim of the assessee, viz. (i) that in so far the interest expenditure was concerned, no disallowance on the said count was called for in its hands; and (ii). that as regards the administrative expenses, the disallowance of Rs. 4 lac that was offered in the return of income was quite reasonable keeping in view the activity that was carried out as regards the investments made in the exempt income yielding assets during the year under consideration. For the sake of clarity the reply filed by the assessee before the Assessing Officer is reproduced as under: "In regard to disallowance u/s. 14A of the Act, we may submit that In the return of Income, our company has already made disallowance of Rs. 4 lacs, which represents 50% of salary of one of the executive of the company who is attending the work relating to investment apart from his other official duties. Further it may be stated that in the facts of the case of the company as have explained in earlier years, there has been no expenditure incurred on account of interest cost. Administrative activities are also meager in connection with the Investments. ....
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....ta Systems making total investments at the end of year of Rs. 70.25 cr. All the investment in earlier years have been made out of own funds of the company. This position has been duly accepted in appeals before CIT(A) for earlier years and no disallowance on account of interest has been made. We may also add that the company has been having substantial funds of its own in earlier years as well as in current year and, therefore, no investment under reference can be attributed to borrowed funds. As on 31.03.2012, the company was having its own funds in the form of share capital and reserves of Rs. 159.57 cr. and own funds of the company as on 31.03.2013 were to the tune of Rs. 183.21 cr. As regards small investment of Rs. 5 lacs made during the year, we may submit that during the year, company was having profits after tax and other adjustments of Rs. 29.01 cr. and, therefore, it cannot be said small investment of Rs. 5 lacs has been made out of borrowed funds. Further, It has been submitted in earlier years that shares of DCM Engineering Ltd., having face value of Rs. 4205 lacs, were allotted, to the company pursuant to scheme of arrangement on transfer of running business t....
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....wance is called for." However, the Assessing Officer not finding favour with the aforesaid claim of the assessee determined the disallowance u/s. 14A r.w. Rule 8D at an amount of Rs. 287.82 lac, which comprised of, viz. (i). disallowance out of interest expenditure under Rule 8D(2)(ii): Rs. 256.71 lac; and (ii) disallowance out of administrative expenses: Rs. 35.11 lac. Also, the AO disallowed interest expenditure of Rs. 22.32 lac pertaining to the outstanding balance of advance/loan of Rs. 2.79 crore in the name of DCM Employees Welfare Trust. After making the aforesaid disallowances the AO vide his order passed u/s. 143(3) of the Act, dated 14.03.2016 assessed the income of the assessee company at Rs. 42,26,56,849/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). In so far the disallowance of the interest expenditure made by the Assessing Officer u/s. 14A r.w. Rule 8D(2)(ii) of Rs. 256.71 lac was concerned, the CIT(A) finding favour with the two fold contentions that were advanced by the assessee to impress upon him that no disallowance of any part of the interest expenditure was called for in its hands, viz, (i) that as per the details submitted....
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.... was to be made for the purpose of computing the 'book profit' u/s. 115JB of the Act. Accordingly, the CIT(A) following the view taken by the Tribunal in the case of Vireet Investment Ltd. (supra) held, that no adjustment u/s. 115JB was called for on account of the disallowance that was determined u/s. 14A r.w. Rule 8D. As regards the disallowance of interest of Rs. 22.32 lac that was made by the AO in respect of the outstanding balance of advance/loan of Rs. 2.79 crore in the name of DCM Employees Welfare Trust, it was observed by the CIT(A) that a similar disallowance that was made by the AO in the preceding years was on appeal vacated by his predecessor, and the latter's order was thereafter upheld by the Tribunal. Accordingly, the CIT(A) following the view taken by the Tribunal in the assessee's own case for the preceding years vacated the disallowance of interest expenditure of Rs. 22.32 lac that was made by the Assessing Officer. Backed by his aforesaid observations the CIT(A) partly allowed the appeal. 5. That both the assessee and the revenue being aggrieved with the order of the CIT(A) have carried the matter in appeal before us. 6. As regards the del....
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....ering the machinery provision contemplated in Rule 8D(2)(ii) of the Income-tax Rules, 1962. As observed by us hereinabove, the assessee had not offered for disallowance u/s. 14A any part of the interest expenditure qua earning of the exempt dividend income during the year under consideration. However, the AO by triggering the machinery provision contemplated in Rule 8D(2)(ii) had determined the disallowance of interest expenditure u/s. 14A at an amount of Rs. 256.71 lac. On appeal, it was observed by the CIT(A), viz. (i). that as the interest bearing funds were deployed by the assessee for the purpose of its business; and (ii). that the assessee even otherwise had sufficient interest free funds available with it to source the investments in the exempt income yielding assets, therefore, no part of the disallowance of interest expenditure of Rs. 256.71 lac that was made by the AO u/s. 14A r.w. Rule 8D(2)(ii) could be sustained. On a perusal of the record, we find that the assessee company had made a total investment of Rs. 70.20 crore in the immediately preceding year, while for a further investment of Rs. 5 lac in the shares of M/s. DCM Data System was made by the assessee during th....
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.... * CIT v. Maruti Udyog Ltd. (2018) 407 ITR 159 (Del); * CIT v. Taikisha Engineering India Ltd. (2015) 370 ITR 338 (Del); CIT Vs. Bharti Televenture Ltd. (2011) 331 ITR 502 (Del.) * The Nashik Road Deolali Vyapari Sahakari Bank Ltd. v. ACIT, ITA No. 312/2016 decided on 16.09.2021 - ITAT Pune. * DCIT v. Nirshilp Securities Pvt. Ltd, ITA No. 6321/2019 decided on 21.06.2021 - ITAT Mumbai. * GAIL (India) Ltd. v. ACIT, ITA No. 301/2006 decided on 27.11.2020-ITAT Delhi; * Vedanta Ltd. v. ACIT, ITA No. 12/2020 decided on 21.09.2020 -ITAT Delhi; Apart from that, as observed by the CIT(A), and rightly so, as the interest expenditure in question was directly relatable to the loans that were taken by the assessee company for the purpose of its business, therefore, no part of the said interest expenditure could therein be attributed to the activity of earning of exempt income, and disallowed u/s. 14A r.w. Rule 8D(2)(ii). Our aforesaid view is supported by the judgment of the Hon'ble High Court of Delhi in the case of ACIT vs. Bharti Overseas Pvt. Ltd. in ITA No. 802/2015 dated 17.12.2015. Backed by our aforesaid observations, finding no in....
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....ssee that as the AO had determined the disallowance u/s. 14A r.w. Rule 8D without recording his satisfaction as to why the suo motto disallowance of Rs. 4 lac that was offered by the assessee in its return of income was not be accepted, therefore, he had wrongly assumed jurisdiction, we are afraid does not merit acceptance. Although, we are principally in agreement with the contention of the ld. AR that pursuant to the judgment of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT (2018) 402 ITR 640 (SC), it is no more res integra that an AO prior to dislodging of the assessee's claim of disallowance u/s. 14A of the Act, remains under a statutory obligation to record his satisfaction that as to why the disallowance so offered by the assessee is not to be accepted, however, we find that the facts involved in the case of the assessee before us does not fall within the four corners of the aforesaid settled position of law, and thus, would not assist the case of the assessee before us. As is discernible from the assessment order, we find that the AO had after exhaustively dealing with the contention advanced by the assessee that the disallowance of Rs. 4 l....