AI Drafter 
TaxTMI 
TaxTMI 
2018 (8) TMI 2133
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.... exempt u/s. 10(34) of the Act. In the return of income the assessee had suo moto computed and disallowed a sum of Rs. 7,24,404/- u/s. 14A of the Act as expenses incurred in relation to earning of exempt income. The AO by applying Rule 8D of the Rules made disallowance of Rs. 23,44,12,765/- in the following manner: Rule 8D(2)(i) Direct expenses Nil Rule 8D(2)(ii) Interest Rs. 21,36,61,350/- Rule 8D(2)(iii) Administrative expenses Rs. 2,07,51,415/- Rs. 23,44,12,765/- Aggrieved by the disallowance computed by the AO, the assessee preferred an appeal before the Ld. CIT(A), who in principle confirmed the addition made by the AO u/s. 14A of the Act to the total income but rectified the errors which had crept into the computation of disallowance in terms of Rule 8D of the Rules made by the AO and hence, confirmed the addition u/s. 14A of the Act to the extent of Rs. 19,81,76,000/- which, inter-alia, included a sum of Rs. 17,99,25,000/- under Rule 8D(2)(ii) and Rs. 182.51 lacs under Rule 8D(2)(iii) of the Rules. Aggrieved against the order of Ld. CIT(A), assessee is before us. 4. We have heard rival submission....
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....allowance of indirect expenses of Rs 1,82,346/- by application of Rule 8D(2)(iii) upheld with the direction to allow relief of the sum already disallowed by the appellant itself. On appeal preferred by the Revenue the Tribunal held as follows:- 'We have heard rival submissions and gone through facts and circumstances of the case. We find that now the revenue could not establish that the investments made in shares giving exempted income is out of borrowed funds on which interest is paid by assessee. There is no nexus whatsoever. On specific query Ld. Sr.DR could not controvert that the assessee has made in investment in shares giving exempt income out of own funds which is at about 2429 lacs and investment is at Rs 365 lacs only. Once this fact has not been denied and CIT(A) has categorically observed that the assessee has made investment in shares out of its own funds no disallowance can be attributed qua the interest paid on borrowed funds for investing the same in interest free funds. In view of the above, we confirm the order of CIT(A) on the common issue........' We find that this case has yielded concurrent finding of facts regarding expenditure incu....
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.... From the aforesaid chart we note that the assessee in fact had own funds to the tune of Rs. 3825 cr. and investment in shares and securities were only Rs. 446.60 cr. From these figures we find that the assessee had at its disposal sufficient funds to make the investment which yielded exempt income. Thus, it is noted that the facts of the case are analogous to the facts involved in the earlier AY 2008-09. 7. The Ld. DR appearing on behalf of the Revenue could not point out any change in law or facts concerning the issue regarding disallowance u/s. 14A of the Act. At the time of hearing, the Ld. DR, however, made an alternative argument that the assessee besides investing in shares and units, yielding dividend income, investment were made in debentures, bonds and granted interest free loans to subsidiaries which totalls far more than the assessee's own funds in the form of capital and reserves as reflected in the audited accounts. The Ld. DR, therefore, contended that it was a clear case that the assessee's borrowed funds were infact utilized for non-business purposes and, therefore, disallowance out of interest paid made by the AO and confirmed by the Ld. CIT(A) should be upheld....
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....d claimed deduction u/s. 80IA of the Act in respect of its Wind Power Division and u/s. 10B of the Act in respect of its 100% EOU at Khatra. In the assessment order, the AO after examining the audited accounts of the respective undertakings found that in arriving at the profit of the undertaking, the assessee had not allocated certain expenses which in his opinion related to these eligible undertakings as well. The items of the expenses considered for allocation were Directors' remuneration, Auditor's remuneration, travelling and conveyance and legal and professional. According to AO, these expenses were common and, therefore, these expenses should have been allocated on pro-rata basis between the eligible units and other units on the basis of their respective turnover. Thereafter, the AO worked out the pro-rata percentage of turnover of the eligible units to the company as a whole at 7.39% and accordingly, apportioned these expenses to respective eligible units. On appeal, the Ld. CIT(A) deleted the adjustment qua the expenditure on account of travelling & conveyance and legal & professional. The Ld. CIT(A), however, confirmed the adjustment qua the Director's remuneration and Aud....
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....y the expression "derived from" signifies that only income/expenditure directly and inextricably related to eligible undertaking should be considered in computing profits of the eligible undertakings. Indirect expenditure which has no direct nexus or connection to the profits of industrial undertaking should not be considered in computing deduction u/s. 80IA/10B of the Act. We find that the foregoing proposition finds support in the following decisions: i) Graphite India Ltd. Vs. Addl. CIT, ITA No. 304 to 305/Kol/ 2018, ii) `DCIT Vs. Cativison products Ltd. 142 Taxman 104 (Del.ITAT) iii) RRB Consultants & Engg. Pvt. Ltd. 112 TTJ 794 (ITAT Del.) iv) National Fertilizers Ltd. in Re 142 Taxman 5 (AAR New Del.) 14. In view of the above, let us now examine whether the items of expenses in question viz. Directors remuneration and Auditor's remuneration have any first degree nexus or connection with the profits deriving from eligible undertakings. . On perusal of the separate audited accounts of the eligible undertakings, we note that no expenses have been debited in respect of the audit conducted on these segmental accounts and in that view of the m....
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....e audited financials as well as the tax audit report, prior period expenses have been disclosed at Rs. 89,78,073/- which comprises of interest of Rs. 79,81,509/- paid to Dy. Director of Mines, Joda for delayed payments of royalty and other items of Rs. 9,96,564/-. According to AO, the assessee was unable to establish that this liability for expenses pertaining to earlier years had crystalised during the financial year and, therefore, disallowed the entire sum. On appeal, the Ld. CIT(A) deleted the addition by observing as under: "6. I have considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. The appellant has paid an amount of Rs. 79,81,509/- for delayed payment of priority to the Deputy Director (Mines) and the demand for the same was raised during the period relevant to assessment year 2009-10 as per the letter NO.60428/Mines dated 29.08.2008 of the Office of Deputy Director (Mines) Joda to Dist: Keonjhar, Orissa. The matter was under dispute and the demand crystallised during this period. Since the demand has been crystallised during the year and it was under dispute that no interest payment is to be given but ul....
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....posed to the total disallowance of Rs. 115.82 lacs made by the AO. 22. Briefly stated facts as are already discussed in the foregoing portion of this order, the assessee had claimed deduction u/s. 80IA and 10B of the Act in respect of its Wind Power Division and 100% EOU unit respectively. In the assessment order the AO had identified certain expenses which in his opinion were 'common' and related to this eligible undertaking as well. The items of expenses, inter alia, included expenses on travelling and conveyance and legal and professional fees of Rs. 692.27 lacs and Rs. 875 lacs respectively. The AO worked out the pro-rata percentage of turnover of the eligible undertaking to the company as a whole as 7.39% and accordingly, apportioned these expenses to respective eligible units. On appeal, the Ld. CIT(A) found that in Form 10CCB, the auditors had already identified and allocated the amount of Rs. 30,99,000/- and Rs. 5,63,000/- out of legal and professional fee and travelling and conveyance pertained to the eligible undertakings. According to the Ld. CIT(A), when the details had already been authenticated by the auditors, no further allocation out of these items of expenses w....
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....sufficient own surplus funds namely Rs. 4334.36 lacs at its disposal to cover the cost of investment of Rs. 631.10 lacs. We accordingly, hold that no disallowance out of interest was warranted u/s. 14A of the Act. The AO is accordingly directed to delete the disallowance made u/s. 8D(2)(ii). As regards the disallowance made by AO under Rule 8D(2)(iii) of the Rules, we deem it fit and proper to remand the issue back to the file of the AO with a direction to consider only the investments at the beginning and closing of the relevant previous year which yielded dividend to the assessee during the relevant year in computing permissible disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) of the Rules. In view of our foregoing conclusion the grounds raised by the revenue becomes academic only. 27. Coming next to ground no. 5 of assessee's appeal and ground nos. 2 and 3 of revenue's appeal relate to the allocation of 'common expenses' comprising of Director's remuneration, Auditor's remuneration, conveyance and travelling expenses and legal and professional expenses in working out the profits of the eligible undertakings u/s. 80IA and 10B of the Act. After considering the rival s....