TaxTMI 
TaxTMI 
2024 (5) TMI 1162
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....f disallowance under section 14A read with Rule 8D by holding that the same is erroneous and prejudicial to the interests of the revenue. 2. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in holding that the assessment order is liable for revision under clause (a) and (b) of the Explanation 2 to section 263 since the Assessing Officer has not made sufficient inquiries in respect of the computation of disallowance under section 14A. 3. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating the fact that the case of the appellant was selected for scrutiny assessment specifically to verify the expenses debited to profit and loss account for earning exempt income. 4. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in holding that the assessment order is erroneous and prejudicial to the interests of the revenue solely on the ground that the disallowance under section 14A has not been computed as per Rule 8D. 5. On the facts and in the circumstances of the ca....
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....uire day to day monitoring and accordingly no expenditure is incurred on such investments. 12. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not accepting the suo moto disallowance under section 14A amounting to Rs. 14,85,415 made by the appellant on a reasonable basis after analyzing each and every head of expenditure debited to the Profit and Loss Account. 13. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in holding that the appellant had not provided the method of computation of suo moto disallowance by the appellant on a reasonable basis without appreciating that the appellant had submitted detailed computation thereof during the course of assessment proceedings. 14. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating that disallowance under section 14A as per Rule 8D results in disallowance of entire expenses claimed in the return of income thereby not allowing any expense for earning taxable income. 15. Without prejudice to the above grou....
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.... Since monthly balances are not available on record, the annual average of the balance is average of opening and closing balance and that would be of Rs. 262,10,34,548/-. Thus the expenses disallowable under clause (ii) of Rule 80(2} is 1% of this amount and that would of Rs. 2,62,10,345/-. Thus total disallowable amount computed as per the manner provided under Rule 8D would be of Rs. 2,62,1 0.345/- +1,2807- but since the total claim of expenses is only of Rs. 67,12,4107- the disallowance is to be restricted to this amount. The provisions of rule 8D are clear and there appears no ambiguity left for any other interpretation as far as computation is concerned. Thus in this case disallowance of Rs. 67, 12, 41 OA was required to be made as against Rs. 14,85,515/- disallowed by the assessee itself and accepted by the FAO. Thus there was a short disallowance of expenses u/s 14A of the Act by an amount of Rs. 52,26,595/-. (iv) During the course of assessment proceedings, the FAO has accepted the computation of disallowance u/s 14A as per rule 8D neither made any query in this regard nor has otherwise examined the case for disallowance of expenses u/s 14A in the manner prescribed....
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....amount to Rs. 55,24,38,557/- which consists of interest income of Rs. 20,45,11,028/- and exempted income in form dividend amount of Rs. 34,79,27,529/-. The assessee submitted the computation of related to Rule 8D of the Rule and only the expenses related to Rs. 1,06,19,222/- claimed in Profit and Loss a/c. The ld. AR placed that other than the demat charges amount to Rs. 1280/-, no other expenses has close proximity with the exempted income u/s 10(38) of the amount to Rs. 34,79,27,529/-. The proportionate expenses amount to Rs. 14,85,415/- added back with the total income of the assessee u/s 14A of the Act. The ld. AR invited our attention at APB page 93 in details of expenses to compute the amount u/s 14A which is reproduced as below: - "Expenses incurred for earning taxable Income In this connection, your kind attention is also invited to the total expenses claimed by the Company in the return of income for AV 2018-19: Total expenditure debited to the Profit and Loss account. 1. Employee benefit expense 36.26,961 2. Depredation 1,01,898 3. Other Expenses 68,90,363 1,06,19,222 Less: Expenses already disal....
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....ffect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. In section 14A, the first phrase is "for the purposes of computing the total income under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeabili....
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....incurred for business. A deduction for expenditure or loss which is not within the prohibition must be allowed if it is on the facts of the case a proper Debit Item to be charged against the incomings of the business in ascertaining the true profits. A return of investment or a pay- back is not such a Debit Item as explained above, hence, it is not "expenditure incurred" in terms of section 14A. Expenditure is a pay-out. It relates to disbursement. A pay-back is not an expenditure in the scheme of section 14A. For attracting section 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. Pay-back or return of investment is not such proximate cause, hence, section 14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, section 14A cannot be invoked. In our view, return of investment cannot be construed to mean "expenditure" and if it is construed to mean "expenditure" in the sense of physical spending still the expenditure was not such as could be claimed as an "allowance" against the profits of the relevant accounting year under sections 30 to 37 of the Act and, therefore, secti....
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....o disallowance of Rs. 14,85,415 made by the Company in the return of income Is more than reasonable to cover any expenditure which may be attributed to earning of exempt income and hence, there is no question of making any further disallowance under section 14A. 3.13 Further, the said contention of the Company has also been accepted by the Assessing Officer in the immediately previous assessment years i.e. AY 2016-17 and AY 2017-78, (refer computation page nos, 46-49) Expenses incurred for earning taxable Income In this connection, your kind attention is also invited to the total expenses claimed by the Company in the return of income for AV 2018-19: Total expenditure debited to the Profit and Loss account. 1. Employee benefit expense 36.26,961 2. Depredation 1,01,898 3. Other Expenses 68,90,363 1,06,19,222 Less: Expenses a/ready disallowed: 1. Depredation 1,01,898 . 2- CSR expense 38,00,000 3. Late fees for delay in fifing of return of Profession tax 1,000 4. Loss on asset discarded 3,914 (39,06,812) ....
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.... "24. It is an undisputed fact that Ultra Tech Cement Limited is an entity listed on stock exchanges of India and the assessee Company is wholly owned subsidiary of UltraTech Cement Limited. The fact that Ultra Tech Cement Limited in wholly owning shares of the assessee Company is also undisputed and clearly evident from the publicly available records such as annual report of UltraTech Cement Limited. The said facts are also reported by the assessee Company in its Income-tax return filed for the year under consideration. Ultra Tech Cement Limited being public company as defined u/s.2(71) of Companies Act, 2013 and an listed entity, satisfies the conditions laid out in s.2(18) of the Act and therefore it is a company in which public are substantially interested. The assessee company, being 100% subsidiary of Ultra Tech Cement Limited satisfies the primary condition of being a company which is a deemed public company as per proviso to s. 2(71) of Companies Act, 2013. One of the secondary condition of s. 2(18)(b) of the Act viz. whole of the share capital of such subsidiary-company is held by a company in which public are substantially interest is also satisfied since the share....
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....t the AO has failed to make adequate enquiries. There is a distinction between, the lack of enquiry and no enquiry. The Explanation covers cases of no enquiry within the ambit of 'erroneous order'. Where the AO has made enquiries and the taxpayers have submitted information on the issue, based on which a view has been framed in the assessment, it cannot be said that the order is erroneous. The Rajasthan High Court in the case of Jain Construction Co. (supra) has affirmed the above position. Thus, even on this count the impugned order cannot be sustained. 28. We have already held that provisions of s. 56(2)(viib) of the Act and s.68 of the Act are not applicable in present case and hence order passed by the AO is not prejudicial to the interest of revenue in any case. Therefore, even otherwise, any enquiry by the AO in this regard could not have resulted into any imposition of tax which has escaped assessment. It is also worth noting that prior to the conclusion of assessment as well as subsequent thereto, the investigation wing and the AO did make specific enquiries relating to applicability of s. 56(2)(viib) by issuing notices u/s 133(6) of the Act. Based on the r....
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....take recourse to any of the three courses indicated in s. 263. So, it is clear that the CIT does not have unfettered and unchequered discretion to revise an order. The CIT is required to exercise revisional power within the bounds of the law and has to satisfy the need of fairness in administrative action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution of India as well as in s. 263. An order can be treated as 'erroneous' if it was passed in utter ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that is contemplated under s. 263 is the prejudice to the income-tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the CIT under s. 263 may be summarized below : (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the condi....
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....of the afore stated essence of precedents on the issue of revision under s. 263, the twin conditions - the order is erroneous and prejudicial to the interest of Revenue, do not co-exist in this case. Accordingly, we set aside the impugned revisional order and restore the assessment order. 3. In the result, appeal of the assessee is allowed." 4.7 The ld. AR further relied on the order of Moil Ltd. vs. CIT-1, (2017) 81 taxmann.com 420 (Bombay). "5. On a perusal of the orders passed by the Authorities, it appears that before the assessment order was passed, a notice was served on the assessee under Section 142 (1) of the Act and 20 queries pertaining to different heads were made therein. The ninth query in the notice under Section 142 (1) of the Act pertains to the expenditure for the Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142 (1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pert....
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....no.9 in the notice under Section 142 (1) of the Act. If that is so, the judgments, reported in Fine Jewellery (India) Ltd. (supra) and Nirav Modi (supra) and on which the learned Counsel for the assessee has placed great reliance would come into play. It is held in the judgments referred to herein above by relying on the judgment in the case of Idea Cellular Ltd. (supra) that if a query is raised during the assessment proceedings and the query is responded to by the assessee, the mere fact that the query is not dealt with in the assessment order would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (supra) this Court found that from the nature of the expenditure as explained by the assessee in that case the Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to. Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of Nirav Modi (supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of th....
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.... vehemently argued and relied on the order of the revenue authorities. 6. We heard the rival submission and considered the documents available in the record. The assessment was initiated on disallowance of expenses on exempted income. The notice u/s 142(1) was issued, and the question was asked for. In the assessment order the ld. AO also covered the issue related section 14A read with Rule 8D. For disallowance section 14A the proximity of expenses with the exempted income is required, respectfully relied on the order of Walfort Share &Stock Brokers (P) Ltd(supra). The Section 14A would be applicable on the dividend income, earned by the assessee which is exempted U.s 10(38) of the Act. The assessee supplied the list of expenses for calculating the expenses related u/s 14A of the Act. The assessee itself had calculated amount of Rs. 14,85,415/- and offered for tax during filing of return. The ld. AO is not expected to raise more queries, if the ld. AO is satisfied about the admissibility of claim on the basis of the material and the details supplied. So, assessment order cannot be called erroneous and the application of Section 263 is not justified. The respectful reliance is pl....