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2024 (6) TMI 736
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....r the sake of convenience. ITA No.1006/Ahd/ 2022 for AY 2018-19 is being taken as the lead case for the purpose of narrating the facts. ITA No.1006/Ahd/2022 : AY 2018-19 3. The brief facts of the case are that the assessee is a company engaged in the business of manufacturing and sale of chewing tobacco. For the AY 2018-19, the assessee filed its return of income on 29.03.2019 declaring total income of Rs. 120,74,05,980/-. The return was taken up for complete scrutiny for verification of (i) refund claim, (ii) Duty Drawback and (iii) expenses incurred for earning exempt income, and thereafter the assessment was completed by making a disallowance u/s 14A r.w.r. 8D of Rs. 83,35,408/-. 4. Aggrieved against the assessment order, the assessee filed an appeal before the ld. CIT(A). The assessee submitted before the ld. CIT(A) that the Assessing Officer has not recorded his dissatisfaction as to why the disallowance u/s 14A r.w.r. 8D should be invoked, when the assessee itself made suo moto disallowance of Rs. 6,05,457/-. The ld. CIT(A) held that the assessee had not provided any separate books of accounts maintained for making investments and the assessee must have incurred admi....
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....m tax. The assessee has earned dividend income of Rs. 6,49,37,133/- which is exempt u/s 10(34) of the Act. However, the assessee has made disallowance of Rs. 6,05,457/- only u/s 14A of the Act; therefore, the assessee was asked to explain as to why all the investments in shares and mutual funds as shown in the balance-sheet should not be considered for working out the disallowance u/s 14A of the Act read with Rule 8D of the Rules. In response, the assessee filed his submissions as follows:- "We have been directed to furnish the details with respect to investments in shares. The same is already furnished in point no 13 of the reply dated 26.05 2020. At the outset, it is submitted that from the perusal of the Balance Sheet, it would be revealed that the investment in shares is Rs. 12,50,000/- is with respect to Kalupur Commercial Co-operative Bank Ltd. It is also pertinent to note that the dividend received on such shares is taxable in nature and does not generate any income which does not part of total income. Therefore, there is no exempt income generated by making investment in shares of Kalupur Commercial Co-operative Bank Ltd In any case, the assessee company has alread....
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.... 5. From the above working, the attributable expenses for investment as per Rule 8D of the Income-tax Rules 1962 is at Rs. 89,40,865/-which need to be disallowed as per section 14A of the I. T. Act. Since, the assessee has already disallowed an amount of Rs. 6,05,457/-, a difference of Rs. 83,35,408/- is hereby disallowed u/s 14A r.w.t. 8D and same is added back to the total income of the assessee. I am satisfied that the assessee has wrongly calculated disallowance of expenditure related to exempt income u/s 14A w.r.t. rule 8D. Since, the assessee has under reported income in view of provisions of section 270A(2)(a) of Income Tax Act 1961. (Addition of Rs. 83,35,408/-)" 10. It is also seen from the assessment order that the Assessing Officer has not recorded his dissatisfaction as prescribed under Section 14A(2) of the Act. For better understanding, the provisions of Section 14A is reproduced as follows:- "Expenditure incurred in relation to income not includible in total income:- 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income w....
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.... exempted income under the Act-1961. Thus, pre-condition for applying rule 8D of the Rules-1962, the Assessing Officer is required to be satisfied as provided in sub-section 2 of section 14A of the Act-1961. 8. In the aforesaid context, we may refer recent pronouncement of this Court in the case of Pr. CIT v. Gujarat State Fertilizer & Chemicals Ltd [2019] 108 taxmann.com 560/416 ITR 13 (Guj), wherein this Court has observed as under:- "17. This Court, in Shreno Limited (supra), has taken the view that Maxopp Investment Limited (supra) cannot be seen or understood to be fundamentally changing the understanding and interpretation of section 14A and Rule 8D. It went on to hold that the judgment of the Supreme Court does not lay down the proposition that, the requirement of sub-rule (1) of rule 8D of recording the satisfaction by the Assessing Officer before applying the formula given in sub-rule (2) of rule 8D is done away with. It clarifies that the judgment in the case of Maxopp Investment Limited does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds and utilized them for making investment into securities e....
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....sessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned the expenditure but the Assessing Officer did not accept the assessee's apportionment. In that eventuality, he will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares or making the investment in shares is to be examined by the Assessing Officer." 16. We also refer to and rely upon a decision of this Court in the case of Principal Commissioner of Income-tax v. Shreno Limited, reported in (2018) 409 ITR 401 (Gujarat), more particularly paragraphs 16 and 17, which read thus : "16. The primary question which the Supreme Court considered in case of Maxopp Investment Ltd., (supra) was whether disallowance of expenditure under section 14A of the Act would be applicable in a case where shares or stocks of a company were purchased for the purpose of gaining control over the said company and incidentally tax free dividend income ....
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....king investments into securities earning tax free income and the rest applicability of the Section 14A read with Rule 8D would be automatic. We are conscious that neither in M/s. Max India Ltd., Punjab & Haryana nor in Gujarat State Fertilizer and Chemicals case, this High Court had noticed the judgment of the Supreme Court in case of Maxopp Investment Ltd. Nevertheless in view of the discussion above, in our opinion the situation would not change on account of the said judgment of the Supreme Court." 17. This Court, in Shreno Limited (supra), has taken the view that Maxopp Investment Limited (supra) cannot be seen or understood to be fundamentally changing the understanding and interpretation of section 14A and Rule 8D. It went on to hold that the judgment of the Supreme Court does not lay down the proposition that, the requirement of sub-rule (1) of Rule 8D of recording the satisfaction by the Assessing Officer before applying the formula given in sub-rule (2) of Rule 8D is done away with. It clarifies that the judgment in the case of Maxopp Investment Limited does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds ....
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....l filed by the assessee bearing ITA No.1006/Ahd/2023 is hereby allowed. ITA No. 1007/Ahd/2023 : AY-2020-21 14. The grounds of appeal raised by the assessee are as under:- "1. The Ld. CIT(A) has erred in confirming the addition of Rs. 1,49,88,540/- made by the Assessing Officer in respect of deduction claimed u/s 37 of the IT Act, 1961 for the education cess and higher secondary education cess paid by the appellant during the year applying the amendment made to Sec.40(a)(ii) of the I.T. Act, 1961 by the Finance Act, 2022 retrospectively. 2. The Ld. CIT(A) has erred in confirming the disallowance of Rs. 1,21,09,866/- made by the Assessing Officer u/s. 14A of the I.T. Act, 1961 r.w.r.8D of the I.T. Rules, 1962." 15. For the AY 2020-21, the assessee filed its return of income on 13.02.2021 declaring total income of Rs. 164,23,69,320/- and claimed Education Cess of 1,49,88,540/- as allowable business expenditure. The Assessing Officer held that the Education Cess being an additional surcharge on income-tax partakes the same character and it is not allowable expenditure as per the amendment of Section 40 in Finance Bill 2022; thereby, the Assessing Officer disa....
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....n and perused all the material available on record. The provisions of Section 155(18) of the Act and Rule 132 read as under:- Section 155(18) of the Act: "[(18) Where any deduction in respect of any surcharge or cess, which is not allowable as deduction under section 40 has been claimed and allowed in the case of an assessee in any previous year, such claim shall be deemed to be under reported income of the assessee for such previous year for the purposes of sub-section of section 2704. notwithstanding anything contained in sub-section (6) of section 1704 and the Assessing Officer shall recompute the total income of the assessee for such previous year and make necessary amendment, and the provisions of section 154 shall so far as may be, apply thereto, the period of four years specified in sub-section (7) of section 154 being reckoned from the end of the previous year commencing on the 1st day of April, 2021: Provided that in a case where the assessee makes an application to the Assessing Officer in the prescribed form and within the prescribed time, requesting for re-computation of the total income of the previous year without allowing the claim for dedu....