TaxTMI 
TaxTMI 
2024 (8) TMI 802
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Year 2008-09 3. The assessee has raised the following grounds of appeal before us:- "1. That the CIT(A) erred on facts and in law in confirming the disallowance of Rs. 1,54,06,773/- made by the assessing officer 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 CIT(A) erred on facts and in law in confirming the action of the assessing officer in applying provisions of Rule 8D in a routine manner, and in absence of any finding/satisfaction as to why the disallowance under section 14A of the Act made by the appellant in the return of income, was not correct. 2. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in adding back the aforesaid amount while computing 'book profit' under section 115JB of the Act. 2.1 That the CIT(A) erred on facts and in law in not appreciating that the provisions of section 14A and Rule 8D of the Rules are not applicable to section 115JB of the Act. 2.2 That the assessing officer erred on facts and in law in not appreciating that establishing co-relation between the earning of dividend incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ategic long term investments as under:- Particulars Dividend Investment Remarks HT Media Limited 4.82,95.581 195,04,13,000 These investments were acquired way back in financial year 2003-04 and 2004-05- No fresh investment Chambal Fertilizers & Chemicals 7,95,80,956 73,90,46,000 Major investment of Rs.72.59 cr. in earlier years upto assessment year 2006-07. Total (above investments) 12,78,67,537 268,94,59,00 97.2% of total dividend B 0 income Other Dividend 36,72,505 Total 13,15,40,042 6.2. The assessee made suo moto disallowance of Rs 2,00,000/- towards expenses u/s 14A of the Act in the return of income on the ground that dividends stood automatically credited in the bank account through Electronic Clearing Service (ECS) and that only one Executive's salary ( DGM Accounts) at 10% is considered for the purpose of investment activity on the basis of time spent by him and investment decisions are taken by one Director (Shri Priyavrat Bhartia) to whom no remuneration is paid by the assessee company. The assessee submitted that from Asst Years 2002-03 onwards, the ld. AO had accepted the disallowance of expenses at Rs 1,0....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO recording that he is not satisfied with the clam of the Assessee in the manner indicated i.e. after examining the Assessee's accounts, the question of applying the formula under Rule 8D (2) does not arise. That this is a mandatory pre-requisite for applying Rule 8D (2) is fairly well-settled. ....... 34. The Assessee had explained that Rs. 3 lakhs was being disallowed voluntarily as an "expenditure which could be attributable for earning the said income." The Assessee explained that the disallowance had been determined on the basis of cost of finance department in the ratio of exempt income to total turnover. On that basis the disallowance in AY 2005-06 was upheld by CIT(A) at Rs. 1 lakh. The disallowance for this AY was worked out as Rs. 1,42,404/- and since the Assessee had already made a disallowance of Rs. 3 Lacs, no further disallowance was called for. 35. In order to disallow this expense the AO had to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee's claim of Rs. 3 lakhs being the administrative expenses. This was mandatorily necessitated by Section 14 A (2) of the Act read with Rule 8D(1)(a) of the Rules. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Jurisdictional High Court in the case of ACB India Ltd vs ACIT reported in 374 ITR 108 (Del) and PCIT vs Caraf Builders & Constructions P Ltd reported in 414 ITR 122 (Del). 6.6. In view of the aforesaid observations, we hold that the ld. AO had not recorded any objective satisfaction having regard to the accounts of the assessee as to why the suo moto disallowance made by the assessee is incorrect. Respectfully following the decision of Hon'ble Jurisdictional High Court in the case of H T Media Ltd referred supra, we hold that the disallowance u/s 14A of the Act should be restricted only to Rs 2,00,000/- for the year under consideration. Accordingly, the Original Ground Nos. 1 & 1.1. and Additional Ground No. 1.2.are disposed of in the abovementioned terms. 7. The Ground Nos. 2 to 2.2. raised by the assessee are challenging the disallowance made u/s 14A of the Act while computing the book profits u/s 115JB of the Act. 7.1. We have heard the rival submissions and perused the materials available on record. The ld. AO proceeded to disallow the expenditure u/s 14A of the Act in the sum of Rs 1,54,06,773/- while computing the income u/s 115JB of the Act by applying the computation m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that the paintings / works of art constitute part of interior decoration to improve aesthetics of the reception and common area of the buildings, which are regularly visited by its clients and from the assessee is deriving income. The assessee buys customized paintings which are regularly replaced after few years with other contemporary paintings, shuffles the location of the paintings, puts them in new locations in the common areas etc, in order to provide world class interiors to its clients, both existing and prospective, with a view to obtain more prestigious clients and consequently increase revenues through new clients. The paintings acquired have short life in so far as the assessee is concerned and the same perform as a functional role in the business of the assessee. It was submitted that the paintings also include a few specific to the business operations of the assessee, depicting the history of "The Hindustan Times" which is specific to the business of the assessee having no re-saleable value. Owing to the nature of business, the assessee keeps on refurbishing the common areas frequently to attract the foreign visitors, employees of the multinational companies, which,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cy burnt in fire and hence the same when written off would not be eligible for deduction u/s 36(1)(vii) of the Act. Before the ld. CIT(A), the assessee submitted the report of the Delhi Fire Service and Board resolution authorizing the write off of the said loss of cash burnt in fire. This action of the ld. AO was upheld by the ld. CIT(A). 9.2. At the outset , the contentions of the revenue that no income was offered in terms of section 36(2) of the Act with regard to currency burnt in fire, is totally misconceived as apparently no income at all could be offered thereon. The entire issue being looked into from the perspective of provisions of section 36(1)(vii) of the Act by the revenue , per se, is not correct in the instant case. What is to be seen is whether the currency belonging to the assessee's business was actually burnt in fire and whether there was loss to the assessee in that regard. If it is so, it becomes a trading loss for the assessee allowable as deduction u/s 28 of the Act. However, the lower authorities had observed that no supporting evidences has been placed on record by the assessee with regard to this issue in dispute. Before us, the assessee had filed additi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uting disallowance under section 14A of the Act read with Rule 8D(2)(iii) of the Rules, the investment which did not yield exempt income during the relevant year and strategic investment ought to be excluded while computing the average value of investment in terms of the aforesaid clause. 1.6. That the assessing officer erred on facts and in law in wrongly computing disallowance as per Rule 8D of the Rules by considering average value of total assets after reducing current liabilities and provisions. 2.2. That on the facts and circumstances of the case and in law, expenditure of Rs 69,02,930 incurred on acquisition of paintings is allowable revenue deduction. 11.1. We find that the aforesaid additional grounds raised before us are purely legal in nature and go to the root of the matter not requiring any verification of facts. Hence the same are hereby admitted and taken up for adjudication along with the original grounds of appeal. 12. The Ground Nos. 2 & 2.1. of original grounds and Additional Ground 2.2. raised by the assessee for the Asst Year 2009-10 are identical to Original Ground No. 3 and Additional Ground No.3.1. raised for the Asst Year 2008-09. Hence the decisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of the ld. AO was upheld by the ld. CIT(A). 13.3. At the outset, we find that the ld. AO had rejected the basis of disallowance u/s 14A of the Act submitted by the assessee without recording any satisfaction thereon as to why the said basis is incorrect. The assessee had explained that it had taken DGM Accounts salary at 10% as attributable to investment activity and the Director who is incharge of taking investment decisions was not paid any remuneration. Further the assessee had the history in its favour wherein in earlier years, the disallowance at Rs 2,00,000/- alone was made by the ld. AO u/s 14A of the Act. Hence the assessee had a proper basis for its suo moto disallowance. The ld. AO did not even bother to discuss about this aspect in the order. As per the provisions of section 14A(2) of the Act read with Rule 8D(1) of the Rules, the ld. AO is duty bound to first record satisfaction in an objective manner having regard to the accounts of the assessee as to why the suo moto disallowance made by the assessee u/s 14A of the Act is incorrect, before resorting to computation mechanism provided in Rule 8D(2) of the Rules. Reliance in this regard has been rightly placed on the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rning of income, are embedded in indirect expenses. It is then stated in para 3.4 that, in view of the above, the provisions of sub-section (2) of Section 14A and Rule 8D of the Rules are in operation and therefore, will strictly be adhered to by the Assessee. In para 3.6 of the assessment order, after discussing Section 14A(1) read with Rule 8D and referring to the decision of the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. (supra), the AO simply stated that "in view of the facts and circumstances and legal position on the issue as discussed above, I am satisfied that the Assessee had incurred expenses to manage its investments which may yield exempt income, and Assessee grossly failed to calculate such expenses in a reasonable manner to ascertain to ascertain the true and correct picture of its income and expenses." 37. In the considered view of this Court, the above observations of the AO in the assessment order are of a broad general nature not with particular reference to the facts of the case on hand. 13.4. Further the argument of the ld. AR that 97.2% of dividend income had been received by the assessee from strategic investments and the same need to be eliminat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assets for the purpose of Rule 8D(2)(ii) of the Rules need not be gone into. 14. The Ground Nos. 3 & 3.1. raised by the assessee for the Asst Year 2009- 10 are identical to Ground Nos. 2 to 2.2. raised for the Asst Year 2008-09 and the decision rendered thereon for Asst Year 2008-09 shall apply mutatis mutandis for Asst Year 2009-10 also. Hence we hold that only a sum of Rs 2,00,000/- is to be disallowed for the purpose of section 115JB of the Act. Accordingly, the Ground Nos. 3 & 3.1. raised by the assessee are partly allowed. 15. In the result, the appeal of the assessee in ITA No. 6512/Del/2013 for Asst Year 2009-10 is partly allowed. ITA No. 1226 & 1227/Del/2015 - Asst Year 2010-11 16. In these two appeals for the Asst Year 2010-11, the following three issues are in dispute before us:- a) Disallowance u/s 14A of the Act read with Rule 8D(2) of the Rules b) Cost of Paintings - Whether Depreciation to be allowed or to be allowed as revenue expenditure c) Disallowance u/s 14A of the Act while computing book profits u/s 115JB of the Act. 16.1. We have heard the rival submissions and perused the materials available on record. The facts prevailing in Asst Year 2009-10 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the Act submitted by the assessee without recording any satisfaction thereon as to why the said basis is incorrect. The assessee had explained that it had taken DGM Accounts salary at 10% as attributable to investment activity and the Director who is incharge of taking investment decisions was not paid any remuneration. Further the assessee had the history in its favour wherein in earlier years, the disallowance at Rs 2,00,000/- alone was made by the ld. AO u/s 14A of the Act. Hence the assessee had a proper basis for its suo moto disallowance. The ld. AO did not even bother to discuss about this aspect in the order. As per the provisions of section 14A(2) of the Act read with Rule 8D(1) of the Rules, the ld. AO is duty bound to first record satisfaction in an objective manner having regard to the accounts of the assessee as to why the suo moto disallowance made by the assessee u/s 14A of the Act is incorrect, before resorting to computation mechanism provided in Rule 8D(2) of the Rules. Reliance in this regard has been rightly placed on the decision of Hon'ble Jurisdictional High Court in the case of H T Media Ltd vs PCIT reported in 399 ITR 576 (Del). 16.6. In view of the afo....