TaxTMI 
TaxTMI 
2024 (12) TMI 1565
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....he Act') in relation to the appeal filed against the assessment order dated 25 December 2019 under section 143(3) of the Act on the following grounds of appeal, which are independent and without prejudice to one another On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) Disallowance under section 14A of the Act in respect of expenditure incurred towards earning exempt income: 1. erred in not accepting the disallowance amounting to Rs. 9,09,943/made by the appellant on a reasonable basis in the return of income: 2. upholding the action of the Assessing Officer in computing disallowance under section 14A of the Act by applying the provisions of Rule SD of the Income-tax Rules, 1962 ('the Rules") only in respect of investments which has yielded exempt income. 3. erred in not adjudicating the contention of the appellant that provisions of Rule 8D of the Rules are not automatic and cannot be invoked by the Assessing Officer without recording dis- satisfaction regarding the suomoto disallowance made under section 14A of the Act on a reasonable basis, 4. erred in not appreciat....
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....he return of income, assessee suo-moto made disallowance under section 14A of the Act amounting to Rs. 9,04,943/-. The said disallowance was computed as per working prepared on reasonable basis which is based on an analysis of each and every head of expenditure. Detailed working furnished by the assessee for suo-motto disallowance is extracted below for ease of reference. 4.2. From the above table, it is noted that assessee had apportioned salary of various resources including Managing Direction/CFO, commission to non-executive Directors, Director's fees, sitting fees paid to investment committee as well as other indirect administrative expenses for each of the line item in the table. Assessee had also furnished detailed and elaborated working along with the explanation for the assumptions made in the apportionment for computing the suo-motto disallowance. The detailed working is placed at page 10-12 of the paper book and is not extracted for the sake of brevity. However, from the said elaborate details, it is noted that apart from employment cost, total operation and other expenses excluding expenses not related to investment and income therefrom have been taken into account fo....
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....king the provisions of section 14A of the Act when assessee has made a suo-motto disallowance. In the present case, ld. Assessing Officer did not record any satisfaction regarding rejection of the suo-moto disallowance made by assessee having regard to the accounts of the assessee. Ld. Counsel pointed to the presumptions noted by ld. Assessing Officer while arriving at his satisfaction for applying Rule 8D to make disallowance u/s.14A as noted in para 5.3 of the impugned order. He submitted that, it is evident from records that nowhere in the impugned order, ld. Assessing Officer recorded his satisfaction on the correctness of the claim of expenditure made by the assessee having regards to the accounts of the assessee. According to him, assessee has computed the disallowance suo-moto of Rs.9,04,943/- prepared on scientific basis, after analysing each and every head of expenditure. 6.1. Provisions of section 14A(2) requires the Assessing Officer to invoke Rule 8D only if he is not satisfied with the correctness of the claim of the assessee in respect of the expenditure, in relation to the exempt income having regard to the accounts of the assessee. Even Rule 8D postulates simi....
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....ssee in respect of such expenditure in relation to income which does not form part of the total income under this Act." 8.1. Condition mentioned in Rule 8D(1) is also reproduced which also contains the same condition of recording of satisfaction on the correctness of the claim of expenditure made by the assessee "having regards to the accounts of the assessee". "Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2) 8.2. From the above, we note that if the ld. Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income after having regard to the accounts of the assessee, he can determine the amount of such expenditure for making disall....
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....h the claim of the appellant. The AO had further erred in disallowing employees' cost and miscellaneous expense at . 1.86 Crores over and above the disallowance computed as per Rule 8D, specially on account of the fact that Rule 8D (iii) itself provides for disallowance of administrative expense in form of 0.5% of the average value of investment. As the appellant's computation of disallowance u/s. 14A is satisfactory, the disallowance u/s, 14A is restricted to 35,90,326/- and the disallowance by the AO is deleted." 81. We also further noticed from the Assessment Order that, the assessee has made elaborate submissions and a detailed computation of the expenditure attributable for eaming exempt income which is said to be consistent method of computation on a scientific basis made from the A.Y.2006-07 We further find that even though the Assessing Officer extracted the elaborate submissions and the computation of disallowance made by the assessee, there is no satisfaction recorded by the Assessing Officer as to why the suomoto computation of disallowance of expenses made by the assessee is not satisfactory having regard to the Books of Accounts of the assessee and the....
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....t facts of the case remain identical to those considered previously and no amendments have been made to the relevant provisions of law. 8.5. The above finding arrived at by us is further fortified by the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT(A) (2018) 402 ITR 640 (SC) while emphasising on aspect of recording of satisfaction by the ld. Assessing Officer for which it observed as under: "41. Having regard to the language of section 14A(2) of the Act, read with rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the Assessing 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 but the Assessing Officer was not accepting the said apportionment. In that eventuality, it 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/ making the investment in shares is to be examined by the Assessing Officer 8.6. F....
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.... provisions of Rule 8D of the Income Tax Rules, the Assessing Officer has to record his non satisfaction with the suo moto disallowance of expenditure made towards earning exempt income by the respondent. This exercise not having been carried out by the Assessing Officer before applying Rule 8D of the Income Tax Rules, the disallowance of expenditure to earn exempt income cannot be sustained. (d) This issue is no longer res integra as the Apex Court in Gorej & Boyce Mfg. Co. Ltd. v. Dy. CIT, 394 ITR 449 decided the issue in favour of the respondent. In the above case, the Supreme Court has while considering the issue of disallowing of expenditure incurred to earn exempt income observed as under "Whether such determination is to be made on application of the formula prescribed under rule 8D or in best jusigment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not ssible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It only thereafter that the provisions of section 14A (2) and....
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....pt income viz. incomes u/s. 10 of the Act. Section 115JB of the Act is also a provision with fiction payment of tax in respect of deemed income. Therefore, while computing the profit for the purpose of section 115JB of the Act, another provision with fiction cannot be superimposed Hence the question of increasing book profit on account of due to the disallowance under section 14A of the Act will not arise. Book profit has to be increased by expenses debited to Profit and Loss related to exempt income. In the present case, assessee had debited in profit and loss account, expenditure of Rs 9,04,453/- in relation to earning of exempt income and same may be added for working out book profit under section 115JB of the Act. In this regard, reliance is placed on the decision of the Hon'ble Special Bench of ITAT in the case of Vireet Investment (P.) Ltd. (82 taxmann.com 415), wherein it is held that computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to computation as contemplated under section 14A read with rule 8D. The relevant extract of the said decision is reproduced hereunder: "the computation under clause (f) of Explanation....
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.... cent or forty-five per cent or seventy- five per cent, as the case may be, of the tax due on the returned income, (i) the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income..." Emphasis supplied 10.1. We note that the provisions contained in section 234C requires the returned income to be taken into account for the levy of interest. Accordingly, we direct the ld. Assessing Officer to delete the interest so levied computed on assessed income. Accordingly, ground taken by the assessee, in this respect is allowed. 11. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 31 December, 2024 ============= Document 1 SI No. Particulars Amount (Rs.) Amount (Rs.) Amount Disallowed(Rs.) 1 Proportionate Salary of investment accountant 585,640 2 Proportionate Salary of Investment Manager 1,464,100 3 Proportionate Salary of General Manager as estimated cost of accounts and oth....