TaxTMI 
TaxTMI 
2024 (12) TMI 1591
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....rd adjustment of Rs. 2,50,55,12,743/-, on the basis of TPO's report. (ii) An amount of Rs. 69,53,754/- was added back as capital expenditure, instead of Revenue expenditure claimed, on account of rent/compensation paid in connection with mining activity. (iii) The Ld. AO disallowed an amount of Rs. 6,82,71,486/- in addition to Rs. 11,11,114/- already disallowed by the assessee for earning exempt income. This addition was made u/s 14A of the Act read with rule 8D of the Income Tax Rules, 1962. (iv) In addition to the addition u/s 14A read with rule 8D of the Rules, the Ld. AO added the enhanced amount of Rs. 6,82,71,486/- for the purposes of computing book profit u/s 115JB of the Act. (v) The Ld. CIT(A) allowed claiming of TCS to the assessee even when the same was not claimed in the return of income. 2.1 The CO filed by the assessee challenges the action of the Ld. CIT(A) in terms of upholding the invocation of section 14A (2) read with Rule 8D of the Rules in the absence of any satisfaction recorded by the AO. Certain other aspects of the claim u/s 14A have also been sought to be addressed through the CO. The Ld. CIT(A) has given relief on ac....
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....& 329/Kol/2013. As in the cases precedent, in case the disallowance so worked out in this manner turns out to be lower than Rs. 11,11,114/- as already disallowed by the appellant suo moto, then the AO shall restrict the disallowance to Rs. 11,11,114/- and if it works out to be more than the amount of Rs.11,11,114/-, then such further amount shall be the disallowance. These grounds are therefore partly allowed for statistical purposes, subject to the above exercise. I have carefully examined the entire issue including the AO's order and the appellant's submission in this regard. During the year under review, the AO had made a disallowance of Rs. 6,82,71,486/- u/s 14A of the Act. The appellant's agitation that provisions of Rule 8D cannot be invoked while computing the book profit in terms of provisions of Section 115JB, has once again been discussed by the Ld. CIT(A) in the appellant's case for AYs 2011-12 to 2014-15 at length and he has agreed with the appellant that since there is no enabling provision in Explanation 1 to Section 115JB for making any adjustment in respect of expenditure disallowed as per Rule 8D, the disallowance so computed by th....
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....d in law by restricting the upward adjustment made to book profit for disallowance computed u/s 14A read with Rule 8D. 5. Whether on the facts and circumstances of the case, the CIT(A) has erred in law by accepting new issues of claim of TCS and directing the A.O. to verify and allow credit of TCS which was not made in the return. 6. The appellant craves leave to make any amend, addition, alternation, modification etc. of the grounds either before the appellate proceedings, or in the course of appellate proceedings." 3.1 In support of its claim the assessee has filed cross objections as under: "(A) For That the Commissioner of Income Tax (Appeals) was not justified in law in upholding the invocation of sub-section (2) of section 14A of the Income Tax Act, 1961 and rule 8D (2) (iii) of the Income Tax Rules, 1962, in the absence of any satisfaction recorded by the Assessing Officer that having regard to the accounts of Respondent, the Respondent's claim that expenditure of Rs. 11,11,114/ was incurred in relation to the exempt income was not correct. (B) For that further and in any event and without prejudice to the aforesaid, the Commissione....
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....the above decision of the Tribunal in the own case (sic) of the assessee for earlier assessment years. Therefore, respectfully following the same, for the sake of consistency, this issue is decided in favour of the assessee and against the revenue. Ground Nos. 1 to 5 of Revenue's appeal are hereby dismissed." 4.1 Both the ld. Representatives and Ld. DR have submitted that the issue is squarely covered in favour of the assessee by the above decision of the Tribunal in own case of the assessee for earlier assessment years. Therefore, respectfully following the same for the sake of consistency, this issue is decided in favour of the assessee and against the revenue. Ground Nos. 1 to 5 of Revenue's appeal are hereby dismissed. 4.2 Regarding the issue of compensation paid for mining activities also it is seen that the issue is not only covered by the decision of ITAT in assessee's own case for AYs 2013-14, 2014-15 and 2015-16 but also by the Hon'ble Calcutta High Court for AY 2006-07 vide order reported in 159 taxmann.com 651 (Cal). It would be sufficient to reproduce the relevant extract from this judgment for reference as under: "8. It is undisputed that the assessee ac....
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....d this issue in its cross-objections has also assailed the order of the CIT(A) on the ground that Rule 8D cannot be invoked unless the Assessing Officer finds any defect or infirmity in the suo moto calculation made by the assessee in respect of proportionate disallowance of expenditure incurred for earning of tax-exempt income. 20.1. The ld. counsel for the assessee has submitted that the assessee was in receipt of exempt income of Rs. 3,86,49,083/- by way of dividend on its investment in shares and units of mutual funds. The assessee offered a disallowance of Rs. 9,77,888/- as expenditure incurred in relation to the exempt income. The disallowance offered by the assessee comprised salary and other employee related costs on proportionate basis as also establishment expenses. The Assessing Officer, however, invoked rule 8D and worked out the disallowance @0.5% of the average of the opening and closing values of investment amounting to Rs. 6,62,97,455/-. After deducting the disallowance of Rs. 9,77,888/- made by the assessee, the Assessing Officer further disallowed Rs. 6,53,19,567/-. 20.2. On appeal, the Commissioner of Income Tax (Appeals) following the decisions....
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....is amount of expenditure which would be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects - (a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one-half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken. The Hon'ble Court, thus made it clear that in cases where the applicability of Section 14A, which is based on the theory of apportionment of expenditure between taxable and non-taxable income, read with Rule 8D is triggered, a rule of thumb amount would have to be calculated at the prescribed percentage of the investment, income from which does not or shall not form a part of the total income, to arrive at the quantum of disallowance. Therefore, it is clear ....
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..... The relevant part of the order of the Tribunal dated 07.02.2023 (supra) is reproduced as under: "Revenue's common Ground no. 6 for AY 2013-14 & 2014-15 relating to the disallowance u/s 14A of the Act read with Rule 8D of the Rules and assessee's additional ground stating that ld. AO should have accepted the disallowance offered by the assessee u/s 14A of the Act and he erred in invoking and applying Rule 8D: 13. We have heard rival contentions and perused the records placed before us. We find that this Tribunal in assessee's own case for AY 2011- 12 & 201213 dealt with this issue of disallowance u/s 14A of the Act and decided in assessee's favour observing as follows: "15. We have heard rival contentions and perused the records placed before us. The sixth common ground of the department's appeal relates to disallowance under section 14A read with rule 8D. .................................." 24. It has to be noted that the Hon'ble Supreme Court as pointed out by the ld. DR in the case of Maxopp Investment Ltd. (supra) has held that the exempt income earned by the assessee from the strategic investments made in the sister concern/subsidiaries are....
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....med whole of the same as an expenditure. Therefore, he concluded that a portion of the managerial remuneration and directors' remuneration should also be attributed towards dividend earning activity by the assessee. Thus, in our considered view, the Assessing Officer recorded his satisfaction having regard to the accounts of the assessee. 24. Obviously, we cannot expect the Assessing Officer to write a judgment. The correctness of the findings of the Assessing Officer was tested by the CII(A). The assessee argued that the mutual funds were entirely managed by the fund managers, that only a minimum management was required by the investor and that the assessee made a rational estimate of time spent and other related administration cost in the management of the investments and accordingly made a voluntary disallowance of Rs. 1,44,000/-. The CIT(A), after pointing out that as per the working given by the assessee, the time spent in a year was 3 days, 9 days and 17 days for senior, manager and subordinates respectively. But, the assessee did not even enclose the profit and loss account to verify the salary cost was correctly taken. Further, the CIT(A) noted that the disallo....
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....5. Regarding the upward adjustment of disallowance computed under Section 14A of the Act for computing "book profit" under Section 115JB of the Act. It is seen that for A.Y. 2015-16 the matter has been decided against the assessee by the Hon'ble ITAT vide its order in ITA No. 1965/Kol/2019 (supra) as under: "32. The ld. counsel for the assessee, in this respect, has submitted that the provisions of section 115JB are complete code in itself and therefore, the Assessing Officer cannot tinker with the book profits. However, we do not find force in the aforesaid contention of the ld. counsel for the assessee in this respect. It is to be pointed out that as per Explanation 1(f), the book profit means the profit shown in the statement of profit and loss account as increased by the amount of expenditure relatable to the exempt income. The said amount of expenditure has already been ordered to be determined as per our observations made above while adjudicating the issue relating to the disallowance u/s 14A vide Ground No.10 of the revenue's appeal. It has to be further noted that section 115JB in itself does not prescribe any procedure to calculate the expenditure relatable to....