TaxTMI 
TaxTMI 
TaxTMI 
2013 (5) TMI 1082
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....ee income, though the appellant had not incurred any expenses to earn tax free income. 3. That the Ld. CIT (A) was not justified on facts and circumstances of the case and in law in confirming the addition of Rs. 78,713/- made by the Assessing Officer on adhoc basis on the plea, that personal element in car and telephone expenses cannot be ruled out. 4. That appellant craves leave to add, alter and modify any of the grounds during the course of appellate proceedings." 3. Briefly stated, the facts giving rise to this appeal are that the case was taken up for scrutiny through CASS and a notice u/s 143(2) of the Income Tax Act, 1961 (for short the Act) was served on the assessee. During the assessment proceedings, the Assessing Officer held that the possibility of personal element in the expenditure claimed in the profit and loss account as vehicle repair and maintenance and depreciation on vehicles cannot be ruled out, therefore, the Assessing Officer disallowed 20% of the total aforementioned expenditure and made an addition of Rs. 78,713 to the income of the assessee. The Assessing Officer also observed that the assessee was having total investment of....
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....vidend on which was not received in bank account but same was reinvested and added to the value of Mutual Funds outstanding as at the end of the year by allotting the additional units, thereby leaving no scope for expenditures to be incurred by the assessee on realizing this income. As regards some of the investments on which dividend was received d) It is worthwhile to mention here that even in respect of certain investments on which the dividend was received, same was received by way of direct ECS into the savings account of the assessee, thereby leaving no scope for expenditures to be incurred by the assessee on realizing this income. e) In the present case, the assessee had invested her surplus funds into tax free instruments so as to have a tax free income for peace of mind and also keeping in view safety of investments. Applying this formula in the case of the assessee is not justified since it would entail huge amount of expenditure being disallowed when in reality the assessee has not incurred any expenditure in earning tax free income. f) Most of the investments are either towards the closed ended mutual funds or growth funds where there is no di....
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....culated above may be made U/s 14A in this regard." 5. The AR also placed his reliance on the judgment of Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. vs Commissioner of Income Tax(2011) 203 Taxman 364, the judgment of Hon'ble Punjab & Haryana High Court in the case of Commissioner of Income Tax vs Hero Cycles Ltd. (2010) 189 Taxman 2010 (P&H) wherein it was observed that disallowance u/s 14A requires findings of incurring expenditure where it is found that for earning exempted income, no expenditure had been incurred, then disallowance u/s 14A of the Act cannot stand. 6. Replying to the above, ld. DR submitted that in the case of Maxopp Investment Ltd., Hon'ble High Court of Delhi has held that precedent of section 14A(2) of the Act, the condition precedent for Assessing Officer to determine the amount of expenditure incurred in relation to exempt income is that the Assessing Officer must record his satisfaction with correctness of claim of expenditure made by the assessee or that correctness of the claim made by the assessee that no expenditure has been incurred. The DR fairly conceded that the investment on which income is taxable cannot at all be included....
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....cer has made disallowance on entire amount of investment shown by the assessee. In the first appeal, the Commissioner of Income Tax(A) in para 4.5 has held that it is apparent that some part of the expenditure claimed by the assessee has been incurred for the earning of tax free and exempt income and the Assessing Officer was justified to invoke the provisions of section 14A of the Act r/w Rule 8D of the Rules. The assessee has submitted a detail showing segregation of expenditure of Rs. 97,32,980/- claimed in the P&L account and contended that all expenditures made relate to the export business of the assessee. No expenditure has been made towards earning of tax free income which do not form part of total taxable income. The DR has not placed any serious objection about the details of expenditure submitted by the assessee before the authorities below. 10. From the balance sheet and final statement of accounts filed by the assessee, it is observed that the major activity of the assessee is export business for which expenditure has been claimed in the Profit & loss account. From the factual matrix of the case, it is apparent that undisputedly the assessee was holding Mutual ....
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....he Assessing Officer to apply the method prescribed by the rule straightaway without considering whether the claim made by the assessee in respect of expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must in the first instance determine whether the claim of the assessee in that regard is correct and determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee that the legislature directs him to follow the method that may be prescribed." 13. From the reading of above observations of Hon'ble Bombay High Court coupled with provisions of section 14A of the Act r/w Rule 8D of the Rules, it is apparent that firstly, the Assessing Officer has to determine the correctness of the claim of the assessee regarding expenses which neither the Assessing Officer nor the Commissioner of Income Tax(A) has done in the present case. In fact, as per observations of Hon'ble High Court as reproduced hereinabove in the case of Godrej & Boyce (supra) th....
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....confirming the addition, which is not sustainable and we delete the same by allowing ground no.2 of the assessee. Ground no.3 16. Apropos ground no. 3, ld. assessee's representative submitted that the Assessing Officer was justified in making addition of Rs. 78,713 being 20% of expenditure claimed by the assessee as vehicle repair and maintenance and depreciation thereon. The AR pointed out that neither the Assessing Officer nor the Commissioner of Income Tax(A) has brought out any incriminating fact or evidence against the assessee to show that there was some element of personal use in the claim of the assessee pertaining to vehicle maintenance, repair and depreciation. The AR pointed out that the Commissioner of Income Tax(A) was also not justified in confirming the addition in a slipshod manner without deciding the submissions and contentions of the assessee. 17. Ld. DR submitted that the Assessing Officer rightly held that in absence of log book and records in support of the claim of the vehicle running and maintenance expenses, the possibility of personal use element cannot be ruled out. Ld. DR also submitted that neither before the Assessing Officer nor before t....