TaxTMI 
TaxTMI 
2025 (1) TMI 1641
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....both the revenue and the assessee are taken up as lead cases. 1.1 The 4 appeals arise from order u/s 250 of the Income Tax Act, 1961 (hereafter "the Act"), passed by the Ld. Commissioner of Income Tax (Appeals) [hereafter "the Ld. CIT(A)"] vide order dated 31.10.2014 (for AY 2011-12) and order dated 26.10.2016 (for AY 2012-13). These appellate orders arise from assessment orders dated 24.01.2014 (AY 2011-12) and order dated 10.06.2014 (AY 2012-13), passed u/s 143(3) of the Act. 2. The basic issues may be mentioned for an appreciation of the controversy involved: (i) In relation to the disallowance made u/s 14A of the Act: facts are that the appellant had earned dividend income of Rs. 17,56,25,488/- and Rs 6,58,21,843/- during the AYs 2011-12 & 2012-13 respectively which was claimed as exempt from tax. The appellant, in this regard, had suo-moto made disallowances of Rs 6,70,212/- & Rs.8.40,773/- in the return of income filed for the AY 2011-12 & 2012-13 respectively. On perusal of the same, it is observed that the appellant had made a disallowance of the salary of few employees and also made disallowance of administrative and establishment expenses, all on proportion....
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....hese grounds raised by the Revenue are against the Ld. CIT(A)'s action of deleting the allocation of legal & professional fees and travelling & conveyance expenses made by the AO towards the income of the eligible units. The AO, in the assessment order, has observed that these expenses were common in nature and therefore related to the eligible units as well and accordingly allocated the same on turnover basis to the eligible units. On appeal, the Ld. CIT(A) following the decision of his predecessor in the earlier AY 2009-10 deleted the allocation of legal & professional fees and travelling and conveyance expenses on the basis that the same had been separately identified by the assessee and debited in the stand-alone accounts of the eligible undertakings. (iv) Regarding the issue of disallowance of fine paid to Vishakhapatnam Port Trust pertaining to Revenue's appeal for AY 2011-12: The appellant had debited an amount of Rs. 29,46,975/- in the P&L account on account of penalty and fines which inter alia included an amount of Rs. 16,13,694/- paid to Vishakhapatnam Port Trust for non-adherence to certain conditions of contract. The AO in the assessment order alleged that....
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....rive at quantum of disallowance u/s.14A?" (ii) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in directing not to consider investment in subsidiary company for the purpose of computing disallowance u/s.14A read with Rule 8D, ignoring the fact that there is no such provision under the provisions of the Rule 8D to arrive at quantum of disallowance u/s.14A?" (iii) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that disallowance u/s.14A was not warranted in the situation where the assessee has not maintained separate books of accounts for the purpose of exempt income and failed to establish one to one co-relation between the funds available and the funds deployed? (iv) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that disallowance of penalty expenditure of Rs.16,13,694/- was not warranted ignoring the fact that such penalty was on account of violation of statutory law of Vishakhapatnam Port Trust?" (v) "Whether on the facts and in the circumstances of the case and in law....
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....the exempt income. 5. Our attention was drawn to the decision of this Tribunal in assessee's own case for AY 2008-09 in ITA No. 786/Kol/2013 dated 02.05.2018 wherein on similar facts and circumstances it was held as under: "4. We have heard the rival submissions and perused the materials available on record................" 6. From the audited accounts we note that the position of the assessee's own funds visà-vis in its investment in shares and units considered for disallowance u/s. 14A of the Act by the Ld. CIT(A) were as under:- "....................." From the aforesaid chart we note that the assessee in fact had own funds to the tune of Rs. 3825 cr. and investment in shares and securities were only Rs. 446.60 cr. From these figures we find that the assessee had at its disposal sufficient funds to make the investment which yielded exempt income. Thus, it is noted that the facts of the case are analogous to the facts involved in the earlier AY 2008-09. 7. The Ld. DR appearing on behalf of the Revenue could not point out any change in law or facts concerning the issue regarding disallowance u/s. 14A of the Act. At the t....
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....se of computing the disallowance u/s. 14A of the Act read with Rule 8D(2)(iii) of the Rules. Needless to say, assessee should be given opportunity of hearing. Therefore, ground nos. 1 to 3 are partly allowed for." 4.3 It has been brought to our notice that the position of surplus funds are respectively Rs. 4,33,504/- and Rs. 4,98,960/- for AYs 2011-12 and 2012-13. These surplus funds adequately covered the cost of investments standing at Rs. 2,93,128/- as on 31.03.2010 and Rs. 3,03,939/- as on 31.03.2011. Accordingly, this contention of the assessee is accepted. Regarding the disallowance under Rule 8D(2)(iii) of the IT Rules which has been dealt with in AYs 2009-10 and 2010-11, as per para 9 of the ITATs order in assesee's own case (supra), we remand the matter back to the file of Ld. AO to consider only investments in shares and units which yielded dividend income, and thereafter, the Ld. AO must compute the disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the Rules. This discussion would mean that Ground Nos. 1 to 4 of assessee's appeal [ITA No. 2092/Kol/2014] are partly allowed, with relief on account of disallowance computed under Rule 8D(2)(ii) of the Rules and....
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....red for allocation were Directors' remuneration, Auditor's remuneration, travelling and conveyance and legal and professional. According to AO, these expenses were common and, therefore, these expenses should have been allocated on pro-rata basis between the eligible units and other units on the basis of their respective turnover. Thereafter, the AO worked out the pro-rata percentage of turnover of the eligible units to the company as a whole at 7.39% and accordingly, apportioned these expenses to respective eligible units. On appeal, the Ld. CIT(A) deleted the adjustment qua the expenditure on account of travelling & conveyance and legal & professional. The Ld. CIT(A), however, confirmed the adjustment qua the Director's remuneration and Auditor's fee. Aggrieved by the action of the Ld. CIT(A), the assessee is in appeal before us. 12. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Director's remuneration of Rs. 1955.66 lacs was paid to the Directors in accordance with sec. 198, 348 and 349 of the Companies Act, 1956 which, inter-alia, included Directors sitting fees and commission totaling to Rs. 1459.74 lacs to ....
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.... following decisions: i) Graphite India Ltd. Vs. Addl. CIT, ITA No. 304 to 305/Kol/ 2018, ii) `DCIT Vs. Cativison products Ltd. 142 Taxman 104 (Del.ITAT) iii) RRB Consultants & Engg. Pvt. Ltd. 112 TTJ 794 (ITAT Del. iv) National Fertilizers Ltd. in Re 142 Taxman 5 (AAR New Del.) 14. In view of the above, let us now examine whether the items of expenses in question viz. Directors remuneration and Auditor's remuneration have any first degree nexus or connection with the profits deriving from eligible undertakings. On perusal of the separate audited accounts of the eligible undertakings, we note that no expenses have been debited in respect of the audit conducted on these segmental accounts and in that view of the matter, we hold that the auditor's remuneration debited in P&L Account, inter-alia, comprised of the fees paid to auditors for auditing the separate accounts of the eligible undertakings. In absence of the break-up of fees paid to auditors, we find no infirmity in the order of the lower authorities in allocating the auditor's remuneration to the eligible undertaking on pro-rata basis and hence, the order of the lower authorities t....
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....0B & 80IA of the Act is agitated through the Revenue's appeal for both of the years exclusively. 6.1 Right at the outset, the Ld. AR pointed out that this issue was squarely covered in favour of the assessee and against the Revenue by the order of ITAT for AY 2009-10 and 2010-11 (supra) in assessee's own case. 6.2 The Ld. DR on the other hand relied on the relevant paragraphs in the Ld. AO's order to canvass the point that it was not clear how such expenses have been allocated towards the standalone accounts of the eligible units. 6.3 We have carefully considered the rival submissions and for the sake of record, the relevant portion from the Hon'ble ITAT order in assessee's own case for AYs 2009-10 and 2010-11 may be extracted as under: "21. Coming to next ground no. 4 taken by the revenue is against the action of the Ld. CIT(A) in restricting the allocation of expenses on legal and professional and travelling and conveyance to the eligible undertaking u/s. 80IA and 10B of Rs. 30,99,000/- and Rs. 5,63,000/- as opposed to the total disallowance of Rs. 115.82 lacs made by the AO. 22. Briefly stated facts as are already discussed in the foregoing portion of ....
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....force cannot be an allowable expenditure u/s 37(1) of the Act. However, in this regard, the penalty and fine of Rs. 29,46,975/- paid during AY 2011-12 was mentioned in Form 3CD of the Auditor's report. The Ld. AO found that out of this amount Rs. 16,13,694/- was paid to Vishakhapatnam Port Trust. It is recorded that this amount was paid as damages for breach of contract. He therefore, proceeded to disallow this amount claimed as an expenditure u/s 37(1) of the Act. The Ld. DR assailed the action of the Ld. CIT(A) in deleting the said addition. 7.2 The Ld. AR, on the other hand strongly defended the action of Ld. CIT(A) and pointed out that this very same issue was before the Ld. CIT(A) in assessee's own case for AYs 2009-10 and 2010-11 and the same has since attained finality as the Revenue decided not to prefer any appeal on the said matter. The Ld. AR further averred that the said penalty was a breach of contract and not an infraction of law. 7.3 We have carefully considered the rival submissions and gone through the orders of authorities below. We find that for AY 2011-12, the Ld. CIT(A) has recorded the following findings in para 6.2 at page 10 of the impugned order are a....