TaxTMI 
TaxTMI 
2021 (12) TMI 1537
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....disallowances, determining the total income at Rs. 982,02,32,500/-. Being aggrieved, the assessee carried the matter in appeal before the first appellate authority. The ld CIT(A) passed the impugned order dated 2.7.2018 after giving part relief to the assessee. Hence, both the sides are in appeal before us. The assessee has also filed cross objection in support of the order of the ld CIT(A) in granting relief. 3. First, we take up the appeal of the revenue. 4. Ground No. 1 of Revenue appeal: Undisclosed Production & Sale (Rs. 121,76,53,164/-): "1.1 - The Ld. CIT(A) was not justified to delete the addition of Rs. 121,76,53,164/-, made by the Assessing officer towards "Undisclosed Production & Sale", totally ignoring the findings of the Assessing Officer who had taken the cost data from the Form No. H-1, which was submitted by the assessee before Indian Bureau of Mines, Govt. of India and Deputy Director of Mines, Govt. of Odisha under the provision of MMDR Act. 1.2 The Ld. CIT(A) was not justified to delete the addition of Rs. 121,76,53,164/-, made by the Assessing officer towards "Undisclosed Production & Sale", by accepting the assessee's plea that the ....
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....as per Form H-1 submitted before the IBM and Form No.3CD at 38,47,732 MT (including opening stock of 10380 MT). As per Form H-1 filed before IBM, processing of 38,47,732 MT of ROM yields 37,91,156 MT of lumps, fines and concentrate which are saleable by-products being 98.55% of the ROM. However, the AO found that total amount of bills raised by M/s. Triveni Earthmovers Pvt Ltd., towards raising charges during F.Y. 2014-15 was Rs. 374,49,56,013/-. As per Form H-1 submitted before the IBM, the cost of production of ROM is 886.57 per MT. Thus, the total production of ROM is 42,24,095 MT, which yields 41,62,845 MT (98.55% of 42,24,095). In view of above, the difference of 3,71,689 MT is considered as "undisclosed production" . The average sale value being Rs. 3276 per MT, the total sale value is worked out at Rs. 121,76,53,164 ( 3,71,689x3276). The AO accordingly added the same to the total income of the assessee. 6. The ld CIT(A) deleted the addition made by the AO, inter alia, observing as under: "I have considered the matter carefully. I have also gone through the H-1 Form on the basis of which the impugned addition has been made. The assessment order and written submiss....
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....y undisclosed or unaccounted production or sale of minerals. To seek support from the aforesaid judgment of the Hon'ble Apex Court for the undisclosed production quantified by the AO is totally misplaced. 2.3.2 At para 3.5.4, the AO has observed that M/s. Thriveni Earthmovers (P) Ltd. has no role to play in dispatch of the minerals and the revision of rates in the middle of the year with that company indicates that the raising bills are related to production and not to dispatch. It is also observed by the AO that M/s. Thriveni Earthmovers (P) Ltd, is a company effectively controlled by the assessee through her relatives who have occupied important managerial and directorial positions in the company. It is relevant to mention here that the AO's above observations are not based on any facts or materials or evidences brought on record by him and are entirely based on presumption and assumption. Moreover, there is no evidence brought on record by the AO to show that the assessee was involved in unaccounted production of minerals with the help of her raising contractor M/s. Thriveni Earthmovers (P) Ltd. In the absence of such evidence, the fact that the assessee's s....
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.... in F-1 Form relating to cost of production as sacrosanct is unwarranted and uncalled for. 2.3.5 It may be mentioned here that there is no discrepancy so far the quantity of production is concerned between H-l Form and the audited accounts. The assessee has disclosed the total quantity of production of minerals in the H-l Form at 38,37,352 MT and the same figure has been disclosed in the audited accounts. When there is no discrepancy in the quantum of production, the method adopted by the AO to quantify unaccounted production on the basis of the cost of production shown in the H-1 Form does not appear to be reasonable and justified. 2.3.6 In the assessment order, the AO at para 3.5.7 of the assessment order has referred to clause-35b of audit report in Form No. 3CD and pointed out that from the figures given in that report sale suppression is evident to the extent of 1,71,946 MT. It appears that the conclusion drawn by the AO in respect of sale suppression is misplaced and that he has not understood the figures given in 3CD Form by the auditor properly. It is pointed out by the assessee at the time of appeal hearing that the AO has conveniently overlooked the unde....
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....nes apart from annual return submitted to IBM. In the returns submitted to the Deputy Director of Mines every month the figures relating to quantity of production, dispatch and stocks are given. The figures given in the monthly returns are cross-verified by the mining authorities with the records maintained by the assessee. It is not the case with the AO that he has found out any discrepancy in these returns filed with the Deputy Director of Mines in respect of production and sale indicating unaccounted production and sale. 2.3.9 The unaccounted production quantified by the AO is entirely on the basis of presumption and assumption. The only basis is the cost of production shown in H-l Form. Hon'ble Delhi High Court in the case of Shruti Fasters Ltd. 2016 ITL 1152 has held that in the absence of any evidence to substantiate that the assessee was engaged in unaccounted sales, no addition can be made on account of unaccounted sales entirely on the basis of presumption. 2.3.10 The Hon'ble Madras High Court in the case of CIT v. N. Swami 241 ITR 363 has held that the income of an assessee is to be assessed by the ITO on the basis of material which is required t....
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....-1, which was fully ignored by the ld CIT (A). Ld CIT DR submitted that the assessee has not denied the correctness of the said data at any time during the assessment proceedings or even during the first appellate proceedings. He submitted that the SIT formed under the Chairmanship of Hon'ble Shri M.B. Shah on the directions of Hon'ble Supreme Court had also taken cognizance of Form H-1 to compute excess production of Rs. 161.35 crores in the earlier years. 8. He submitted that the findings of the ld CIT(A) that the IBM has not found out any excess production by the assessee is totally erroneous as the Deputy Director of Mines of State Government is responsible for charging royalty on dispatch of minerals and not production. Ld CIT DR submitted that the version of the assessee that M/s. Thriveni Earthmovers Pvt Ltd., was involved in the dispatch of minerals and not in the production is totally false and misleading because the terms and conditions and scope/nature of work to be performed by M/s. Triveni Earthmovers Pvt Ltd., vide contractual agreement dated 24.2.2013 shows that it was engaged in the raising, processing and shifting of minerals. He submitted that there was....
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....Act, 1952. Justice Shah Commission Report cannot be utilized against the assessee since the said report has been submitted without granting the assessee the opportunity of being heard and without allowing the opportunity of cross examination and without allowing opportunities to produce evidence to the affected party. Ld A.R. submitted that the Hon'ble Supreme Court of India have formed a Central Empowered Committee (CEC) with instructions to submit a detailed report on issues raised in various writ Petitions before the Apex Court and also on the report of Justice Shah Commission, on the matter of illegal mining in the State of Odisha and the CEC have mentioned as under: "The interpretation that a land granted under a mining lease can, on the ground of violations of provisions of any other law, be held to be occupied without lawful authority is not appropriate. The Environment (Protection) Act, 1986, Forest (Conservation) Act, 1980 etc. clearly provide penalties for violation under such acts." Further, the CEC have observed as under: "However, the mineral produced without environmental clearances or beyond the quantity prescribed in the Environment Clearanc....
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....assessee filed a revision petition before the Mining Tribunal, Government of India to squash the notice and concluded that there is no excess production in comparison to the production disclosed by the assessee. The Government of Odisha, filed a writ application in the High Court of Odisha against the order of the Mining Tribunal (Revision Authority). The Hon'ble Odisha High Court dismissed the writ petition being, devoid of merit. In the meanwhile, CEC submitted its Report to the Hon'ble Supreme Court. The production figure disclosed by the Respondent-assessee in her Books of Account, tallied with Form H - 1 and the CEC Report. Only in one year the Respondent- assessee made production in excess of Environmental Clearance (EC), for which the Supreme Court directed the Respondent to pay compensation to the State Government which shall be utilized for local area development. The wild allegation made by the AO, that the assessee in past involved in illegal mining, is completely baseless. 16. As regards the figure given to IBM, which as alleged by the revenue is not correct, ld A.R. submitted that IBM has been designated to perform action on any particular issue, then it is ....
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..... He has not detected a single mistake in the Books of Accounts. He has not rejected the account and applied section 145(3) of the Income Tax Act. For this proposition, the assessee relied on the decision of Hon'ble Madras High Court in the case of PCIT Vs. Marg Ltd., delivered on 20.07.2017, reported in 396 ITR 580. The relevant portion of the judgement reads as under: "In para 45 (3) of the above order, it is mentioned that where the AO is not satisfied about the correctness or completion of the account of the assessee, or where method of account provided in sub section (1) has not been regularly followed by the assessee or income has not been computed in accordance with the standards notified under subsection (2), the AO may make an assessment in the manner provided in section 144. Therefore, it is sine qua non that the AO come to a conclusion that Books of Accounts maintained by the assessee are incorrect or incomplete or unreliable and rejects the books of Accounts before proceeding to make his own assessment. In instant case, there is no reference in the Assessment order of the AO regarding rejection of the Books of Account. In the concluding paragraph of the ord....
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.... be a burden a bank. The mere fact that the assessee had made such a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the assessee. The burden of showing that the assessee had undisclosed income is on the Revenue. That burden cannot be said to be discharged by merely referring to the statement given by the assessee to a third party in connection with a transaction which was not directly related to the assessment and making that the sole foundation for a finding that the assessee has deliberately suppressed his income. That the burden is on Revenue to prove that the income sought to be taxed in within the taxing provisions and there was in fact income, are proposition which are well settled. The rejection of the explanation was a matter for the Tribunal. The Tribunal has exercised its jurisdiction and the question decided by it is a question of facts. 23. In the case of Shruti Fasteners Ltd. (supra), it is held as under: "In the impugned order the ITAT has given cogent reason as to why the case of the of the Revenue cannot be accepted inter alia. It is pointed out that no evidence was found which could substantiate the Reven....
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....on on beneficiation plant of Rs. 8,82,76,775/-. The assessee had installed beneficiation plant for beneficiation of minerals raised in her mines. The assessee had given raising contracts for mining of minerals to M/s. Thriveni Earthmovers Pvt Ltd., and the AO noticed from the work order given to that company by the assessee that as per the work order, the company was required to undertake necessary activities for screening and crushing of iron ore to different sizes as specified by the assessee and also to further reprocess the product if required by the assessee after inspection. The AO further observed from the work order that the raising contractor was to deploy and maintain all the necessary machines and equipments including drills, dozers, water tankers, sprinklers, crusher and screens alongwith trained manpower. The AO observed that as per the work order, the role of the assessee in the entire operation was supervisory in nature and no operational, even for beneficiation operation which was evidently been undertaken by the contractor as per scope of the work in the work order. The AO concluded that the beneficiation work was undertaken by M/s. Thriveni Earthmovers Pvt Ltd., a....
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....the raising contractor M/s. Thriveni Earthmovers (P) Ltd., there is no reason to disallow the depreciation claimed on the same referring to the work order issued by the assessee herself and stating that it was the contractor's job to install the beneficiation plant. Under what terms and conditions, the assessee would engage a raising contractor are entirely in the domain of the assessee and the AO cannot question the wisdom of the assessee in this regard. Moreover, the fact that the beneficiation plant of the assessee was being run during the relevant previous year is evident from the fact that the assessee had incurred electricity charges of Rs. 1,96,04,270/- on running of the same. It is relevant to mention here that the AO has not questioned the payment of electricity charges on the beneficiation plant and has disallowed only the depreciation claimed on the same. On the facts of the case, there is no justification to disallow the claim of depreciation on the beneficiation plant. The reasons given by the AO for disallowance of the same are not at all convincing. The AO's presumption while disallowing the claim of depreciation is not a fact. Considering the facts stated ab....
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....he assessee has installed beneficiation plant by investing Rs.63.62 crores and the installation of beneficiation plant meant for iron ore processing and beneficiation, which enable the iron ore mines to increase their output and efficiency. The mere fact that the contractor has used the beneficiation plant does not mean that the assessee will be debarred from claiming the depreciation. It is the wisdom of the assessee to engage any contractor for this work. It is also noted that the assessee has incurred Rs. 1,96,04,270/- towards electricity charges for running the beneficiation plant installed by it. The decisions relied by ld CIT DR are distinguishable on fact as in those cases, the assessee had to show the actual use of the machines for claiming the depreciation but in the present case, the assessee has herself installed the beneficiation plant for the use of minerals in its mines. Beneficiation Plant has been installed only in the mining area. Beneficiation is a different activity, which is not included in a work order. Low grade materials are available in the mining site from the overburdens. These overburdens are processed through Beneficiation Plant to recover high grade mat....
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....ed in allowing expenditure of Rs.9,05,73,508/- incurred on construction of bituminous road of 7 kms even though such expenditure was of capital in nature and had not been authorized by the District Committee set up under the Notification dated 15.1.2004 of the Govt. of Odisha. 35. Pressing into service Ground No. 3.2 of the Revenue, ld CIT DR submitted that the ld CIT(A) was not justified by admitting 18 pages of fresh evidences (Annexure -E to SOF) in violation of Rule 46A of I.T. Rules, 1962 without giving an opportunity to the AO to rebut the contents of such evidence. 36. Replying to above, ld A.R. drew our attention towards second part of para 8.2 of the impugned order of the ld CIT(A) and submitted that it has been noted by the ld CIT(A) that copies of all bills in support of claim of expenses towards Peripheral Development expenses which were filed before the AO have also been filed at the time of first appeal hearing. Ld A.R. strenuously contended that these observations have not have been controverted by way of showing assessment records or by way of affidavit by the AO and no such exercise has been carried out by the revenue to support this contention that ld CIT(A)....
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....rting documents/evidence, therefore, the AO was right in making the disallowance which was deleted by the ld CIT (A) without any justified reasons and basis. Therefore, it was his contention that the impugned order of the ld CIT(A) may kindly be set aside by restoring the order of the AO. 40. Replying to above, ld AR took us through relevant paras 8 to 8.2.1 of CIT(A) order and submitted that the assessee submitted all the relevant bills, vouchers and documentary evidence in support of the incurring of peripheral development expenses before the AO as well as ld CIT(A) at the time of appeal hearing and this fact has been noted by the ld CIT(A) in his order at para 8.2. Ld A.R. submitted that the AO disallowed the entire expenditure by observing that it is not possible that the expenditure was incidental to the business of the assessee and must have necessitated or justified by commercial expediency. The AR also submitted that payments have been made through banking channels and major amount was incurred during the year under consideration for repair of roads in the peripheral areas of the mines area. Ld A.R. submitted that the amount incurred is very much incidental to the assess....
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....the assessee and necessitated or justified by commercial expediency. In the course of assessment proceeding, the assessee is found to have furnished all the details relating to the expenditure incurred under the above head of Rs. 9,44,35,647/-. The break-up of the details of the expenses are as under:- SI.N o. Name of the Party Nature of Work Amount(Rs.) 1 Thriveni Earthmovers (P) Ltd. Construction of Road 90,573,508.00 2 Gram Panchayat Tax Local Tax Paid 280,000.00 3 Vamsi Krishna Borewells Diqqing of Borewell 470,000.00 4 Md Nasim Civil Works 555,600.00 5 SS Earthmovers and Logistics Health Help Dest at Keonjhar & Cuttack 2,556,549.00 TOTAL 94,435,657.00 The copies of all the bills in support of the above expenses which were filed before the AO have also been filed at the time of appeal hearing. From the details of the expenses and the bills, it is seen that the major amount of Rs. 9,05,73,508/- was spent during the year on construction and repairs of roads in the peripheral areas of the assessee's mines and the entire work was done through the contractor M/s. Thri....
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....s. 35,82,149/- is confirmed." 43. Undisputedly rather admittedly, the assessee is in mining business and has declared huge income from mining activities. In the totality of facts and circumstances of this issue, the claim of the assessee revolves on the strength of contentions that it is very much incidental to main road in the mining area to keep in good condition for smooth transportation of minerals from the mining area. On the strength of this fact, it has also been contended that this expenditure obviously is business expenditure of the assessee, which was rightly considered in the right perspective by the ld CIT(A). 44. On perusal of the Tribunal order in assessee's own case for the assessment year 2012-13 dated 26.8.2020 (supra), we are of the considered view that similar issue has been decided in favour of the assessee in the appeal filed by the revenue against the order of the ld CIT(A). 45. The relevant paras 42 to 50 of the order of the ITAT dated 26.8.2020 reads as follows: "42. Ground No.4 of appeal for assessment year 2012-13 is against the deletion of Rs. 3,99,28,438/- made under the head "disallowance of peripheral development charges". ....
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....e assessee for transportation of materials and also to facilitate the local people and villagers, forest department officials and government officials, the assessee has repaired/upgraded the old roads. Therefore, this expenditure is inextricably linked with the business of the assessee which is allowable. 45. On careful consideration of the rival submissions alongwith para 9 of the assessment order and para 7.2 of the CIT(A) order, we are of the considered view that the nature of business carried on by the assessee must be evaluated and accepted as per the commercial expediency and trading principles. The expenditure claimed by the assessee must be incidental to the business and must be necessitated or justified by the commercial expediency and must be directly and intimately connected with the business and must be incurred by the prudent business man/taxpayer. For the purpose of smooth running of business, the characteristic of permissible deduction, there must be a direct and interlinked connection with the business of the assessee, meaning thereby, the amount inextricable claimed by the assessee and mode of business of the assessee, in order to justify the deduction, th....
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.... is found to have furnished all the details relating to the expenditure incurred under the above head of Rs.3,99,28,438/-. The entire amount has been paid to M/s. Keonjhar Infrastructure Dev. Company Ltd for improvement of roads in the mines areas of the assessee. The assessee has to maintain the roads in her mines areas for the sake of her mining business. Though classified as periphery dev. Expenses, the expenditure has actually been incurred for construction and maintenance of roads in the periphery of the mines belonging to the assessee. Of course, there was no direction from the so called district committee for doing such works. But it is a fact that it very much incidental to the assessee's business to maintain the roads in and around the mines areas for smooth running of her business. It is not understood, what business expediency, the AO was looking for to allow the expenses. In this view of the matter, the disallowance of Rs.3,99,28,438/- under the above head is deleted." 49. In view of above, from the explanation submitted by the assessee before the AO dated 5.2.2015, it is clear that the assessee informed the name of contractor, who was paid the impugned amo....
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....ng area of the mines. Thus, we are unable to see any valid reason to interfere in the order of ld CIT(A) in deleting the part additions by allowing expenditure incurred by the assessee on repair and construction of roads in the surrounding area of mines. We are in agreement with the contention of ld A.R. that the allegation of capital expenditure was not taken by the AO and in policy decision in Notification dtd.15.1.2004, para 8 clause (e) roads have not been stated. Therefore, we are unable to see any infirmity in the conclusions arrived at by the ld CIT(A) on this issue. Hence, Ground No.3.1 and Ground No.4 of the revenue are dismissed. 47. Ground Nos.5 of the revenue reads as under: " 5.1 The Id CIT(A) was not justified to delete the disallowance of Rs. 5,31,69,709/- made by the AO on account of compensatory afforestation charge by admitting fresh evidence filed before him in violation of Rule 46A of the I.T. Rules, 1962. Copies of such fresh evidence running to 12 pages are enclosed herewith as Annexure-F to SOF. 5.2 The ld CIT(A) was not justified to delete the addition of Rs. 5,31,69,709/- made by the AO, even though the fresh evidence produced before hi....
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....by the ld CIT(A) in contravention and violation of Rule 46A of I.T. Rules, 1962 without confronting the same to the Assessing Officer. 51. Ld A.R. referred to para 9.1 of the impugned order, wherein, the ld CIT(A) stated that evidence of payments made to the concerned authorities were produced during the assessment proceedings, hence, it cannot be said that the ld CIT(A) has admitted fresh evidence. Ld A.R. referred to the decision of this Tribunal in the case of ACIT vs M/s. Orissa Mining Corporation Ltd in ITA No.372/CTK/.2010 for A.Y. 2007-08 order dated 27.5.2011, wherein, on similar facts, the appeal filed by the revenue was dismissed. Hence, it was his contention that the issue is covered in favour of the assessee. 52. We are not in agreement with ld A.R. of the assessee that the relevant details were furnished before the AO during the course of assessment proceedings as nothing has been recorded by the AO in this regard in the assessment order. In para 9.1, the ld CIT (A) has not made any observation but simply reproduced the submission of the assessee which cannot be relied regarding submission of 12 pages of Annexure-F to SOF. Therefore, we are of the considered opin....
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....d CIT(A) is not justified in confirming the addition of Rs. 81,63,498/- as profit from real estate business." 59. Facts of the case are that the Assessing Officer noticed that the assessee had sold a property in Delhi at Rs. 1,75,00,000/- and the sale so made was not disclosed either in the P&L accounts or in the computation of income. When this fact was confronted to the assessee, it was submitted that capital gains on the sale of this property had inadvertently been omitted to be disclosed in the computation of income. The assessee offered for taxation at the time of assessment the capital gains arising out of above transaction of Rs. 32,19,123/-. The calculation details of the capital gains were filed by the assessee before the AO. However, the AO did not accept the contention of the assessee and proceeded to tax the profit on sale of property calculated at Rs.81,63,498/-, which was confirmed in first appeal. 60. Ld A.R. submitted that the ld CIT (A) was not justified in confirming the addition of Rs.81,63,498/- as profit from real estate business, therefore, same may kindly be dismissed. 61. Replying to above, ld CIT DR drew our attention towards para 6 of the assessme....
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....ormation/explanation or documentary evidence before making addition on the basis of a higher rate for which, he is not empowered. Ld A.R. submitted that the assessee was not allowed to explain and substantiate the consideration of arms length price with the associated enterprise in compared with similar transaction with non-associated parties under similar circumstances for similar products. Ld A.R. further submitted that there is no basis or factual reasons for confirming this addition and the ld CIT(A) has also confirmed the same without any logical findings and reasonings merely reiterating the observation of the AO. Therefore, it was his prayer that the addition may kindly be deleted or the issue be restored to the file of the AO for fresh adjudication after allowing due opportunity to the assessee. 65. Replying to above, ld CIT DR supported the orders of lower authorities. 66. On careful consideration of the rival submissions, from the relevant part of the assessment order, we observe that the assessee was not afforded due opportunity to explain her stand before making the addition by the AO regarding sale of iron ore to M/s. Tarini Minerals pvt Ltd. It is noted that the....
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....asons for discarding assessee's theory that to earn assessable income, assessee incurred no expenditure whatsoever, mere fact that the AO did not arrive at satisfaction in a particular manner while making said disallowance, would not per se destroy mandate of section 14A of the Act. Further, Placing reliance on the judgment of Hon'ble Delhi High Court in the case of India bulls Financial Services Ltd vs. DCIT (2016) 76 taxmann.com 268 (Delhi), ld CIT DR submitted that whether the AO carried out elaborate analysis and followed steps enacted in statute and then determined amount of expenditure incurred for earning tax exempt income, merely because he did not expressly record his dissatisfaction about assessee's calculation, his conclusion could not be rejected. 72. Placing rejoinder, ld A.R drew our attention to relevant para 11 of the assessmen order and submitted that the assessee has not claimed any expenses in respect of earning tax free income, therefore, provisions of section 14A are not applicable. Ld AR further submitted that the case laws relied by ld CIT DR are not applicable to the present case as in the present assessment order, the AO has not given any det....
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....the Statute before making the disallowance u/s.14A of the Act r.w 8D of I.T. Rules. Therefore, the contention of ld CIT DR is not plausible and acceptable. At the same time, we further observe that the Tribunal in assessee's own case order dated 26.8.2020 (supra) deleted the similar disallowance, on identical and similar facts and circumstances, made u/s.14A r.w. 8D of I.T. Rules with the following findings: "61. Ground No.2 for A.Y. 2012-13 and A.Y. 2013-13 is common i.e. disallowance under section 14A of the Act. Hence, we proceed to adjudicate the facts for the assessment year 2012-13. 62. Ld A.R., challenging the action of the Assessing Officer in making the addition u/s.14A of the Income tax Act, (in short 'the Act') submitted that the Id CIT(A), in his order in para 3.2 noted that the contention of the appellant that she has not incurred any expenditure for earning of dividend income, cannot be accepted. Ld A.R. submitted that though the appellant has not claimed any expenditure, the AO made addition merely on presumption of incurring expenses against exempt income, without recording any reason as per requirement of section 14A of the Act. Ld A.R....
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.....R. further drew our attention towards relevant para 6.1 at page 6 of the CIT(A) order and submitted that the Id CIT(A) in his order mentioned that "during assessment proceeding, the appellant had explained that she has a capital balance of Rs.441.11 crores as on 31.3.2012 and funds borrowed was exclusively utilised for the purpose for which those were obtained". Ld A.R. further explained that the term loan of Rs.84.74 crores raised from HDFC Bank was utilised for acquiring windmills to the extent of Rs.90.00 crores and there was no scope for appellant to utilise the loan fund otherwise or for making investment for earning exempt income. 64. Further, Id A.R. placed reliance on the judgment of Hon'ble Bombay High Court in the case of CIT vs HDFC Bank, 366 ITR 505 (Bom), wherein, it is held that where the assessee's capital net profit, reserve, surplus and current account deposit were higher than investment in tax free securities, it would have to be presumed that the investment made by the assessee would be out of interest free fund, available with the assessee. Ld AR pressing into service this proposition rendered by Hon'ble High Court submitted that the Id CIT....
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....ct in making addition and ld CIT(A)is not justified in confirming the same. He finally prayed that the addition made by the AO and confirmed by the ld CIT(A) be ordered to be deleted. 67. Replying to above, ld CIT DR submitted that under section 14A of the Act, statue provide for presumptive expenditure which has to be disallowed by force of statue. He placed reliance on the order of the ITAT Chennai in the case of M.A. Alagappan vs ACIT, 82 Taxmann.com 276 (Che.Trib). Ld D.R. further placed reliance on the decision of ITAT Delhi in the case of Delhi Towers Ltd vs DCIT, 78 taxmann.com 56 (Del) and submitted that the mere fact that the AO did not expressly recorded his satisfaction, while making the disallowance, would not per se destroy mandate of section 14A of the Act. Ld CIT DR supporting the orders of lower authorities submitted that the assessee has not claimed any expenditure towards earning of exempt income, hence, there is every possibility that the investment from which such exempt is earned might have been made out of the loan amount, for which the assessee had paid interest and claimed in the profit and loss account. Therefore, the AO was correct in making addit....
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....a) is against the law and mandate of section 14A of the Act. 69. Further, ld A.R. submitted that the order of ITAT Delhi in the case of Delhi Towers (supra) is not applicable in the present case at hand. Ld A.R. comparing the facts and circumstances of the case of Delhi Tower (supra) with the present case submitted that in para 11 of the said order of ITAT Delhi, a calculation of disallowing expenditure was given in the paper book and the Tribunal, from the balance sheet and profit and loss account, observed that there is no fresh investment that has been made by the assessee during the year under consideration and the dividend income has been earned from old investment. Thereafter, the Tribunal observed that the ld CIT(A) was not correct in confirming the entire disallowance made by the AO and restricted the disallowance to the tune of exempt income earned by the assessee. Ld A.R. submitted that in the present case, the assessee has not submitted any calculation regarding disallowance under section 14A r.w. 8D of I.T. Rules a. The ld A.R. strenuously contended that from the observations of the AO in the assessment order and findings recorded by the ld CIT(A) in the impugn....
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....d to the correctness of the claim of the assessee, having regard to the accounts of the assessee. Therefore, the condition precedent for AO entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the AO must record that, having regard to the accounts of the assessee, he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, in relation to exempt income. 73. Further, placing on the decision of Hon'ble Delhi High Court in the case of Joint Investment Pvt Ltd (supra), ld A.R. submitted that as per sub-section (2) of Section 14A of the Act, the jurisdiction to proceed further and determine the amount of disallowance could be derived only after examination of the accounts and rejection of the assessee's claim or explanation. Ld A.R. further pointed out that in this judgment, Hon'ble High Court has clearly laid down the proposition that the AO can proceed to make disallowance u/s.14A r.w Rule 8D only when the AO rejects the claim of the assessee that expenditure claimed by the assessee towards earning of exempt income or claim that no....
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....se of Principal CIT vs CIMS Hospital Pvt Ltd (2020) 4 NYPCTR 244 (Guj) order dated 25.2.2020 and submitted that the AO can apply Rule 8D only if the AO having regard to the accounts of the assessee is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure in relation to the exempted income and consequently, it was held that the Tribunal was justified in deleting the disallowance. Therefore, the disallowance made by the AO and confirmed by the ld CIT(A) for both the assessment year may kindly be deleted. 78. On consideration of above noted rival submissions, first of all, we are of the view that it would be appropriate to reproduce relevant section 14A of the Act for proper adjudication of the ground of the assessee challenging the confirmation of disallowance by the ld CIT(A) made by the AO u/s.14A of the Act r.w. Rule 8D, which reads as under: "14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shal....
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....ssment order, we observe that in sub para (1), the AO noted that the assessee has shown investment that yield tax free income and he show caused the assessee to explain as to why provisions of section 14A shall not be resorted to. In response to said show cause notice, ld A.R. of the assessee stated that the assessee has not incurred nor claimed any expenditure in respect of such income, hence, no disallowance is warranted for. Thus, the case of the assessee falls within the ambit of sub-section (3) of Section 14A of the Act. Further, from sub para (2) of para 5, we observe that the AO observed as under: "Though the assessee has not claimed any expenditure for such exempt income, there is every possibility that the investment from which such exempt income is earned might have been made out of the loan amount, for which assessee paid interest." 81. Thereafter, the AO mentioned the provisions of Rule 8D in the next sub-para (3) and immediately after recording said provisions, he proceed to calculate the disallowance under Rule 8D of the I.T.Rules. From above noted analysis of relevant paras of the assessment order, it is clear that after receiving reply of show caus....
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....e exemption has to be allowed on the net basis i.e. gross receipts (-) related expenditure. Hence, if the expenditure is directly related to exempt income, it cannot be allowed to set off against the taxable profit and if any expenditure is directly related to taxable income, it cannot be allowed to set off against the exempt income merely because some incidental benefit has arisen towards exempted income. 85. On vigilant and careful understanding of intention of the legislature and the mandate given in section 14A of the Act, we are of the humble view that before making disallowance u/s.14A of the Act, the AO is required to record satisfaction that having regard to the accounts of the assessee, he is not satisfied with the correctness that the claim of the assessee in respect of such expenditure, in relation to exempt income not forming part of total income is incorrect. Such satisfaction must be arrived at on the objective basis. 86. As we have noted above, in the instant case, the AO simply show caused the assessee and after taking on record reply of the assessee merely observed that though the assessee has not claimed any expenditure for such exempt income tha....
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....rther in the judgment of Hon'ble Supreme Court in the case of Maxopp Investment Ltd (supra), Their Lordships speaking for the Apex Court held in para 41 thus: "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 AO 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 AO 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, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO." 91. Furthermore, Hon'ble Delhi High Court in the case of Joint Investments Pvt Ltd (supra) in para 8 held thus: "The court in Taikisha Engineering (supra) pertinently observed Section 14A(2) of the Act and Rule 8D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or cla....
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.... of the Act r.w Rule 8D of the I.T. Rules. in the present case, as we have discussed above, that neither from the assessment order nor from the first appellate order, the authorities below have not considered the claim of the assessee that no expenditure has been incurred for earning exempt income as per mandate of section 14A of the Act From the relevant part of the assessment order, it is clearly discernible that the AO has not considered the claim of the assessee filed in response to the show cause notice that no expenditure has been incurred for earning exempt income and he straightforward embarked upon and jumped to compute the disallowance under Rule 8D of Rules on the presumption that there is every possibility that the investments made from which such exempt income is earned might have been made out of loan amount, for which the assessee has paid interest. The disallowance u/s.14A of the Act requires findings of the AO that the claim of the assessee pertaining to suo moto disallowance or no expenditure is not correct having regard to the accounts of the assessee and thereafter only the AO is validly entitled to compute disallowance under Rule 8D of the Rules. In absence of ....