TaxTMI 
TaxTMI 
2025 (2) TMI 1399
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....467/MUM/2022 ITBA/NFAC/S/250/2021-22/1042139461(1) 30.03.2022 Addl. CIT 24.12.2008 143(3) 2006-07 Revenue 3. 1090/MUM/2022 ITBA/NFAC/S/250/2021-22/1042108755(1) 30.03.2022 Dy. CIT 28.02.2013 143(3) 2010-11 Assessee 4 1091/MUM/2022 ITBA/NFA C/S/250/2021-22/1042141332(1) 30.03.2022 Dy. CIT 20.02.2014 143(3) 2011-12 Assessee 5. 1092/MUM/2022 ITBA/NFAC/S/250/2021-22/1042145378(1) 30.03.2022 Dy. CIT 30.03.2015 143(3) 2012-13 Assessee 6. 1094/MUM/2022 ITBA/NFAC/S/250/2021-22/1042134803(1) 30.03.2022 Dy. CIT 29.12.2017 143(3) 2015-16 Assessee 2. In this bunch of six appeals Revenue is in appeal only for Assessment Year 2006-07, rest all being by the assessee. 3. Issues involved in all these six appeals are mostly common. We will first take up appeal for Assessment Year 2006-07 as the lead case whereby our observations and findings on the common grounds shall apply mutatis mutandis to other assessment years. In respect of disallowance made u/s.14A r.w.r. 8D, the issue is common to all the Assessment Years in appeal before us. However, this issue has to be d....
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....No. 1089/Mum/2022. Ground No.1 is in respect of disallowance made u/s. 14A r.w.r. 8D. Assessee has earned Rs. 13,91,29,296/- exempt income during the year which includes interest on tax free bonds of Rs. 6,86,47,061/- and dividend of Rs. 7,04,82,235/-. Assessee has suo moto allocated 0.1% of this exempt income as expense attributable to earning of this exempt income for making disallowance u/s.14A. Assessee claimed that in order to take care of possible administrative overheads, it has itself made disallowance u/s.14A. However, ld. Assessing Officer applied Rule 8D for computing the disallowance u/s. 14A as under: a) Component u/r. 8D(2)(i) Rs. 1,39,129/- b) Component u/r. 8D(2)(ii) Nil c) Component u/r. 8D(2)(iii) Rs. 1,70,21,055/- 5.1. Thus, ld. Assessing Officer made a disallowance of Rs. 1,71,60,184/- u/s. 14A r.w.r. 8D. Ld. CIT(A) upheld the said disallowance. It is important to note that the year under consideration is Assessment Year 2006-07, which is prior to the year when Rule 8D was introduced. Computation mechanism provided in Rule 8D cannot be applied prior to this introduction which was effective from 24.03.2008 relevant to Assessment Year....
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....ight of decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Ltd., 329 ITR 479 (Guj). 6.2. Fact of the matter is that assessee had capitalized lease hold land and reported it as asset in its balance sheet and at the same time claimed amortization on the amount so capitalized. In the order of Coordinate Bench of ITAT for Assessment Year 2008-09, in ITA No.1739/Mum/2013, dated 16.10.2019, a reference is made of the decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals (supra) while setting aside the matter to the file of ld. Assessing Officer. Relevant extract of the decision of Coordinate Bench, in this respect is extracted below- "3.1. We have heard the rival submissions. We find that similar issue wax subject matter of adjudication by this tribunal in the case of IOT Infrastructure & Energy Services Ltd (formerly Indian Oil Tanking Limited) in ITA Nos 1901 & 2585/Mum/2009 for Asst Year 2004-05 ITA Nos. 34778 3241/Mum/2009 for Asst Year 2005-06; ITA No. 2208/Mum/2010 for Ast Year 2006-07, ITA No. 7035/Mum/2010 for Asst Year 2007-08 and ITA No 7430/Mum/2011 for Asst Year 2008-09 dated 17.5.2013 wherein it was held as under....
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....es." 6.3. Respectfully following the aforesaid decision of Coordinate Bench, this present issue raised by the assessee is restored back to the file of ld. Assessing Officer for deciding afresh in terms of direction given above by the Coordinate Bench. Accordingly, ground no. 2(a) to 2(d) are allowed for statistical purposes. 7. Ground no.3(a) to 3(d) are in respect of treating maintenance and other charges received from licensees as income from house property, amounting to Rs. 1,05,72,994/-. Fact of the matter is that assessee had let out part of its premises to various clients like ONGC, SEBI, National Securities Clearing Corporation, Lucent Technologies, etc. and earned rental income. This rental income also included maintenance charges received by the assessee. In this respect, assessee explained that the maintenance charges recovered from licensees were towards various facilities like securities, etc., in the nature of reimbursement of cost incurred by it and therefore cannot be treated under the head 'income from house property'. It was claimed that assessee received maintenance charges of Rs. 1,68,94,128/- against which assessee had incurred expenses resulting in Nil am....
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....se persons included rent (Rs. 12,05,13,061), maintenance charges (Rs. 1,39,91,621) and municipal taxes (Rs. 2,43,72,366), but the assessee has not shown the amount of Rs. 1,39,91,621 in the computation of income from house property. This amount was instead taken to the profits and gains from business and was shown as reduced from expenditure for maintenance, and only the net amount (excess of expenses over this receipt) was taken to the profit and loss account. The stand of the assessee was that the maintenance charges recovered was nothing but a reimbursement of expenses, and in fact a partial reimbursement. However, the Assessing Officer did not accept the said plea and included the maintenance expenses in the computation of income from house property. Aggrieved, assessee carried the matter in appeal but without any success. Elaborate arguments were advanced on the factual and legal aspects of this treatment, but the CIT(A) dismissed the arguments of the assessee by making a very brief observation to the effect that since the Assessing officer has based his conclusions on Hon'ble Supreme Court's judgment in the case of Shambhu Investments (263 ITR 143), the action of the ....
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.... ground of appeal is allowed for statistical purpose. 33. In the result ground no.1 of the appeal of the assessee is allowed and grounds no.2 to 3 of the appeals of the assessee are allowed for statistical purposes." 7.2. In view of the above fact, provision of law and findings of Coordinate Bench in assessee's own case on the same issue, we restore this issue to the file of ld. CIT(A) for deciding afresh, by way of passing a speaking order, after taking into consideration all the submissions and contentions made by the assessee. Accordingly, ground no. 3(a) to 3(d) are allowed for statistical purposes. 8. Ground No.4 relates to disallowance of Rs. 11,47,000/- towards compensation paid to investors, out of amount transferred to Investor Compensation Reserve (ICR). Ld. Assessing Officer is of the view that Investor Protection Fund is already created under the guidelines of SEBI whereby mandatory subscription from the assessee is required at the rate of 1% of listing fees, 100% interest earned on 1% security deposit kept by the issuer companies, difference of amount of auction over close cut price, sales proceeds of the return of securities and other sums specified und....
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....k Exchange that such of those genuine sellers who have no part in the manipulation of the market will be compensated, I deem it appropriate to direct the respondents to pay such of those individual sellers of the shares in Maruti Organics Limited, who are the petitioners in these various writ petitions other than those sellers who are already identified in the report to have manipulated the market on the basis of which the impugned action is taken, shall be compensated in full by paying the market value of the share on the relevant date of the sale. In my view, having regard to the fact that the shares of the MOL are quoted not only in the respondent-Stock Exchange but also in certain other Stock Exchanges, the average value of the said share on the relevant date as quoted in the various other Stock Exchanges of the country should be paid as compensation." 11. Ld. CIT(A) has dismissed the ground raised by the assessee by holding that reserve created by the assessee partakes the character of appropriation of profit and therefore cannot be allowed, since it gives an impression of duplicate claim as assessee failed to substantiate the difference between mandatory contribution towar....
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.... Assessment Year 2008-09. Assessee has also furnished investor wise break up of compensation paid in this respect, details of which is placed in paper book. Considering the facts on record, explanation furnished as discussed above, we allow the claim made by the assessee. Accordingly, ground no.4 taken by the assessee is allowed. In the result, appeal of the assessee is partly allowed. 13. We now take up appeal by the Revenue in the same assessment year i.e. 2006-07. Ground no.1 is towards deletion of disallowance of Rs. 61,66,568/-, on account of computer software expenses which according to the Revenue are capital expenditure on which depreciation is allowable. From the details of purchase of software called by the ld. Assessing Officer, he found out that eight items of purchase of software deserves to be treated as capital expenditure which is tabulated below: Nature of items Amount Software update subscription charges for Oracle licences 33,01,841 Purchase of all fusion Erwin data modeler 4.1.4 3,34,083 Procurement of web logic server -advantage edition 8.1 software 9,19,194 Dragon natural speaking software Version 7.0 11,833 Software expe....
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.... and 2002 has been dismissed for want of removal of office objections and thus the order passed by the ITAT for the Assessment year 2001-2002 has attained finality. Moreover, the Tribunal in its order relating the assessment year 2001-02 has allowed expenditure as revenue expenditure by recording thus: "7. When we apply this functional test suggested by the Special Bench of the Tribunal, we find that impugned software does not form part of the profit making apparatus of the assessee and hence the same is to be disallowed a revenue expenditure. We hold so because we find that the business of the assessee company is that of manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products and impugned software is an Enterprises Resources Planning (ERP) package and hence it facilitate the assessee's trading operations or enabling the management to conduct the assessee's business more efficiently or more profitably but it is not in the nature of profit making apparatus. We, therefore, decide this issue also in favour of the assessee and we hold that this expenditure of Rs. 20.60 lakhs is of revenue expenditure. We hol....
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....NSE.IT Ltd. in reference to the agreements entered into by it. It was submitted that Schedule 1 of the agreement, dated 02.03.2006 effective for the period from 01.10.2005 to 31.03.2007 specified the four heads under which payments had to be made by the assessee. i) Software development ii) Software maintenance iii) Software testing iv) Facility management and operations 16.3. Assessee explained each of the claim made under each of the four above stated heads, for which ld. Assessing Officer had mis- interpreted and misread the four categories against which assessee had made claim of expenditure. It was submitted that amount of Rs. 6,52,61,510/- was made for services towards software support and maintenance which was debited under the head 'Repairs and maintenance'. Amount of Rs. 4,70,96,616/- pertains to facility management and operation services which was debited under the head 'IT management and consultancy charges'. Copies of invoices for both these categories were placed on record for which remand report was called by the ld. CIT(A). According to the assessee, ld. Assessing Officer has erroneously presumed that these amounts have been pai....
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..... Now we take up the remaining four assessment years. Issue relating to amortization of lease premium and recovery of maintenance charges from licensees, have already been dealt by us in ground no.2 and 3 in the appeal of assessee in Assessment Year 2006-07. These issues are also common to Assessment Year 2010-11, 2011-12, 2012-13 and 2015-16, for which their respective grounds are already tabulated above. The factual matrix and applicable law, remains the same for these Assessment Years and therefore our observations and findings arrived at for Assessment Year 2006-07, on these issues applies mutatis mutandis for the remaining four years also. Accordingly, respective grounds of appeals raised by the assessee in these four Assessment Years on the said two issues are adjudicated in terms of our findings given in ground no.2 and 3 for Assessment Year 2006-07. 20. Now we take up disallowance u/s.14A r.w.r.8D for the four Assessment years which is a period post introduction of Rule 8D. For this we take up appeal for Assessment Year 2010-11, wherein assessee had claimed, following incomes as exempt in its return filed for the year. Nature of income Amount (Rs) Exemption Sect....
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....ee. Thus, there is a pre-requisite of recording of satisfaction by the Assessing Officer having regard to the accounts of the assessee for invoking Rule 8D for which inaccuracy ought to be pointed out on the method of apportionment or allocation of expenses by the assessee. Without discharging this onus, Assessing Officer is not entitled to make disallowance by invoking Rule 8D. There is no room for any presumption at the end of Assessing Officer for taking such an action. However, Assessing Officer rejected the submissions made by the assessee as the suo moto working of disallowance was not in accordance with Rule 8D and disallowed Rs. 6,89,96,788/- over and above the suo moto disallowance of Rs. 1,72,84,507/- made by the assessee by invoking provisions of Rule 8D(2)(iii) being 0.5% of average value of investments. For making this disallowance, ld. Assessing Officer held that - a) the estimate made by the assessee has no scientific basis nor it is mandated by law. (b) the partial disallowance u/s. 14A made by the assessee is not commensurate with the nature of investment activity of the assessee. (c) the working of the assessee leaves out various other r....
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.... According to him, there is a very clearly laid down procedure u/r. 8D for the quantification of disallowance and thus proceeded to compute the disallowance by applying Rule 8D, whereby total quantum of disallowance was arrived at the above figure in Rule 8D(2)(iii). 23.1. Also, from the perusal of observations of the ld. CIT(A) in para - 5.4, we note that disallowance has been sustained primarily on a view that where a fair estimate is not possible, the obvious recourse is to formula prescribed in Rule 8D. However, there is no specific detailing as to how the fair estimate is not possible when assessee has furnished details of its working corroborated by all the evidences. 23.2. We take note of the working of suo moto disallowance made by the assessee, details of which are already extracted above and reflects adoption of scientific approach. 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 similar condition as mentioned in section 14A(2)....
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....any of the assessee in the case of DCIT vs. National Stock Exchange Clearing Ltd., before the Coordinate Bench of ITAT of Mumbai in ITA No. 6726 and 6727/Mum/2019 for Assessment Year 2010-11 and 2011-12, dated 03.01.2022. National Stock Exchange Clearing Ltd. is a wholly owned subsidiary of the assessee which acts as a separate clearing house for clearing and settlement of all trades executed on the assessee. In this case also, suo moto disallowance was made on identical methodology as adopted by the assessee, details of which are already extracted above. Ld. Assessing Officer had invoked Rule 8D for the purpose of making disallowance u/s.14A disregarding the suo moto disallowance computed by the assessee in that case, without recording satisfaction as mandated in section 14A(2). The Coordinate Bench examined the manner in which ld. Assessing Officer had recorded his dissatisfaction in respect of suo moto disallowance made by the assessee u/s.14A and held that the dissatisfaction so recorded by the ld. Assessing Officer is not in accordance with mandate as envisaged u/s.14A(2) of the Act. It thus, upheld the suo moto disallowance claimed by the assessee u/s.14A since dissatisfactio....
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....sible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable." (emphasis supplied) 25.2. We also find that the Hon'ble jurisdictional High Court of Bombay in CIT v. M/s Asian Paints Ltd., in ITA No. 1564 of 2016, vide order dated 06/04/2019, for the assessment year 2008-09, while dismissing the appeal filed by the Revenue on a similar issue held that in the absence of recording of satisfaction in terms of section 14A(2) of the Act, invocation of Rule 8D is not permissible. Relevant findings of the Hon'ble Court, are reproduced as under:- "4. Regarding question no.(c) :- (a) In its return of income, the respondent made a suo-moto disallowance of Rs. 15.21 lakhs being the expenditure incurred to earn exempt income under Section 14A of the Act. The Assessing Officer disregarded the same and proceeded to disallow an amount of Rs. 1.10 crores under Section 14A of the Act read with Rule 8D of the Rules as expenditure incurred to earn exem....
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....-11. 26. For similar issue, vide ground no.3 in Assessment Year 2015-16, there is slight variation in the facts of the case, though the claim of assessee in respect of disallowance u/s.14A is based on identical application of methodology of computing the disallowance as in Assessment Year 2010-11 to Assessment Year 2012-13. The relevant facts for this purpose are that in the return filed by the assessee, it had under a mistaken interpretation of law, made suo moto disallowance of Rs. 5,01,01,279/- by computing the same u/r. 8D. In the course of assessment proceedings, when it came to the knowledge of the assessee, it filed a revised computation of income, rectifying the computation of suo moto disallowance u/s.14A, by re-working on the scientific methodology it had been applying in the past years. Based on this methodology, the suo moto disallowance was worked out at Rs. 88,32,868/-. Assessee requested the ld. Assessing Officer to consider the revised computation, for the purpose of disallowance u/s.14A which it had claimed by providing the details of computation made by it. In this respect, assessee made detailed submissions on its claim as made in preceding years, i.e. Assessm....
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.... decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT [2006] 284 ITR 323 (SC), whereby it was held that "nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee". 27.1. He also placed reliance on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. Pruthvi Brokers and Share Holders [2012] 349 ITR 336 (Bom), wherein it was held that assessee is entitled to raise before appellant authorities' additional grounds in terms of additional claims not made in return filed by it. 28. We have heard both the parties and perused the material on record and given thoughtful consideration to the submissions made before us. For this assessment year, the fact pattern and applicable law are identical to what we have already dealt in the preceding three Assessment Year, i.e., 2010-11, 2011-12 and 2012-13 in respect of disallowance made u/s.14A. The issue to be addressed for this specific Assessment Year vis-à-vis disallowance u/s.14A is in respect of inadvertent mistake made by the assessee while making suo moto disallowance for which initially, it applied Rule 8D and in the course o....
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..../L 511,539,975 Ratio Of Salaries Total Salary To Disallowed 0.02543 Built-up Area per person 269.2318 Total Proportionate area related to Investments 1494.2365 Notional Rent @ Rs. 72 p.s.f. per month 1,291,020 Maintenance @ Rs. 15 p.s.f. per month 268,963 Total Notional Space Charges Direct Expenses: Professional Fees incurred for Investments DMAT A/c. Maintenance Charges DMAT Transfer Charges Training Expenses Legal Expenses Stipend Indirect Expenses : Ratio of Salary Is Applied To Balance Expenses: Insurance 9,200,614 Rates & taxes 30,086,701 Postage, telephone and fax charges 16,788,997 Printing & stationary and consumables 29,803,906 Travelling & Conveyance expenses 36,312,062 Auditors' remuneration 2,240,857 Electricity charges 68,708.452 Software Expenses 10,70,04,315.36 7,54,20,737.02 Less: Considered of capital nature 31,583,578 Other Expenses 137,567,227 Employees' welfare expenses 18,657,130 Directors Sitting Fees Committee Sitting Fees 820,000 4,355,000 Depreciation - Computer Systems Depreciation - Computer Software 52,555,163 10 925,812 Total 449,605,498 Ratio Disallowan....