TaxTMI 
TaxTMI 
2014 (7) TMI 1405
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....tion to the said exempt income, and hence that no expenditure could be attributed as incurred in relation to the said exempt income. 2. The Learned CIT(A), erred in upholding the A.O‟s reasoning that the judicious way of estimating the expenditure incurred by the Appellant in earning the exempt income would be by applying to the exempt income the same percentage of the total administrative expenditure bears to the total income when no such method was been prescribed u/s 14A(2); The CIT(A) ought to have appreciated that in the absence of any method prescribed the AO by adopting a foreign method has merely estimated such expenditure and calculating the expenditure by any other method which is not prescribed the AO has transgressed the provision of section 14A. 3. The Learned CIT(A), erred in confirming the disallowance of Rs .34,08,943/- as administrative expenses u/s 14A in relation to exempt income. On facts, hardly any expenditure was incurred for earning the dividend on investments. When there was no specific identification of any such expenditure for earning of such non-taxable income identified by the Assessing Officer. As such and otherwise too....
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....der of this Tribunal dt. 8.3.2013 in Assessee's own case in ITA Nos. 72 & 85/PNJ/2012 for A.Y 2009-10 to which our attention was drawn by the ld. AR. 2.1 We have heard the rival submissions and carefully considered the same. We have also gone through the decision of the Tribunal in ITA Nos. 72 & 85/PNJ/2012 for A.Y 2009-10 in the case of the Assessee dt. 8.3.2013 in which this Tribunal under para 14-18 of its order has held as under : "14. We have carefully considered the rival submissions along with the order of the authorities below. We have also gone through various case laws and the provisions of the IT Act in this regard. The issue involved before us relate to the disallowance made by the AO by applying the provisions of sec. 14A of the IT Act read with Rule 8D of the IT Rules. Sec. 14A was inserted by the Finance Act, 2001 w.e.f. 1.4.1962. Originally this sec. provides that in computing the total income of the assessee no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. Subsequently, by Finance Act, 2002 with retrospective effect from 11/5/2001 pr....
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....he AO was not satisfied with the correctness of the claim of the assessee especially the explanation of the assessee that no administrative expenditure incurred on earning the dividend income. Considering the magnitude of the investments and the dividend income received, the AO was of the view that the disallowance made by the assessee u/s 14A of the IT Act towards the administrative expenditure is low on comparing the magnitude of purchase and sales made by the assessee and the investments of large magnitude cannot be made without proper analysis of the market condition/stock movement etc. The revenue was of the opinion, that the assessee has worked out the administrative expenditure and had not considered all the administrative expenditure. Both the parties before us vehemently relied on the decision of Godrej Boyce Mfg Co. Ltd. Vs DCIT 328 ITR 81 (Mum). 15. We have gone through this decision and we noted that in this case, the assessee claimed exemption in respect of dividend income of 34.34 crores u/s 10(33). The AO issued notices for disallowance of interest u/s 14A of the IT Act. The explanation of the assessee was that (i) 95% of the shares were bonus shares for whi....
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.... the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. Moreover, the satisfaction of the AO has to be arrived at, having regard to the accounts of the assessee. Hence, sub-sec (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The AO must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the AO must be arrived at on an objective basis. It is only when the AO is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the AO to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which ....
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....is established, only then a disallowance would have to be effected u/s 14A of the IT Act. Therefore, in view of the decision of the jurisdictional High Court and the decision of the Hon'ble Supreme Court, we are of the view that sec. 14A cannot be applied unless there is a proximate cause for disallowance. The onus to establish that there is proximate cause based on the relationship of the expenditure with the exempt income in our opinion is on the Revenue. Thus, the application of the provisions of sec. (2) & (3) of Sec. 14A and Rule 8D is not automatic in each and every case, where there is income not forming part of the total income. Sub-sec. (2) & (3) are intended to enforce and implement the provisions of sub-sec. (1). Therefore, it is necessary for the AO first to ascertain whether there is proximate connection between the expenditure incurred and the income not forming part of the total income. If such proximate connection is established with the exempt income, the AO would be justified in applying the provisions of sub-sec (2) & (3) of sec. 14A and Rule 8D of the IT Act, 1961. The expenditure incurred u/s 14A would include direct and indirect expenditure, but relationship w....
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....end income. In our opinion, the assessing officer before rejecting the disallowance computed by the assessee must give a clear-cut finding having regard to the accounts of the assessee how the other expenditure claimed by the assessee out of non-exempt income is related with the exempt income. No discrepancy in the claim of the assessee was pointed out. The assessing officer in our opinion in view of the jurisdictional High Court decision is bound to record satisfaction as to how the expenses claimed by the assessee have been incurred on earning dividend income were not sufficient and correct. We have already held that the onus to prove in this regard lies on the assessing officer. Although the Ld. DR had vehemently contended and tried to build up his case by substituting the reasons given by the CIT(Appeal) in place of the AO, but failed to bring any cogent material or evidence in this regard which may prove that the other expenses claimed by the Revenue for apportionment had proximate connection with the earning of the dividend income. In our opinion until and unless this is proved or established by the revenue, the assessing officer does not have any power to reject the accounts....
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....with the exempt income, is on the revenue. In "Wimco Seedlings Limited Vs. DCIT", 107 ITD 267 (Del.) (TM), it has been held that there can be no presumption that the assessee must have incurred expenditure to earn tax free income. Similar are the decisions in: 1. Punjab National Bank Vs. DCIT, 103 TTJ 908 (Del.); 2. Vidyut Investment Ltd., 10 SOT 284 (Del.); and 3. D.J. Mehta Vs. Income Tax Officer, 290 ITR 238 (Mum.) (AT) In view of the above, finding no error with the order of the CIT(A) on the point at issue, the same is hereby confirmed. Ground no. 3 is thus rejected." In the case of Jindal Photo Ltd. Vs. DCIT held in I.T.A.T. Delhi bench dated 23.9.2011 it was held as follows: "In the year under consideration, it is seen that it is not incorrect when the assessee contends that no satisfaction has been recorded by the AO regarding the assessee's calculation being incorrect. Even so, Rule 8D of the Rules has been applied. This, in our opinion, is not correct. Such satisfaction of the Assessing Officer is a pre-requisite to invoke the provisions of Rule 8D of the Rules. The Learned CIT(A), therefore, erred in partially approvi....
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....omes to the conclusion that no substantial question of law arises on a particular issue, it cannot be stated that the subject matter of controversy between the parties has not been dealt with by the High Court. It was held that when the decision of the Tribunal is affirmed on the issue brought before the High Court, it is the decision of the High Court which becomes operative and which is capable of being given effect to for all intents and purposes. Keeping in view the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra), we have no hesitation to hold that the decision of the Hon'ble Bombay High Court in the case of Delite Enterprise Ltd. (supra) is a decision on merit which is binding precedent on us. As the issue involved in the present cases as well as all the material facts relevant thereto are similar to that of the case of Delite Enterprise (supra), we respectfully follow the said decision of the jurisdictional High Court and delete the disallowance made by the AO and confirmed by the learned CIT(A) on account of premium paid by the assessees on redemption of premium notes (OCPN) by invoking the provisions of section 14A of the Act. As ....
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....de by the AO u/s 14A. Thus, the ground nos. 1 to 3 taken by the Assessee is allowed. ITA NO. 386/PNJ/2013 : 3. Ground no. 1 in Revenue's appeal is general in nature and does not require adjudication. 4. Ground no. 2 in Revenue's appeal relates to disallowance made u/s 40(a)(ia) r.w.s. 195 towards payment of commission to foreign agency outside India. 4.1 We have heard the rival submissions and carefully considered the same. We noted that this issue is duly covered in favour of the Assessee so far as it relates to the disallowance made u/s 40(a)(ia) by the decision of this Tribunal dt. 10.3.2011 in ITA No. 113/PNJ/2010 in which this Tribunal relying on the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. Commissioner of Income-tax, 327 ITR 456 deleted the disallowance and allowed the appeal of the Assessee on this issue by holding as under : "9. We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that the issue in controversy whether the assessee requires to deduct tax at source for the commission paid to non-residents has been dealt by Hon'ble Supr....
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....ter the said date of 22-10-2009 by which these Circulars have been withdrawn with immediate effect. Accordingly, Circular No. 7 of 2009 withdrawing the Circular No. 23 of 1969,163 of 1975 and 786 of 2000 will be operative only from 22-10-2009 and not prior to that date. Thus, we are of the view that this assessment year is 2005-06 and it is not applicable for the year under consideration. Therefore, we allow the appeal of the assessee on this ground." Respectfully following the aforesaid decision, we confirm the order of CIT(A) deleting the disallowance made u/s 40(a)(ia). We may mention that this Tribunal has deleted the said disallowance in the case of the Assessee in ITA No. 190/PNJ/2011 for A.Y 2006-07 and also in ITA Nos. 72 & 85/PNJ/2012 for A.Y 2009-10. No contrary decision was brought to our knowledge by the ld. DR. We, therefore, respectfully following the aforesaid decision of this Tribunal in Assessee's own case for A.Y 2005-06, confirm the order of CIT(A) deleting the disallowance. 5. Ground no. 3 in Revenue's appeal relates to disallowance of depreciation on UPS amounting to Rs. 1,88,784/- deleted by the CIT(A). 5.1 We have heard the rival submissions and care....
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.... iron ore. 6.1 We have heard the rival submissions and carefully considered the same We noted that similar issues have arisen in the case of the Assessee for A.Y 2009-10 and this Tribunal while disposing off the appeal of the Assessee in ITA No. 72/PNJ/2012 vide order dt. 8.3.2013 held as under : "31. We have carefully considered the rival submissions and perused the material on record. This is a fact that the assessee has paid the demurrage charges to the non-resident in respect of delay in loading the ship. We find that the sum of Rs. 36,05,767/- was reimbursed by the assessee to the foreign buyer to compensate the foreign buyer for paying demurrage to the ship owner when ship came to Indian port and the assessee could not load the goods on to the ship within the limited time period. The export sales were made to the foreign Pakistani buyer on FOB basis. In view of the contract with the Pakistani buyer specifically clause 11(d), in our opinion, the assessee is bound to compensate the Pakistani buyer in respect of demurrage paid by the Pakistani buyer to the ship owner. This payment in our opinion can be regarded to be the expenditure incurred by the assessee for the s....