TMI Blog2013 (8) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... e of proportionate expenditure for earning such income on the basis of the formula provided in Rule 8D of the Income-tax Rules, 1962 - This claim for disallowance u/s 14 A was examined at length and in the assessment order through a speaking order, part disallowance was made – Held that:- Question of disallowance of expenditure or part thereof under Section 14A of the Act for earning exempt income was very much alive before the Assessing Officer during the original assessment proceedings - Entire issue was scrutinised by the Assessing Officer during the original assessment proceedings. It is only upon consideration of the said aspect, assessing officer has made disallowance to the limited extent of Rs.2,11,316/-. Even within a period of four years such assessment cannot be reopened. Any permission to the Assessing Officer to do so would amount to permitting change of opinion - To correct the assessment order passed after a detailed examination by the Assessing Officer, the succeeding Assessing Officer cannot resort to the proceedings of reopening – Notice quashed. - Decided in favor of Assessee. - SPECIAL CIVIL APPLICATION NO. 3049 of 2013 - - - Dated:- 29-4-2013 - AKIL KURES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibutable to any income = where A = Interest other than interest directly relating to income which does not form part of total income : Rs.2,12,69,284/- B = Average value of investment, income of which does not form part of total income: Rs. (25,09,57,810 + 3,02,07,369) / 2 = Rs.14,05,82,589/- C = Average of total assets in Balance Sheet : Rs. (191,84,66,092 + 126,69,84,501) / 2 = Rs.159,27,25,296/- Now disallowance would be A x B : Rs.2,12,69,284/- x Rs.14,05,82,589/- C Rs.159,27,25,296/- = Rs.18,77,342 Further 0.5% of average value of investment, income of which does not form part of total = 0.5% x Rs.25,09,57,810/- = Rs. 12,54,789/- Total = Rs.31,32,131/- Less: Already disallowed by AO Rs. 2,11,316/- Requires to be disallowed Rs.29,20,815/- Thus, there is total under assessment of income of Rs.34,46,800/- [being capital expenditure towards SAP after allowing deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tially grouped under the head administrative expenses but while finalizing the financial statements, the said charges were capitalised under the head "Capital Work in Progress" and not booked under the head administrative expenses. A copy of audited financial statements alongwith the schedule of administrative charges and break-up of the capital work in progress are collectively enclosed as Annexure-2". 4. Such objection was rejected by the Assessing Officer in his order dated March 08, 2013 in following terms : "3. The assessee raised objections to re-opening assessment vide its letter dated 11-10-2012. The assessee has essentially contested the re-opening of assessment proceedings objecting to the reasons recorded. With regards to the first reason, the assessee has stated that it had capitalized the amount of Rs.86,17,002/- in its books and had not claimed it as revenue expenditure. However, the assessee has itself accepted in its reply that initially it had claimed the entire expense of Rs. 8,6,17,002/-as Administrative expense which was debited to P L Account and only later capitalized the same as CWIP during finalization of accounts. The assessee has not given any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanying documents brought on record during the assessment proceedings. She simply could not have, in our opinion, brushed aside such a contention on the ground that such aspect was not examined by the Assessing Officer. 8. In addition to the above, we also perused the documents produced by the petitioner before us. Such documents include the return filed with the accompanying documents. One such document happens to be the schedule of administrative expenses at Annexure-II, which includes the said sum of Rs.86.17 lac as a part of 'Capital Work in Progress'. In face of such material on record, we have no hesitation in coming to the conclusion that the first ground is factually incorrect. When the expenditure itself was never claimed by way of revenue expenditure, the question of disallowing such an expenditure on such basis requiring of reopening of assessment would not arise. 9. This brings us to second ground recorded by the Assessing Officer, which pertains to disallowance of proportionate expenditure for earning the tax free income. We may recall that in the opinion of the Assessing Officer, the petitioner who had earned tax free dividend income should have been subjected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were strategic decisions and in which top management was involved in such activities. In the present case, there are no strategic investments and therefore top management is not involved for investments in mutual funds/ shares. The Chennai Bench in para 6 of the order has restore the matter to the A.O. with a direction to verify the quantum of deduction claim by the assessee in earlier years u/s.57 and make the prorate adjustment on the basis of fresh investments and inflation. Whereas in the case of the assessee company, it may also be noted that in the earlier years, the company has not claimed any expenses against the dividend income u/s.57. The copy of statement of Income for A.Y. 2003-2004, during which dividend income was taxable, is enclosed to show that no expenditure was claimed u/s.57 from the dividend income. There was no dividend income during A.Y. 1997-98 or earlier years. Therefore, the decision of the Southern Petrochemicals is not applicable on the facts of the assessee company. Therefore, there is no question of disallowance of any expenditure." 11. Such issue cropped up once again when the assessee under its communication dated January 27, 2009 wrote to the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee in respect of expenditure in relation to income which does not form part of the total income as provided in section 14A(2). In other words if having regards to the accounts of of the assessee company, the expenditure incurred to earn the income which does not form part of the total income is not available, than only the Rule 8D can be applied. In the present case the assessee company has submitted the bank statements showing the nexus of the investment made from the owned funds by letter dated 23 27-01-2009. From the same it may please be seen that all investments in shares of Needwise Advertising Pvt. Ltd. and Mutual Funds are made out of owned funds and therefore there is no question of disallowance of any interest expenses. Further there is a sufficient cash flow from the operations available with the company as can be seen from the cash flow statement. Since the assessee company has furnished the bank statement showing the nexus of the investment for the availability of the funds, the question of applicability of Rule 8D also does not arise. As regards indirect general expenses, it may please be noted that all investments are made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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