TMI Blog2018 (7) TMI 2272X X X X Extracts X X X X X X X X Extracts X X X X ..... diture in relation to dividend income.Thus, we are of the view that the disallowances made by the AO and subsequently confirmed by the Ld. CIT(A) are as per Rule 8D(2)(iii) of Income Tax Rule. Disallowance u/s 14A determining the profit u/s.115JB - assessee before the ld. CIT(A) submitted that the disallowances made under the provisions of Section 14A of the Act could not be applied while determining the profit u/s 115JB - HELD THAT:- We hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of CIT Vs. Jayshree Tea Industries Ltd. [ 2014 (11) TMI 1169 - CALCUTTA HIGH COURT] - AO needs to work out the disallowances in terms of the clause (f) to Explanation-1 of Sec. 115JB of the Act independently after considering the expenses debited in the profit loss account as mandated under the provisions of law. Therefore we are inclined to restore this issue to the file of AO for fresh adjudication by law and in the light of above discussion. Thus this ground of CO the assessee is allowed for statistical purposes. - I.T.A. No. 524/Ahd/2015 & Cross Objection No. 61/A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenged the very levy of interest u/s. 234B, 234C and 234D of the IT. Act. 4. The respondent craves leave to add, alter, amend and/or withdraw any ground or grounds of cross objections either before or during the course of hearing of the same. 4. The issue raised by the Revenue in its appeal and the first issue raised by the assessee in its ground of CO is common, and therefore we are clubbing them together for adjudication. 5. The issue raised by the Revenue in this appeal is that ld. CIT(A) erred in deleting the addition made by the AO for Rs. 39,29,249/- u/s 14A r.w.r. 8D(ii) of the Income Tax Rule. The assessee is against the confirmation of the addition made by the ld. CIT(A) for Rs. 8,00,154/- u/s 14A r.w.r. 8D(iii) of the Income Tax Rule. 6. Briefly stated facts are that the assessee in the present case is a Limited Company and engaged in the business of transmission of electricity. The assessee during the year has earned dividend income for Rs.13,12,976/-, which was claimed as exempted income u/s 10(34) of the Act. However, the assessee has not made any disallowance of the expenses incurred in relation to such exempted income. The assessee during the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to administrative expenditure incurred by it under rule 8D (iii) whereas in present assessment year, disallowance is made under rule 8D(ii) for interest expenditure and 8D(iii) for administrative expenditure. So far as disallowance of interest expenditure of Rs.39,29,249/- is concerned, it is observed that such interest is paid on Term Loan taken for project purpose and this facts were also explained before Assessing Officer which is not found to be incorrect. Considering these facts, interest paid on such loan cannot be considered for computing proportionate disallowance of interest as per Rule 8D(ii). The Hon'ble Chennai ITAT in the case of ACIT V/s Best Crompton Engineering Limited (ITA no 36 taxman.com 555 has held as under. II. Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules. 1962 - Expenditure incurred in relation to income not chargeable to tax [Bank interest] - Assessment year 2009-10 - Assessing Officer while computing disallowance under section 14A read with rule 8D, included bank interest and interest on term loan - Commissioner (Appeals) excluded said interest from calculation of disallowance as assessee had utilize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt extract of the order is reproduced below: 3. The issue pertains to disallowance under Section 14A of the Act made by the Assessing Officer which was partially deleted by the CIT(A). Such order of CIT(A) gave rise to cross appeals at the hands of the assessee as well as the revenue. Tribunal confirmed the view of the CIT(A) making following observations: 33. We have heard the rival contentions and perused the material on record, The undisputed facts are that during the year the assessee has earned interest of Rs. 17.45 crore on tax free bond and debentures as against which the assessee had suo motu disallowed Rs. 5.53 crore being the interest expenses u/s. 14A as against which the AO has worked out the disallowance of Rs. 32.76 crore. After giving the credit of disallowance of Rs. 5.53 crore made by the Assessee, the AO disallowed Rs. 27.23 crore u/s. 14A. As on 31st March, 2003, the interest free funds available with the assessee was to the tune of Rs. 3404 crore (comprising of share capital of Rs. 230 crore Reserves of Rs. 689 crores and interest free demand deposits and Rs. 2485 crores) as against which the tax free investments were to the tune of Rs. 589 crore. Thus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been incurred to earn the exempt income, had made disallowance. In the earlier years also, similar position obtained. That being the fact, no question of law arises. Thus it is beyond doubt that the own fund of the assessee exceeds the investment as discussed above. Therefore, given above, we conclude that there is no question of making the disallowance on account of interest expenses under Rule 8D (2)(ii) in the given facts and circumstances. Thus the ground of appeal of the Revenue is dismissed. 10. Now coming to assessee s ground raised in the CO: The ld. Counsel for the assessee before us submitted that the addition has been made merely on estimated basis. Therefore, the same cannot be sustained. The ld. Counsel for the assessee submitted that the investment made by it represents less than 10% of its interest-free owned capital. Consequently, it is a minor investment and therefore no deduction of administrative expense u/s 14A r.w.r 8D is required to be made. Ld. AR in support of his claim relied on the judgment of Hon ble Gujarat High Court of India in the case of PCIT vs. Sintex Industries Ltd. reported in 82 taxmann.com 171, wherein, it was held as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dividend income which was exempted u/s 10(34) of the Act. No disallowance was made by the assessee in relation to such dividend income. The assessee claims that it has not incurred any expenses in relation to such dividend income. However, on perusal of its Financial Statement, we note that there were sale and purchase of investment as evident from schedule 6 of the Financial Statement, placed on page 37 of the PB. The relevant extract of schedule 6 is reproduced as under: Schedule 6 Investment (AT cost) As at 31st March, 2011 As at 31st March, 2010 Current Investment (Non-Trade) in Units (Unquoted) No of Units Rs. No. of Units Rs. Kotak Floater Long Term Plan Daily Dividend - - 9,923,121 100,023,075 HDFC Cash Management Fund Treasury Advantage Plan - - 3,988,546 40,011,100 Birla Sun Life Savings Fund Institutional Daily Dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the plea of the assessee that it has not spent any time and energy on such investment does not appear to be correct. It is because the top management is certainly involved in the process of purchase and sale of investment. Therefore, we note that the AO has derived the satisfaction by issuing show-cause notice dated 15-10-2013 as reproduced below: 4.2 Accordingly, the assessee was asked vide notice dated 15.10.2013 as to why disallowance under section 14A read with rule 8D should not be made in view of the fact that you have earned dividend income which is exempt from tax and no expenses have been claimed to have been incurred for earning this income. Therefore, we hold that the AO has rightly invoked the provision of Rule 8D for making the disallowance of expenditure in relation to dividend income. We also note that the ratio laid down by the Hon ble Supreme court in the case of Sintex Industries Ltd (supra) is not applicable to the facts of the instant case. In the case of Sintex Industries Ltd., the assessee has made the disallowance of administrative expenses of Rs.52,000/- for the expenses incurred in relation to exempted income. However, in the case on hand as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 ITR 505 (Del.)(HC), Time Technoplast Ltd. v. Addtl CIT, ITA No. 8126, 7576/M/2011, dated 2/1/2014 (ITAT Mumbai), Godrej Consumer Products Limited v.Addtl. CIT [2014] 159 TTJ 21 (Mum.(Trib.). ITO v. RBK Share Broking (P) Ltd. [2013] 60 SOT 61 (Mum.)(Trib.)(URO), Dabur India Ltd. v. ACIT[2013] 145 ITD 175 (Mum,) (Trib.) etc. - Amount of expenditure disallowable u/s 14A was to be added back while computing book profit under clause (f) of explanation (1) to section 115JB. Considering this, I am of the view that fool effect has to be given to provisions of section 14A irrespective of different in language of different subsections in provisions of section 115JB. Section 115JB requires that expenses related to exempt income is required to be added for computing book profit. Section 14 A provides a methodology for completing such expenditure. Reading harmoniously will require, the disallowance under section 14 A to be added while computing book profit under section 115 JB. In view of this, this ground of appeal is dismissed. Being aggrieved by order of ld CIT(A) assessee is in the second appeal before us. The ld. AR before us submitted that ld. CIT(A) has already deleted the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 115JB of the Act as per the direction of the Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra). In view of above, we are of the view that the AO needs to work out the disallowances in terms of the clause (f) to Explanation-1 of Sec. 115JB of the Act independently after considering the expenses debited in the profit loss account as mandated under the provisions of law. Therefore we are inclined to restore this issue to the file of AO for fresh adjudication by law and in the light of above discussion. Thus this ground of CO the assessee is allowed for statis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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