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TMI Blog2013 (8) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2005-2006 - Assessee's Appeal and ITA No.4932/M/2010 (AY 2005-2006) - Revenue's Appeal 2. Firstly, we shall take up ITA No. 4538/M/2010, which is filed by the assessee on 2.6.2010 against the order of CIT (A)-21, Mumbai dated 19.3.2010 for the AY 2005-2006 and the grounds raised in this appeal read as under: "1. The Ld CIT (A) erred in confirming the action of the AO in disallowing expenditure u/s 14A of the Act aggregating to Rs. 2,12,899/- towards the earning of dividend income, by applying clause 2(iii) of Rule-8D. 2. The Ld CIT (A) erred in holding that Rule-8D read with section 14A(2) and 14A(3) of the Act could be applied retrospectively to the assessment year 2005-06." 3. Briefly stated relevant facts of the case are that the assessee is engaged in the business of software development and filed the return of income declaring the total income of Rs. 18,65,361/-. As a result of scrutiny assessment u/s 143(3) of the Act, assessed income of the assessee was determined at Rs.39,05,180/-. During the assessment proceedings, AO invoked the provisions of section 14A of the Act read with Rule-8D of IT Rules, 1962 and made addition of Rs. 2,12,899/-. 4. In connection with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue Authorities as well as the case laws filed before us. It is a fact that assessee made an investment, whose average investment is to the tune of Rs. 4,25,79,840/-. The assessee earned dividend income of Rs. 12,72,337/-. It is a settled proposition that some expenditure out of the administrative expenses is always incurred and, therefore, it is a matter of method of quantifying such attributable expenditure to the exempt income. It is a judicially finalized position in law that the provisions of Rule-8D read with section 14A cannot be invoked for the assessment years prior to AY 2008-2009. To that extent, assessee's argument raised in ground no.2 is sustainable. Therefore, what is left for adjudication here relates to the issue of quantification of such expenditure relatable to the dividend income but included in such administrative expenses. Now, it is the submission of the assessee that in the assessee's own case, the Revenue has not invoked the Rule-8D for the AY 2007- 2008 and only restricted the disallowance to 2% of the dividend income and which has become finally acceptable to both the parties. In our opinion, restricting the disallowance to 2% of the dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, he explained that no such expenditure is required to be reduced in this case for the reason that expense on telecommunication and insurance expenses incurred for software development were not incurred in foreign exchange attributable to the delivery of stocks outside India. Assessee also explained that the said expenditure was not incurred in foreign currency by the assessee and they are incurred in local currency for carrying on day-to-day software development work from the locations within India. As per the assessee, these expenses are not attributable to the computer software outside India and no expenses in foreign currency for rendering any technical services outside India. It is the case of the assessee that the said communication and insurance expenses were incurred and they are attributable to the delivery of computer software in India and the insurance of the employees. Therefore, the export turnover need not be adjusted qua telecommunication expenses. 11. During the first appellate proceedings, assessee reiterated the submissions and demonstrated that these expenses are not incurred outside India. In this regard, the assessee filed relevant details in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er means consideration in respect of the export received by the assessee in convertible foreign exchange. But it does not include freight telecommunication charges or insurance attributable to the delivery of the stocks outside India or expenses incurred in foreign exchange in providing technical services outside India. Thus, the expenses incurred in local currency in India on account of telecommunications and insurance are outside the scope of the above said definition given in clause-(iv). It is not the case of the assessee that such expenses on account of telecommunication insurance are incurred outside India. In fact, it is an admitted position that the said expenditure was incurred in local currency in connection with different location within India. Therefore, in our opinion, the order of the CIT (A) on this issue is reasonable and the same does not call for any interference. Accordingly, grounds raised by the Revenue are dismissed. 15. In the result, appeal of the Revenue is dismissed. (B) ITA No.6003/M/2010 (AY:2006-2007) By Revenue CO No.123/M/2011 (AY:2006-2007) By Assessee ITA No.5839/M/2010 (AY: 2006-2007) By Assessee 16. The appeal ITA No.6003/M/2010 is filed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciple of parity. We have adjudicated this issue in attending to the Revenue's appeal vide ITA No.6003/M/2010 vide para 17 of this order and dismissed the appeal of the revenue. Therefore, at the end of the appeal, the ETO as claimed by the assessee is restored. Accordingly, the issue raised in the CO becomes academic. Accordingly, ground raised in CO is dismissed as academic. 21. In the result, CO of the assessee is dismissed. ITA No.5839/M/2010 (AY: 2006-2007) By Assessee 22. This appeal filed by the assessee on 20.7.2010 is against the order of the CIT (A)- 21, Mumbai dated 25.5.2010 for the AY 2006-2007. In this appeal, assessee raised the following grounds which read as under: "1. Ld CIT (A) erred in confirming the action of the Assessing Officer in disallowing expenditure u/s 14A of the Act aggregating to Rs. 4,53,507/- towards the earning of dividend income, by applying clause 2(iii) of Rule-8D. 2. Ld CIT (A) erred in holding that Rule-8D read with section 14A(2) and 14A(3) of the Act could be applied retrospectively to the assessment year 2006- 2007." 23. The issues raised in this appeal are similar to the one raised in the assessee's appeal for the AY 2005-2006. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rving the facts and the law relating to the present issue, we find that but the figures, the issues are identical to that of Revenue's appeal for the AY 2005-2006 and the same have to be dismissed here too for the reasons given for the AY 2005- 2006. Accordingly, ground no.1 raised in this appeal is dismissed. 10 27. The issue raised in ground no.2 relating to the disallowance of expenditure u/s 14A of the Act, is similar to the one raised in the assessee's appeal for the AY 2005-2006. In that appeal, we have held that the provisions of Rule-8D should not be applied for the AYs prior to AY 2008-2009 in view of the binding judgment of the jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd (supra). Further, we have also held that in view of the agreed position between the parties for the AY 2007-2008 in the group cases of the assessee, the quantification of the disallowable expenditure relatable to the exempt income at the rate of 2% of dividend/exempt income is reasonable for the AY 2005-2006 and 2006-2007. We have adjudicated this issue after providing detailed discussion for the AY 2005-2006. We direct the AO to restrict the disallowance to 2% of the exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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