TMI Blog2013 (9) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... that time, hence, the Assessing Officer's assessment order was devoid of merits as also applicable law. Now we have got certain guidelines, though can not be said to be exhaustive or complete, but on these lines, the Assessing Officer is expected henceforth to compute the correct disallowance, needless to say after providing an adequate opportunity of hearing to the assessee - Following decision of Commissioner of Income Tax-II Versus M/s Hero Cycles Ltd. [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] - Decided in favour of assessee. Disallowance of foreign travel expenditure - Held that:- although written notices were furnished before the AO but the details of the expenditure, purpose of the expenditure and the business connection of those expenditures could not be established. Certain expenditures which were stated to be incurred for the visit of Ms. Year R. Amin, were restaurant expenditure, florist expenditure, etc., which is bearing at page 37 of the paper book. Likewise on page 91, there is a short note about the purpose of the visit but the assessee is required to produce the direct evidence to establish the genuineness of the claim. We, therefore, restore this ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r repayment of ONGC liability from the gross interest payment of Rs.427.61 lacs, the net interest payments comes to Rs.206.98 lacs. Apportionment of the interest of Rs.206.98 lacs in the ration of average value of investment to average value of assets comes to Rs. 56.66 lacs. Half percent of the average value of investment will be Rs.14.75 lacs. Therefore, the total disallowance u/s. 14 A read with Rule 8D is computed at Rs.71.41 lacs. Out of the same the assessee has already considered a disallowance of rs.6.29 lacs in its computation. Therefore, a further disallowance of Rs.65.12 lacs is worked on this issue. As the assessee has furnished inaccurate particulars of its income by not working the disallowance u/s. 14A correctly, penalty u/s. 271(1)(c) is initiated. (Disallowance Rs.65,12,000/-)" 3. When the matter was carried before the first appellate authority, the action of the AO was affirmed by stating that the AO had rightly apportioned the interest of Rs.206.89 lacs in the ratio of the average value of investment to average value of assets. Since, the action of the AO was affirmed, therefore, being aggrieved the assessee is now further in appeal. 4. On this issue, we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 36(1)(iii) of the Act have also been touched upon. The Assessing Officer was expected to correlate the said discussion with the exempted dividend income u/s.10(33) of the Act. As far as the law pronounced in this regard is concerned, first of all, we have to follow a latest decision of Hon'ble Bombay High Court pronounced in the case of Godrej Boyce Mfg. Co.Ltd. Muimbai vs. Dy.CIT in Income tax Appeal No.626 of 2010 and Writ Petition No.758 of 2010 order dated 12/08/2010, { now reported as 328 ITR 81(Bom) } wherein the Hon'ble High Court has upheld the constitutional validity of section 14A of the I.T. Act, 1961 and held that the Assessing Officer should determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income and/or income from mutual fund which do not form part of the total income as contemplated u/s.14A of the I.T. Act, 1961. It has also been directed that the Assessing Officer can adopt a reasonable basis for effecting the apportionment. It has also been observed by the Hon'ble Court that while making that determination, the Assessing Officer should provide a reasonable opportunity to the assessee of producing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al failed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001-2002 would not bar the Tribunal from considering disallowance under Section 14A in assessment year 2002-2003. c) The decisions reported in Sridev Enterprises (supra), Munjal Sales Corporation (supra) and Radhasoami Satsang (supra) holding that there must be consistency and definiteness in the approach of the revenue would not apply to the facts of the present case, because of the material change introduced by Section 14A by way of statutory disallowance in certain cases. There, the decisions of the Tribunal in the earlier years would have no relevance in considering disallowance in assessment year 2002-2003 in the light of Section 14A of the Act. 73. For the reasons which we have indicated, we have come to the conclusion that under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form part of the total income under the Act and if so to quantify the extent of the disallowance. The Assessing Officer would have to arrive at his determination after furnishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment Year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income / income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer shall provide a reasonable opportunity to the assessee of producing its accounts and relevant or germane material having a bearing on the facts and circumstances of the case." 6.2. In addition to the above precedent, we are also governed by a decision of respected ITAT Mumbai Bench pronounced in the case of Daga capital Management Pvt.Ltd. reported as 117 ITD 169 (Mum.), wherein also it was pronounced that in order to escape the applicability of section 14A, onus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of section 14A is that certain incomes are not includible while computing the total income because these are exempt under certain provisions of the Act. The basic principle of taxation is to tax the net income, i.e., gross income minus expenditure. On the same analogy, exemption is also in respect of net income. The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. A pay back is not an expenditure in the scheme of section 14A; for attracting section 14A there has to be a proximate cause for disallowance, which is in relationship with the tax exempt income. Pay back or return of investment is not such proximate cause." 6.4. It is worth to mention, as held in the case of Cycles (Hero 323 ITR 518)[P H] that if there is sufficient material on record to establish that investment in shares/units was made out of non-interest bearing funds, then no disallowance has to be made out of interest debited to Profit Loss account, even if there is dividend income from such investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer of expenditure on foreign travel incurred by the Appellant presuming it to be for non business purposes. The appellant craves leave to add to, alter, amend or delete any ground of apeal." 6.1. It was noted by the AO that under the head "traveling and conveyance expenses" the assessee has claimed an expenditure of Rs.97.40 lacs. On scrutiny, it was found that Rs.29.53 lacs were under the head "foreign tour". On examination of details, it was found that an expenditure of Rs.7,81,757/- was claimed on foreign travels of Ms. Yera R. Amin (Director of the Company) for her visit to London Bangkok. The assessee's claim was that the purpose of visit was for development of the product and for the development of the business. However, according to the AO, no reliable evidence was filed. In his opinion, the expenditure was not for the purpose of the business. Hence, the same was disallowed. 6.2 When the matter was carried before the learned CIT(A), it was held that the claim was not maintainable. 7. From the side of the assessee, learned AR., Mr. S.N. Soparkar, appeared and informed that in assessee's own case for A.Y. 2003-04 in ITA No.120/Ahd/2007, vide an order ..... 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