TMI Blog2014 (3) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has utilized the borrowed fund for the purpose of investment in the mutual fund yielding the exempt dividend income - Thus, the disallowance of interest u/s 14A is set aside and the matter remitted back to the AO for a limited purpose of verification - Rule 8D is applicable for the year under consideration therefore, the disallowance of administrative expenses has to be computed as per the formula provided in Rule 8D - the disallowance work out under Rule 8D cannot exceed the total expenditure claimed by the assessee which can be apportioned to the exempt income – thus, the AO is directed to recompute the disallowance. Disallowance of community development expenditure – Held that:- The AO has shown total disregard and defiance to the orders of the FAA by picking and choosing the particular words instead of the finding of the Appellate Authority - the AO has acted in a most irresponsible manner - When the Assessing Officer did not choose to challenge the order of the CIT(A) then it is highly inappropriate to not give effect to the same – thus, the AO is directed to allow the claim of the assesse - Decided partly in favour of Assessee. - I.T.A. No. 544/Mum/2012, I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules; 6. Erred in confirming the action of the AO in invoking Rule 8D of the Rules, wherein the AO applied Rule 8D without recording its judicial satisfaction (as required under section 14A of the Act) on correctness of the claim made by the Appellant, wherein Appellant suo-moto offered Rs 10,17,995/- for disallowance u/s 14A of the Act; 7. without prejudice to the above, failed to appreciate that no disallowance of interest can be made as entire investment is made out of own funds/interest free funds available with the Appellant; 8. without prejudice to the above, even if interest expenditure is considered while computing disallowance under section 14A of the Act read with Rule 8D of the Rules, interest expenditure on loans for specific business purpose should be excluded; 9. without prejudice to the above, even if interest expenditure is considered while computing disallowance under section 14A of the Act read with Rule 8D of the Rules, net interest expenditure (i.e. interest paid less interest received) should be considered and not gross interest paid; 10. without prejudice to the above, while computing disallowance of under section 14A of the Act read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to how the amounts were entitled to shown as advances. The AO accordingly added the said sum of Rs.22.93 crores of total income of the assessee. Before the CIT(A), the assessee has contended that the assessee has consistently followed the percentage project completion method of accounting as per accounting standard-7 ( AS-7 ). This method has been consistently followed by the assessee over the years and there is no change in the method of accounting during the year under consideration. The advances received from the customer are recognized as revenue over different assessment years based on actual work completed and as per the recognize percentage completion method. The assessee explained that the advances were recognized in the subsequent years as per percentage of completion method. Thus, the assessee alternatively contended that the credit of TDS of Rs.35.94 lakhs may be allowed in the subsequent years in which the income is assessable. The CIT(A) did not accept the contention of the assessee on principle however as regards the factual position it was accepted that the actual receipt is Rs.22.58 crores and not Rs.22.93 crores. Accordingly, the AO was directed to consider the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod is not discretion of the assessee but it is as per the terms of the contract and depends on the decision of the clients of the assessee. The ld. AR has pointed out that the proportionate advance has been recognized as revenue to the extent of the work completed till 31st March 2010 therefore the entire receipt of advance cannot be added to the income of the assessee for the year under consideration when the revenue is being recognized on the percentage completion method. In support of this contention he has relied upon the following decisions. M/s. Footcandles Film Pvt. Ltd.(ITA Nos.1931 1932/Mds/2012) dated 8 August 2013(Chn). Hans Road Carriers Pvt. Ltd. (2011)(140TTJ642)(Ahd). Sikka Internatiional Freight Services Pvt. Ltd. (12 ITR 476) (Del). M/s Lloyd Insulation (India) Ltd. (ITA No.2400/Del/11)9 August 2012(Del). Pradeep Kumar Dhir (109 TTJ 445)(TM)(Chand). Varsha G Salunke [101 TTJ (TM) 703](Mum). 5. On the other hand, the ld. DR has heavily relied upon the order of the authorities below and submitted that the assessee has claimed the credit of TDS of Rs.35.94 lakhs which was allowed during the year, therefore the corresponding income in terms of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance u/s14A. During the year under consideration the assessee had received dividend income of Rs.5.02cores from its investment in mutual fund which is claimed exempt from the income tax. The assessee has suo-moto disallowed of Rs.10,17,955/- u/s 14A of the Act for earning such exempt dividend income. The Assessing Officer however disallowed an additional amount of Rs.1,73,75,045/- comprising 94.97 lakhs on account of interest expenditure of Rs.88.96 lakhs towards administrative expenses by applying Rule 8D of Income-tax Rules. On appeal, the ld. CIT(A) has confirmed the disallowance made by the AO. 8. Before us, the ld. AR of the assessee has submitted that the entire investment are out of the assessee own funds and no interest bearing fund was used for investment in the mutual fund. Therefore, the interest disallowance under Rule 8D is not justified. In support of his contention, the ld. AR has referred to the details of the interest free funds available with the assessee and submitted that during the year under consideration the assessee has reduced the interest bearing fund by repayment of loans and therefore no investment was made during the year out of the borrowed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Bench of this Tribunal in the case of Rajshree production Ltd. vs CIT(A) dated 13/11/2013 in ITA No.5983/Mum/2011. 9. As regard, the disallowance of administrative expenses, the ld. AR of the assessee has submitted that the assessee suo-moto disallowed Rs.10.17 lakh which are sufficient considering the nature and volume of the transaction. He has further submitted that the AO has not given the finding that the assessee has incurred any expenditure for earning the exempt income therefore, the provisions of section 14A cannot be invoked. Alternatively, the ld. AR has submitted that the disallowance in earlier years has been restricted to 5% of the exempt income and the same can be disallowed for these years on account of administrative expenses. On the other hand, the ld. DR has relied upon the orders of the Assessing Officer and CIT(A) and submitted that when Rule 8D is applicable for the year under consideration then the disallowance has to be computed as per the formula provided in Rule 8D. 10. We have considered the rival submissions as well as relevant material on records. As regards, the disallowance of expenditure u/s 14A, the assessee has claimed that no borrowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expenditure of Rs.36.34 lakhs. In the computation of income, the assessee disallowed the said expenditure however it was claimed by way of note to the return of income. The AO has not allowed the deduction of the same. In appeal, the CIT(A) has allowed the relief. 13. Before us, the ld. AR of the assessee has submitted that thought there is no grievance of the assessee against the impugned order of CIT(A) however in the giving effect order the AO did not allow this deduction on the ground that no addition was made in the assessment order. Thus, the ld. AR of the assessee has submitted that because of the language in the concluding part of the impugned order of the CIT(A) that the addition made by the AO should be deleted , the AO has not given effect to the same. On the other hand, the ld. DR has submitted that when the CIT(A) has decided the issue in favour of the assessee then this ground does not arises from the impugned order of the ld. CIT(A) . 14. Having considered the rival submissions and carefully perusal of the record; we noted that the ld.CIT(A) has allowed the claim of the assessee in respect of the community development expenses of Rs.36.43 lakhs in para 7.3 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. It is expected that the concerned Commissioner and Chief Commissioner of Income-tax to take note of such type of mis-conducting of proceeding by the Assessing Officer and also take the appropriate action in this respect. 17. Ground no.14 is regarding levy of interest u/s 234B. The levy of interest u/s 234B is mandatory and consequential and therefore no specific finding is required. 18. In the result, appeal of the assessee for A.Y.2010-11 is partly allowed. 19. For the Assessment Year 2010-11, the Department has raised following grounds. I. On the facts and in the circumstances of the case and in law., the ld. CIT(A) erred in arriving at the conclusion that the provisions for warranties amounting to Rs.2.56 crores is allowable without appreciating that the same was a mere provision and was not allowable as deduction being contingent liability. II. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred deleting the addition of Rs.2.56 crore on account of provisions for warranties following the decision of Hon ble Supreme Court in the case of Rotork Controls India (p) Ltd. 314 ITR 62 (SC), without appreciating that the same was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 14A read with Rule 8D(iii) of Rs.26,00,000/- 1. Erred in confirming disallowance under section 14A read with Rule 8D(iii) at Rs.26,00,000/- 2. Should have directed to restrict disallowance to Rs.2,79,110/- (suomoto offered by the assessee) as AO has not recorded any satisfaction as regards correctness of disallowance offered which is mandatory condition before invoking Rule 8D. 3. Without prejudice to the above, failed to appreciate that for the purpose of Rule 8D(iii), the investments yielding taxable income were to be excluded from the average investments. Computation of book profits under section 115JB Disallowance under section 14A 4. Erred in confirming disallowance under section 14A read with Rule 8D(iii) of Rs.26,00,000/- while computing book profits under section 115JB, without appreciating that provisions of section 14A read with rule 8D cannot be applied while computing book profits under section 115JB and only actual expenses incurred to earn exempt income should be added to the book profits. 25. Ground No.1 to 3 regarding disallowance u/s 14A. This issue has been decided by us in assessee s appeal for the A.Y. 2010-11 in para 7 to 11 above. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8D(2)(ii) ignoring the fact that the assessee failed to substantiate that interest bearing funds were not utilized for the purpose of investment resulting in exempt income. 31. The assessee has also filed the Cross Objection no.09/Mum/2014 and raised following grounds. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred iin allowing relief to the assessee to the extent impugned in the grounds enumerated below: 1. The order of the C1T(A) is opposed to law and facts of the case. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance under Rule 8D(2)(ii) and at the same time giving the finding that the AO is duty bound to make disallowance as per Rule 8D thereby contradicting himself 3. On the facts .circumstances of the case and in law, the Ld. C1T(A) has erred in deleting the disallowance under Rule 8D(2)(ii) ignoring the fact that the assessee failed to substantiate that interest bearing funds were not utilized for the purpose of investment resulting in exempt income . 32. The grounds raised by the revenue in the appeal as well as by the assessee in Cross Objection a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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