TMI Blog2014 (12) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... then if he is not satisfied with the correctness of the claim, only he can invoke Rule 8D - No such examination was made or satisfaction was recorded by AO - the AO has not considered the claim of the assessee at all and he has straightway embarked upon computing disallowance under Rule 8D - Disallowance u/s 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance u/s 14A could not stand. Since assessee has not directly spent any expenditure for earning the exempt income and also since AO has not recorded any satisfaction with reference to the accounts of assessee or claim that no expenditure was incurred and also keeping in mind the fact that assessee has offered most of the income under the Tonnage Tax Scheme and balance of the expenditure was for earning taxable non-tonnage tax income, invocation of Rule 8D for disallowing the expenditure u/s 14A on estimation/ presumptive basis does not arise – thus, the order of the CIT(A) is set aside and the AO is directed to delete the disallowance – Decided in favour of assessee. Professional fees disallowed u/s 40(a)(ia) – TDS not deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 the AO had no option but to apply the rule. 3.1 Facts of the case, in brief, are that the assessee company is engaged in the business of trading of programmable logic controllers and parts thereof. During the course of assessment proceedings, the Assessing Officer noted that the assessee company has earned dividend income of ₹ 70,41,015/- which it claimed as exempt u/s.10(34) of the Income Tax Act. In the return of income the assessee company has added back ₹ 3,23,660/- as expenditure in relation to earning the above said income. The Assessing Officer therefore asked the assessee to explain the justification of such disallowance. Rejecting the various explanations given by the assessee and applying the provisions of Rule 8D the Assessing Officer determined such disallowance at ₹ 3,23,660/-. 4. Before the CIT(A) it was submitted that in the year ending 31-03-2008 the assessee invested ₹ 11,57,23,427 in mutual funds. The paid up share capital of the company as on 31-03-2007 was ₹ 49 lakhs and reserves and surplus at ₹ 56,39,78,345/-. It was argued that the assessee also earned net profit after tax of ₹ 23 crores during the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8D for this purpose. There is no via media available to the Assessing Officer. The appellant's reliance on Hon'ble Delhi High Court's decision in the case of Maxopp Investment Ltd. others Vs. CIT is also misplaced as A.Yrs in question were 1998-99 to 2005-06 for which Rule 8D was not held to be applicable. Therefore, I do not find any merit in the arguments advanced by the applicant. Accordingly, the ground is dismissed. 5.1 Aggrieved with such order of the CIT(A) the assessee is in appeal before us. 6. The Ld. Counsel for the assessee referring to the decision of the Pune Bench of the Tribunal in the case of M/s. Ferrocare Machines Pvt. Ltd. Vs. JCIT vide ITA No. 2497/PN/2013 order dated 11-02-2014 submitted that the Tribunal, following the decision of the Mumbai Bench of the Tribunal in the case of Raj Shipping Agency Ltd. Vs. Addl.CIT reported in 38 Taxmann.com 315, has deleted the disallowance made u/s.14A on the ground that the AO can invoke Rule 8D only when he records satisfaction in regard to the correctness of the claim of the assessee, having regard to the accounts of the assessee. The AO must record that he is not satisfied with the correctness of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend income from mutual funds at ₹ 21,90,651/- which it claimed as exempt. From the various details furnished by the assessee, we find no borrowed fund has been utilised towards investment in the mutual funds, the income of which has been claimed as exempt. We find the Assessing Officer disallowed an amount of ₹ 3,03,823/- being expenditure incurred for earning the dividend income u/s.14A r.w. Rule 8D which has been upheld by the CIT(A). While doing so, we find the Assessing Officer has not recorded any satisfaction with reference to accounts of assessee nor rejected the claim that no expenditure was incurred. It is the case of the Ld. Counsel for the assessee that the Assessing Officer has not recorded any satisfaction with reference to accounts of the assessee nor rejected the claim that no expenditure was incurred and therefore in view of the Mumbai Bench of the Tribunal in the case of Raj Shipping Agencies Ltd. (Supra) no disallowance is called for. We find merit in the above argument of the Ld. Counsel for the assessee. 7.1 We find the facts of the instant case are identical to the facts in the case of Raj Shipping Agencies Ltd. (Supra) where the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as placed on the decision of the Hon'ble Supreme Court in the case of CIT vs. Walfort Share Stock Brokers Pvt. Ltd 326 ITR 1 (SC) and the decision of the Hon'ble Bombay High Court in the case of Godrej and Boyce Company Ltd vs. DCIT (328 ITR 81). The relevant portions of the judgment of Hon'ble Delhi High Court are as under: 29. Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said Rules. The said Rule 8D also makes it clear that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of expenditure made by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income in accordance with such method as may be prescribed . of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) and (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. If there is expenditure directly or indirectly incurred in relation to exempt income, the same cannot be claimed against the income, which is taxable as it is held by the Hon'ble Supreme Court in case of Commissioner of Income-tax v. Walfort Share and Stock Brokers P. Ltd. reported in 326 ITR 1 that for attracting the provisions of section 14 A, there should be proximate cause for disallowance which as relationship with the tax exempt income. 5.1 The expenditure incurred in relation to the income which does not form part of total income has to be disallowed. However, it should be proximate relationship between the expenditure and the income, which does not form part of total income. Once such proximity relationships exist, the disallowance is to be effected. In case the assessee had claimed that no expenditure has been incurred for earning the exempt income, it was for the assessing officer to determine as to whether the assessee had incurred any expenditure in relation to income which did not form part of total income and if so to quantify the extent of disallowance. Thus, in order to disallow the expenditure under section 14A, there must be a live nexus between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the computation of income in the assessment order. In view of this we are of the opinion that the expenditure claimed in the business of share dealings cannot be correlated to the incomes earned in personal capacity that too on dividend, PPF interest and tax free interest on RBI bonds. In view of this, we are of the opinion that estimation of expenditure of ₹ 20,000/- out of business expenditure claimed in business activity cannot be considered for being incurred for this earning of tax free income of above nature. In view of this disallowance so made under section 14A of ₹ 20,000/- is deleted. Not only that the CIT(A) directed the A.O. to consider the allowance invoking Rule 8D. The Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT 328 ITR 81 has considered Rule 8D to be applicable prospective and since the assessment year involved is before the introduction of sub- section (2) (3) of section 14A, there is no question of disallowing the amounts invoking Rule8D. Therefore, the CIT(A)'s direction on this is set aside and the additions so made by the A.O. in the computation of business income is deleted. Ground is considered allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout rendering any opinion on the correctness or otherwise of the assessee's claim in this regard. We, therefore, set aside the impugned order on this issue and restore the matter to the file of AO to re-compute disallowance, if any, in accordance with our above observations after duly examining the assessee's claim in this regard. 6. In view of the above discussion and facts and circumstances of the case, we are of the considered opinion that no disallowance under section 14A is called for when the assessee has not incurred and claimed any expenditure for earning the exempt income. 9. Similar views were also expressed by the Coordinate Benches in the case of Relaxo Footwears Ltd, vs. Addl. CIT (2012) 50 SOT 102 and Priya Exhibitors (P) Ltd vs. ACIT (2012) 54 SOT 356. In the case of Relaxo Footwears Ltd, it was held as under: The Assessing Officer should have considered the claim of the assessee that no expenditure has been incurred in relation to earning the exempt income. If the claim was not found to be in consonance with the facts on record, it could have been rejected and disallowance could have been made as per rule 8D. However, it is found that the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uting disallowance under Rule 8D. Disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand. Consequently, the disallowance was not permissible. 12. Alternate contention was that the disallowance need not be made on entire expenditure made as assessee's income from shipping related activity was assessed u/s 115VA on presumptive basis. Since assessee has offered income under the Tonnage Tax Scheme, applicability of section 14A was also discussed by the Coordinate Bench in the case of Varun Shipping Company Ltd vs. Addl. CIT in ITA No.5576/Mum/2011 wherein the Coordinate Bench has held as under: 7. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessee is mainly engaged in the business of operation of ships and its income from the said business was declared and assessed as per the special provisions contained in Chapter XIIG which lay down tonnage tax scheme. As per the provisions of section 115VA contained in Chapter XIIG, the income from the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also keeping in mind the fact that assessee has offered most of the income under the Tonnage Tax Scheme and balance of the expenditure was for earning taxable non-tonnage tax income, we are of the opinion that invocation of Rule 8D for disallowing the expenditure under section 14A on estimation/ presumptive basis does not arise. Accordingly, the grounds raised by assessee are allowed. 7.2 Since the facts of the case decided by the Tribunal cited above are identical to the facts of the impugned appeal, therefore, respectfully following the decision of the Mumbai Bench of the Tribunal in the case of Raj Shipping Agencies Ltd. (Supra) and in absence of any contrary material brought to our notice by the Ld. Departmental Representative we set-aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The ground raised by the assessee is accordingly allowed. 8.1 Since facts of the instant case are identical to the case decided by the Tribunal cited (Supra), therefore, respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice by the Ld. Departmental Representative, we set-as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. He noted that invoices of M/s. US Automation and M/s. Interstat consultants which are dated 29- 02-2008 were received and recorded in March, 2008 in ordinary course. The balance of the invoice of ₹ 2,65,270/- should have been recorded in February, 2008 or earlier months and TDS thereof should have been deducted by 07-03-2008 or earlier due dates. Since the TDS in respect of such invoices is deposited on 07-04-2008, therefore, the Assessing Officer, invoking the provisions of section 40(a)(ia), disallowed the expenses amounting to ₹ 2,65,270/-. In appeal the Ld.CIT(A) upheld the action of the Assessing Officer for which the assessee is in appeal before us. 10. The Ld. Counsel for the assessee referring to the decision of Hon ble Delhi High Court in the case of CIT Vs. Rajinder Kumar reported in (2013) 39 Taxmann.com 126 (Delhi) submitted that the Hon ble High Court in the said decision has held that the expression said due date as occurring in item (A) of proviso to section 40(a)(ia) of the Act cannot mean date on which TDS as per Chapter XVIIB should have been paid. It refers to due date of filing of return of income u/s.139(1). Therefore, when assessee deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Disallowance of contract payments of ₹ 15,71,667/- u/s 40(a)(ia) of the I.T. Act, on grounds that TDS was not deposited within time in respect of bills approved and booked in March 2008 but bearing dates prior to March 2008. 13.1 Facts of the case, in brief, are that the Assessing Officer during the course of assessment proceedings observed from the various details of expenses recorded in month of March 2008 that the invoices bear date 20-02-2008 and earlier, whereas the assessee has paid TDS only on 7th April 2008. The details are as under : Expense Gross amount (Rs.) TDS (Rs.) Agency Commission 3,80,987 8,649 Freight-Trading Goods 68,108 1,547 Carriage Outward 8,84,764 20,086 Cleaning Forwarding Exp. 30,626 695 Labour-Manpower 1,00,109 2,273 Printing Stationery 17,109 388 Software ..... X X X X Extracts X X X X X X X X Extracts X X X X
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